Q1 2025 Priority Technology Holdings Inc Earnings Call
Theories of the Soul Robson College
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Speaker Change: Greetings, and welcome to the Priority Technology Holdings Q1 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Meg Namira, Mending Director, ICR. Thank you. Thank you. Thank you.
Speaker Change: Good morning and thank you for joining us with me today are Tom Priore, Chairman and Chief Executive Officer of Priority Technology Holding and Tim OLeary Chief Financial Officer.
Speaker Change: Before giving a prepared remarks, I would like to remind all participants that are comments today will include forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from a forward-looking statement.
Speaker Change: The company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Speaker Change: We provide a detailed discussion of the various risk factors in our SEC filings and we encourage you to review these filings.
Speaker Change: Additionally, we may refer to non-GAAP measures , including but not limited to EBITDA and Adjusted EBITDA during the call.
Speaker Change: Reconciliation of a non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our press release and SEC findings available in the Investor section of our website.
Speaker Change: With that, I would like to turn the call over to watch Raymond and CEO John Priore.
Tom Priore: Thank you, Magna, and thanks to everyone for joining us for our first quarter 2025 earnings call.
Tom Priore: I'll begin today's call by highlighting our aggregate performance that reinforces our consistent revenue and adjust the EBITDA guidance for 2025. Before handing it over to Tim, we'll provide segment-level performance.
Speaker Change: Key trends in developments within each of our business segments and priority overall.
and government cuts that emerge in Q1.
Speaker Change: Summarized on slide three, Priority had a solid Q1 by every key financial metric.
Speaker Change: Proing net revenue by 9% generating adjusted gross profit and adjusted EBITDA growth of 14 and 11% respectively and increasing adjusted EPS by 19 cents a year over year.
Speaker Change: We ended the first quarter with over 1.3 million total customer accounts operating on our commerce platform up from 1.2 million at the end of the year.
Speaker Change: Annual transaction volume increased by $5 billion to over $135 billion and account balances under administration improved to $1.3 billion versus $1.2 billion at year-end 2024.
Speaker Change: Tim will walk through the full year 2025 guidance specifics, and some of the more noteworthy trends we are seeing within our FMB acquiring, B2B payables, and enterprise payment segments later in the call.
Speaker Change: Based on strong growth trends and continued favorable shift in business mix, I'm confident that the company can achieve 10-14% offline revenue growth to a range of $965 million
Speaker Change: and Generated Adjustity Bada of 220 to 230 million in 2025.
Speaker Change: This confidence comes from the value of our unified commerce platform, which streamlines collecting, storing, lending and sending money that is delivering revenue and operational success to our customers despite likely headwinds related to lower interest rates and a somewhat murky macro economic environment.
Speaker Change: Turning our attention to our Q1 results noted on slide 4, revenue of 224.6 million increased at least 9% from the prior year.
Speaker Change: This led to a 14% increase in adjusted gross profit to 87.3 million and an 11% improvement in adjusted EBITDA to 51.3 million.
Adjusted gross profit margin of 38.9% increased to 170 basis points.
Speaker Change: For those of you who are new to Priority, slide five highlights our vision for unified Thomas.
Speaker Change: The Priority Commerce engine is purpose-built, to streamline collecting, storing, lending and sending money, and delivers a flexible financial tool set for merchant services, payables, and banking and treasury solutions to accelerate cash flow and optimize working capital for businesses.
Speaker Change: I would encourage you to play the short one to two minute videos embedded in the product link on this slide to gain a more fulsome appreciation for their value and how they are being leveraged by our growing customer base. [inaudible]
Speaker Change: While our financial performance demonstrates that partners consistently choose priority to help power their business.
Speaker Change: I thought it would be useful for investors to gain a deeper appreciation of why we are emerging as a go-to solution provider for embedded finance solutions.
Speaker Change: Using an implementation framework, we typically see within our enterprise payment seconds.
Speaker Change: Flagstick highlights a typical partner integration to our Payments in Banking API.
Speaker Change: Importantly, this framework is consistently applied whether the partner is a sports management software company, a debt resolution provider leveraging CFT pay, a payment facilitator, or property management technology company.
Speaker Change: Customers connect and can access all routes for digital payment acceptance.
as well as lockbox for checks.
Great FDIC pass through, ensure full feature of virtual bank accounts.
Speaker Change: and virtual and physical part issuing, bill payment and automated payables options at their own pace.
Speaker Change: Our tightly coupled platform creates two important benefits for Priority's long-term prospects.
Speaker Change: Now first, it allows our partners to choose your adventures we like to say.
Speaker Change: and evolved their offering to respond to opportunities as we had features in collaboration with their goals.
