Q2 2024 Priority Technology Holdings Inc Earnings Call

August 8, 2024

Good day and welcome to the Priority Technology Holdings second quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing

Operator: 2020-24 earnings call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two.

The star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.

Operator: Please note this event is being recorded.

Chris Kettmann: I would now like to turn the conference over to Chris Kettmann. Please go ahead.

Operator: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Kettmann. Please go ahead.

Operator: I would now like to turn the conference over to Chris Kettmann. Please go ahead.

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.

I would now like to turn the conference over to Chris Kettmann. Please go ahead.

Tom Priore: Good morning, and thank you for joining us.

Tom Priore: With me today are Tom Priore, Chairman, and Chief Executive Officer of Priority Technology Holdings, and Tim O'Leary, 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 different 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 FCC filings, and we encourage you to review these filings.

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.

Chris Kettmann: 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.

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.

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.

We provide a detailed discussion of the various risk factors in our SEC filings and we encourage you to review these filings.

Tom Priore: Additionally, we may refer to non-GAAP measures, including but not limited to EBITDA and adjusted EBITDA during the call.

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.

Tom Priore: Reconciliation of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our press release and FCC filings available in the investors section of our website.

Tom Priore: 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 second quarter of 2024 earnings call. I'd like to start today by highlighting the positive trends we continue to see throughout Priority, and then Tim and I will provide an update on important developments within each segment and the broader enterprise. As you saw on this morning's press release, in the second quarter we again reported record financial results by capitalizing on our leading unified commerce platform that delivers elegant product solutions across our segment and dedicated customer service that is committed to our partner's success.

With that, I would like to turn the call over to our Chairman and CEO , Tom Priore.

Tom Priore: Thank you, Chris, and thanks to everyone for joining us for our second quarter 2024 earnings call. I'd like to start today by highlighting the positive trends we continue to see throughout Priority, and then Tim and I will provide an update on important developments within each segment and the broader enterprise. As you saw in this morning's press release, in the second quarter, we again reported record financial results by capitalizing on our leading unified commerce platform that delivers elegant product solutions across our sector and dedicated customer service that is committed to our partner's success.

Thomas Priore: Thank you, Chris, and thanks to everyone for joining us for our second quarter 2024 earnings call. I'd like to start today by highlighting the positive trends we continue to see throughout Priority, and then Tim and I will provide an update on important developments within each segment and the broader enterprise. As you saw in this morning's press release, in the second quarter, we again reported record financial results by capitalizing on our leading unified commerce platform that delivers elegant product solutions across our sector and dedicated customer service that is committed to our partner's success.

Tom Priore: Thank you, Chris. And thanks to everyone for joining us for our second quarter 2024 earnings call.

I'd like to start today by highlighting the positive trends we continue to see throughout Priority and then Tim and I will provide an update on important developments within each segment and the broader enterprise.

Chris Kettmann: As you saw in this morning's press release, in the second quarter we again reported record financial results by capitalizing on our leading unified commerce platform that delivers elegant product solutions across our segment.

Tom Priore: Building on a positive momentum we saw, to start the year, we delivered exceptional results in SMB acquiring B2B payables and enterprise payments in the second quarter. Our unified commerce vision continues to resonate with customers, combining payments and banking functionality on a single platform, accelerated by the strength of our diverse business lines that were positioned to benefit from historically elevated interest rates and a performance of a variety of macroeconomic environments, including the one we're experiencing today. Total customer accounts operating on our commerce platform exceed $1 million. As we process nearly $125 billion in annual transaction volume during the prior 12 months, while administrating over $1 billion in average daily deposits during the quarter.

and dedicated customer service that is committed to our partner's success.

Thomas Priore: Building on the positive momentum we saw to start the year, we delivered exceptional results in SMB acquiring, B2B payables, and enterprise payments in the second quarter. Our unified commerce vision continues to resonate with customers, combining payments and banking functionality on a single platform. Accelerated by the strength of our diverse business lines that were positioned to benefit from historically elevated interest rates and to perform in a variety of macroeconomic environments, including the one we're experiencing today.

Tom Priore: Building on the positive momentum we saw to start the year, we delivered exceptional results in SMB acquiring, B2B payables, and enterprise payments in the second quarter. Our unified commerce vision continues to resonate with customers, combining payments and banking functionality on a single platform. Accelerated by the strength of our diverse business lines that were positioned to benefit from historically elevated interest rates and to perform in a variety of macroeconomic environments, including the one we're experiencing today.

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Speaker Change: Building on the positive momentum we saw to start the year, we delivered exceptional results in SMB acquiring, B2B payables, and enterprise payments in the second quarter.

Our unified commerce vision continues to resonate with customers, combining payments and banking functionality on a single platform.

Speaker Change: accelerated by the strength of our diverse business lines that we're positioned to benefit from historically elevated interest rates and to perform in a variety of macroeconomic environments including the one we're experiencing today.

Thomas Priore: Total customer accounts operating on our commerce platform exceed one million, and as we processed nearly $125 billion in annual transaction volume during the prior 12 months, while administering over $1 billion in average daily deposits during the quarter.

Tom Priore: Total customer accounts operating on our commerce platform exceed one million, as we processed nearly $125 billion in annual transaction volume during the prior 12 months while managing over $1 billion in average daily deposits during the quarter.

Chris Kettmann: Total customer accounts operating on our commerce platform exceed one million.

Chris Kettmann: As we process nearly $125 billion in annual transaction volume during the prior 12 months while administrating over $1 billion in average daily deposits during the quarter.

Tom Priore: Slide 4 highlights our consistent financial performance during the second quarter. Revenue of $219.9 million increased by over 21% from the prior year. This led to a 22% increase in adjusted gross profit to $81.7 million and a 25% improvement in adjusted EBITDA to $51.6 million.

Thomas Priore: Slide four highlights our consistent financial performance during the second quarter. Revenue of $219.9 million increased by over 21% from the prior year. This led to a 22% increase in adjusted gross profit to $81.7 million and a 25% improvement in adjusted EBITDA to $51.6 million. Adjusted gross profit margin of 37.2% increased 40 basis points from the prior year quarter, highlighting the strong and improving operating leverage of our organization.

Tom Priore: Slide four highlights our consistent financial performance during the second quarter. Revenue of $219.9 million increased by over 21% from the prior year. This led to a 22% increase in adjusted gross profit to $81.7 million and a 25% improvement in adjusted EBITDA to $51.6 million. Adjusted gross profit margin of 37.2% increased 40 basis points from the prior year quarter, highlighting the strong and improving operating leverage of our organization.

Slide 4 highlights our consistent financial performance during the second quarter.

Tom Priore: Revenue of $219.9 million increased by over 21% from the prior year.

Chris Kettmann: This led to a 22% increase in adjusted gross profit to $81.7 million and a 25% improvement in adjusted EBITDA to $51.6 million.

Tom Priore: Indian. Adjusted gross profit margin of 37.2 percent increase 40 basis points from the prior year quarter, highlighting the strong and improving operating leverage of our organization. Encouragingly, our purely organic growth trends are equally strong, posting a top-line revenue increase of 17.5 percent and bottom-line improvement in adjusted EBITDA of 25.7 percent during Q2, which Tim will speak to in greater detail during his remarks. As you can see from our strong Q2 results, combined with the increase of our full-year EBITDA guidance, we continue to expect that the robust growth in margin trends in our business channels will deliver full-year revenue of 875 to 883 million and an increase of approximately 16 percent over 2023 and generate full-year adjusted EBITDA of 196 to 200 million, a 16 to 19 percent increase over 2023.

Tom Priore: Adjusted gross profit margin of 37.2%, increased 40 basis points from the prior year quarter, highlighting the strong and improving operating leverage of our organization.

Thomas Priore: Encouragingly, our purely organic growth trends are equally strong, posting a top line revenue increase of 17.5% and bottom line improvement and adjusted EBITDA of 25.7% during Q2, which Tim will speak to in greater detail during his remarks. As you can see from our strong Q2 results, combined with the increase in our full-year EBITDA guidance. We continue to expect that the robust growth and margin trends in our business channels will deliver full-year revenue of $875 to $883 million, an increase of approximately 16% over 2023, and generate full-year adjusted EBITDA of $196 to $200 million, a 16 to 19% increase over 2020.

Tom Priore: Encouragingly, our purely organic growth trends are equally strong, posting a top line revenue increase of 17.5% and bottom line improvement and adjusted EBITDA of 25.7% during Q2, which Tim will speak to in greater detail during his remarks. As you can see from our strong Q2 results, combined with the increase in our full-year EBITDA guidance. We continue to expect that the robust growth and margin trends in our business channels will deliver full-year revenue of $875 to $883 million, an increase of approximately 16% over 2023, and generate full-year adjusted EBITDA of $196 to $200 million, a 16 to 19% increase over 2020.

Encouragingly, our purely organic growth trends are equally strong, posting a top line revenue increase of 17.5 percent and bottom line improvement in adjusted EBITDA of 25.7 percent during Q2.

Tim OLeary: which Tim will speak to in greater detail during his remarks.

Tim OLeary: As you can see from our strong Q2 results, combined with the increase of our full-year EBIDTA guidance,

Tim OLeary: We continue to expect that the robust growth and margin trends in our business channels will deliver full year revenue of 875 to 883 million, an increase of approximately 16 percent over 2023.

Tim OLeary: and generate full-year adjusted EBITDA of $196 to $200 million.

Tom Priore: Our guidance is informed by our year-to-date performance highlighted on slide 5, reflecting 16 percent revenue growth to 425.6 million that drove 22 percent adjusted gross profit expansion to 158.2 million and 24 percent improvement in adjusted EBITDA to 97.9 million. Year-to-date organic growth is consistent with Q2 at 17 percent revenue growth and 27 percent EBITDA growth. Our growing partner base continues to see value in our product and technology offering, and our diverse sales channels remain consistent with strong performance. Now, for those of you who are new to the company, slide 6 highlights the market orientation of our proprietary Unified Commerce platform.

Thomas Priore: Our guidance is informed by our year-to-date performance, highlighted on slide 5, reflecting 16% revenue growth to $425.6 million that drove 22% adjusted gross profit expansion to $158.2 million and 24% improvement in adjusted EBITDA to $97.9 million. Year-to-date organic growth is consistent with Q2, at 17% revenue growth and 27% EBITDA growth.

Tom Priore: Our guidance is informed by our year-to-date performance, highlighted on slide 5, reflecting 16% revenue growth to $425.6 million that drove 22% adjusted gross profit expansion to $158.2 million and 24% improvement in adjusted EBITDA to $97.9 million. Year-to-date organic growth is consistent with Q2, at 17% revenue growth and 27% EBITDA growth.

Tim OLeary: A 16 to 19 percent increase over 2023.

Tom Priore: Our guidance is informed by our year-to-date performance highlighted on slide 5, reflecting 16% revenue growth.

Tim OLeary: to $425.6 million. That drove 22% adjusted gross profit expansion.

Tim OLeary: to $158.2 million and 24% improvement in adjusted EBITDA to $97.9 million.

Tim OLeary: Year-to-date organic growth is consistent with Q2.

Chris Kettmann: at 17% revenue growth and 27% EBITDA growth.

Thomas Priore: Our growing partner base continues to see value in our product and technology offering, and our diverse sales channels remain consistent with strong performance. Now, for those of you who are new to the company, slide six highlights the market orientation of our proprietary unified commerce platform. It's purpose-built to collect, store, lend, and send money, combining elegant payments and banking functionality to monetize the commerce networks we serve. Current market conditions reinforce our belief that systems facilitating payments and banking solutions 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 capital.

Tom Priore: Our growing partner base continues to see value in our product and technology offering, and our diverse sales channels remain consistent with strong performance. Now, for those of you who are new to the company, slide six highlights the market orientation of our proprietary unified commerce platform. It's purpose-built to collect, store, lend, and send money, combining elegant payments and banking functionality to monetize the commerce networks we serve. Current market conditions reinforce our belief that systems facilitating payments and banking solutions 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 capital.

Chris Kettmann: Our growing partner base continues to see value in our product and technology offering and our diverse sales channels.

Tim OLeary: remain consistent with strong performance.

Tim OLeary: Now for those of you who are new to the company, slide six highlights the market orientation of our proprietary unified commerce platform.

Tom Priore: It's purpose-built to collect, store, lend, and send money, combining elegant payments and banking functionality to monetize the commerce networks we serve. Our customers and current market conditions reinforce our belief that systems facilitating payments and banking solutions 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 capital. We remain committed to meeting our customers where they are by refining the experience for our partners to make working with priority seamless and easy. Our financial performance demonstrates that partners consistently choose the Unified Commerce applications and acquiring payables and banking that best fit their businesses to accelerate cash flow and optimize their working capital.

Speaker Change: It's purpose-built to collect, store, lend and send money.

Tom Priore: combining elegant payments and banking functionality to monetize the commerce networks we serve.

Speaker Change: are customers.

Speaker Change: And current market conditions reinforce our belief that systems facilitating payments and banking solutions 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 capital.

Thomas Priore: We remain committed to meeting our customers where they are by refining the experience for our partners to make working with Priority seamless and easy. Our financial performance demonstrates that partners consistently choose the unified commerce applications and acquiring payables and banking that best fit their businesses to accelerate cash flow and optimize their working capital. We are incredibly focused on the continued innovation of our SaaS payments and banking suite of services that are powered by Priority's accelerated commerce engine and are eager to meet the evolving needs of our growing portfolio of customers and enterprise partners.

Tom Priore: We remain committed to meeting our customers where they are by refining the experience for our partners to make working with Priority seamless and easy. Our financial performance demonstrates that partners consistently choose the unified commerce applications and acquiring payables and banking that best fit their businesses to accelerate cash flow and optimize their working capital. We are incredibly focused on the continued innovation of our SaaS payments and banking suite of services that are powered by Priority's accelerated commerce engine and are eager to meet the evolving needs of our growing portfolio of customers and enterprise partners.

Tim OLeary: We remain committed to meeting our customers where they are by refining the experience for our partners to make working with Priority seamless and easy.

Tim OLeary: Our financial performance demonstrates 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 capital.

Tim O'Leary: We are incredibly focused on the continued innovation of our SaaS payments and banking suite of services that are powered by priorities accelerated commerce engine and are eager to meet the evolving needs of our growing portfolio of customers and enterprise. 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 factored into our confidence to deliver on our strong guidance for the full year 2024.

Tim OLeary: We are incredibly focused.

