Q3 2024 Priority Technology Holdings Inc Earnings Call
Thomas OLeary, Chris Kettmann, Thomas Priore, Thomas OLeary, Chris Kettmann, Thomas Priore,
Good day and welcome to the Priority Technology Holdings.
Third Quarter 2024 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 1 on a touch-tone phone. To withdraw your question, please press star, and then 2.
Please note this event is being recorded. 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.
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.
Chris Kettmann: The company undertakes no obligation to update or revise 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.
Chris Kettmann: Additionally, we may refer to non-GAP measures, including but not limited to EBITDA and adjusted EBITDA, during the call.
Chris Kettmann: Reconciliations are non-gap performance and liquidity measures to the appropriate gap measures can be found in our press release and SEC filings available in the investors section of our website.
Speaker Change: With that, I would like to turn the call over to our Chairman and CEO, Tom Priore.
Tom Priore: Thank you, Chris. And thanks everyone for joining us for our third quarter 2024 earnings call.
Tom Priore: I'll begin today's call by highlighting the continued positive results and trends we're seeing throughout our business, and then Tim and I will provide an update on key developments within each segment and priority overall.
Tom Priore: As you saw in this morning's press release, in the third quarter we once again reported record financial results that were driven by the strength of our unified commerce platform that delivers sophisticated product solutions across our segments.
Tom Priore: and dedicated business teams that are committed to our partner's success.
Moving to slide 3.
Tom Priore: In the third quarter, we sustained our positive momentum throughout all three segments of the business.
Tom Priore: Delivering consistently strong results in SMB acquiring, B2B payables, and enterprise payments.
Tom Priore: Our unified commerce platform that streamlines collecting, storing, lending and sending money with solutions for acquiring payables and banking.
Tom Priore: and creates revenue and operational success for businesses continues to resonate with our customers.
which is reflected in organic growth performance.
Tom Priore: Our diverse business lines continue to benefit from historically elevated interest rates.
and to perform in evolving macroeconomic environments.
Tom Priore: As of the end of Q3, total customer accounts operating on our commerce platform exceed 1.1 million, as we process nearly $127 billion in annual transaction volume.
Tom Priore: This led to a similar increase in adjusted gross profit to $86 million and a 22% improvement in adjusted EBITDA to $54.6 million.
Tom Priore: Adjusted gross profit margin of 37.9%, decreased 40 basis points from the prior year quarter, but that is largely the result of the plastic acquisition during Q3.
Tom Priore: If you exclude the partial quarter impact, adjusted gross profit margins actually increased by 16 basis points from last year.
Tom Priore: And referring back to slide three, you may have noted that we continue to expect that 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.
Tom Priore: More significantly, based on continued improvement in our operating margins, we're increasing our full-year adjusted EBITDA guidance to $204 million, an 18 to 21 percent increase over 2023.
Tom Priore: Our improved guidance is informed by our strong year-to-date performance highlighted on slide 5.
reflecting 17% revenue growth.
to $652.6 million.
Tom Priore: that drove more than 21% adjusted gross profit expansion to $244.1 million and 23% improvement in adjusted EBITDA to $152.5 million.
Tom Priore: By refining the experience for our partners to make working with priority seamless and easy.
Tom Priore: Our financial performance demonstrates the partners consistently choose the unified commerce applications in acquiring payables in banking.
Tom Priore: Best fit their business or connect to our API to leverage these features in their own applications.
Tom Priore: We remain intently focused on the continued innovation and our SaaS payments and banking solutions that are powered by the priority Commerce engine and are eager to meet the evolving needs of our growing portfolio of customers and enterprise partners.
Speaker Change: I would encourage you to play the short one to two minute videos.
Speaker Change: Embedded in slides six and seven in the product links to gain a full appreciation of the value and how theyre being reflected to our growing customer base.
Speaker Change: 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 further increase our strong guidance for full year 2024.
Tim OLeary: Thank you Tom and good morning, everyone.
Tim OLeary: As I review the third quarter results. Please refer to the supplemental slides or the MD&A for further details.
Tim OLeary: Our MD&A is included in our Form 10-Q that was filed with the SEC. This morning and provides a discussion of our comparative third quarter results I'll.
Tim OLeary: Linked to that follow it can also be found on our website.
Tim OLeary: Consistent with the first half of this year, our financial performance in the third quarter was driven by the diverse mix of our business segments, along with the continued strong growth in our higher margin operating segments with almost 59% of our adjusted gross profit coming from our B to B and enterprise segments.
Tim OLeary: The highly recurring nature of our business model also remains strong with 60% of adjusted gross profit in Q3 coming from monthly fees or revenues that are not dependent on transactions or bank card volume.