Both parties.
Speaker Change: Have a clear line of sight to quantify and access revenue growth opportunities.
Speaker Change: This creates loyalty and gives us the ability to grow with our partners' businesses.
A second.
Speaker Change: By maintaining operational workflow consistency across implementations in diverse industry segments, we can clearly identify our operational metrics in key areas like compliance, payment operations.
Speaker Change: Ritzk, Applications Report, and the like to ensure that we scale cost efficiently.
Speaker Change: We're committed to meeting our customers where they are and by refining the experience for our partners in order to make working with priority seamless and easy.
Speaker Change: Now this vision explains why we've been able to continually transform priority into high performing payments and banking fintech with consistently strong recurring revenue prospects.
Speaker Change: Our customers and current market conditions reinforce our belief that systems facilitating payments and banking solutions to accept and distribute funds in multi-party environments will be critical.
Speaker Change: as businesses put greater demands on software and payment solution providers to unlock value in existing and developing channels.
Speaker Change: At this point, I'd like to hand it over to Tim to provide further insight into the health of our business segments, along with current trends in each that factored into our first quarter results and confidence for sustained performance in 2025.
Tim O'Leary: Thank you, Tom. Good morning, everyone. I'll start on slide 8. As Tom mentioned, we had strong financial performance across the business in the first quarter, and the Priority Commerce India continues to generate high growth in our higher margin operating segments.
Tim O'Leary: I'll go into more detail in the segment results, but B2B revenue grew over 12% and enterprise revenue grew over 22% on a year-over-year basis for the quarter.
Tim O'Leary: That growth has resulted in adjusted gross profit from our B2B and enterprise segments now representing 62% of our total.
Tim O'Leary: The growth in those higher margin segments also allowed for overall margin expansion as adjusted gross profit margins improved by over 170 basis points from Q1 2024.
Tim O'Leary: The continued shift in our business mix also contributes to the highly visible and recurring nature of our business model is nearly 62% of adjusted gross profit in Q1 came from recurring revenues that are not dependent on transaction accounts or car volumes.
Tim O'Leary: Moving out of the segment all of our results and starting with the SMB segment on slide 9
Tim O'Leary: SMV generated T1 revenue of $151.7 million, which is $7.7 million or $5.3% higher than last year.
Tim O'Leary: Day count for the quarter, compared to last year, had an approximate 2% drag on the growth rate.
Tim O'Leary: SMD's Revenue Growth was a combination of strong 10% growth in the core portfolio, partially offset by the continued attrition of historical residual portfolio purchases, along with risk pairing and specialized acquiring in advance of certain network program management changes being implemented that we believe will benefit us in the future.
Tim O'Leary: Total card volume was 17.7 billion for the quarter, which is up 3.4% for the prior year. Again, Day count also had an impact on volume growth given fewer processing days and 2.1 of 2025.
Tim O'Leary: From a merchant standpoint, we averaged approximately 178,000 accounts during the quarter, but modestly from 177,000 to Q1 of 24.
Tim O'Leary: While new monthly boards averaged $4,100 during the quarter compared to $4,300 and Q1 last year and $3,700 and Q4.
Tim O'Leary: Gross margins of 21.8% in the quarter are down 30 basis points from last year, but sequentially increased almost 130 basis points from Q4 as we recovered certain credit loss of during the quarter that were charged off in early 2024.
Tim O'Leary: On a year of a year basis, margins were impacted by the combination of reseller mix, lower specialized acquiring revenue, and the attrition of historical residual portfolio purchases.
Tim O'Leary: Lastly for SMB, Adjusted EBITDA was 25.7 million, which is up 2.7% for last year.
Tim O'Leary: Adjustment EVDA growth lagged, adjusted growth profit growth in the quarter because of increased salary and benefits, along with higher software expenses related to the previously discussed migration to the public cloud, which will convert certain cat-backs to op-ex but provide longer-term benefits to the company.
Tim O'Leary: To clarify, when we use the terms buyer funded and supplier funded, we're referring to who is paying the interchange or credit card related fees.
Tim O'Leary: In the supplier-funded model, or what we've historically referred to as CPX, the supplier accepted card payment, net of the interchange discount, because they want to receive the payment faster while receiving the funds electronically with reconciliation back into their GL and without the cost of handling paper checks.
Tim O'Leary: In the buyer-funded model, which came by the plastic acquisition, the buyer pays the card fee because they want to utilize existing credit card capacity to extend their payables terms and optimize their working capital while generating cashback or rewards points for using their cards.