Tim OLeary: on the continued innovation of our SaaS payments and banking suite of services that are powered by Priority's accelerated commerce engine and are eager to meet the evolving needs of our growing portfolio of customers and enterprise partners.

Thomas Priore: 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 factored into our confidence to deliver on our strong guidance for the full year 2024.

Tom Priore: 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 factored into our confidence to deliver on our strong guidance for the full year 2024.

Tim 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 factored into our confidence to deliver on our strong guidance for the full year 2024.

Timothy OLeary: Thank you, Tom, and good morning, everyone. As I review the second quarter 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 second quarter results. A link to that filing can also be found on our website.

Tim OLeary: Thank you, Tom, and good morning, everyone. As I review the second quarter 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 second quarter results. A link to that filing can also be found on our website.

Tim OLeary: Thank you, Tom, and good morning, everyone.

Tim OLeary: As I review the second quarter 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 second quarter results.

Tim O'Leary: It was filed with the SEC this morning and provides a discussion of our comparative second quarter results.

Tim O'Leary: A link to that filing can also be found on our website. Consistent with the first quarter, our strong financial performance in the second quarter was driven by the diverse and counter-cyclical mix of our business segments, along with continued growth in our higher-margin operating segments. The highly recurring nature of our business model also remains strong, with almost 59% of adjusted gross profit in Q2 coming from monthly fees or revenues that are not dependent on transactions or bank card volume. I'd also highlight our organic growth rates, which continue to outperform compared to many industry competitors. If you adjust for the impact of plastic, which was not part of our financial results in Q2 last year, as well as for the impact of the large reseller that we've discussed on prior calls, Priority had year-over-year organic growth in Q2 of 17.5% for revenue, 18.9% for adjusted gross profit, and 25.7% for adjusted EBITDA.

Timothy OLeary: Consistent with the first quarter, our strong financial performance in the second quarter was driven by the diverse and counter-cyclical mix of our business segments, along with continued growth in our higher-margin operating system. The highly recurring nature of our business model also remains strong, with almost 59% of adjusted gross profit in Q2 coming from monthly fees or revenues that are not dependent on transactions or bank card volumes. I'd also highlight our organic growth rates, which continue to outperform compared to many industry competitors.

Tim OLeary: Consistent with the first quarter, our strong financial performance in the second quarter was driven by the diverse and counter-cyclical mix of our business segments, along with continued growth in our higher-margin operating system. The highly recurring nature of our business model also remains strong, with almost 59% of adjusted gross profit in Q2 coming from monthly fees or revenues that are not dependent on transactions or bank card volumes. I'd also highlight our organic growth rates, which continue to outperform compared to many industry competitors.

Tim OLeary: A link to that filing can also be found on our website.

Tim OLeary: The highly recurring nature of our business model also remains strong, with almost 59% of adjusted gross profit in Q2 coming from monthly fees or revenues that are not dependent on transactions or bank card volume.

Tim OLeary: I'd also highlight our organic growth rates, which continue to outperform compared to many industry competitors.

Timothy OLeary: If you adjust for the impact of plastics, which was not part of our financial results in Q2 of last year, as well as for the impact of the large reseller that we've discussed on prior calls, Priority had year-over-year organic growth in Q2 of 17.5% for revenue, 18.9% for adjusted gross profit, and 25.7% for adjusted EBITDA. When you combine those industry-leading organic growth rates with a scaled business that produces a high level of recurring gross profit, you can easily understand why we're excited about our business and the value that we believe has been built at Priority.

Tim OLeary: If you adjust for the impact of plastics, which was not part of our financial results in Q2 of last year, as well as for the impact of the large reseller that we've discussed on prior calls, Priority had year-over-year organic growth in Q2 of 17.5% for revenue, 18.9% for adjusted gross profit, and 25.7% for adjusted EBITDA. When you combine those industry-leading organic growth rates with a scaled business that produces a high level of recurring gross profit, you can easily understand why we're excited about our business and the value that we believe has been built at Priority.

Tim OLeary: If you adjust for the impact of plastic, which was not part of our financial results in Q2 of last year,

Tim OLeary: as well as for the impact of the large reseller that we've discussed on prior calls, Priority had year-over-year organic growth in Q2 of 17.5% for revenue, 18.9% for adjusted gross profit, and 25.7% for adjusted EBITDA.

Tim O'Leary: When you combine those industry-leading organic growth rates with a scaled business that produces a high level of recurring gross profit, you can easily understand what we're excited about our business and the value that we believe has been built at Priority.

Tim OLeary: When you combine those industry-leading organic growth rates with a scaled business that produces a high level of recurring gross profit, you can easily understand why we're excited about our business and the value that we believe has been built at Priority.

Tim O'Leary: Before moving to the segment level financial results, I want to take a minute to discuss the change in our reporting metrics for this quarter and going forward. Historically, we provided revenue, adjusted gross profit, and operating income at the segment level. As you'll note in today's presentation, we still provide revenue and adjusted gross profit, but now report adjusted EBITDA at the segment level instead of operating income. We've made this change because the business continues to evolve, and we want to ensure that the greatest possible transparency into our core results. In that regard, as we continue to implement the shared services operating model in our business, along with managing a single unified commerce engine across our payments infrastructure, the allocation of certain operating and technology costs becomes less identifiable.

Timothy OLeary: Before moving to the segment level financial results, I want to take a minute to discuss a change in our reporting metrics for this quarter and going forward. Historically, we provided revenue, adjusted gross profit, and operating income at the segment level. As you'll note in today's presentation, we still provide revenue and adjusted gross profit but now report adjusted EBITDA at the segment level instead of operating in-group. We've made this change because the business continues to evolve and we want to ensure the greatest possible transparency into our core results.

Tim OLeary: Before moving to the segment level financial results, I want to take a minute to discuss a change in our reporting metrics for this quarter and going forward. Historically, we provided revenue, adjusted gross profit, and operating income at the segment level. As you'll note in today's presentation, we still provide revenue and adjusted gross profit but now report adjusted EBITDA at the segment level instead of operating income. We've made this change because the business continues to evolve and we want to ensure the greatest possible transparency into our core results.

Tim OLeary: Before moving to the segment level financial results, I want to take a minute to discuss a change in our reporting metrics for this quarter and going forward.

Tim OLeary: Historically, we provided revenue, adjusted gross profit, and operating income at the segment level.

Tim OLeary: As you'll note in today's presentation, we still provide revenue and adjusted gross profit, but now report adjusted EBITDA at the segment level instead of operating income.

Tim OLeary: We've made this change because the business continues to evolve, and we want to ensure that the greatest possible transparency into our core results.

Timothy OLeary: In that regard, as we continue to implement a shared services operating model in our business, along with managing a single unified commerce engine across our payments infrastructure, the allocation of certain operating and technology costs becomes less identifiable.

Tim OLeary: In that regard, as we continue to implement a shared services operating model in our business, along with managing a single unified commerce engine across our payments infrastructure, the allocation of certain operating and technology costs becomes less identifiable.

Tim O'Leary: So we will report those costs in corporate with only direct costs for each segment having an impact on its adjusted EBITDA results. We've included reconciliations in the earnings release to help you compare current quarter results to a historical quarter of results on a comparable basis.

Timothy OLeary: So we will report those costs in corporate, with only direct costs for each segment having an impact on its adjusted EBITDA result. We've included reconciliations in the earnings release to help you compare current quarter results to historical quarter results on a comparable basis. With that explanation, I'll now move to the segment level results for the S&B segment on slide 8.

Tim OLeary: So we will report those costs in corporate, with only direct costs for each segment having an impact on its adjusted EBITDA result. We've included reconciliations in the earnings release to help you compare current quarter results to historical quarter results on a comparable basis. With that explanation, I'll now move to the Segment Level Results for the S&B Segment on Slide 8.

Tim OLeary: So we will report those costs in corporate with only direct costs for each segment having an impact on its adjusted EBITDA results

Tim OLeary: We've included reconciliations in the earnings release to help you compare current quarter results to historical quarterly results on a comparable basis.

Tim O'Leary: With that explanation, I'll now move to the segment-level results for the SMB segment on slide 8. SMB generated Q2 revenue of 155.1 million, which is 7.2 million, or 4.8% higher than the prior year second quarter. As discussed on prior calls, a large reselling partner started to diversify the processing activity in Q2 of 2023 and concluded that effort in Q4 of last year. The year-over-year impact of that ended this quarter, and was just over 8 million of revenue, which is down from the 21 million dollar headwind that we saw in Q1. We do not expect future impact on this reseller on a comparative basis, and excluding its impact this quarter, the SMB business experience 12.2% organic revenue growth on a year-over-year basis.

Tim OLeary: With that explanation, I'll now move to the segment level results for the S&B segment on slide 8.

Timothy OLeary: SMB generated Q2 revenue of $155.1 million, which is $7.2 million, or 4.8% higher than the prior year's second quarter. As discussed on prior calls, a large reselling partner started to diversify its processing activity in Q2 of 2023 and concluded that effort in Q4 of last year. The year-over-year impact of that ended this quarter, and it was just over $8 million in revenue, which is down from the $21 million headwind that we saw in Q1.

Tim OLeary: SMB generated Q2 revenue of $155.1 million, which is $7.2 million, or 4.8% higher than the prior year's second quarter. As discussed on prior calls, a large reselling partner started to diversify its processing activity in Q2 of 2023 and concluded that effort in Q4 of last year. The year-over-year impact of that ended this quarter, and it was just over $8 million in revenue, which is down from the $21 million headwind that we saw in Q1.

Tim OLeary: SMB generated Q2 revenue of $155.1 million, which is $7.2 million, or 4.8% higher than the prior year's second quarter.

Tim OLeary: As discussed on prior calls, a large reselling partner started to diversify their processing activity in Q2 of 2023 and concluded that effort in Q4 of last year.

Tim OLeary: The year-over-year impact of that ended this quarter, and it was just over $8 million of revenue, which is down from the $21 million headwind that we saw in Q1.

Timothy OLeary: We do not expect future impacts from this reseller on a comparative basis, and excluding its impact this quarter, the S&B business experienced 12.2% organic revenue growth on a year-over-year basis. Bank card dollar volume in SMB was $15.8 billion for the quarter, which increased 4.6% from $15.1 billion in the comparable quarter last year.

Tim OLeary: We do not expect future impacts from this reseller on a comparative basis, and excluding its impact this quarter, the S&B business experienced 12.2% organic revenue growth on a year-over-year basis. Bankcard dollar volume in SMB was $15.8 billion for the quarter, which increased 4.6 percent from $15.1 billion in the comparable quarter last year.

Tim OLeary: We do not expect future impacts from this reseller on a comparative basis and excluding its impact this quarter, the S&B business experienced 12.2% organic revenue growth on a year-over-year basis.

Tim O'Leary: Bank card dollar volume in SMB was 15.8 billion for the quarter, which increased 4.6% from 15.1 billion in the comparable quarter last year. As an additional point to emphasize the strength of organic sales in the SMB segment, if you adjust for the impact of the aforementioned reseller, bank card dollar volume increased 9% in the quarter compared to the prior year. From a merchant standpoint, we averaged 179,000 accounts during the quarter, higher than 177,000 average and Q1 of this year, while new monthly boards averaged 3,900 during the quarter, which is consistent with the comparable quarter of last year.

Tim OLeary: Bank card dollar volume at SMB was $15.8 billion for the quarter, which increased 4.6% from $15.1 billion in the comparable quarter last year.

Timothy OLeary: As an additional point to emphasize the strength of organic sales in the S&P segment, if you adjust for the impact of the aforementioned reseller, bank card dollar volume increased 9% in the quarter compared to the prior year. From a merchant standpoint, we averaged 179,000 accounts during the quarter, higher than the 177,000 average in Q1 of this year, while new monthly boards averaged 3,900 during the quarter, which is consistent with the comparable quarter of last year.

Tim OLeary: As an additional point to emphasize the strength of organic sales in the S&P segment, if you adjust for the impact of the aforementioned reseller, BankCard dollar volume increased 9% in the quarter compared to the prior year. From a merchant standpoint, we averaged 179,000 accounts during the quarter, higher than the 177,000 average in Q1 of this year, while new monthly boards averaged 3,900 during the quarter, which is consistent with the comparable quarter of last year.

Tim OLeary: As an additional point to emphasize the strength of organic sales in the S&P segment, if you adjust for the impact of the aforementioned reseller, bank card dollar volume increased 9% in the quarter compared to the prior year.

Tim OLeary: From a merchant standpoint, we averaged 179,000 accounts during the quarter, higher than the 177,000 average in Q1 of this year, while new monthly boards averaged 3,900 during the quarter, which is consistent with the comparable quarter of last year.

Tim O'Leary: Adjusted gross profit in SMB for the second quarter was 35.6 million, which is up 1% from last year's second quarter, but a $3.7 million or 11.8% increase from Q1 of this year. Gross margins of 23% in the quarter were down from 23.9% in last year's second quarter, but up over 80 basis points sequentially from Q1 of this year.

Timothy OLeary: Adjusted gross profit in S&B for the second quarter was $35.6 million, which is up 1% from last year's second quarter but $3.7 million, or 11.8% increase, from Q1 of this year. Gross margins of 23% in the quarter. We're down from 23.9% in last year's second quarter but up over 80 basis points sequentially from Q1 of this year. Lastly, for SMB, quarterly adjusted EBITDA of $28.6 million was up slightly from the prior year's second quarter and is up $3.6 million, or 14.3% sequentially, from Q1 of this year as we continue to manage operating expenses within our business, which results in a strong flow-through of incremental adjusted gross profit to adjusted EBITDA.

Tim OLeary: Adjusted gross profit in S&B for the second quarter was $35.6 million, which is up 1% from last year's second quarter but $3.7 million, or 11.8% increase, from Q1 of this year. Gross margins of 23% in the quarter. We're down from 23.9% in last year's second quarter but up over 80 basis points sequentially from Q1 of this year. Lastly, for SMB, quarterly adjusted EBITDA of $28.6 million was up slightly from the prior year's second quarter and is up $3.6 million, or 14.3% sequentially, from Q1 of this year as we continue to manage operating expenses within our business, which results in a strong flow-through of incremental adjusted gross profit to adjusted EBITDA.

Tim OLeary: Adjusted gross profit in S&B for the second quarter was $35.6 million, which is up 1% from last year's second quarter, but a $3.7 million, or 11.8% increase, from Q1 of this year.

Tim OLeary: Gross margins of 23% in the quarter were down from 23.9% in last year's second quarter, but up over 80 basis points sequentially from Q1 of this year.