Speaker Change: Staying on gross profit for a minute and to expand on Tom's comment regarding adjusted gross profit margins. The 40 basis point year over year decline in adjusted gross profit margins was driven by the mid quarter acquisition of plastic in Q3 of last year.
Speaker Change: If you exclude that impact adjusted gross profit margins increased 16 basis points on a year over year basis if.
Speaker Change: If you look at the trend since Q4 of 2023, which was our first full quarter of ownership of plastic we've expanded gross adjusted gross profit margins by a total of 130 basis points with sequential improvement each quarter as a result of strong operating leverage.
Speaker Change: We believe our organic growth rates also continued to outperform our industry peers.
Speaker Change: If you adjust for the impact of plastic which had one month that was not part of our financial results in Q3 of last year priority had year over year organic growth of 16, 8% for revenue 17, 3% for adjusted gross profit at 18, 6% for adjusted EBITDA.
Speaker Change: When you combine industry, leading growth rates with our highly recurring gross profit and a differentiated technology platform and the priority Commerce engine. Hopefully you can understand what we're excited about our business and the value that's been built out priority.
Speaker Change: I'll now move to slide nine in the segment.
Speaker Change: Results for SMB, which generated Q3 revenue of $158 8 million.
Speaker Change: That is $18 5 million or 13, 2% higher than the prior year's third quarter.
Speaker Change: For comparison purposes, if you recall, our Q2 commentary we referenced organic growth of 12, 2% for S N be excluding the impact of a certain large reseller now.
Speaker Change: Now that we've lapped the impact of that large reseller a reported quarterly results show the ability to consistently and organically grow our topline at strong double digit growth rates.
Speaker Change: Yeah.
Speaker Change: Bankcard dollar volume in SMB was $15 5 billion for the quarter, which increased almost 10% from $14 1 billion in the comparable quarter last year.
Speaker Change: Consistent with revenue growth the growth in volume is entirely organic.
Speaker Change: <unk> of the strength of our distribution channels and the breadth of our product offerings.
Speaker Change: From a merchant standpoint, we averaged 178000 accounts during the quarter, while new monthly boards averaged 3400 during the quarter, which is lower than the 39 hundreds during the comparable quarter of last year.
Speaker Change: Adjusted gross profit and S. N V for the third quarter was $35 6 million, which is up $1 1 million or three 3% from last year's third quarter.
Speaker Change: Gross margins of 22, 4% in the quarter were down from 24, 6% in last year's third quarter margins.
Speaker Change: Margins in the quarter were impacted by a combination of higher credit losses maturation of prior portfolio purchases and continued mix shift without top resellers.
Speaker Change: Lastly for F N B segment level quarterly adjusted EBITDA of $28 6 million was up three 7% from the prior year's third quarter.
Speaker Change: Yeah.
Speaker Change: Moving to be to be rare.
Speaker Change: Revenue of $22 1 million was an increase of 58, 3% or $8 2 million from the prior year.
Speaker Change: Plastic contributed $8 million of the increase during the quarter.
Speaker Change: Adjusted gross profit in <unk> was $6 3 million or $1 2 million or 23, 6% increase over Q3 of 2023 as a result of the plastic acquisition.
Speaker Change: For the quarter gross margins were 28, 5% compared to 25, 4% in the second quarter of 2020 for the over 300 basis points of sequential quarter margin expansion was largely due to improvements at plastics, including effective interchange management and lower credit losses.
Speaker Change: 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 in Q3 last year and GAAP reporting requirements with plastics revenue recognition, which has been discussed on prior earnings calls.
Speaker Change: The <unk> segment had 1.9 million of adjusted EBITDA in the quarter compared to $1 4 million in Q3 of last year at $1.5 million in Q2 of this year.
Speaker Change: Moving to the enterprise segment.
Speaker Change: Three revenue of $47 1 million was an increase of 11 9 million or 33, 9% from $35 2 million in the prior year.
Speaker Change: Favorable trends from the past several quarters and new monthly enrollments and build clients combined with an increase in the number of passport program managers allowed us to continue to grow account balances, which more than offset the impact of the 50 basis point fed rate cut in September.
Speaker Change: As a result of the strong revenue growth adjusted gross profit for the enterprise segment increased by 34, 5% to $44 1 million, while adjusted gross profit margins were 93, 6% in the quarter compared to 93, 2% in the third quarter of 2023.
Speaker Change: Adjusted EBITDA for the quarter was $40 9 million, which is up 37, 6% from last year's third quarter.
Speaker Change: Moving to consolidated operating expenses.
Speaker Change: Salaries and benefits of $21 7 million increased by only one 6 million or 8% compared to Q3 of last year, which was largely due to the addition of plastic in Q3 of 2023.
Speaker Change: However, on a sequential quarterly basis.