Tim O'Leary: The buyer-funded businesses increased focus on enterprise-level customers and large bank or fuel partners, so success in the quarter as companies seek to optimize the working capital and streamline their payables operations in the face of rising input costs, whether the resulting from general inflation or from increased tariff rates.
Tim O'Leary: Adjusted gross profit and B2B increased to 7.3 million in the quarter, which is a 17.8% increase over the prior year. For the quarter, gross margins are 30.5%, or 150 basis points higher compared to 29% in the first quarter of 2024.
Tim O'Leary: The B2B segment produced 3.5 million of adjusted EBITDA during the quarter, which was a 1.8 million or 101% increase over the comparable period in 2024.
Tim O'Leary: The Acceleration of Adjusted EPA Growth, compared to Adjusted Gross Profit, was driven by strong operating leverage in the segment, including a 14% reduction in operating expenses on a year-over-year basis.
Moving to the Enterprise segment.
Tim O'Leary: He won revenue with $50.1 million, was an increase of $9.1 million or 22.2% from the prior year.
Tim O'Leary: Revenue Growth was driven by continued strong enrollment trends and an increase in the number of build clients and CFT-5 combined with an increase in the number of integrated partners in organic, same-store sales growth with those existing partners.
Tim O'Leary: Fire Account Balance is a CFT pay and passport. We're able to largely offset the impact of lower interest rates in the quarter.
Tim O'Leary: As a result of those factors, adjusted gross profit for the enterprise segment also increased by 22.2% to 46.9 million while adjusted gross profit margins remained at 93.6%.
Tim O'Leary: Adjusted to DA for the quarter was 42.4 million, an increase of 7.7 million or 22.2% from the prior year's first quarter.
Tim O'Leary: Overall profitability and enterprise was driven by continued strong performance in CFTP, which offset investments made in newer verticals that we believe will provide the next leg of the growth stool for the enterprise segment.
Moving to Consolidated Operating Extences
Tim O'Leary: salaries and benefits of $25.8 million increased by $3.6 million, or $16.4% compared to Q1 last year, and SGNA a $15.1 million increased by $4.1 million from Q1 of 2024.
Tim O'Leary: Higher NSGNA expenses were driven by increased spend on software, including the continued public cloud migration, higher marketing expenses in the quarter, and certain non-recurring legal and other expenses, including those related to the secondary equity offering we closed in January .
Tim O'Leary: Moving to the capital structure and liquidity overview, debt levels during the quarter declined to 935.5 million, following a $10 million pre-payment of the term loan during the quarter.
Tim O'Leary: We ended the quarter with 117.6 million of available liquidity, including all 79 of bar on capacity available under our revolving credit facility, and 47.6 million of unrestricted cash on the balance sheet.
for the LTN period at his March 31st.
Tim O'Leary: Adjusted EBITDA of 209.2 million represents 4.9 million of sequential quarterly growth from 204.3 million at the end of Q4.
Tim O'Leary: This growth and adjusted EPA combined with net debt of $887.9 million resulted in that leverage of 4.2 times a quarter end, which is down from 4.3 times at 2024's year end.
Tim O'Leary: As mentioned on our last earnings call, we will continue to focus on opportunity to reduce leverage on our balance sheet.
Tim O'Leary: while also remaining nimble in the face of inorganic growth opportunities in this market.
Tim O'Leary: If you were to use the midpoint of our 2025 Adjusted EPA guidance, we would be under four times leverage by your end based on today's net net balance.
Tim O'Leary: This is the first quarter since I joined priority where this page doesn't include mention of the preferred stock dividend with the redemption and full of the preferred stock in 2024. I'm happy to report that all of our net income now flows to the benefit of our connoisseur holders.
Tim O'Leary: which resulted in adjusted EPS of 22 cents for the quarter. That compares to 18 cents in Q4, 2024, and three cents in Q1 or last year.
Tim O'Leary: As Tom mentioned, based on our Q1 results and our forecast for the remainder of the year, we are maintaining the full year financial guidance that was provided on our Q4 2020-24 earnings call.
Tim O'Leary: This outlook is informed by the current environment where consumer spending remains stable and interest rate changes remain aligned with current market forecasts.
Tim O'Leary: If you compare Q1 results to the Full-Year Guidance, the simple math will show that we're not 25% of the way there yet, but our expectation is and has been that we will grow revenue and profits sequentially each quarter as we move through the year.
Tom Priore: Before I turn the call back over to Tom, I wanted to provide an update on our progress in the remediation of the material weakness related to the design and operating deficiencies and certain automated controls around ingestion and elevation of third-party process or
Tom Priore: As noted in our 10K and comments on our last earnings call, the material weakness did not result in a restatement or any change to our consolidated financial results.