Tim O'Leary: Lastly, for SMB, quarterly adjusted EBITDA of 28.6 million was up slightly from the prior year's second quarter and is up 3.6 million, or 14.3%, sequentially from Q1 of this year, as we continue to manage operating expenses within our business, which results in a strong flow through of incremental adjusted gross profit to adjusted EBITDA.

Tim OLeary: Lastly for SMB

Tim OLeary: quarterly adjusted ebitda twenty eight six mill was ob slightly from the prior second quarter and is up three point six million or fourteen point three percent sequentially from q one of this year as we continue to manage operating expenses within our business which results in a strong flow through of incremental adjusted gross profit to adjusted ebitda

Tim O'Leary: Moving to B2B, revenue of $1.9 million was an increase of 18.9 million from the prior year. Plastic, which joined priority in Q3 of last year, contributed 17.8 million of the increase during the quarter, while CPX grew by 1.4 million, or 49%, on a year-over-year basis. Those increases were partially offset by a $200,000 reduction in the remainder of the B2B business. Adjusted gross profit in B2B increased to 5.6 million from 2.3 million in Q2 of 23 as a result of the plastic acquisition combined with over 25% growth and gross profit for the CPX business unit. For the quarter, gross margins were 25.4% or 3.6% lower compared to 29% in the first quarter of 2024.

Timothy OLeary: Moving to B2B, revenue of $21.9 million was an increase of $18.9 million from the prior year. Plastic, which joined Priority in Q3 of last year, contributed $17.8 million of the increase during the quarter, while CPX grew by $1.4 million, or 49% on a year-over-year basis. Those increases were partially offset by a $200,000 reduction in the remainder of the B2B visit.

Tim OLeary: Moving to B2B, revenue of $21.9 million was an increase of $18.9 million from the prior year. Plastic, which joined Priority in Q3 of last year, contributed $17.8 million of the increase during the quarter, while CPX grew by $1.4 million, or 49% on a year-over-year basis. Those increases were partially offset by a $200,000 reduction in the remainder of the B2B business.

Tim OLeary: Moving to B2B, revenue of $21.9 million was an increase of $18.9 million from the prior year.

Tim OLeary: Plastic, which joined Priority in Q3 of last year, contributed $17.8 million of the increase during the quarter, while CPX grew by $1.4 million, or 49%, on a year-over-year basis.

Tim OLeary: Those increases were partially offset by a $200,000 reduction in the remainder of the B2B business.

Timothy OLeary: Adjusted gross profit in B2B increased to $5.6 million from $2.3 million in Q2 of 2023 as a result of the plastic acquisition combined with over 25% growth in gross profit for the CPX business unit. For the quarter, gross margins were 25.4 percent, or 3.6 percent lower compared to 29 percent in the first quarter of 2024. The lower margins in Q2 were the result of changes in the mix of business and the timing of certain incentive fees in Q1 of this year, which flowed through at a high margin and did not have a comparative benefit in Q2.

Tim OLeary: Adjusted gross profit in B2B increased to $5.6 million from $2.3 million in Q2 of 2023 as a result of the plastic acquisition, combined with over 25 percent growth in gross profit for the CPX business unit. For the quarter, gross margins were 25.4 percent, or 3.6 percent lower compared to 29 percent in the first quarter of 2024. The lower margins in Q2 were the result of changes in the mix of business and the timing of certain incentive fees in Q1 of this year, which flowed through at a high margin and did not have a comparative benefit in Q2.

Tim OLeary: Adjusted gross profit in B2B increased to $5.6 million from $2.3 million in Q2 of 2023 as a result of the plastic acquisition combined with over 25% growth in gross profit for the CPX business unit.

Tim OLeary: For the quarter, gross margins were 25.4% or 3.6% lower.

Tim O'Leary: The lower margins in Q2 were the result of changes in mix of business and the timing of certain incentives in Q1 of this year, which flowed through at a high margin and did not have a comparative benefit in Q2. As a reminder, 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 prior earnings calls. The B2B segment had 1.5 million of adjusted EBITDA in a quarter compared to 600,000 in Q2 last year.

Tim OLeary: compared to 29% in the first quarter of 2024. The lower margins in Q2 were the result of changes in mix of business and the timing of certain incentive fees in Q1 of this year, which flowed through at a high margin and did not have a comparative benefit in Q2.

Timothy OLeary: As a reminder, 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 in prior earnings columns. The B2B segment had $1.5 million of adjusted EBITDA in a quarter, compared to $600,000 in Q2 of last year. On a year-over-year basis, the growth was largely related to plastics, but it also included 17% growth in CPX's adjusted EBITDA.

Tim OLeary: As a reminder, 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 in prior earnings columns. The B2B segment had $1.5 million of adjusted EBITDA in a quarter, compared to $600,000 in Q2 of last year. On a year-over-year basis, the growth was largely related to plastics, but it also included 17% growth in CPX's adjusted EBITDA.

Tim OLeary: The B2B segment had 1.5 million of adjusted EBITDA in a quarter, compared to 600,000 in Q2 of last year. On a year-over-year basis, the growth was largely related to plastic, but also included 17% growth in CPX's adjusted EBITDA.

Tim O'Leary: On a year-over-year basis, the growth was largely related to plastic, but also included 17% growth in CPX's adjusted EBITDA.

Tim O'Leary: Moving to the enterprise segment, Q2 revenue of 43.7 million was an increase of 12.2 million, or 38.9%, from 31.4 million in the priorities. here. 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 stable interest rate environment, all contributed to strong revenue growth.

Timothy OLeary: Moving to the enterprise segment, Q2 revenue of $43.7 million was an increase of $12.2 million, or 38.9%, from $31.4 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, all contributed to strong revenue growth. As a reminder, there is a counter-cyclical aspect to portions of the enterprise segment that should continue to benefit us if the economy does end up having more of a hard landing.

Tim OLeary: Moving to the enterprise segment, Q2 revenue of $43.7 million was an increase of $12.2 million, or 38.9%, from $31.4 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, all contributed to strong revenue growth. As a reminder, there is a counter-cyclical aspect to portions of the enterprise segment that should continue to benefit us if the economy does end up having more of a hard landing.

Tim OLeary: Moving to the enterprise segment, Q2 revenue of $43.7 million was an increase of $12.2 million or 38.9% from $31.4 million in the prior year.

Tim OLeary: 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, all contributed to strong revenue growth.

Tim O'Leary: As a reminder, there is a counter-cyclical aspect; the portions of the enterprise segment that should continue to benefit us if the economy ends up having more of a hard landing. As a result of the strong revenue growth, the adjusted growth profit for the enterprise segment increased by 38% to 40.6 million, while adjusted growth profit margins were 92.9% in the quarter compared to 93.3% in the second quarter of 2023. Adjusted EBITDA for the quarter was 37.2 million, which is up 45% from 25.7 million in last year's second quarter.

Tim OLeary: As a reminder, there is a counter-cyclical aspect to portions of the enterprise segment that should continue to benefit us if the economy does end up having more of a hard landing.

Timothy OLeary: As a result of the strong revenue growth, adjusted gross profit for the enterprise segment increased by 38% to $40.6 million, while adjusted gross profit margins were 92.9% in the quarter, compared to 93.3% in the second quarter of 2023. Adjusted EBITDA for the quarter was $37.2 million, which is up 45% from $25.7 million in last year's second quarter. Moving to consolidated operating expenses, salaries and benefits of $22.1 million increased by $3 million, or 16%, compared to Q2 of last year, which is largely due to the addition of plastics in Q3 of 2023. However, on a sequential quarterly basis, salary and benefits remain flat due to our continued focus on expense.

Tim OLeary: As a result of the strong revenue growth, adjusted gross profit for the enterprise segment increased by 38% to $40.6 million, while adjusted gross profit margins were 92.9% in the quarter, compared to 93.3% in the second quarter of 2023. Adjusted EBITDA for the quarter was $37.2 million, which is up 45% from $25.7 million in last year's second quarter. Moving to consolidated operating expenses, salaries and benefits of $22.1 million increased by $3 million, or 16%, compared to Q2 of last year, which is largely due to the addition of plastics in Q3 of 2023. However, on a sequential quarterly basis, salary and benefits remain flat due to our continued focus on expense discipline.

Tim OLeary: Adjusted EBITDA for the quarter was $37.2 million, which is up 45% from $25.7 million in last year's second quarter.

Tim O'Leary: Moving to consolidated operating expenses, salaries and benefits of 22.1 million increased by 3 million, or 16%.

Tim OLeary: Moving to Consolidated Operating Expenses.

Tim O'Leary: Compared to Q2 last year, which is largely due to the addition of plastic in Q3 of 2023. However, on a sequential quarterly basis, salary and benefits remain flat due to our continued focus on expense discipline. We finished the quarter with approximately 990 employees, which is compared to approximately 980 at the end of Q1 2024 and 930 at the end of Q2 of last year. SG&A of 11.2 million increased by less than 450,000 from 10.8 million in Q2 of '23, and was relatively flat with the 11 million in the first quarter of this year.

Tim OLeary: Salaries and benefits of $22.1 million increased by $3 million, or 16%, compared to Q2 of last year, which was largely due to the addition of plastic in Q3 of 2023. However, on a sequential quarterly basis, salary and benefits remain flat due to our continued focus on expense discipline.

Timothy OLeary: We finished the quarter with approximately 990 employees, which is compared to approximately 980 at the end of Q1 2024 and 930 at the end of Q2 of last year. SG&A of $11.2 million increased by less than $450,000 from $10.8 million in Q2 of 2023 and was relatively flat with $11 million in the first quarter of this year. Depreciation and amortization of 15.2 million for the quarter decreased by 2.7 million from last year but is comparable to DNA in Q1 of this year and is consistent with our quarterly expectations for the balance of this year.

Tim OLeary: We finished the quarter with approximately 990 employees, which is compared to approximately 980 at the end of Q1 2024 and 930 at the end of Q2 of last year. SG&A of $11.2 million increased by less than $450,000 from $10.8 million in Q2 of 2023 and was relatively flat with $11 million in the first quarter of this year. Depreciation and amortization of 15.2 million for the quarter decreased by 2.7 million from last year but is comparable to DNA in Q1 of this year and is consistent with our quarterly expectations for the balance of this year.

Tim OLeary: We finished the quarter with approximately 990 employees, which is compared to approximately 980 at the end of Q1 2024 and 930 at the end of Q2 of last year.

Operator: 2020-24 earnings call. All participants will be in listen only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded.

Tim OLeary: SG&A of $11.2 million increased by less than $450,000 from $10.8 million in Q2 of 2023 and was relatively flat with the $11 million in the first quarter of this year.

Tim O'Leary: The appreciation and memorization of 15.2 million for the quarter decreased by 2.7 million from last year, but is comparable to DNA and Q1 of this year, and is consistent with our quarterly expectations for the balance of this year.

Tim OLeary: Depreciation and amortization of 15.2 million for the quarter, decreased by 2.7 million from last year, but is comparable to DNA in Q1 of this year and is consistent with our quarterly expectations for the balance of this year.

Chris Kettmann: I would now like to turn the conference over to Chris Kettmann. Please go ahead. Good morning and thank you for joining us.

Tim O'Leary: Moving to the next slide, adjusted EBDA for the quarter was 51.6 million, which is another new quarterly record for Priority, and was an increase of almost 26% from 41.1 million in Q2 of 2023, and an 11% sequential increase from 46.3 million in Q1 of this year.

Timothy OLeary: Moving to the next slide, Adjusted EBDA for the quarter was $51.6 million, which was another new quarterly record for Priority and was an increase of almost 26% from $41.1 million in Q2 of 2023 and an 11% sequential increase from $46.3 million in Q1 of this year. Interest expense of $21.7 million for the quarter increased $3.9 million from Q2 2023 levels as a result of acquisition-related debt increases during Q3 of last year, combined with the broader recapitalization we closed in Q2 of this year.

Tim OLeary: Moving to the next slide, Adjusted EBDA for the quarter was $51.6 million, which was another new quarterly record for Priority and was an increase of almost 26% from $41.1 million in Q2 of 2023 and an 11% sequential increase from $46.3 million in Q1 of this year. Interest expense of $21.7 million for the quarter increased $3.9 million from Q2 2023 levels as a result of acquisition-related debt increases during Q3 of last year, combined with the broader recapitalization we closed in Q2 of this year.

Tim OLeary: to

Tim OLeary: Moving to the next slide, Adjusted EBDA for the quarter was $51.6 million, which is another new quarterly record for Priority, and was an increase of almost 26% from $41.1 million in Q2 of 2023, and an 11% sequential increase

Chris Kettmann: 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 different 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.

Tim O'Leary: Interest expense of 21.7 million for the quarter increased 3.9 million from Q2 of 2023 levels as a result of acquisition-related debt increases during Q3 of last year, combined with the broader recapitalization we closed in Q2 of this year. As seen on page 13 and discussed on our Q1 earnings call, we refinanced our debt during the quarter on more favorable terms, and also upsized the credit facilities, with the excess proceeds used for a partial redemption of our preferred stock. The new credit facilities consist of a $70 million revolving credit facility and an $835 million term loan with pricing that is 100 basis points lower than our previous rate.

Tim OLeary: from forty six point three million q one of this year

Tim OLeary: Interest expense of 21.7 million for the quarter increased 3.9 million from Q2 2023 levels as a result of acquisition related debt increases during Q3 of last year combined with the broader recapitalization we closed in Q2 of this year.

Timothy OLeary: As seen on page 13 and discussed on our Q1 earnings call, we refinanced our debt during the quarter on more favorable terms and also upsized the credit facilities with the excess proceeds used for a partial redemption of our preferred stock. The new credit facilities consist of a $70 million revolving credit facility and an $835 million term loan with pricing that is 100 basis points lower than our previous rate.

Tim OLeary: As seen on page 13 and discussed on our Q1 earnings call, we refinanced our debt during the quarter on more favorable terms and also upsized the credit facilities with the excess proceeds used for a partial redemption of our preferred stock. The new credit facilities consist of a $70 million revolving credit facility and an $835 million term loan with pricing that is 100 basis points lower than our previous rate.

Chris Kettmann: We provide a detailed discussion of the various risk factors in our FCC filings and we encourage you to review these filings. Additionally, we may refer to non-gap measures, including but not limited to EBITDA and adjusted EBITDA during the call. Reconciliation of our non-gap performance and liquidity measures to the appropriate gap measures can be found in our press release and FCC filings available in the investors section of our website.