Speaker Change: Salaries and benefits was down by 400000 due to our continued focus on expense discipline.
Speaker Change: SG&A of $12 4 million increased by less than $1 million from Q3 of 2023, and depreciation and amortization of $13 7 million for the quarter decreased by $3 5 million from last year, and it's $1 5 million lower than the DNA in Q2 of this year.
Speaker Change: Moving to the next slide.
Speaker Change: Adjusted EBITDA for the quarter was $54 6 million, which is another new quarterly record for priority and it was an increase of 21, 5% from $45 million last year.
Speaker Change: On an LTM basis, adjusted EBITDA was $197 2 million, which is an increase of almost $10 million from last quarter and almost $34 million since Q3 of last year.
Speaker Change: Interest expense of $23 2 million for the quarter increased by $3 2 million from Q3 2023 levels due to the acquisition related debt increases during Q3 of last year combined with a broader recapitalization effort. We closed in Q2 of this year.
Speaker Change: As seen on page 14, we finished Q3 with $832 9 million of total debt and net debt of $791 8 million.
Speaker Change: From a liquidity standpoint, we ended the quarter with all $70 million of borrowing capacity available under our revolving credit facility and $41 1 million of unrestricted cash on the balance sheet.
Speaker Change: Preferred stock on our balance sheet totaled $105 1 million at September 30th.
Speaker Change: Net of $5 6 million or an accretive discounts and issuance costs.
Speaker Change: Third quarter preferred dividend of $4 8 million included $2 9 million paid in cash and $1 9 million of the Pik component.
Speaker Change: The Q3 dividend was down from $8 4 million in Q2, and $11 8 million in Q1 of this year.
Speaker Change: The lower quarterly dividend was the direct impact of the balance sheet recapitalization that we completed in may of this year, which allowed us to redeem approximately $170 million of the preferred stock.
Speaker Change: When combined with growth and profitability the lower preferred dividend resulted in quarterly net income available to common shareholders of seven cents per share.
Speaker Change: As mentioned on prior calls we remain committed to evaluating opportunities to further optimize our balance sheet, which will have an incrementally positive impact on our net income available to common shareholders.
Speaker Change: 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.
Speaker Change: As Tom noted in his opening remarks, we have affirmed our revenue and adjusted gross profit guidance for the full year. However, we are raising our adjusted EBITDA guidance range by $4 million to a new range of 200 million to $204 million.
Speaker Change: While increases in certain Sox compliance and <unk>.
Speaker Change: <unk> migration expenses have and will continue to provide a modest and expected headwind to adjusted EBITDA. We believe strong revenue growth combined with expense discipline will allow us to offset that headwind and outperform our previously provided adjusted EBITDA guidance.
Speaker Change: With that I'll turn the call back over to Tom for his closing comments.
Tom Priore: Thank you Tim.
Tom Priore: During the closing segment of our earnings call I typically share statistics on the advancement of our product segments to reflect the bright future ahead for our platform.
Tom Priore: Since our performance would seem to make that self evident.
Tom Priore: I want to use this time to comment on a handful of our key decisions of the past.
Tom Priore: That are reflected in the business segment and aggregate performance with shared which reinforce how priority is positioned to continue to sell throughout the remainder of 2024 and beyond.
Tom Priore: Looking back to 2018 upon going public we began diversifying our acquiring assets to add segments and E Commerce real estate construction.
Tom Priore: Health care administration, among others at attractive and I might say inexpensive low risk entry points.
Tom Priore: And all of these assets were early in their transformation to digital.
Tom Priore: Simultaneously, we prudently and consistently built out our complete BTB payable suite.
Tom Priore: Adding capabilities to the platform opportunistically such as the recent acquisition of plastic.
Tom Priore: All while maintaining the profitability of the business segment.
Tom Priore: In 2020, despite the volatility of Covid, while others stood still we transform the.
Tom Priore: The significant gain from the rent payments dot com sale.
Tom Priore: To complete our vision for a unified commerce by adding sincere is counter cyclical ISC partnerships well.
Tom Priore: Well quickly re factoring the banking as a service stack for deployment across our platform.
Tom Priore: And finally last year, recognizing the opportunity to capitalize on customers need for embedded finance solutions and capture market share from bass Counterparties, We believe would falter weak.
Tom Priore: We accelerated our investment in a priority commerce engine feature development daily scaling capacity and risk and compliance capabilities.
Tom Priore: No I highlight all this to say that.
Tom Priore: Pardee has been built with foresight and planning.
Tom Priore: If you were to encapsulate it in one word it would be intention.
Tom Priore: We relentlessly pursue knowledge that can help us see around corners, and operate with a singular focus on creating a reliable consistent long term value for stakeholders.
Tom Priore: By being ahead of market and macroeconomic trends positioning our business to capitalize on tailwind to our thesis emerge.