Tom Priore: The Board of Directors and Imagine Team are actively working to remediate the automated control
Tom Priore: As of today, the team has made substantial progress in those efforts and we are testing the existing data translation controls in a non-production environment.
Tom Priore: Once we are certain, those controls meet our internal standards and those of our external auditors. We will move them into a production environment for formal certification.
Tom Priore: To be clear though, the material weakness will remain intact until we complete our fiscal 2025 audit process and receive a formal opinion from our external auditor.
Tom Priore: With that, I'll now turn the call back over to Tom for his closing comment.
Thank you, Tim.
Tom Priore: Before concluding, I want to speak to Priority's market positioning as consumers, businesses and investors reconciled to current economic picture.
0.3% decline in US GDP during the first quarter.
Tom Priore: Consumer Spending, which counts for two-thirds of GDP, grew by only 1.8% in the quarter from a healthy 4% exiting 2024.
Tom Priore: April 32% decline in consumer sentiment to levels not seen since the 1990s recession.
is clearly a challenging environment.
But candidly not one that has surprises.
Tom Priore: Entering 2025, we believe the post-election optimism for economic growth required near perfect execution.
Tom Priore: and we were more likely to experience measures of volatility and uncertainty.
Therefore, our goals were basic.
Tom Priore: The game market share in the acquiring segment as cyclical challenges we anticipated emerged.
While continuing to strengthen our counter-sickled gal assets, including automated payables,
Tom Priore: NCFTP, and investing efficiently in new verticals with large pams that are still early in the adoption of integrated payment and banking solutions.
Tom Priore: In fact, during our 2024 year-end earnings call, we reflected that there was less likely to be growing urgency for working capital solutions among US businesses. As Harris took shape,
Tom Priore: and that our CFP pay business was well positioned for growth by assisting the increasing population of stress consumers, sign financial wellness to debt resolution.
As our results demonstrate, we executed in each regard.
Tom Priore: While the card ran networks in large-scale issuing banks reported 3-5% volume growth,
Our core acquiring channels produced 10% organic revenue growth.
Meanwhile,
Our counter-cyclical segments grew 12 and 22% respectively, despite investments.
Tom Priore: for the future in emerging integrated verticals like payroll and benefits.
Tom Priore: Real Estate and Construction Technology and Sports Entertainment, we're collecting, storing and sending money are an important part of the value chain.
Tom Priore: would cause a modest drag on a result while they scale.
Now I offer these observations to our stakeholders with humility.
Tom Priore: And recognition from our teams that success must be earned each day with relentless pursuit of execution.
An openness to critique and thorough evaluation to avoid complacency.
Particularly as economic conditions can further erode.
Tom Priore: We're hopeful that our consistent results in the first quarter of 2025.
Tom Priore: and a unified commerce vision that has delivered five-year compound annual adjustity but a growth of 19.8% through the end of 2024 will convince our current and future stakeholders that priority routinely stays ahead of the market trends.
Tom Priore: and its technology, operations, and decision-making are geared for the future of payments in banking.
Put it simply, we're built different.
As always,
Tom Priore: I want to thank my colleagues at Priority who continue to work incredibly hard to deliver industry leading results.
Tom Priore: Your commitment and dedication to improving everything we do is clear.
Tom Priore: Providing our partners and customers with a constant reminder that they may the right decision to partner with priority.
Tom Priore: Last, we continue to 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 in today's call.
Operator
We'd like to now open the call for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Tom Priore: You may press star two if you would like to remove your question from the queue for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys.
One moment, please. I'll be pulled for questions.
Speaker Change: The first question is from how Goetsch from B. Riley's Securities, please go ahead.
Hal Goetsch: Big thanks, guys. Quick question on expenses, you know, SG&A dollars and salaries and benefits rose, about $5 million in spending sequentially. And I know you called out, you know, the secondary offering and the cloud migration. Did you get, did you parse out some of those numbers for us? Let us know, you know.
Speaker Change: If you can, the details of how much that cloud infrastructure is different than a year ago, and any other kind of expense.
Figures as you can share with us.
Sure. Thanks, Al.
Speaker Change: Yeah, if you look at the SG&A in particular for Q1 of this year, compared that to last year, if you normalize for the non-recurring items, obviously we had about 2.2 million this year and our recurring items and about 0.8 million last year.
Speaker Change: So if you adjust for those, SGNA was up, you have about 26% year-over-year.
Speaker Change: Another million or so of that is related to the continued migration from...
Speaker Change: You know, the private hybrid cloud to the public cloud, so you'd have to adjust for that as well, so that was...
Speaker Change: You're really the large part of the drivers there in SGNA, and then on salary and benefit side.