Speaker Change: the new credit facities consist of a seventy milliondollar revolving credi facility and in eight hundred and thirty five million doar term an with pricing that is one hundred basis points lower than our previous rate

Tim OLeary: Proceeds from Term 1 were used to refinance the prior senior debt, pay related fees and expenses, and redeem $170 million of the preferred stock, including $3.7 million of accrued but unpaid dividends. The net impact of the refinancing results in over $6 million of annualized free cash flow improvement as we lower the cash dividends on the preferred stock and pay a lower interest rate on the debt, but we pay that lower rate on a larger amount of debt.

Timothy OLeary: Proceeds from Term 1 were used to refinance the prior senior debt, pay related fees and expenses, and redeem $170 million of the preferred stock, including $3.7 million of accrued but unpaid dividends. The net impact of the refinancing results in over $6 million of annualized free cash flow improvement as we lower the cash dividends on the preferred stock and pay a lower interest rate on the debt, but we pay that lower rate on a larger amount of debt.

Tim O'Leary: Proceeds from the new term loan were used to refinance the prior senior debt, pay related fees and expenses, and redeem $170 million at the preferred stock, including $3.7 million of accrued but unpaid dividends. The net impact of the refinancing results in over $6 million of annualized free cash flow improvement, has been lowered the cash dividends on the preferred stock, and pay a lower interest rate on the debt, but pay that lower rate on the larger quantum of debt. Further, the related reduction in dividends on the preferred stock results in a $22 million annualized increase in net income available to common shareholders.

Thomas Priore: 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 second quarter of 2024 earnings call. I'd like to start today by highlighting the positive trends we continue to see throughout priority and then Tim and I will provide an update on important developments within each segment and the broader enterprise. As you saw on this morning's press release, in the second quarter we again reported record financial results by capitalizing on our leading unified commerce platform that delivers elegant product solutions across our segment and dedicated customer service that is committed to our partner's success.

Tim OLeary: Proceeds from the new Term 1 were used to refinance the prior senior debt, pay related fees and expenses, and redeem $170 million of the preferred stock including $3.7 million of accrued but unpaid dividends.

Tim OLeary: The net impact of the refinancing results in over $6 million of annualized free cash flow improvement as we lower the cash dividends on the preferred stock and pay a lower interest rate on the debt, but pay that lower rate on a larger quantum of debt.

Timothy OLeary: Furthermore, the related reduction in dividends on the preferred stock results in a $22 million annualized increase in net income available to common shareholders. As we move through the back half of the year, we will continue to evaluate our capital structure while seeking ways to further optimize our balance sheet and cost of capital. From a liquidity standpoint, we ended the quarter with all $70 million of borrowing capacity available under our new revolving credit facility and $34.6 million of unrestricted cash on the balance sheet.

Tim OLeary: Furthermore, the related reduction in dividends on the preferred stock results in a $22 million annualized increase in net income available to common shareholders. As we move through the back half of the year, we will continue to evaluate our capital structure while seeking ways to further optimize our balance sheet and cost of capital. From a liquidity standpoint, we ended the quarter with all $70 million of borrowing capacity available under our new revolving credit facility and $34.6 million of unrestricted cash on the balance sheet.

Tim OLeary: Further, the related reduction in dividends on the preferred stock results in a 22 million dollar annualized increase in net income available to common shareholders.

Tim O'Leary: As we move through the back half of the year, we will continue to evaluate our capital structure while seeking ways to further optimize our balance sheet and cost of capital. From a liquidity standpoint, we ended the quarter with all 70 million of borrowing capacity available under our new revolving credit facility and 34.6 million of unrestricted cash on the balance sheet.

Tim OLeary: As we move through the back half of the year, we will continue to evaluate our capital structure while seeking ways to further optimize our balance sheet and cost of capital.

Thomas Priore: Building on a positive momentum we saw, to start the year, we delivered exceptional results in SMB acquiring B2B payables and enterprise payments in the second quarter. Our unified commerce vision continues to resonate with customers, combining payments and banking functionality on a single platform, accelerated by the strength of our diverse business lines that were positioned to benefit from historically elevated interest rates, and a performance of a variety of macroeconomic environments, including the one we're experiencing today.

Tim OLeary: From a liquidity standpoint, we ended the quarter with all $70 million of borrowing capacity available under our new revolving credit facility and $34.6 million of unrestricted cash on the balance sheet.

Tim O'Leary: For the LTM period in June 30th, adjusted EBDA of 187.5 million represents over 10 million of sequential quarterly growth from 177 million at the end of Q1. Referred stock on our balance sheet told over 105.7 million at June 30th, net of 5.9 million on accreted discounts and issuance costs. The second quarter preferred dividend of 8.4 million included 5.1 million paid in cash and 3.4 million of a pick component. As I mentioned earlier, a 3.7 million of the dividend was accrued and paid in conjunction with the May refinancing. It's important to note that the refinancing closed mid-quarter, so the gold forward dividend on the lower amount of preferred stock will be closer to 4.8 million in Q3, with increases from there based on the pick component.

Timothy OLeary: For the LTM period ending June 30th, adjusted EBITDA of $187.5 million represents over $10 million of sequential quarterly growth from $177 million at the end of Q1. The preferred stock on our balance sheet totaled $105.7 million at June 30th, net of $5.9 million to unaccredited discounts and issuance costs. The second quarter preferred dividend of $8.4 million included $5.1 million paid in cash and $3.4 million of a PIC component. As I mentioned earlier, $3.7 million of the dividend was accrued and paid in conjunction with the May refinancing. It's important to note that the refinancing closed mid-quarter, so the go-forward dividend on the lower amount of preferred stock will be closer to $4.8 million in Q3, with increases from there based on the pick.

Tim OLeary: For the LTM period ending June 30th, adjusted EBITDA of $187.5 million represents over $10 million of sequential quarterly growth from $177 million at the end of Q1. The preferred stock on our balance sheet totaled $105.7 million on June 30th, net of $5.9 million to unaccredited discounts and issuance costs. The second quarter preferred dividend of $8.4 million included $5.1 million paid in cash and $3.4 million of a PIC component. As I mentioned earlier, $3.7 million of the dividend was accrued and paid in conjunction with the May refinancing. It's important to note that the refinancing closed mid-quarter, so the go-forward dividend on the lower amount of preferred stock will be closer to $4.8 million in Q3, with increases from there based on the pick.

Tim OLeary: For the LTM period into June 30th, adjusted EBITDA of $187.5 million represents over $10 million of sequential quarterly growth from $177 million at the end of Q1.

Tim OLeary: Preferred stock on our balance sheet totaled 105.7 million at June 30th, net of 5.9 million on accreted discounts and issuance costs.

Thomas Priore: Total customer accounts operating on our commerce platform exceed $1 million. As we process nearly $125 billion in annual transaction volume during the prior 12 months, while administrating over $1 billion in average daily deposits during the quarter. Slide 4 highlights our consistent financial performance during the second quarter. Revenue of $219.9 million increased by over 21% from the prior year. This led to a 22% increase in adjusted gross profit to $81.7 million and a 25% improvement in adjusted EBITDA to $51.6 million.

Tim OLeary: The second quarter preferred dividend of $8.4 million included $5.1 million paid in cash and $3.4 million of a PIC component.

Tim OLeary: As I mentioned earlier, $3.7 million of the dividend was accrued and paid in conjunction with the May refinancing.

Tim OLeary: It's important to note that the refinancing closed mid-quarter, so the go-forward dividend on the lower amount of preferred stock will be closer to $4.8 million in Q3, with increases from there based on the PIC component.

Tim O'Leary: Before turning the call back over to Tom for his closing comments, I'd like to further address or revise financial guidance for the full year. As Tom noted in his opening remarks, we have narrowed our revenue and adjusted growth profit full year guidance to the low end of the range that we originally established in our earnings call in March of this year. However, we are raising our adjusted EBDA guidance to a new range of 196 million to 200 million. I'm sure everyone has already done the quick math to figure out that if we just repeat the first half of the year in Q3 and Q4, we'll meet the new adjusted EBDA guidance.

Timothy OLeary: Before turning the call back over to Tom for his closing comments, I'd like to further address our revised financial guidance for the full year. As Tom noted in his opening remarks, we have narrowed our revenue and adjusted gross profit full year guidance to the low end of the range that we originally established in our earnings call in March of this year. However, we are raising our adjusted EBITDA guidance to a new range of $196 million to $200 million.

Tim OLeary: Before turning the call back over to Tom for his closing comments, I'd like to further address our revised financial guidance for the full year. As Tom noted in his opening remarks, we have narrowed our revenue and adjusted gross profit full year guidance to the low end of the range that we originally established in our earnings call in March of this year. However, we are raising our adjusted EBITDA guidance to a new range of $196 million to $200 million.

Tim OLeary: Before turning the call back over to Tom for his closing comments, I'd like to further address our revised financial guidance for the full year.

Tim OLeary: As Tom noted in his opening remarks, we have narrowed our revenue and adjusted gross profit full year guidance to the low end of the range that we originally established in our earnings call in March of this year.

Thomas Priore: Indian. Adjusted gross profit margin of 37.2 percent increase 40 basis points from the prior year quarter, highlighting the strong and improving operating leverage of our organization. Encouragingly, our purely organic growth trends are equally strong, posting a top-line revenue increase of 17.5 percent and bottom-line improvement in adjusted EBITDA of 25.7 percent during Q2, which Tim will speak to in greater detail during his remarks. As you can see from our strong Q2 results, combined with the increase of our full-year EBITDA guidance, we continue to expect that the robust growth in margin trends in our business channels will deliver full-year revenue of 875 to 883 million and increase of approximately 16 percent over 2023 and generate full-year adjusted EBITDA of 196 to 200 million, a 16 to 19 percent increase over 2023.

Tim OLeary: However, we are raising our adjusted EBITDA guidance to a new range of $196 million to $200 million.

Timothy OLeary: I'm sure everyone has already done the quick math to figure out that if we just repeat the first half of the year in Q3 and Q4, we'll meet the new adjusted EBITDA guidance. However, there are a couple of factors that will result in increased operating expenses in Q3 and Q4. First, we became an accelerated filer at the end of the second quarter based on our public float calculation, and so we will incur increased expenses related to SOX 404 compliance.

Tim OLeary: I'm sure everyone has already done the quick math to figure out that if we just repeat the first half of the year in Q3 and Q4, we'll meet the new adjusted EBITDA guidance. However, there are a couple of factors that will result in increased operating expenses in Q3 and Q4. First, we became an accelerated filer at the end of the second quarter based on our public float calculation, and so we will incur increased expenses related to SOX 404 compliance.

Tim O'Leary: However, there are a couple of factors that will result in increased operating expenses in Q3 and Q4. First, we became an accelerated filer at the end of the second quarter based on our public float calculation. So we will incur increased expenses related to SOX 404 compliance. In addition, we continue to migrate certain platforms to the cloud, which will convert certain CAPEX items to OPEX, but will have minimal impact on our net cash flow. Those combined expenses will both accelerate in the back half of this year and apply some pressure to adjust the EBDA, which is why you aren't seeing an even higher range for our revised full year guidance.

Tim OLeary: First, we became an accelerated filer at the end of the second quarter based on our public float calculation.

Timothy OLeary: In addition, we continue to migrate certain platforms to the cloud, which will convert certain CapEx items to OpEx but will have a minimal impact on our net cash flow. Those combined expenses will both accelerate in the back half of this year and apply some pressure to adjusted EBITDA, which is why you aren't seeing an even higher range for our revised full-year guidance. To be clear, though, we are going to continue to maintain our expense discipline and focus on generating a high flow-through from gross profit to the bottom line. With that, I'll now turn the call back over to Tom for his closing comments.

Tim OLeary: In addition, we continue to migrate certain platforms to the cloud, which will convert certain CapEx items to OpEx but will have a minimal impact on our net cash flow. Those combined expenses will both accelerate in the back half of this year and apply some pressure to adjusted EBITDA, which is why you aren't seeing an even higher range for our revised full-year guidance. To be clear, though, we are going to continue to maintain our expense discipline and focus on generating a high flow-through from gross profit to the bottom line. With that, I'll now turn the call back over to Tom for his closing comments.

Tim OLeary: So we will incur increased expenses related to SOX 404 compliance. In addition, we continue to migrate certain platforms to the cloud, which will convert certain CapEx items to OpEx, but will have minimal impact on our net cash flow.

Tim OLeary: Those combined expenses will both accelerate in the back half of this year and apply some pressure to adjusted EBITDA, which is why you aren't seeing an even higher range for our revised full year guidance.

Tim O'Leary: To be clear, though, we are going to continue to maintain our expense discipline and focus on generating a high flow through from gross profit to the bottom line.

Tim OLeary: To be clear though, we are going to continue to maintain our expense discipline and focus on generating a high flow through from gross profit to the bottom line.

Tom Priore: With that, I'll now turn the call back over to Tom for his closing comments.

Tom Priore: with that i'll now turn the call back over topper ' closing comments

Tom Priore: Thank you, Tim. Now that we're a little more than halfway through the year, I'd like to take a minute to highlight where Priority is in its journey. Everything we did over the past several years, from accelerating our investment in our unified commerce payments and banking infrastructure, to our focus on building countercyclical business lines, to our acquisition of Plastic a year ago, was done with intention and purpose to provide our customers with an elegantly delivered experience combining acquiring, payables, and banking solutions on a single platform. Our financial and operating results demonstrate that we've continued to execute with exceptional consistency and a forward-looking vision that resonates with the constituents we serve.

Thomas Priore: Now that we're a little more than halfway through the year, I'd like to take a minute to highlight where Priority is on its journey. Everything we did over the past several years, from accelerating our investment in our unified commerce payments and banking infrastructure, to our focus on building countercyclical business lines, to our acquisition of Plastic a year ago, was done with intention and purpose, to provide our customers with an elegantly delivered experience combining acquiring, payables, and banking solutions on a single platform.

Tom Priore: Now that we're a little more than halfway through the year, I'd like to take a minute to highlight where Priority is on its journey. Everything we did over the past several years, from accelerating our investment in our unified commerce payments and banking infrastructure, to our focus on building countercyclical business lines, to our acquisition of Plastic a year ago, was done with intention and purpose, to provide our customers with an elegantly delivered experience combining acquiring, payables, and banking solutions on a single platform.

Thomas Priore: Our guidance is informed by our year-to-date performance highlighted on slide 5, reflecting 16 percent revenue growth to 425.6 million, that drove 22 percent adjusted gross profit expansion to 158.2 million and 24 percent improvement in adjusted EBITDA to 97.9 million. Year-to-date organic growth is consistent with Q2 at 17 percent revenue growth and 27 percent EBITDA growth. Our growing partner base continues to see value in our product and technology offering and our diverse sales channels remain consistent with strong performance.