Tom Priore: From 2018 to 2023, we've delivered compound annual adjusted EBITDA growth of 19, 8%, while reducing our debt to EBITDA ratio by over two turns.
Tom Priore: If we were to include our performance through 2020 for using the $202 million midpoint of our guidance.
Tom Priore: Our compound annual growth rate remains a consistent 19 five 6%.
Tom Priore: The numbers reflect that our tech enabled service platform is delivering on the promise of a personalized financial tool set that can unlock value for partners, whether those are businesses enhancing their profitability through better cash flow visibility and working capital solutions to Isps and F is adding our financial solutions to enhance their.
Tom Priore: Customer experience retention and margin.
Tom Priore: Or resellers building their success by delivering our modern commerce solutions to their existing and growing portfolios.
Tom Priore: Its success is evident in our top and bottom line financial performance and improving margins, which are meaningfully outpaced our peers for several quarters.
Speaker Change: I offer these reflections.
Speaker Change: Our execution over the past several years to reinforce that parties technology operations and decision making are built for the future.
Speaker Change: And we're accomplishing our mission to deliver a thriving ecosystem of financial solutions to accelerate revenue and optimize working capital for the businesses we serve.
Speaker Change: We're delivering this message as we brought in the unified commerce conversation and it resonates with current and prospective customers alike.
Speaker Change: Before concluding.
Speaker Change: I want to thank my colleagues at priority, who continue to deliver results and for working incredibly hard to enhance our industry, leading offering every day.
Speaker Change: Your commitment and dedication to continuing to improve.
Speaker Change: Everything we do is clear providing our customers a constant reminder, that they made the right choice to partner with priority.
Speaker Change: Last.
Speaker Change: We continue to appreciate the ongoing support of our investors and analysts.
Speaker Change: And for those in attendance, who are new to priority.
Speaker Change: You for taking the time to participate in today's call.
Speaker Change: And learn a bit more about us.
Speaker Change: Operator, we'd now like to open the call for questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre 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 two our first question.
Speaker Change: Comes from Tim Switzer with K B W. Please go ahead.
Speaker Change: Hey, guys. Thank you for taking my questions.
Speaker Change: Yeah.
Speaker Change: Hey, good morning.
Speaker Change: Hey, Tim.
Speaker Change: My first question is kind of on the.
Speaker Change: The developments this week with the election results and Trump coming into office does the change in administration and possibly the Red sweep change your outlook in any way whether that potential.
Speaker Change: Potential economic impacts or maybe something on the regulatory side.
Speaker Change: It doesn't change our outlook we were.
Speaker Change: I'll just say, we felt like we were pretty well positioned.
Speaker Change: For either outcome.
Speaker Change: Try to be very intentional about kind of <unk>.
Speaker Change: What the whats.
Speaker Change: What's developing in the macro environment and you know.
Speaker Change: Certainly the administration change.
Speaker Change: Change.
Speaker Change: Would be a factor.
Speaker Change: If you.
Speaker Change: If anything I think there are some segments, where we've been.
Speaker Change: Hum.
Speaker Change: <unk> focused on <unk>.
Speaker Change: Regulation.
Speaker Change: That you know will.
Speaker Change: Very likely ease off a bit.
Speaker Change: And.
Speaker Change: So sectors like.
Speaker Change: No that that resolution, where you know we have.
Speaker Change: Participants that are integrated to us we think we'll have you know further.
Speaker Change: Further tailwind.
Speaker Change: So I would say on balance probably a bit to the upside.
Speaker Change: Yeah. The thing that will be focused on more but we've kind of built them already into our projections are.
Speaker Change: You know, what's going to be the impact on interest rates.
Speaker Change:
Speaker Change: <unk>.
Speaker Change: That's probably the factor will will be most focused on but again we've already.
Speaker Change:
Speaker Change: Yeah, we've we've kind of managing things to the forward curve.
Speaker Change: Yeah, we've we feel like we are.
Speaker Change: We're properly positioned.
Speaker Change: Okay, Great and then.
Speaker Change: We look forward to 2025, what are some of the you.
Speaker Change: No revenue drivers that could drive some upside or downside.
Speaker Change: The outlook. There you know you guys have mentioned different levers you could pull on the Platte on plastic in the <unk> segment.
Speaker Change: Just kind of curious on an update on those and what that means for 'twenty five.
Speaker Change: Sure.
Speaker Change: Yeah look we've been very prudent.
Speaker Change: Prudent I guess I would say about the <unk> segment.
Speaker Change: And.
Speaker Change:
Speaker Change: You know where.
Speaker Change: We're seeing.
Speaker Change: Very high growth within that segment, we don't expect that.
Speaker Change: To to Oh.