Speaker Change: You know, a lot of that is just driven by some of the head count additions last year that obviously didn't have a full year impact into the financials, you know, in Q3 or Q4 last year but
You've got the full quarter impact of that this year.
Speaker Change: I think going forward though. Obviously we've maintained our guidance and feel comfortable with where we sit from up.
Speaker Change: across the technology part of the team and things we can utilize automated tools for, we'll continue to evaluate those opportunities to manage expenses from here.
Speaker Change: I think you mentioned the number 60 percent, I think twice, I think, or many.
Speaker Change: You said 62% of your gross product, gross top of dollars now are coming from B to B and enterprise, is that right? Let me make sure I heard that right.
Speaker Change: It is, and actually this quarter, both of the numbers I referenced were 62%, so I've probably got a little confusing with the exact same figure, but the gross profit coming from B2B and enterprise.
Speaker Change: Aggregates to just over 62% for the quarter, and then the other figure I reference at 62% is the percentage of our adjusted gross profit that comes from recurring revenues in the quarter.
Okay.
Speaker Change: and that includes some, you know, just the Cring Revenants and SMB.
Speaker Change: It does, it includes, yeah, that's on a consolidated bench, that's right. Okay. And the last one for you turn is back in the queue, you mentioned a pretty interesting signature win with an administrative wild, you know, that's a fairly large enterprise.
Speaker Change: You know, could you share with us your thoughts on how you, the sales like you did that, how you won that contract and over some of them?
Speaker Change: is what you're picked over others that are active in the stadium space. Thanks.
Yeah, sure, pal.
Speaker Change: I do want to mention one other thing that you noted on the on the expense side so the purpose of migrating to the
Speaker Change: Public Cloud also allows us to position for some engineering efficiencies.
It normalizes, you know, the-
Convert there.
on the, on the op-x side.
Speaker Change: It was pretty, I think, explanatory when you looked at their chief revenue officers comments.
Speaker Change: Not only do we step in and make ticketing more efficiently, the other areas are really implementing designing the banking transparency and the acceleration of cash flow.
Speaker Change: that we're able to help manage. So, because we've combined payments of banking on a single platform, to think about it this way, every single area of revenue that flows through at the stadium level, or anything attached to the enterprise,
Speaker Change: We can, instead of all that going into a single settlement bucket, we can parse it out.
Speaker Change: By, you know, think of it like a clearing account, as that money flows in, reconciliation of all the batches are automated, because we see the batch come through, we see the deposit going to the account, and then it can immediately and efficiently sweep out into their operating bank account.
Speaker Change: and evaluation. But many of them are still small market teams managed by a small group of personnel.
Speaker Change: Money that's sitting in those systems may not get invested in overnight funds or things like that so bringing tools that allow them to optimize their working capital get that money to work quickly which are able to do within our systems.
Thanks for watching.
Speaker Change: and that's true whether a business is a professional sports franchise or a small business around the corner.
Yeah.
Speaker Change: One last thing, because you comment on the Q1 this year versus last year, had one last day and Easter with several weeks into April versus in March a year ago, was that one last day bear any impact on volume, float and income and rather than that in any manner.
Speaker Change: It did, I'll let him speak to the specifics, but it also, you know, would also add in you had the, you know, had, had, had.
Speaker Change: President Carter's funeral, which we saw some weird influence there in the way it affected volumes. So there's a few abnormalities from the historical in this quarter.
Speaker Change: And how it does, obviously, your intuition is right. So one last day this year compared to Q1 of last year, if you look at our daily revenue, it impacts SMB the most.
I mean, the daily revenue there, it's-
Speaker Change: Bill, about a million, six million, seven, right? So it's got an impact. And then if you look at just Q4 to Q1, there's two days of difference between Q4 and Q1. So that had an impact on us as well.
All right, terrific, thanks guys.
Speaker Change: The next question is from Brian Bergen from TD Cowan. Please go ahead.
Brian Bergen: Hey guys, good morning, thank you for taking the question. I appreciate the outlook for growing overall revenue and profit, substantially as you go through 2025. Are there any important considerations as you get into the segment forecast on growth and profit as you go through QQ in the balance of the year?
Speaker Change: I think the biggest potential impact that would affect maybe one segment more than others is just if there's any...
Brian Bergen: You know, major shift in rate curves, and you think about where interest rates go and how that impacts our balances in the...
Brian Bergen: The income we generate on permissible investments. At this point, we've taken the latest estimates we have from
Brian Bergen: You know, the other forward curves and applied that against our 3-plus-9 forecast and, ultimately, obviously, you know, rolled that into how we feel about the full-year guidance.