Tim OLeary: Thank you, Tim.

Tom Priore: Now that we're a little more than halfway through the year, I'd like to take a minute to highlight where Priority is in its journey.

Tom Priore: Everything we did over the past several years

Tom Priore: from accelerating our investment in our unified commerce payments and banking infrastructure

Tom Priore: to our focus on building countercyclical business lines to our acquisition of plastic a year ago was done with intention and purpose to provide our customers with an elegantly delivered experience combining acquiring payables and banking solutions on a single platform

Thomas Priore: Our financial and operating results demonstrate that we've continued to execute with exceptional consistency and a forward-looking vision that resonates with the constituents we serve. Our tech-enabled service platform is delivering on the promise of a financial tool set that can accelerate cash flow and optimize working capital, on our part. The success of our capabilities and style of engagement is evidenced, not only in our organic growth numbers and improving margins that have meaningfully outpaced our peers for several quarters now, but also when talking to our customers and partners.

Tom Priore: Our financial and operating results demonstrate that we've continued to execute with exceptional consistency and a forward-looking vision that resonates with the constituents we serve. Our tech-enabled service platform is delivering on the promise of a financial tool set that can accelerate cash flow and optimize working capital, on our part. The success of our capabilities and style of engagement is evidenced, not only in our organic growth numbers and improving margins that have meaningfully outpaced our peers for several quarters now, but also when talking to our customers and partners.

Thomas Priore: Now for those of you who are new to the company, slide 6 highlights the market orientation of our proprietary Unified Commerce platform. It's purpose-built to collect, store, lend and send money, combining elegant payments and banking functionality to monetize the commerce networks we serve. Our customers and current market conditions reinforce our belief that systems facilitating payments and banking solutions 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 capital.

Tom Priore: Our tech-enabled service platform is delivering on the promise of a financial tool set that can accelerate cash flow and optimize working capital for our partners. The success of our capabilities and style of engagement is evident not only in organic growth numbers and improving margins that have meaningfully outpaced our peers for several quarters now, but also when talking to our customers and partners. Let me offer some current examples of the unique advantage of our platform that elegantly delivers a suite of embedded payments and banking solutions, which can be smoothly adopted within our customer networks. Since launching plastic bill payment in late January with our acquiring partners, run rate processing volumes continue to pick up steam, having grown quarter over quarter by 200 percent.

Tom Priore: Our tech-enabled service platform is delivering on the promise of a financial tool set that can accelerate cash flow and optimize working capital for our partners.

Tom Priore: the success of our capabilities and style of engagement is evident

Tom Priore: Not only in our organic growth numbers and improving margins that have meaningfully outpaced our peers for several quarters now,

Tom Priore: but also when talking to our customers and partners.

Thomas Priore: Let me offer current examples of the unique advantage of our platform that elegantly delivers a suite of embedded payments and banking solutions, which can be smoothly adopted within our customer network. Since launching plastic bill payment in late January with our acquiring partners. Run rate crossing volumes continue to pick up steam, having grown quarter over quarter by 200 percent. Additionally, Q2 downloads across our POS suite continue to represent approximately 20% of total new processing acts. And we continue to recruit new distributors, with 35 new resellers executing contracts during the quarter.

Tom Priore: Let me offer current examples of the unique advantage of our platform that elegantly delivers a suite of embedded payments and banking solutions that can be smoothly adopted within our customer network. Since launching Plastic Bill Payment in late January with our acquiring partners, Run rate processing volumes continue to pick up steam, having grown quarter over quarter by 200 percent. Additionally, Q2 downloads across our POS suite continue to represent approximately 20% of total new processing acts, and we continue to activate new distributors, with 35 new resellers executing contracts during the quarter.

Speaker Change: let me offer

Tom Priore: Some current examples of the unique advantage of our platform that elegantly delivers a suite of embedded payments and banking solutions

Thomas Priore: We remain committed to meeting our customers where they are by refining the experience for our partners to make working with priority seamless and easy. Our financial performance demonstrates that partners consistently choose the Unified Commerce applications and acquiring payables and banking that best fit their businesses to accelerate cash flow and optimize their working capital.

Tom Priore: which can be smoothly adopted within our customer networks.

Tom Priore: Since launching plastic bill payment in late January with our acquiring partners,

Tom Priore: run rate ccessing volumes continue to pick up steam having grown quarter-over quarter by two hundred percent

Tom Priore: Additionally, Q2 downloads across our POS suite continue to represent approximately 20 percent of total new processing activity. And we continue to activate new distributors, with 35 new resellers executing contracts during the quarter, and the growing penetration of our POS tools will increase our mix of recurring SaaS revenue, improve merchant loyalty, and continue to open additional plans for banking and payables product adoption that increase margin per merchant. As previously mentioned, our banking solution suite now maintains over $1 billion in average daily balances. Importantly, approximately 25 percent have been driven by unifying our technology and shared service operations to execute our unified commerce vision across our acquiring payables and enterprise business segments, which delivered 50 percent quarter-over-quarter growth in the number of account holders.

Timothy OLeary: We are incredibly focused on the continued innovation of our SaaS payments and banking suite of services that are powered by priorities accelerated commerce engine and are eager to meet the evolving needs of our growing portfolio of customers and enterprise at this point, I'd like to hand it over to Tim, we'll provide further insights into our segment level performance during the quarter, along with current trends in each that factored into our confidence to deliver on our strong guidance for the full year 2024. It was filed with the SEC this morning and provides a discussion of our comparative second quarter results.

Tom Priore: additionally q two download across our poss ssuite

Tom Priore: continue to represent approximately 20% of total new processing activity.

Tom Priore: And we continue to activate new distributors, with 35 new resellers executing contracts during the quarter.

Thomas Priore: And 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 increase margin per merchant. As previously mentioned, our banking solution suite now maintains over $1 billion in average daily balances. Importantly, approximately 25% of these gains have been driven by unifying our technology and shared service operations to execute our unified commerce vision across our acquiring payables and enterprise business segment, which delivered 50% quarter over quarter growth in the number of account holders.

Tom Priore: And 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 increase margin per merchant. As previously mentioned, our banking solution suite now maintains over $1 billion in average daily balances.

Tom Priore: as previously mentioned our banking solution suite now maintains over one billion dollars in average daily balances

Tom Priore: Importantly, approximately 25% of these gains have been driven by unifying our technology and shared service operations to execute our unified commerce vision across our acquiring payables and enterprise business segment, which delivered 50% quarter-over-quarter growth in the number of account holders. And lastly, as you may recall, in April... we launched our working capital line of credit offering, Priority Capital, with our partners at PIPE. And since that time, total advances have grown from $360,000 during our Q1 beta period to nearly $4 million in Q2.

Tom Priore: Importantly, approximately 25% have been driven by unifying our technology and shared service operations to execute our unified commerce vision across our acquiring payables and enterprise business segments.

Timothy OLeary: A link to that filing can also be found on our website. Consistent with the first quarter, our strong financial performance in the second quarter was driven by the diverse and counter cyclical mix of our business segments, along with continued growth in our higher margin operating segments. The highly recurring nature of our business model also remains strong, with almost 59% of adjusted gross profit in Q2 coming from monthly fees or revenues that are not dependent on transactions or bank card volume.

Tom Priore: which delivered 50% quarter-over-quarter growth in the number of account holders.

Tom Priore: Now lastly, as you may recall in April, we launched a working capital line of credit offering priority capital with our partners at Pipe. Since that time, total advances have grown from $360,000 during our Q1 beta period to nearly $4 million in quarter two. Our working capital solutions are well positioned to accelerate as we roll out more streamlined integrated solutions for customers to request their advance from within their MX Merchant acquiring app and then receive those funds directly into their Passport banking account. The cumulative success of these ongoing initiatives represents continued upside to our projections. I offer these successes to reinforce that priorities technology and operations are built for the future and executing consistently on our mission to deliver that thriving ecosystem of financial solutions to accelerate cash flow and optimize working capital for business.

Thomas Priore: And lastly, as you may recall, in April... We launched our Working Capital Line of Credit offering, Priority Capital, with our partners at PIPE. And since that time, total advances have grown from $360,000 during our Q1 beta period to nearly $4 million in Q2. Our working capital solutions are well positioned to accelerate as we roll out more streamlined integrated solutions for customers to request or advance funds from within their Amex Merchant Acquiring App and then receive those funds directly into their passport banking.

Tom Priore: And lastly, as you may recall, in April, we launched our working capital line of credit offering, Priority Capital, with our partners at PIPE.

Timothy OLeary: I'd also highlight our organic growth rates, which continue to outperform compared to many industry competitors. If you adjust for the impact of plastic, which was not part of our financial results in Q2 last year, as well as for the impact of the large reseller that we've discussed on prior calls, priority had year over year organic growth in Q2 of 17.5% for revenue, 18.9% for adjusted gross profit, and 25.7% for adjusted EBITDA.

Tom Priore: Since that time total advances have grown from $360,000 during our Q1 beta period.

Tom Priore: Our working capital solutions are well positioned to accelerate as we roll out more streamlined integrated solutions for customers to request or advance funds from within their Amex Merchant Acquiring App and then receive those funds directly into their passport banking. The cumulative success of these ongoing initiatives represents continued upside to our projections. I offer these successes to reinforce that Priority's technology and operations are built for the future, and we are executing consistently on our mission to deliver that thriving ecosystem of financial solutions to accelerate cash flow and optimize working capital for businesses. We're delivering this message as we broaden the unified commerce conversation, and it resonates with current and prospective customers alike. Before wrapping up,

Speaker Change: ten nearly four million in quarter two

Tom Priore: Our work in capital solutions are well positioned to accelerate as we roll out more streamlined integrated solutions for customers.

Tom Priore: to request your advance

Tom Priore: from within their mx merchant acquiring app and then receive those funds directly into their passport banking accounts

Timothy OLeary: When you combine those industry leading organic growth rates with a scaled business that produces a high level of recurring gross profit, you can easily understand what we're excited about our business and the value that we believe has been built at priority.

Thomas Priore: The cumulative success of these ongoing initiatives represents continued upside to our projection. I offer these successes to reinforce that Priority's technology and operations are built for the future and consistently executing on our mission to deliver that thriving ecosystem of financial solutions to accelerate cash flow and optimize working capital for businesses. We're delivering this message as we broaden the unified commerce conversation, and it resonates with current and prospective customers alike. Before wrapping up,

Tom Priore: the cumulative success of these ongoing initiatives represent continued upside to our projections

Timothy OLeary: Before moving to the segment level financial results, I want to take a minute to discuss the change in our reporting metrics for this quarter and going forward. Historically, we provided revenue, adjusted gross profit, and operating income at the segment level. As you'll note in today's presentation, we still provide revenue and adjusted gross profit, but now report adjusted EBITDA at the segment level instead of operating income. We've made this change because the business continues to evolve, and we want to ensure that the greatest possible transparency into our core results.

Tom Priore: I offer these successes to reinforce that Priority's technology and operations are built for the future.

Tom Priore: and executing consistently on our mission to deliver that thriving ecosystem of financial solutions to accelerate cash flow and optimize working capital for businesses.

Tom Priore: Services. We're delivering this message as we broaden the Unified Commerce conversation and it resonates with current and prospective customers alike.

Tom Priore: we're delivering this message as we brought the unified commerce conversation and it resonates with current and perspective customers alike

Tom Priore: Before wrapping up, I want to thank all of my colleagues at Priority who continue to execute our Unified Commerce vision and for striving to enhance our industry-leading offering every day. Your dedication to continued improvement is clear, and everything you do provides our customers a constant reminder that they made the right choice to partner with Priority.

Thomas Priore: I want to thank all of my colleagues at Priority who continue to execute our unified commerce vision and for striving to enhance our industry-leading offering every day. Your dedication to continued improvement is clear in everything you do, providing our customers with a constant reminder that they made the right choice to partner with Priority. Lastly, we greatly appreciate the ongoing support of our investors and analysts, and for those in attendance who are new to Priority for taking the time to participate on today's call. Operator, we'd now like to open the call to questions.

Tom Priore: I want to thank all of my colleagues at Priority who continue to execute our unified commerce vision and for striving to enhance our industry-leading offering every day. Your dedication to continued improvement is clear in everything you do, providing our customers with a constant reminder that they made the right choice to partner with Priority. Lastly, we greatly appreciate the ongoing support of our investors and analysts, and for those in attendance who are new to Priority for taking the time to participate on today's call. Operator, we'd now like to open the call to questions.

Timothy OLeary: In that regard, as we continue to implement the shared services operating model in our business, along with managing a single unified commerce engine across our payments infrastructure, the allocation of certain operating and technology costs becomes less identifiable. So we will report those costs in corporate with only direct costs for each segment having an impact on its adjusted EBITDA results. We've included reconciliations in the earnings release to help you compare current quarter results to a historical quarter of a results on a comparable basis.

Tom Priore: Before wrapping up...

Tom Priore: I want to thank all of my colleagues at Priority who continue to execute our unified commerce vision.

Tom Priore: and for striving to enhance our industry-leading offering every day.

Tom Priore: Your dedication to continued improvement is clear in everything you do.

Tom Priore: providing our customers a constant reminder that they made the right choice to partner with Priority.

Tom Priore: Lastly, we greatly appreciate the ongoing support of our investors and analysts, and for those in attendance who are new to Priority for taking the time to participate on today's call.

Tom Priore: Lastly,

Timothy OLeary: With that explanation, I'll now move to the segment level results for the SMB segment on slide 8. SMB generated Q2 revenue of 155.1 million, which is 7.2 million, or 4.8% higher than the prior year second quarter. As discussed on prior calls, a large reselling partner started to diversify the processing activity in Q2 of 2023 and concluded that effort in Q4 of last year. The year-over-year impact of that ended this quarter, and was just over 8 million of revenue, which is down from the 21 million dollar headwind that we saw in Q1.

Tom Priore: We greatly appreciate the ongoing support of our investors and analysts, and for those in attendance who are new to Priority, for taking the time to participate on today's call.

Operator: Operator, we now like to open the call for questions. We will now begin the question in the answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speaker phone, 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 and then two.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: Operator, we'd now like to open the call for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.

Speaker Change: If you are 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 and then 2. Our first question comes from Tim Switzer with KBW. Please go ahead.