Speaker Change: You know to tough.
Speaker Change: A fall off anytime soon.
Speaker Change: So you.
Speaker Change: If anything I would say you know that.
Speaker Change:
Speaker Change: As we're looking further out we probably dialed that back you know that's that's potential for upside as more and more adoption of.
Speaker Change: Working capital solutions.
Speaker Change: We're adding salespeople as well.
Speaker Change: So.
Speaker Change: Those aren't really built into our.
Speaker Change: And to our our go forward expectations.
Speaker Change:
Speaker Change: The biggest impact you know we think we can see is is this continued convergence of call of payments and banking embedded finance.
Speaker Change: Different folks have different.
Speaker Change: Terminology for it.
Speaker Change: But.
Speaker Change: We can implement.
Speaker Change: Those solutions that add meaningful incremental they just all the revenue hits the bottom line.
Speaker Change: We just don't have to expend Additionally to capture those opportunities.
Speaker Change: I'll, just say, we're well positioned.
Speaker Change: Where we.
Speaker Change: We haven't built in that upside into our expectation. So so that's where really the all the the major upside is is.
Speaker Change: This continued adoption of embedded finance that you know we've.
Speaker Change:
Speaker Change: We've tended to.
Speaker Change: Underestimate within our models and that's where you're seeing you know our guidance upward as a reflection of that.
Speaker Change: That you know, we're just guiding up upward as it gets monetized in reflected in the in the income statement.
Jim: Jim anything you might add.
Jim: I think I'd just echo as maybe some of my earlier comments on the prepared remarks around just the mix of the business and to Toms point of.
Speaker Change: Increasing the guidance as we continue to see you know higher run rates in certain parts of the business and as B to B and enterprise continue to grow faster right. Those are higher margin segments, which is why youre seeing the EBITDA guidance move up right, So where we're having more and more of our business be.
Speaker Change: A highly recurring and coming from other parts of our business. Then you know what used to be kind of just the legacy SMB business as we continue to evolve the platform and the technology and move much more towards the <unk>.
Speaker Change: A unified Commerce engine.
Speaker Change: Tim I'll make one other comment and again. This is this is not built into our guidance or kind of how our outlook for 2025, because it would all be.
Speaker Change: Opportunistic, but the there's there are segments that I would just define as large addressable Tam.
Speaker Change: That are still early in the cycle, where we think we have some unique assets.
Speaker Change: Real estate is a good example.
Speaker Change: <unk>, where we're doing some things in construction.
Speaker Change: And and property management on the Treasury side that.
Speaker Change: <unk> is picking up momentum you know there's other segments. It there they're heavy utilization of payments.
Speaker Change: Payroll is a good example.
Speaker Change: Where we think there's opportunity obviously the largest expense of any business.
Speaker Change: And.
Speaker Change: We think we've got some differentiators because in that segment money transmission is becoming much more important to operators.
Speaker Change: As regulators consider removing.
Speaker Change:
Speaker Change: Uh huh.
Speaker Change:
Speaker Change: Some of the latitude that payroll operators had in the past requiring them to be licensed and.
Speaker Change: So sectors like that.
Speaker Change: Areas banking as a service you saw the FDIC regulation that came down.
Speaker Change: Recently, that's requiring.
Speaker Change: Banks to be much more granular and they're look through to account holders like theres opportunities for our technology. There. So again. These are all I'll just call it upside opportunities that we are there already built into our capabilities.
Speaker Change: But we are in the early days of mining.
Speaker Change: That we think have.
Speaker Change: Significant upside.
Speaker Change: And you know as they as they manifest.
Speaker Change: Will will reflect them in the mix.
Speaker Change: That's great really helpful. Thank you guys.
Speaker Change: And the next question comes from Brian <unk>.
Brian Singer: Singer with Alliance Global Partners. Please go ahead.
Speaker Change: Great. Thanks, so much great results.
Speaker Change: Organic growth in the enterprise segment continues to be solid.
Speaker Change: And if I'm looking at the numbers the average monthly new enrollments re accelerated in the September quarter compared to the June quarter has anything changed there and is this a leading indicator to an accelerated pace of revenue growth for that segment, just wondering how to think about that metric.
Speaker Change: Hi, Brian.
Speaker Change: Nothing changed I think we continue to see strong trends in that business with strong enrollments yeah. There certainly is.
Speaker Change: A little bit of seasonality to it from a new enrollment standpoint.
Speaker Change: General Youll see a little bit lower enrollments you know around the holidays.
Speaker Change: I think the overall enrollment trend, though has been pretty consistent but this is just year over year growth with our customers and their success in their markets right. So we're continuing to see those trends nothing.
Speaker Change: Nothing abnormal that caused any any changes there or just normal organic growth with our with our customer base.