Brian Bergen: but if there's any meaningful shift in rates, which look at this point, we've assumed three cuts this year to consistent with what we're seeing in the Fed dot plot in some of the curves. So if that changes one way or the other, then that could have an impact certainly on the high margin interest income and generate on the permissible investments.
Okay, okay, make sense.
Brian Bergen: and then within SMB, so 10% growth in the core X, the residual attrition and the respiring.
Brian Bergen: Can you scale just the impact between those two categories? And how should we be thinking about the remaining size of the business that may face incremental risk pairing as you go forward?
Sure. So the majority of that impact, probably, yes.
Brian Bergen: Yeah, I don't think we're going to expect to see a lot more on the risk parents side. We're in a pretty good position. They're overall in that portfolio and really getting in front of some of the potential changes that Tom can talk about. But overall, I think that's all been factored into some of our guidance in the...
the cadence of the quarterly estimates as well.
Can Brian , just to give you a little bit of um
Granular Context. There's some network adjustments.
Brian Bergen: that are occurring within, you know, a specialty commerce space. It's, you know, nothing more than putting some additional, um,
You know, really the way the networks were measure performance.
It's going to become a little bit more stringent.
Brian Bergen: In advance of that, we took some actions to reduce our footprint.
Brian Bergen: with a belief that a number of players who participated in the space historically are actually going to be forced to exit.
Brian Bergen: because it's going to compress their economics to a point where it will make sense.
Brian Bergen: So we expect that to be to our benefit over the long term and we're just kind of positioning for that in advance of those realities, just getting a reconciled by the market participants.
Brian Bergen: So that's why we try to get ahead of a few emerging opportunities.
Okay, understood. Thank you, guys.
Tim Switzer: The next question is from Tim Switzer from KBW. Please go ahead.
Tim Switzer: Hey, good morning. Thanks for taking my questions. Given your exposure to consumer spending, small businesses, I thought you guys might have a pretty good sense of how...
Tim Switzer: Those customer segments have reacted to the tariffs and economic uncertainty since Liberation Day. Have you guys seen any notable changes in behavior or anything like that?
Nothing material yet, Tim, obviously.
Liberation Day came in.
Tim Switzer: After the quarter, so we haven't really seen a dramatic shift in anything, and if we continue to look at just recent volume trends here, even after the quarter, I think, you know, relatively consistent, and...
Tim Switzer: I think some of this goes to the mix of customers we have as well, if you think about our overall portfolio.
Tim Switzer: We feel like we've got some good resilience in that portfolio. We certainly have.
Tim Switzer: You know, restaurants, you make up a good portion kind of mid to high teens percentage of the portfolio which could have an impact but if you think about the retail component of our end market.
Tim Switzer: Well, that's, you know, high 20% range as a percentage of the portfolio. If you break that a part even further and look at the mix within that retail component.
You've got...
Tim Switzer: Package stores, or liquor stores, you've got on-a-part stores, you've got other...
Tim Switzer: and Markets that have more resiliency. And then we also have obviously meaningful components in professional business services, including law firms, doctors offices, other areas that are more recession resistant. So, look, we'll see some impact, but we think we're well positioned for what we expect to happen in the consumer spend cycle.
Tim Switzer: As you look at some of the available research that some of the banks are publishing around I'll call it Small Business Owners Sentiment.
Tim Switzer: Businesses that are above a half a million bucks a revenue are largely reporting.
Tim Switzer: Limited if any concern, no substantive drop-off. Our average customer is doing just shy of $40,000 a bank card a month. So you can do the math.
They're larger, healthier customers and it's…
Speaker Change: You know, it's our go-to market to utilize, you know, distribution that focuses on the upper
Speaker Change: You know, kind of a segment of small business, so that also I think contributes to our consistency.
Speaker Change: Okay, glad, that's helpful. And then, what's in your prize segment?
Um...
We look at the impact you think.
Speaker Change: Some of this uncertainty is that we have on the debt revolution business, and I'm like, have you started to see a take up an activity there? I think there could be a lot of opportunities with
Speaker Change: to some of the layoffs related to DOGE and maybe even as student loan payments.
Speaker Change: We're not being reported credit bureaus, and the potential for some students to be kicked off with their repayment plans, we've seen some rising payments there that's going to probably pressure a lot of consumers with debt.
Speaker Change: Yeah, I'll say a couple of things we're looking at, you know, just as leading indicators. Obviously, you know, the headlines are...
Speaker Change: You know, are instructive. When you look at the amount of seriously the link went...
You know, unsecured credit card debt.
It's increasing pretty consistently, so. [inaudible]
You know, fundamentally...