Tim Switzer: Our first question comes from Tim Switzer with KBW.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Our first question comes from Tim Switzer with KBW. Please go ahead. Hey, good morning. Thank you.

Timothy OLeary: We do not expect future impact on this reseller on a comparative basis, and excluding its impact this quarter, the SMB business experience 12.2% organic revenue growth on a year-over-year basis. Bank card dollar volume in SMB was 15.8 billion for the quarter, which increased 4.6% from 15.1 billion in the comparable quarter last year. As an additional point to emphasize the strength of organic sales in the SMB segment, if you adjust for the impact of the aforementioned reseller, bank card dollar volume increased 9% in the quarter compared to the prior year.

Tim Switzer: Please go ahead. Good morning. Thank you, guys, for taking my question. Absolutely, Tim.

Tim Switzer: Hey, good morning. Thank you guys for taking my questions. Absolutely, Tim.

Tim Switzer: Hey, good morning. Thank you guys for taking my questions.

Tim Switzer: Can we touch on the recapitalization real quick? I believe most of that was accomplished in May. So the full run rate impact I don't believe was NQ2 results.

Tim Switzer: Can we touch on the recapitalization real quick? I believe most of that was accomplished in May. So the full run rate impact, I don't believe, was in the Q2 results. So what's the incremental impact to Q3? And if I remember what you guys said last quarter, I think the preferred dividend would be around $4.7 million in Q3. Is that still the right number?

Speaker Change: Absolutely, Tim.

Tim Switzer: choicsa

Tim Switzer: Can we touch on the recapitalization real quick? I believe most of that was accomplished in May.

Tim O'Leary: So what's the incremental impact of Q3? And if I remember what you guys said last quarter, I think the preferred dividend would be around $4.7 million and Q3, is that still the right number? It is. I think we're calling it 4.8. At this point, based on the final balance on the PREF, but on a go 4 basis, we should be running a 4.8 million of quarter total preferred dividend. About 2 million of that's ticked, and the other 2.8 or so is cash. And then obviously that pick component will grow over time. Okay, perfect.

Tim Switzer: So the full run rate impact, I don't believe, was in Q2 results. So what's the incremental impact to Q3? And if I remember what you guys said last quarter, I think the preferred dividend would be around $4.7 million in Q3. Is that still the right number?

Timothy OLeary: It is, yeah, I think we're calling it $4.8 at this point based on the final balance on the PREP, but on a go-forward basis, we should be running at $4.8 million a quarter total preferred dividend. About $2 million of that's PIC, and the other $2.8 million or so is cash, and then obviously, that PIC component will grow over time.

Tim OLeary: It is. Yeah, I think we're calling it $4.8 at this point based on the final balance on the PREP, but on a go-forward basis, we should be running at $4.8 million a quarter total preferred dividend. About $2 million of that's PIC, and the other $2.8 million or so is cash, and then obviously, that PIC component will grow over time.

Timothy OLeary: From a merchant standpoint, we averaged 179,000 accounts during the quarter, higher than 177,000 average and Q1 of this year, while new monthly boards averaged 3,900 during the quarter, which is consistent with the comparable quarter of last year. Adjusted gross profit in SMB for the second quarter was 35.6 million, which is up 1% from last year's second quarter, but a $3.7 million or 11.8% increase from Q1 of this year. Gross margins of 23% in the quarter were down from 23.9% in last year's second quarter, but up over 80 basis points sequentially from Q1 of this year.

Tim OLeary: It is, yeah, I think we're calling it $4.8 million at this point based on the final balance on the PREF, but on a go-forward basis, we should be running at $4.8 million a quarter total preferred dividend.

Tim OLeary: You know about 2 million that's PIC and the other 2.8 or so is cash and then obviously that PIC component will grow over time

Tim Switzer: Okay, perfect. Um, and then could you guys talk about the expense outlook? You mentioned an acceleration due to a few different things in the back half of this year. What's the pace of that? Should it be?

Tim O'Leary: And then could you guys talk about the expense outlook? You mentioned an acceleration due to a few different items in the back half of this year. What's the pace of that? Should it be even acceleration in Q3 and Q4? And then what does that mean for 2025? Should there be continued investments on top of those that we should expect? Just would look, would like some more color in there, please.

Tim Switzer: Okay, perfect.

Tim Switzer: And then, could you guys talk about the expense outlook? You mentioned an acceleration due to a few different items in the back half of this year. What's the pace of that? Should it be...

Timothy OLeary: like even acceleration in Q3 and Q4. And then what does that mean for 2025? Should there be, you know, continued investments on top of those that we should expect? I just would like some more color there.

Tim OLeary: like even acceleration in Q3 and Q4. And then what does that mean for 2025? Should there be, you know, continued investments on top of those that we should expect? I just would like some more color there.

Tim OLeary: even acceleration in Q3 and Q4? And then what does that mean for 2025? Should there be, you know, continued investments on top of those that we should expect?

Timothy OLeary: Lastly, for SMB, quarterly adjusted EBITDA of 28.6 million was up slightly from the prior year's second quarter and is up 3.6 million or 14.3% sequentially from Q1 of this year, as we continue to manage operating expenses within our business, which results in a strong flow through of incremental adjusted gross profit to adjusted EBITDA.

Timothy OLeary: Sure. Yeah, I think it'll be relatively evenly spread between Q3 and Q4, maybe a 60-40 split there with a heavier balance towards Q4, just given some of the timing of the audit process and some of the SOX 404 aspects of it. And then as you think about next year, that should normalize, right? We're not going to see a further acceleration of those costs going into next year.

Tim OLeary: Sure. Yeah, I think it'll be relatively evenly spread between Q3 and Q4, maybe a 60-40 split there with a heavier balance towards Q4, just given some of the timing of the audit process and some of the SOX 404 aspects of it. And then as you think about next year, that should normalize, right? We're not going to see a further acceleration of those costs going into next year.

Tim O'Leary: Sure. Yeah, I think it'll be relatively evenly spread between Q3 and Q4. Maybe a 60-40 is put there with heavier balance towards Q4. Just given some of the timing of the, you know, auto process and some of the, the SOX 4 or 4 aspects of it. And then, as you think about next year, you know, that should normalize, right? We're not going to see a further acceleration of those costs going into next year. Great. Okay. That's good to hear.

Speaker Change: Just would like some more color there, please.

Speaker Change: sure i think it ll be relatively evenily spread between q three four maybe sixty forty yes but there're with heavier balance towards q four just given some of the timing of the

Tim OLeary: audit process and some of the SOX 404 aspects of it. And as you think about next year, that should normalize, right? We're not gonna see a further acceleration of those costs going into next year.

Timothy OLeary: Moving to B2B, revenue of $1.9 million was an increase 18.9 million from the prior year. Plastic, which joined priority in Q3 of last year, contributed 17.8 million of the increase during the quarter, while CPX grew by 1.4 million or 49% on a year-over-year basis. Those increases were partially offset by a $200,000 reduction in the remainder of the B2B business. Adjusted gross profit in B2B increased to 5.6 million from 2.3 million in Q2 of 23 as a result of the plastic acquisition combined with over 25% growth and gross profit for the CPX business unit.

Tim Switzer: Great. Okay, that's good to hear. If I could get one more, too.

Tim O'Leary: If I could get one more too. You kind of mentioned how the enterprise business is a little counter-sickical to the macro environment. But, you know, what kind of impact would you expect?

Tim Switzer: okay that's good to hear if i get one more to you kind of mentioned how the enterprise business

Tim Switzer: You kind of mentioned how the enterprise business is a little counter-cyclical to the macro environment. But, you know, what kind of impact would you expect on the rest of the business and just the company broadly if we had a bit of an economic slowdown, and then do interest rates factor into that at all, one way or the other?

Tim Switzer: is a little counter-cyclical to the macro environment. But, you know, what kind of impact would you expect?

Tim O'Leary: to the rest of the business and just the company broadly, if we had a bit of an economic slowdown and then do interest rates factor into that at all? Thank you.

Speaker Change: to the rest of the business and just the company broadly if we had a bit of an economic slowdown and then do interest rates factor into that at all one way or the other? Thank you.

Tim Switzer: Thank you.

Tim O'Leary: Sure, if you're again answering those, maybe I'll go on reverse. So if you think about interest rates, obviously we benefit on one side with the balances we have and putting those into permissible investments, which are largely earning income at roughly Fed funds or so for type rates. And then on the flip side, obviously we have the interest expense on the debts as well as the cash portion of the preferred dividend. If you look at those balances, we're almost perfectly hedged right now. So if there's a decrease in rates, depending on what the Fed does in the balance of the year, there's almost zero impact on free cash flow.

Timothy OLeary: Sure. Yeah, I can answer those. Maybe I'll go in reverse order.

Tim OLeary: Sure. Yeah, I can answer those. Maybe I'll go in reverse order.

Timothy OLeary: So if you think about interest rates, yeah, obviously, we benefit on the one side with the balances we have and putting those into permissible investments, which are largely earning income at roughly Fed funds or SOFR type rates. And then on the flip side, obviously, we have the interest expense on the debts as well as the cash portion of the preferred dividend. If you look at those balances, we're almost perfectly hedged right now.

Tim OLeary: So if you think about interest rates, yeah, obviously, we benefit on the one side with the balances we have and putting those into permissible investments, which are largely earning income at roughly Fed funds or SOFR type rates. And then on the flip side, obviously, we have the interest expense on the debts as well as the cash portion of the preferred dividend. If you look at those balances, we're almost perfectly hedged right now.

Speaker Change: Yeah I can answer those, maybe I'll go in reverse. So if you think about interest rates

Timothy OLeary: For the quarter, gross margins were 25.4% or 3.6% lower compared to 29% in the first quarter of 2024. The lower margins in Q2 were the result of changes in mix of business and the timing of certain incentives in Q1 of this year, which flowed through at a high margin and did not have a comparative benefit in Q2. As a reminder, 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 prior earnings calls.

Tim OLeary: Obviously we benefit on one side with the balances we have and putting those into permissible investments which are largely

Tim OLeary: You know, earning income at, you know, roughly fed funds or SOFR type rates. And then on the flip side, obviously, we have the interest expense on the debts as well as the cash portion of the preferred dividend. If you look at those balances, we're...

Timothy OLeary: So if there's a decrease in rates, depending on what the Fed does in the balance of the year, there's almost zero impact on free cash flow. There's a roughly $600,000 per quarter impact to EBITDA for every 25 basis points of rate cuts, but again, zero impact to cash flow given we're hedged on the debt side there. And then more broadly, as you think about the economy and going into, you know, next year, if there is a hard landing and we start to see some softness, you know, I think we'll see some impact on the SMB side, but I feel like we're able to continue to grow and, you know, offset that decline you may see, you know, within a broader macro environment because, you know, we're continuing to maintain very high retention rates with our existing, you know, reselling partners, maintaining good retention rates with our merchants.

Tim OLeary: So if there's a decrease in rates, depending on what the Fed does in the balance of the year, there's almost zero impact on free cash flow. There's a roughly $600,000 per quarter impact to EBITDA for every 25 basis points of rate cuts, but again, zero impact to cash flow given we're hedged on the debt side there. And then more broadly, as you think about the economy and going into, you know, next year, if there is a hard landing and we start to see some softness, you know, I think we'll see some impact on the SMB side, but I feel like we're able to continue to grow and, you know, offset that decline you may see, you know, within a broader macro environment because, you know, we're continuing to maintain very high retention rates with our existing, you know, reselling partners, maintaining good retention rates with our merchants.

Tim OLeary: We're almost perfectly hedged right now. So if if there's a decrease in rates Depending on what the Fed does in the balance of the year. There's almost zero impact on free cash flow

Tim O'Leary: There's a roughly $600,000 per quarter impact to EBITDA for every 25 basis points of rate cuts. But again, zero impact to cash flow; give more hedge on the debt side there.

Tim OLeary: There's a roughly $600,000 per quarter impact to EBITDA for every 25 basis points of rate cuts, but again zero impact to cash flow given we're hedged on the on the debt side there.

Timothy OLeary: The B2B segment had 1.5 million of adjusted EBITDA in a quarter compared to 600,000 in Q2 last year. On a year-over-year basis, the growth was largely related to plastic, but also included 17% growth in CPX's adjusted EBITDA.

Tim O'Leary: And then, more broadly, as you think about the economy and going into next year, if there is a hard landing and we start to see some softness, I think we'll see some impact on the SMB side. But I feel like we're able to continue to grow and offset that decline you may see within a broader macro environment because we're continuing to maintain very high retention rates with our existing reselling partners, maintaining good retention rates with our merchants. We've seen some impact this year and last year, candidly, from same store sales. But as we think about our retention rates and what we can control, those have maintained very steady levels.

Tim OLeary: And then more broadly, as you think about the economy and going into, you know, next year, if there is a hard landing and we start to see some softness.

Timothy OLeary: Moving to the enterprise segment, Q2 revenue of 43.7 million was an increase of 12.2 million or 38.9% from 31.4 million in the priorities, here. 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 stable interest rate environment, all contributed to strong revenue growth. As a reminder, there is a counter cyclical aspect, the portions of the enterprise segment that should continue to benefit us if the economy does end up having more of a hard landing.

Tim OLeary: I think we'll see some impact on the SMB side, but I feel like we're able to continue to grow and offset that decline you may see within a broader macro environment.

Timothy OLeary: As a result of the strong revenue growth, the adjusted growth profit for the enterprise segment increased by 38% to 40.6 million, while adjusted growth profit margins were 92.9% in the quarter compared to 93.3% in the second quarter of 2023.

Tim OLeary: You know, we're continuing to maintain very high retention rates with our existing, you know, reselling partners, maintaining good retention rates with our merchants.

Timothy OLeary: You know, we've seen some impact this year and last year, candidly, from same-store sales, but as we think about our retention rates and what we can control, those have maintained very steady levels, but you have seen some impact from same-store sales. So, you know, that could have another impact next year, but I think we'll continue to grow through that.

Tim OLeary: You know, we've seen some impact this year and last year, candidly, from same-store sales, but as we think about our retention rates and what we can control, those have maintained very steady levels, but you have seen some impact from same-store sales. So, you know, that could have another impact next year, but I think we'll continue to grow through that.

Tim OLeary: You know, we've seen some impact this year and last year, candidly, from same-store sales. But as we think about our retention rates and what we can control, those have maintained very steady levels, but you have seen some impact from same-store sales. So that could have another impact next year, but I think we'll continue to grow through that.

Tim O'Leary: But you have seen some impact from same store sales. So, yeah, that could have another impact next year, but I think we'll continue to grow through that. Great. Thank you.