Tim OLeary: And then Tim at the end of your comments.
Speaker Change: I thought there was new piece of the script on strategically thinking about ways to Delever and.
Speaker Change: And see it last quarter, maybe you've said that before but my question is EBITDA to cash flow conversion has been on the low end given your interest expense.
Speaker Change: In the past you've made some strategic decisions to generate cash and now with CP X ramping but being a very small asset and a much larger company I'm sure. It's hard to generate the market value for what that is I guess is there any thoughts to strategic decisions to reduce your leverage ratios outside of you know normally cash flow.
Tim OLeary: Normal cash flow and quarterly payments.
Speaker Change: Oh, we're always looking at opportunities I mean, as you've seen and you've been around the company a long time, you've seen the team take action both on the buy side and the sell side and look.
Tim OLeary: Look to drive value for our shareholders and we will continue to do that.
Tim OLeary: Nothing nothing imminent I think we're executing we're growing EBITDA, we're improving cash flow to your point that's been one of our focus items. This year, obviously, we address part of the preferred equity earlier. This year that has a positive impact given we replaced.
Tim OLeary: The cash component of that preferred equity with a lower cost piece of secured debt.
Tim OLeary: We'll continue to evaluate the capital markets and find opportunities to further optimize the balance sheet and lower our cost of capital, which will drive even more cash flow as well as driving more income to the bottom line and ultimately you know more EPS for shareholders. So.
Tim OLeary: Nothing imminent from a young asset sale buy side.
Tim OLeary: Development that you're referencing but we always look at those opportunities where if nothing else. We're always looking at the ways to drive shareholder value and being.
Tim OLeary: <unk> with the assets we have.
Speaker Change: Great. Thank you.
Brian Singer: And the next question I would come back pardon me for one second Brian.
Speaker Change: Just coming back to your initial question on Hey, do we do we think we're going to see some you know has there been anything that's changed in the you know in the enterprise.
Speaker Change: <unk> segment.
Speaker Change: I would submit to you that.
Speaker Change: With.
Tim OLeary: There there were interesting changes in.
Tim OLeary: The credit repair space.
Tim OLeary: <unk> are actually bullish for where we play.
Tim OLeary:
Tim OLeary: That's been a sector of the CFPB has really come down hard on.
Tim OLeary: The.
Tim OLeary: The result is.
Tim OLeary: Theres more customers, who are on our consumer wellness journey that.
Tim OLeary: The gravitates to our customer base.
Tim OLeary: Helping them actually resolve debts more actively which I think is the right move. It you know it was probably long overdue, but has that manifested I do think that's permanent.
Tim OLeary: So there is a I'll just call the the revenue opportunity in that segment has shifted its its more attractive it is going to present, a broader pool of consumers that are left this route.
Tim OLeary: And youre seeing that in a lift in our numbers and its consistency and I don't I don't think it reverts back.
Tim OLeary: In the future.
Tim OLeary: So.
Tim OLeary: That does speak to kind of the your your earlier question of it's you know us.
Tim OLeary: There anything change I would I would submit that.
Tim OLeary: That's the piece that you know.
Tim OLeary: Great I appreciate it youll see historically.
Speaker Change: And the next question comes from Jacob Steven with Lake Street Capital markets. Please go ahead.
Jacob Steven: Hey, guys. Thanks for taking the questions congrats on the quarter.
Speaker Change: Just wanted to ask a question on kind of your sales efforts surrounding kind of the cross sell opportunity between enterprise and.
Speaker Change: <unk>.
Tim OLeary: Maybe just any kind of color.
Tim OLeary: Qualitatively or quantitatively.
Tim OLeary: Around kind of the cross sell success you guys have been having would be helpful.
Speaker Change: Yeah, I don't know, we're at Liberty to kind of share specifics is there you know there.
Speaker Change: Their individual enterprise partners.
Speaker Change:
Speaker Change: You know that our.
Tim OLeary: That are contracting with us but.
Tim OLeary: Look we're just.
Tim OLeary: The adoption of our thesis of hey payments and banking activities should happen in one place.
Tim OLeary: Is.
Tim OLeary: It's just resonating you know and it's <unk>.
Tim OLeary: It's either being fully implemented at one time or it is being we're just winning because theres an eventuality to the customer that starts in payments one any other features and not wanting to have to do two to three connections.
Tim OLeary: I'll give you just a couple of hypothetical examples.
Tim OLeary:
Tim OLeary: Anyone who is a sports fan out there knows that.
Tim OLeary: It was a particularly.
Tim OLeary: Particularly of College sports fan you know Theres, a lot going on in <unk> and the name image likeness space right.
Tim OLeary:
Tim OLeary: That's a segment, we built out custom applications.
Tim OLeary: We're seeing you know.