Speaker Change: We think there's going to be a great opportunity for CFT paid.
You know, help assist stress consumers.
you know, towards, you know, resolution and work out.
Speaker Change: Curve. But there's, you know, generally about a six month lag where we start to see the, you know,
Speaker Change: through put on resolution to a backup in the economic environment.
because, you know, consumers.
Speaker Change: One, you've got that 90-day delinquent window before you sort of start to catch the attention of...
of the card issuers.
and consumer site. You know, they either...
Speaker Change: The consumers engage in this process, you know, they have jobs, they have to be engaged in a resolution.
Speaker Change: and Workout. So, you know, they were at one time, you know, healthy consumers that, you know, we're able to get, you know, 30 plus million of unsecured, 30 plus thousand, excuse me, of unsecured debt. So, you know, their, their ability to pay is just...
Speaker Change: has been compromised in the near term. So, you know, we think there's going to be a growing number of consumers who fit that profile and, you know, should give us some opportunities.
You know, in the month of all.
Speaker Change: Okay, got it. Those are really helpful. If I could have one more.
Speaker Change: It seems like there's been an opportunity for you guys, I mean, bed and finance space, largely related to some of the disruption and banking as a service, relationships, you know, you can call out the evolving synapse.
It's been a target risk environment, so…
We've been- [inaudible]
We've been very focused on some of the businesses that...
Speaker Change: We're on those platforms and I feel like we'll continue to get our fair share of wins.
Speaker Change: and you know, you'll see those manifested, you know, over the coming months as, you know, as they transition from, you know, just environments that are just less stable.
So, that's uh...
Speaker Change: You know, I think you can appreciate, you know, we've, we've been very intentional about.
Speaker Change: The differentiation of our platform, the stability of our bank partners, kind of building with a long-term purpose in mind, maintaining...
Speaker Change: Money Transmission Licenses, so that there's kind of clarity and certainty among our bank partners of the rigour around our compliance, and that's, you know, we're a position to benefit from...
Speaker Change: Yeah, you know, the fallout of some of the banking service providers who, you know, are just not viable in the current, in the current regulatory environment.
Speaker Change: I got it very helpful. There was a question that was asked about the potential headwinds and Tim referenced.
Speaker Change: You know, if interest rates were to decline more than, you know, have more than three, you know, three cuts, right?
The offset of that is deposit growth.
So, we are seeing...
Positive Trends in Deposit Growth
Speaker Change: A driver of that is the segment outside of our CFT pay application and other segments within enterprise, some of which are these vast providers looking for a more stable home.
Jacob Stephan: The next question is from Jacob Stephan from Lake Street. Please go ahead.
Jacob Stephan: Yeah, thanks. Just a quick question. A lot of talk about counter-cyclical payments here. I mean, is it possible for you guys to kind of parse out, you know, maybe some exposure to some of these end-markets you reference like doctor's offices, lawyers, either in terms of, you know, like a dollar volume or revenue or even a just a gross profit?
Jacob Stephan: We can't from, I mean, just to think about volume, Jacob and you look at kind of the comments already made.
Restaurants isn't in market, it is.
Jacob Stephan: You know, kind of mid-to-high teens, you know, 15-16 percent, you know, percentage of a volume, you know, retail starts to get up into, you know, the high 20 percent range, and then within that there's obviously sub-sectors that, as their reference have some resiliency.
Jacob Stephan: There's a good mix there. I'd say half of that volume is in end markets that have a good level of...
Recession Resistance [inaudible]
Jacob Stephan: Legal Services and Doctors' offices, broader professional services. That's up north of 16-17% of the portfolio. You start getting down into other smaller sub-sectors.
Jacob Stephan: You know, real estate in those areas is called 5%, then everything from there really trails off, right? You've got things like...
Jacob Stephan: Education, you know, sub-3% public administration, sub-3% so really the ones I've touched on already are the larger end markets and then pretty diversified from there.
Jacob Stephan: in the government. Yeah, I don't know that I would call it exposure, in fact, where I was going to transition your question because I think the observation is a good one. Where we see kind of a countercyclical opportunity is, is it going to be a bit?
Jacob Stephan: Right, where you are seeing the influence of tariffs and some of what buyers in the US have not prepared for, they are using...
Jacob Stephan: Our, you know, card strategies, I'm working capital strategies in our B2B segment to help them manage through that. That's why, you know, you're seeing...
Jacob Stephan: You know, pretty outsized growth in relative to consumer on the B2B site.
Jacob Stephan: Tim referenced it, our plastic volume was up 7% hour to our buyer funded, our supplier was up 35%
So this...
is...
has meaningful counter-sickical aspects.