Timothy OLeary: One other point you may just want to, you know, take a peek at. If you look at the volume growth across MasterCard and Visa and then look at our volume growth, you'll see we're winning market share in The Acquiring Segment relative to total volume. So. Given the tool set we're rolling out now, we, you know, across some new segments in hospitality, salon, and construction, we feel pretty optimistic we can continue to grow the market share there, which would, of course, offset some of the potential recessionary softness and Spending if it were to emerge.

Tim OLeary: One other point you may just want to, you know, take a peek at. If you look at the volume growth across MasterCard and Visa and then look at our volume growth, you'll see we're winning market share in The Acquiring Segment relative to total volume. So. Given the tool set we're rolling out now, we, you know, across some new segments in hospitality, salon, and construction, we feel pretty optimistic we can continue to grow the market share there, which would, of course, offset some of the potential recessionary softness and Spending, if it were to emerge.

Tim O'Leary: One other point you may just want to take a peek at. If you go look at our volume growth across Master Credit Visa, and then look at our volume growth, you'll see we're winning market share in the acquiring segment relative to total volume. So given the tool set, we're rolling out.

Tim OLeary: Great, thank you guys. One other point you may just want to you know take a peek at if you go look at the volume growth across MasterCard and Visa and then look at our volume growth you'll see we're we're winning market share in

Timothy OLeary: Adjusted EBITDA for the quarter was 37.2 million, which is up 45% from 25.7 million in last year's second quarter. Moving to consolidated operating expenses, salaries and benefits of 22.1 million increased by 3 million, or 16%. Compared to Q2 last year, which is largely due to the addition of plastic in Q3 of 2023. However, on a sequential quarterly basis, salary and benefits remain flat due to our continued focus on expense discipline. We finished the quarter with approximately 990 employees, which is compared to approximately 980 at the end of Q1 2024 and 930 at the end of Q2 of last year.

Tim OLeary: The Acquiring Segment.

Tim OLeary: relative to total volume.

Tim O'Leary: Now we, you know, across some new segments and hospitality and salon in construction, we feel pretty optimistic we can continue to grow the market share there, which would, of course, offset some of the potential recessionary softness in spending if it were to emerge. Okay, that's really helpful.

Speaker Change: So, um...

Speaker Change: Given the tool set we're rolling out now, we, you know, across

Tim OLeary: Some new segments in hospitality, in salon, in construction. We feel pretty optimistic we can continue to

Tim OLeary: grow the market, share there, which would, of course, you know, offset some of the...

Tim OLeary: potential recessionary soft softness

Speaker Change: in spending, if it were to emerge.

Tim Switzer: Okay, that's really helpful. Thank you, guys.

Timothy OLeary: SGNA of 11.2 million increased by less than 450,000 from 10.8 million in Q2 of 23, and was relatively flat with the 11 million in the first quarter of this year. The appreciation and memorization of 15.2 million for the quarter decreased by 2.7 million from last year, but is comparable to DNA and Q1 of this year, and is consistent with our quarterly expectations for the balance of this year.

Tim O'Leary: Thank you, guys.

Jacob Steven: And the next question comes from Jacob Steven with Lake Street. Please go ahead. Hey guys, thanks for taking my question. Congrats on the quarter. Maybe if you guys can just help us kind of piece out, you know, obviously your reference 59% of a Joseph Gross profit is from recurring sources or non-transaction dependent sources. Maybe if you could just kind of help us piece those non-transaction that dependent out of your business so we can really kind of understand the driving forces between or mean behind the recurring gross profit.

Operator: And the next question comes from Jacob Stephan on Lake Street. Please go ahead.

Jacob Stephan: Okay, that's really helpful. Thank you guys.

Speaker Change: And the next question comes from Jacob Stephan with Lake Street. Please go ahead.

Jacob Stephan: Hey guys, thanks for taking my questions. Congratulations on the quarter. Maybe if you guys could just help us kind of piece out, you know, obviously, 59% of adjusted growth profit is from recurring sources or non-transaction-dependent sources. Maybe if you could just kind of help us sort those non-transaction dependencies out of your business so we can really kind of understand the driving forces behind the recurring gross profit growth.

Jacob Stephan: Hey guys, thanks for taking my questions. Congratulations on the quarter. Maybe if you guys could just help us kind of piece out, you know, obviously, you referenced 59% of adjusted growth profit is from recurring sources or non-transaction-dependent sources. Maybe if you could just kind of help us sort those non-transaction dependencies out of your business so we can really kind of understand the driving forces behind the recurring gross profit growth.

Jacob Stephan: Hey guys, thanks for taking my questions. Congrats on the quarter.

Jacob Stephan: Maybe if you guys could just help us kind of piece out, you know, obviously you referenced 59% of adjusted growth profit is from recurring sources or non-transaction dependent sources. Maybe if you could just kind of help us piece those non-transaction dependent fees out of your business so we can really kind of understand the driving forces behind the recurring gross profit growth.

Timothy OLeary: Moving to the next slide, adjusted EBDA for the quarter was 51.6 million, which is another new quarterly record for priority, and was an increase of almost 26% from 41.1 million in Q2 of 2023, and an 11% sequential increase from 46.3 million in Q1 of this year. Interest expense of 21.7 million for the quarter increased 3.9 million from Q2 of 2023 levels as a result of acquisition related debt increases during Q3 of last year, combined with the broader recapitalization we closed in Q2 of this year.

Tim O'Leary: Sure, happy to be here, Jacob. Yeah, so if you think about the revenue in our split, obviously, there's transaction volume, bank card volumes, that's going to be what we consider reoccurring, but it's not in our recurring gross profit numbers that I quoted. So, within the recurring aspect, we have monthly subscription fees and monthly fees that we earn on a regular basis, and those are not transaction-dependent or volume-dependent. We have the income on the permissible investments that's not volume or transaction-dependent, and then we have other fees that we generate on a monthly basis from merchants and resellers as well as within the enterprise segment.

Timothy OLeary: Sure, I'll be happy to do that. Hey Jacob.

Tim OLeary: Sure, happy to do that, Jacob. Yeah, so if you think about the revenue in our supplies, obviously there's... there is transaction volume, bank card volumes. That's going to be what we consider recurring, but it's not in our recurring gross profit numbers that I quoted. So within the recurring aspect, we have monthly subscription fees and monthly fees that we earn on a regular basis, and those are not transaction-dependent or volume-dependent. We have the income on the permissible investments that's not volume or transaction-dependent, and then we have other fees that we generate on a monthly basis from merchants and resellers as well as within the enterprise segment. So there's a number of different aspects of that that are very subscription-like as you think about the software we deploy and the way we earn revenue across the business.

Timothy OLeary: Yeah, so if you think about the revenue in our supply, there's obviously transaction volume, right, bank card volumes, right, that's going to be, you know, what we consider, you know, recurring, but it's not in our recurring gross profit numbers that I quoted, right? So within the recurring aspect, we have monthly subscription fees and monthly fees that we earn on a regular basis, right, and those are not transaction-dependent or volume-dependent.

Speaker Change: Sure, happy to do that. Hey, Jacob.

Tim OLeary: There's transaction volume, right, bank card volumes, right, that's going to be, you know, what we consider, you know, reoccurring, but it's not in our recurring gross profit numbers that I quoted, right? So within the recurring aspect, we have

Timothy OLeary: As seen on page 13 and discussed on our Q1 earnings call, we refinanced our debt during the quarter on more favorable terms, and also upsized the credit facilities with the excess proceeds used for a partial redemption of our preferred stock. The new credit facilities consist of a $70 million revolving credit facility, and an $835 million term loan with pricing that is 100 basis points lower than our previous rate. Proceeds from the new term loan were used to refinance the prior senior debt, pay related fees and expenses, and redeem $170 million at the preferred stock, including $3.7 million of accrued but unpaid dividends.

Tim OLeary: We have monthly subscription fees and monthly fees that we earn on a regular basis, right, and those are not transaction-dependent or volume-dependent.

Timothy OLeary: We have the income on the permissible investments that's not, you know, volume or transaction dependent, and then we have, you know, other fees that we generate on a monthly basis from, you know, merchants and resellers as well as within the enterprise segment. So there's a number of different aspects of that that are very subscription-like as you think about, you know, the software we deploy and the way we earn revenue across the business.

Timothy OLeary: The net impact of the refinancing results in over $6 million of annualized free cash flow improvement has been lowered the cash dividends on the preferred stock, and pay a lower interest rate on the debt, but pay that lower rate on the larger quantum of debt. Further, the related reduction in dividends on the preferred stock results in a $22 million annualized increase in net income available to common shareholders. As we move through the back half of the year, we will continue to evaluate our capital structure while seeking ways to further optimize our balance sheet and cost of capital.

Tim OLeary: We have the income on the permissible investments.

Tim OLeary: that's not, you know, volume or transaction dependent, and then we have...

Tim OLeary: You know, are there other fees that we generate on a monthly basis from, you know, merchants and resellers as well as, you know, within the enterprise segment? So there's a number of different aspects of that that are very subscription-like, as you think about, you know, the software we deploy and the way we earn revenue across the business.

Jacob Steven: So there's a number of different aspects of that that are very subscription-like as you think about the software we deploy in the way we earn revenue across the business. Okay, got it. That's helpful.

Jacob Stephan: Okay, got it. That's helpful. And then obviously, you know, it's been over a year here since you guys acquired plastic. I'm just curious, do you see any kind of seasonality, you know, factoring in the back half of the year with plastic?

Jacob Stephan: Okay, got it. That's helpful. And then obviously, you know, it's been over a year here since you guys acquired the plastic. I'm just curious, do you see any kind of seasonality, you know, factoring in the back half of the year with the plastic?

Jacob Steven: And then obviously, it's over a year here since you guys acquired Plastic. I'm just curious; you see any kind of seasonality, you know, factoring in into the back half of the year with the plastic. Not as much seasonality, I think what you do see is that from quarter to quarter you may have some larger enterprise customers come in and contribute some meaningful volume.

Jacob Stephan: Okay, got it. That's helpful. And then obviously, you know, it's over a year here since you guys acquired Plastic. I'm just curious, do you see any kind of seasonality, you know, factoring in into the back half of the year with Plastic?

Timothy OLeary: Not as much seasonality. I think what you do see is that from quarter to quarter, you may have some larger enterprise customers come in and, you know, contribute, you know, some meaningful volume. That volume tends to come through at, obviously, a little bit lower margin, given the scale of those customers. And that's It's a little harder to predict, but I think we continue to expect those types of customers to use the plastic product offering and continue to contribute in the back half of the year, but not with as much seasonality as much as there are maybe some timing differences with some of those larger customers.

Tim OLeary: Not as much seasonality. I think what you do see is that from quarter to quarter, you may have some larger enterprise customers come in and contribute some meaningful volume. That volume tends to come through at, obviously, a little bit lower margin, given the scale of those customers. And that's It's a little harder to predict, but I think we continue to expect those types of customers to use the plastic product offering and continue to contribute in the back half of the year, but not with as much seasonality as much as there are maybe some timing differences with some of those larger customers.

Tim OLeary: Not as much seasonality. I think what you do see is that

Tim OLeary: From quarter to quarter, you may have some larger enterprise customers come in and, you know, contribute, you know, some meaningful volume. That volume tends to come through at, obviously, a little bit lower margin, given the scale of those customers. And that's...

Jacob Steven: That volume tends to come through at obviously a little bit lower margin given the scale of those customers, and that's a little harder to predict, but I think we continue to expect those types of customers to use the plastic product offering and continue to contribute the back half of the year, but not as much seasonality as much as it is, maybe some timing differences with some of those larger those larger customers.

Timothy OLeary: From a liquidity standpoint, we ended the quarter with all 70 million of borrowing capacity available under our new revolving credit facility and 34.6 million of unrestricted cash on the balance sheet. For the LTM period in June 30th, adjusted EBDA of 187.5 million represents over 10 million of sequential quarterly growth from 177 million at the end of Q1. Referred stock on our balance sheet told over 105.7 million at June 30th, net of 5.9 million on accreted discounts and issuance costs.

Tim OLeary: It's a little harder to predict, but I think we continue to expect those types of customers to use the plastic product offering and continue to contribute in the back half of the year, but not as much seasonality as much as there's maybe some timing differences with some of those larger customers.

Tim O'Leary: Okay, and obviously nice to see the progress on the balance sheet in Q2 here. You took out the majority of the preferred, but obviously the cash balance and revolver, 70 million revolver isn't quite enough to take out the remaining, but I'm curious how you're thinking about kind of the remaining hundred and six million preferred. Yeah, we'll continue to evaluate the balance sheet, and obviously we look at a lot of different uses of capital, whether it's thinking about acquisitions to grow inorganically or investing in the business to grow organically. We'll also look at the preferred equity as another use of capital.

Jacob Stephan: Okay. And obviously, nice to see the progress on the balance sheet in Q2. You took out the majority of the preferred, but, you know, obviously, the cash balance and the revolver, the $70 million revolver, aren't quite enough to take out the remaining $106 million of preferred, but I'm curious how you're thinking about the remaining $106 million of preferred.

Jacob Stephan: Okay. And obviously, nice to see the progress on the balance sheet in Q2. You took out the majority of the preferred, but, you know, obviously, the cash balance and revolver, the $70 million revolver, aren't quite enough to take out the remaining $106 million of preferred, but I'm curious how you're thinking about the remaining $106 million of preferred.

Jacob Stephan: Okay.

Jacob Stephan: And obviously, it's nice to see the progress on the balance sheet in Q2 here. You took out the majority of the preferred, but, you know, obviously, the cash balance and revolver.

Timothy OLeary: The second quarter preferred dividend of 8.4 million included 5.1 million paid in cash and 3.4 million of a pick component. As I mentioned earlier, a 3.7 million of the dividend was accrued and paid in conjunction with the May refinancing. It's important to note that the refinancing closed mid-quarter, so the gold forward dividend on the lower amount of preferred stock will be closer to 4.8 million in Q3 with increases from there based on the pick component.

Jacob Stephan: A 70 million revolver isn't quite enough to take out the remaining, but I'm curious how you're thinking about kind of the remaining 106 million of preferred.

Timothy OLeary: We'll continue to evaluate the balance sheets, and obviously, we look at a lot of different uses of capital, whether it's thinking about acquisitions to grow inorganically or investing in the business to grow organically. We'll also look at preferred equity as another use of capital.

Tim OLeary: We'll continue to evaluate the balance sheets. And obviously, we look at a lot of different uses of capital, whether it's thinking about acquisitions to grow inorganically or investing in the business to grow organically. We'll also look at preferred equity as another use of capital.