Tim OLeary: Larger Isps in and.
Tim OLeary: Universities adopt our technology, we're now a and as student athlete.
Tim OLeary: Not only gets an application with their training schedule and practice schedule in.
Speaker Change: Class schedule.
Speaker Change: But also an embedded wallet where any of their participation in.
Tim OLeary: Collective in calmer and IL Nal income.
Tim OLeary: It's.
Tim OLeary: It comes through us.
Tim OLeary: And you know it enables them to manage that money.
Tim OLeary: Yeah, that's entirely new market, where you know.
Tim OLeary: You know, we're kind of leading that effort.
Tim OLeary: And that's one example, or you know whether it's a.
Tim OLeary: Insurance segments and that ranges from everything from veterinary to P&C, where you know not only.
Tim OLeary: Do I want to you know, where where I would normally send out an AC H two to an insured party instead when they come in and buy insurance I can set them up with a wallet fun that wallet and their spend didn't come off debit card for whatever their you know their coverages those are becoming just modern experience.
Tim OLeary: Is that consumers are really comfortable then expect but you know <unk>.
Tim OLeary: Insurers want to deliver so those are just a few examples of kind of where.
Tim OLeary: Back in the day it might just be a you know a simple.
Tim OLeary: Payment.
Tim OLeary: Transaction of money moving to now it makes its way to a bank container that has a lot of other features associated with it and that's.
Tim OLeary: That's where we're seeing the evolution examples like that.
Speaker Change: Okay. That's interesting thank you.
Speaker Change: And then I just wanted to ask a question on the guidance.
Tim OLeary: When you look at kind of sequentially Q3 to Q4.
Tim OLeary: Q4 is typically your strongest quarter.
Tim OLeary: But the midpoint implies maybe only just a slight sequential uptick into Q4 for revenue.
Tim OLeary: Maybe you can help us understand some of your assumptions.
Speaker Change: You bet.
Speaker Change: Revenue guidance.
Speaker Change: Sure Yeah, So I think we.
Speaker Change: When we look at the trends in the business and certainly look across all the various segments and what we're seeing and I think we're still looking at you know a very solid year over year growth.
Speaker Change: If you look at our Q4 guidance.
Speaker Change: Guidance, if you back into that number from the full year guidance.
Todd: So still very nice double digits Todd.
Speaker Change: Topline your strong organic growth and then continue to expand the overall margins and improving EBITDA and the bottom line.
Speaker Change: Sequentially it looks a little flatter right I think we're always going to take a realm.
Speaker Change: Relatively conservative view and to Toms point some of these newer initiatives you know it could be could be further upside, but not really fully reflected in the in the financials just yet and.
Speaker Change: And I think we're also looking at it.
Speaker Change: <unk> you know rate declines yeah, obviously, we'll see what the fed does this afternoon, but if you look at the probabilities out there from a curve standpoint, it would certainly imply a 25 basis point cut today and.
Tim OLeary: We've seen a little bit of shift in what the market thinks the fed will do in December we'll see if that continues to evolve over the next month or so but that certainly has an impact as well as you think about just the the revenue and EBIT D E and our business has less of an impact on cash flow, given where effectively hedged between the floating rate income we generated.
Tim OLeary: Permissible investments and the floating rate interest will pay on our debt as well as the preferred equity. So the cash flow impact is minimal but interest rates will certainly have an impact on the revenue and EBITDA in the quarter.
Speaker Change: Okay, great. Thank you I'll turn it over.
Speaker Change: And the next question comes from how <unk> with loop capital. Please go ahead.
Speaker Change: Okay.
Speaker Change: A quick question on Plastique. It seems to me. It was $8 million addition to remedy that you announced that acquisition in Q2. It closed in Q3 could you just give us a feel for like maybe what the.
Tim OLeary: Run rate is on the you know the last most recent month or so.
Tim OLeary: September monthly rate it seems to be gaining some momentum in electric.
Speaker Change: A little bit more color on what that momentum is.
Speaker Change: Sure Hi al.
Speaker Change: Not sure what company in Australia, but we know what we know.
Speaker Change: Yeah No. Good question I think the.
Tim OLeary: The acquisition closed August 1st of last year right. So we had we had two months in the third quarter last year, obviously, a full three months of this year. So that's that's a large portion of that 8 million of grow over that we reference in the in the growth in the business.
Tim OLeary: But for the quarter the plastic business.
Tim OLeary: <unk> performed well right I think it's continuing to grow we're seeing that business.
Tim OLeary: It's doing.
Tim OLeary: Yep.
Tim OLeary: Six 7 million of revenue a month right.
Tim OLeary: Right now and growing.
Tim OLeary: We've continued to maintain very strong profitability in that business, obviously, when we acquired it it was.