Speaker Change: Okay, that's helpful. Just last one for me, obviously Minnesota Wild ticketing, nice win. I was hoping that they get to the Western Conference semi-finals for you guys, but maybe help us think about kind of, you know, the...
Speaker Change: The difference in, you know, contracting with, you know, like a venue like the Excel Energy Center, which is owned by the city of St. Paul. Do you know, do you kind of view this as a leading, you know, foot in the door towards a much broader opportunity with the wild and like organizations?
Yeah, it is. We're...
We are well-positioned to help...
for Factual Sports Franchises.
Optimize There Aaron.
Payment Environment, and I'll say they're a payment and banking environment.
It's...
Speaker Change: If you think about that stadium environment, you referenced while it's owned by the city.
Speaker Change: The team is still responsible for concerts, other activities within that venue that they're selling tickets with them.
and they need to account for those discrete properties differently.
Speaker Change: So, having a combination of flexible payment tools that can, you know, handle them all, but also, you know, do so with...
Speaker Change: Brings them some efficiencies that their core bank providers, and it's not just true of the wild, this is across the board It's just not what banks do So that's where we're bringing value to the system and we have a very healthy pipeline of
Like-minded.
Franchises that we're speaking to about that.
How about that very approach?
Speaker Change: So, as we get more wins, we'll talk about it.
Alright, I appreciate it, guys.
Speaker Change: The next question is from Brian Kinstlinger from Alliance Global Partners. Please go ahead.
Brian Kingslinger: Great, thank you. I just want to make sure I understood. Just under 40% of your revenues from restaurants and retail just doing the simple math.
Speaker Change: So I want to make sure I heard you right in this slice of business.
Speaker Change: Have the volumes or average basket size and materially changed? It sounds like no, at least since the beginning of April .
Speaker Change: Brian , no major changes to the basket sizes, but I do want to clarify when you say it's almost 40% of our revenue.
Speaker Change: It's about 40% of the volume in SMV, which obviously is many of us from an overall revenue standpoint, I just don't want to mix, nothing else to know, you're sorry, yep, but the answer is, that's right, there hasn't been material changes in those metrics in the SMV segment.
Speaker Change: Nothing that we wouldn't expect. Obviously there's some seasonality in certain subsectors you think of.
Thank you.
Speaker Change: Package stores and certain food stores where you're going to see a little bit of a bump around the holidays.
Speaker Change: and then that that tail's awful a bit more and it gets normalized levels in Q1 so we we saw some of that activity which we expect.
Speaker Change: but outside of that, no other real meaningful shift in the volumes you buy on market.
Speaker Change: Right. And then the only other question I had from the financial perspective.
Based on your adjusted ebidag guidance.
Speaker Change: What is the anticipated range of free cash flow and then can you discuss capital deployment priorities for that cash flow?
Speaker Change: So I think the overall free cash flow for the year is going to be pretty consistent with Q1, so...
Speaker Change: We had some working capital swings in Q1, just given timing of the quarter end. But if I think about cash flow more as an adjusted EBITDA, walk down to free cash flow, if you take out
Yeah, cash interest taxes, catbacks, take out the non-recurring expenses.
Speaker Change: We had about 20 million of free cash flow in the quarter. I think you'll see kind of consistent levels of cash flow Compared to the days we've got through the year, so you know 80 million plus of a free cash flow for the year on that basis You know working capital swings, you know may impact that a little bit, but
Speaker Change: That's mostly time related. We don't have a lot of working capital in the business outside of just when the quarter happens to end and it usually normalizes the next quarter is you know things reverse of it and it's mid mid week versus on a Friday or Monday.
Speaker Change: And if 80 million is that number, how much to get reduction and how much for other purposes?
I don't think we're all...
Speaker Change: We'll continue to evaluate debt reductions throughout the year, obviously we've made $10.00 to our pre-payment in Q1.
Speaker Change: We'll continue to look at de-leveraging over time, but we're also seeing some pretty unique opportunities in this market, given some of the dislocation we've seen out there.
Speaker Change: Thomas referenced a few and markets on prior calls that we have interesting, so we'll...
Speaker Change: We'll remain nimble around capital deployment, but I assure you the team here is very focused on the balance sheet to continue to focus on de-leveraging if there's not some other meaningful value-enhancing activity out there available to us.
Great. Thank you.
Speaker Change: This concludes the question and answer session. I would like to turn the floor back over to Tom Priore for closing comments.
Thank you very much.
Speaker Change: I just want to once again thank everyone for their participation on the call we appreciate everyone's support and after any further questions we'll get back to work so hope everyone has a great rest of the week.
and thanks again.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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