Tim OLeary: Yeah, we'll continue to evaluate the balance sheets and obviously we look at a lot of different uses of capital whether it's You know thinking about you know acquisitions to grow in organically or investing in the business to grow organically We'll also you know look at the preferred equity as another use of capital

Timothy OLeary: Before turning the call back over to Tom for his closing comments, I'd like to further address or revise financial guidance for the full year. As Tom noted in his opening remarks, we have narrowed our revenue and adjusted growth profit full year guidance to the low end of the range that we originally established in our earnings call in March of this year. However, we are raising our adjusted EBDA guidance to a new range of 196 million to 200 million.

Tim OLeary: When we did the recapitalization, we closed at roughly four and a half times leverage. We're already down below four and a quarter times leverage at the end of this quarter. So we've seen a quarter turn of deleveraging just an inch per quarter with EBITDA growth. If you just take the numbers for the balance of the year and assume the midpoint of EBITDA guidance and assume we don't pay down another dollar of debt from here to the end of the year, you know, you'll be closer to four times leverage. So you can start to do the math to figure out the capacity you have to address the rest of the balance sheet.

Tim O'Leary: When we did the recapitalization, we closed that roughly four and a half times leverage. We're already down below four and a quarter. At the end of this quarter, so we've already seen a quarter turn of the leveraging just intra-quarter with EBITDA growth. If you just take the numbers for the balance of the year, and if you just assume the midpoint of EBITDA guidance, then assume we don't pay down another dollar debt from here to the end of the year, you'll be closer to four times leverage. So you can start to do the math to figure out the capacity you have to address the rest of the balance sheet.

Timothy OLeary: When we did the recapitalization, we closed at roughly four and a half times leverage. We're already down below four and a quarter at the end of this quarter, so we've already seen a quarter turn of deleveraging, just an inch per quarter with EBITDA growth. If you just take the numbers for the balance of the year and assume we don't pay down another dollar of debt from here to the end of the year, you know, you'll be closer to four times leverage. So you can start to do the math to figure out the capacity you have to address the rest of the balance sheet.

Timothy OLeary: I'm sure everyone has already done the quick math to figure out that if we just repeat the first half of the year in Q3 and Q4, we'll meet the new adjusted EBDA guidance. However, there are a couple of factors that will result in increased operating expenses in Q3 and Q4.

Tim OLeary: You know, when we did the recapitalization, you know, we closed at roughly four-and-a-half times leverage. We're already down below four-and-a-quarter at the end of this quarter, so we've already seen, you know, a quarter turn of deleveraging, just, you know, inch per quarter with EBITDA growth.

Jacob Stephan: Okay, I got it.

Tim OLeary: You know, if you just take the numbers for the balance of the year, and if you just assume the midpoint of EBITDA guidance, and assume we don't pay down another dollar of debt from here to the end of the year, you know, you'll be closer to four times leverage, so you can start to do the math to figure out the capacity you have to address the rest of the balance sheet.

Jacob Steven: Okay, got it. Very helpful. I appreciate it, guys. Thanks, too.

Jacob Stephan: Okay, I got it. Very helpful. Appreciate it, guys.

Timothy OLeary: First, we became an accelerated filer at the end of the second quarter based on our public float calculation. So we will incur increased expenses related to SOX 404 compliance. In addition, we continue to migrate certain platforms to the cloud which will convert certain CAPEX items to OPEX, but will have minimal impact on our net cash flow. Those combined expenses will both accelerate in the back half of this year and apply some pressure to adjust the EBDA, which is why you aren't seeing an even higher range for our revised full year guidance. To be clear though, we are going to continue to maintain our expense discipline and focus on generating a high flow through from gross profit to the bottom line.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Tom Priore for any closing remarks. All right, well, thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Tom Priore for any closing remarks. All right, well, thank you. First of all, thanks for some of the questions.

Speaker Change: Okay, got it. Very helpful. Appreciate it, guys.

Operator: This concludes our question and the answer session.

Tom Priore: I would like to turn the conference back over to Tom Preyori for any closing remarks. All right. Well, thank you. First of all, thanks for some of the questions, and I just want to express our appreciation for everyone attending the call and your interest in priority and the platform we're building for, you know, we think is a future of commerce, and we'll get back to executing. So thanks everyone for your time. Hope everyone has a great weekend.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Tom Priore for any closing remarks.

Tom Priore: First of all, thanks for some of the questions. And I just want to express our appreciation for everyone attending the call and your interest in Priority and the platform we're building for what we think is the future of commerce. We'll get back to executing. So, thanks everyone for your time. Hope everyone has a great weekend. Enjoy the rest.

Speaker Change: All right, well, thank you.

Tom Priore: First of all, thanks for some of the questions.

Tom Priore: I just want to express our appreciation for everyone attending the call and your interest in Priority and the platform we're building for what we think is the future of commerce.

Thomas Priore: With that, I'll now turn the call back over to Tom for his closing comments. Thank you, Tim.

Tom Priore: Enjoy the rest of the summer.

Thomas Priore: Now that we're a little more than halfway through the year, I'd like to take a minute to highlight where priority is in its journey. Everything we did over the past several years, from accelerating our investment in our unified commerce payments and banking infrastructure, to our focus on building countercyclical business lines, to our acquisition of Plastic a year ago, was done with intention and purpose to provide our customers with an elegantly delivered experience combining acquiring payables and banking solutions on a single platform.

Thomas Priore: Our financial and operating results demonstrate that we've continued to execute with exceptional consistency and a forward looking vision that resonates with the constituents we serve. Our tech-enabled service platform is delivering on the promise of a financial tool set that can accelerate cash flow and optimize working capital for our partners. The success of our capabilities and style of engagement is evident not only in organic growth numbers and improving margins that have meaningfully outpaced our peers for several quarters now, but also when talking to our customers and partners.

Thomas Priore: Let me offer some current examples of the unique advantage of our platform that elegantly delivers a suite of embedded payments and banking solutions which can be smoothly adopted within our customer networks. Since launching plastic bill payment in late January with our acquiring partners, run rate processing volumes continue to pick up steam having grown quarter over quarter by 200 percent. Additionally, Q2 downloads across our POS suite continue to represent approximately 20 percent of total new processing activity.

Thomas Priore: And we continue to activate new distributors with 35 new resellers executing contracts during the quarter and the growing penetration of our POS tools will increase our mix of recurring SaaS revenue, improve merchant loyalty and continue to open additional plans for banking and payables product adoption that increase margin per merchant. As previously mentioned, our banking solution suite now maintains over $1 billion in average daily balances. Importantly, approximately 25 percent have been driven by unifying our technology and shared service operations to execute our unified commerce vision across our acquiring payables and enterprise business segments which delivered 50 percent quarter over quarter growth in the number of account holders.

Thomas Priore: Now lastly, as you may recall in April, we launched a working capital line of credit offering priority capital with our partners at pipe. Since that time, total advances have grown from $360,000 during our Q1 beta period to nearly 4 million in quarter two. Our working capital solutions are well positioned to accelerate as we roll out more streamlined integrated solutions for customers to request their advance from within their MX Merchant acquiring app and then receive those funds directly into their passport banking account.

Thomas Priore: The cumulative success of these ongoing initiatives represent continued upside to our projections. I offer these successes to reinforce that priorities technology and operations are built for the future and executing consistently on our mission to deliver that thriving ecosystem of financial solutions to accelerate cash flow and optimize working capital for business.

Thomas Priore: Services. We're delivering this message as we broaden the Unified Commerce Conversation and it resonates with current and prospective customers alike.

Thomas Priore: Before wrapping up, I want to thank all of my colleagues at Priority who continue to execute our Unified Commerce vision and for striving to enhance our industry leading offering every day. Your dedication to continued improvement is clear and everything you do, providing our customers a constant reminder that they made the right choice to partner with Priority.

Thomas Priore: Lastly, we greatly appreciate the ongoing support of our investors and analysts and for those in attendance who are new to priority for taking the time to participate on today's call.

Operator: Operator, we now like to open the call for questions. We will now begin the question in the answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speaker phone, 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 and then two.

Tim Switzer: Our first question comes from Tim Switzer with KBW. Please go ahead. Good morning. Thank you guys for taking my question. Absolutely Tim.

Timothy OLeary: Can we touch on the recapitalization real quick? I believe most of that was accomplished in May. So the full run rate impact I don't believe was NQ2 results. So what's the incremental impact of Q3? And if I remember what you guys said last quarter, I think the preferred dividend would be around $4.7 million and Q3, is that still the right number? It is. I think we're calling it 4.8. At this point, based on the final balance on the PREF, but on a go 4 basis, we should be running a 4.8 million of quarter total preferred dividend. About 2 million of that's ticked, and the other 2.8 or so is cash. And then obviously that pick component will grow over time. Okay, perfect.

Timothy OLeary: And then could you guys talk about the expense outlook? You mentioned an acceleration due to a few different items in the back half of this year. What's the pace of that? Should it be even acceleration in Q3 and Q4? And then what does that mean for 2025? Should there be continued investments on top of those that we should expect? Just would look, would like some more color in there, please.

Timothy OLeary: Sure. Yeah, I think it'll be relatively evenly spread between Q3 and Q4. Maybe a 60-40 is put there with heavier balance towards Q4. Just given some of the timing of the, you know, auto process and some of the, the SOX 4 or 4 aspects of it. And then as you think about next year, you know, that should normalize, right? We're not going to see a further acceleration of those costs going into next year. Great. Okay. That's good to hear.

Timothy OLeary: If I could get one more too. You kind of mentioned how the enterprise business is a little counter-sickical to the macro environment. But, you know, what kind of impact would you expect? to the rest of the business and just the company broadly, if we had a bit of an economic slowdown and then do interest rates factor into that at all, one way or the other. Thank you.

Timothy OLeary: Sure, if you're again answering those, maybe I'll go on reverse. So if you think about interest rates, obviously we benefit on one side with the balances we have and putting those into permissible investments which are largely earning income at roughly Fed funds or so for type rates. And then on the flip side, obviously we have the interest expense on the debts as well as the cash portion of the preferred dividend. If you look at those balances, we're almost perfectly hedge right now.

Timothy OLeary: And then more broadly, as you think about the economy and going into next year, if there is a hard landing and we start to see some softness, I think we'll see some impact on the SMB side. But I feel like we're able to continue to grow and offset that decline you may see within a broader macro environment because we're continuing to maintain very high retention rates with our existing reselling partners, maintaining good retention rates with our merchants.

Timothy OLeary: We've seen some impact this year and last year, candidly from same store sales. But as we think about our retention rates and what we can control those have maintained very steady levels. But you have seen some impact from same store sales. So yeah, that could have another impact next year, but I think we'll continue to grow through that. Great. Thank you.

Timothy OLeary: One other point you may just want to take a peek at. If you go look at our volume growth across Master Credit Visa, and then look at our volume growth, you'll see we're winning market share in the acquiring segment relative to total volume. So given the tool set, we're rolling out. Now we, you know, across some new segments and hospitality and salon in construction, we feel pretty optimistic we can continue to grow the market share there, which would, of course, offset some of the potential recessionary softness in spending if it were to emerge. Okay, that's really helpful.

Timothy OLeary: Thank you guys.

Jacob Stephan: And the next question comes from Jacob Steven with Lake Street. Please go ahead. Hey guys, thanks for taking my question. Congrats on the quarter. Maybe if you guys can just help us kind of piece out, you know, obviously your reference 59% of a Joseph Gross profit is from recurring sources or non-transaction dependent sources. Maybe if you could just kind of help us piece those non-transaction that dependent out of your business so we can really kind of understand the driving forces between or mean behind the recurring gross profit.

Timothy OLeary: Sure, happy to be here, Jacob. Yeah, so if you think about the revenue in our split, obviously, there's transaction volume, bank card volumes, that's going to be what we consider reoccurring, but it's not in our recurring gross profit numbers that I quoted. So within the recurring aspect we have monthly subscription fees and monthly fees that we earn on a regular basis, and those are not transaction-dependent or volume-dependent. We have the income on the permissible investments that's not volume or transaction-dependent, and then we have other fees that we generate on a monthly basis from merchants and resellers as well as within the enterprise segment. So there's a number of different aspects of that that are very subscription-like as you think about the software we deploy in the way we earn revenue across the business.

Timothy OLeary: Okay, got it, that's helpful. And then obviously, it's over a year here since you guys acquired plastic. I'm just curious, you see any kind of seasonality, you know, factoring in into the back half of the year with the plastic. Not as much seasonality, I think what you do see is that from quarter to quarter you may have some larger enterprise customers come in and contribute some meaningful volume. That volume tends to come through at obviously a little bit lower margin given the scale of those customers, and that's the little harder to predict, but I think we continue to expect those types of customers to use the plastic product offering and continue to contribute the back half of the year, but not as much seasonality as much as it is, maybe some timing differences with some of those larger those larger customers.

Timothy OLeary: Okay, and obviously nice to see the progress on the balance sheet in Q2 here. You took out the majority of the preferred, but obviously the cash balance and revolver, 70 million revolver isn't quite enough to take out the remaining, but I'm curious how you're thinking about kind of the remaining hundred and six million preferred. Yeah, we'll continue to evaluate the balance sheet, and obviously we look at a lot of different uses of capital, whether it's thinking about acquisitions to grow in organically or investing in the business to grow organically.

Timothy OLeary: We'll also look at the preferred equity as another use of capital. When we did the recapitalization, we closed that roughly four and a half times leverage. We're already down below four and a quarter. At the end of this quarter, so we've already seen a quarter turn of the leveraging just intra-quarter with EBITDA growth. If you just take the numbers for the balance of the year, and if you just assume the midpoint of EBITDA guidance, then assume we don't pay down another dollar debt from here to the end of the year, you'll be closer to four times leverage, so you can start to do the math to figure out the capacity you have to address the rest of the balance sheet.

Timothy OLeary: Okay, got it. Very helpful. I appreciate it, guys. Thanks, too.

Thomas Priore: This concludes our question and the answer session. I would like to turn the conference back over to Tom Preyori for any closing remarks. All right. Well, thank you. First of all, thanks for some of the questions and I just want to express our appreciation for everyone attending the call and your interest in priority and the platform we're building for, you know, we think is a future of commerce and we'll get back to executing. So thanks everyone for your time.

Operator: Hope everyone has a great weekend. Enjoy the rest of the summer.

Q2 2024 Priority Technology Holdings Inc Earnings Call

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