Tim OLeary: It was losing money and burning cash.
Tim OLeary: We bought the assets out of bankruptcy very quickly integrated it into the broader priority enterprise as well as into priority payables. So we've.
Tim OLeary: We've taken out a lot of the costs, we've integrated that business, both from a technology standpoint, as well as even the team.
Tim OLeary: So I think we're very happy with where it sits today from a profitability standpoint.
Tim OLeary: We're going to continue to drive the topline and combining it with <unk> and offering a fully rounded out priority payable solution will help take it to the next level, but that's still early in the stages of going to market as a unified solution, but that's that's in process now.
Speaker Change: Alright perfect. Thanks.
Speaker Change: And our last question comes from Clark <unk> with orbit capital. Please go ahead.
Speaker Change: Yeah, Hi, thanks for taking the questions just I'm curious in F. N b. The numbers are pretty strong I'm just curious what you see in sort of a competitive.
Speaker Change: From a competitive standpoint.
Tim OLeary: That market.
Tim OLeary: Yes sure.
Tim OLeary: And it's nice to be introduced.
Tim OLeary: Yeah, that's gonna be segment like we are we're pretty confident that we continue to grab market share from some of the peers.
Tim OLeary:
Tim OLeary: The.
Tim OLeary: We're continually winning on you know on the reseller side. So you know what I think has been the driver of our consistent growth is.
Tim OLeary: You know we've had.
Tim OLeary: Long standing resellers that.
Tim OLeary: They trust us.
Tim OLeary: To guide them towards the future. So we're seeing.
Tim OLeary: Lift.
Tim OLeary: By bringing products like <unk>.
Tim OLeary: Our our priority capital is one good example, right bringing passport banking.
Tim OLeary: So the adoption of those products into our existing merchant base.
Tim OLeary: Is accelerating.
Tim OLeary: The other component of that is.
Tim OLeary: The traditional community in merchant acquiring is recognizing.
Tim OLeary: I'm not set up well for this future of commerce.
Tim OLeary: That customers are looking for things that are more bundled.
Speaker Change: Software that will not only handle my accounts receivable write my card transaction volume coming in but we're I can quickly disposition that cash flow into working capital to pay vendors and have options there well our technology enables all of that so.
Speaker Change: We picked up some some really nice franchise opportunities.
Tim OLeary:
Tim OLeary: We've seen good adoption of our Amex merchant point of sale.
Tim OLeary: You know it's lifted in the coming in this last quarter.
Tim OLeary: After kind of a beta through the first.
Tim OLeary: Six eight months of the year.
Tim OLeary: So.
Tim OLeary: That's that's been the driver.
Tim OLeary: And the nice thing is we're we're early days in <unk>.
Tim OLeary: That expansion of our <unk> Pos tools.
Tim OLeary: So we think that'll be a catalyst for growth and then our ability to capture not just that.
Tim OLeary: A our bank card processing volume in but the storage of that money in our passport banking and then the ability to use those funds to pay bills in and manage excess working capital.
Tim OLeary: All in one place just you know.
Tim OLeary: It really gives us the ability and our partners to earn in three ways as opposed to one so you know that.
Tim OLeary: That that's.
Tim OLeary: That's where the market's headed we think were among the leaders of it and.
Tim OLeary: If not the leader and.
Tim OLeary: We anticipate that's.
Tim OLeary: That's how we have to drive margin growth.
Speaker Change: Yeah. Thank thank you for all the detail that that's super helpful.
Speaker Change: Any competitor that in particular that you run up against them in the market you know world pay was.
Tim OLeary: Spun out in new ways quite active I I don't know if there's anyone out there you could call out as doing a particularly good job or batch up.
Speaker Change: I don't think we want to get into talking about competitors directly on the call I think our performance.
Tim OLeary: Hopefully speaks for itself I think if we look at the data that's out there in the industry and you look at just some of the.
Tim OLeary: The visa Mastercard level data, our bankcard volume growth is roughly double what youre seeing for other.
Tim OLeary: Similar position businesses and even some of these larger ones. So I feel like our performance is speaking for itself relative to the growth we're experiencing.
Speaker Change: Well I will let the other competitors can speak about their own business.
Speaker Change: Okay I appreciate it thanks.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Tom.
Tom Priore: Priore for any closing remarks.
Tom Priore: All right well.
Tom Priore: Thank you for all the questions.
Tim OLeary: I appreciate everyone, taking the time to learn about.
Tim OLeary: Our plans for the future as well as.
Tim OLeary: Evaluate our performance in the current quarter. So hope everyone has a going into the holidays fantastic Thanksgiving.
Tim OLeary: And holiday season, and we'll look forward to speaking to everybody as we wrap up what we anticipate will be consistent.
Tim OLeary: 2024, thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.