PRTH - NASDAQ

Good morning and welcome to Priority Technology Holdings Second Quarter 2022 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Chris Kettmann. Please go ahead.

Good morning and thank you for joining us. With me today are Tom Priore, Chairman and Chief Executive Officer of Priority Technology Holdings; and Mike Vollkommer, Chief Financial Officer. Before we give our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. The company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise. We provide a detailed discussion of the various risk factors in our SEC filings and we encourage you to review these filings. Additionally, we may refer to non-GAAP measures, including, but not limited to EBITDA and adjusted EBITDA during the call. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our press release and SEC filings available in the Investors section of our website. With that, I would like to turn the call over to our Chairman and CEO, Tom Priore.

Thank you, Chris and thanks to everyone for joining us for our second quarter 2022 earnings call. We once again reported outstanding quarterly results growing both our top and bottom line at a rapid pace during the period. For the third quarter in a row, we saw a total quarterly revenue increase more than 33% from the prior year to a record $166 million in Q2. Our exceptional revenue growth drove a nearly 60% increase in gross profit to $55.7 million and a more than 60% improvement in adjusted EBITDA to $33.9 million. These results were underpinned by a 540 basis point expansion in our gross margin to 33.5%. As you can see on Slide 4, our strong results in Q2 were a continuation of the positive performance for the year overall. On a year-to-date basis, total revenue is up 34% to nearly $320 million and grew organically by 19.6%, excluding the Finxera acquisition. Gross profit increased by 61% to $107.4 million and adjusted EBITDA was up nearly 65% to $64.2 million in the first half of 2022. Year-to-date gross margin of 33.6% increased 560 basis points from 28% we reported in the first half of 2021. Mike will go into the segment level detail on our second quarter results shortly, but before he does, let’s look at Slide 5 and some of the company’s performance statistics. As we have noted in the past, our unified commerce platform efficiently serves the SMB, B2B, and enterprise payment markets at scale supporting over 248,000 active merchant accounts, more than 390,000 active bank deposit accounts, and processing total annual payments volume of over $106 billion, with over 80% derived from integrated software products. With our strong foundation and robust pipeline of business, we remain confident in our ability to generate revenue between $650 million and $665 million and EBITDA of $145 million to $150 million that we projected for 2022, demonstrating Priority’s ability to perform in challenging economic environment. Our highly efficient and elegant technology platform, balanced business lines, and industry leading customer service are clearly resonating with the market and the results speak for themselves. Moving on, for those of you who are new to the company, Slide 6 highlights how our unified commerce core is purpose-built to collect, store and send money combining robust payment functionality with banking as a service capability to monetize the merchant networks we serve. We remain convinced that systems which combine key features of payments and banking to accelerate cash flow to businesses will be table stakes, as businesses put greater demands on software and payment solution providers. Leveraging our native priority passport stack, we are poised to deliver a full suite of proprietary banking and payment solutions into SMB and B2B markets and provide enterprise partners, the ability to embed payments and banking features into their core offering. Our largest segment, SMB payments continues to outperform the industry reporting year-over-year bank card volume growth of 10.9% and revenue growth of 18.5% in Q2. To highlight SMB’s outperformance in the space on Slide 7, we have included the growth rates of the top five non-bank merchant acquirers in the U.S. As you can see, Priority is growing considerably faster than these peers reflecting our forward-looking acquiring product and market leading service offering is resonating with SMBs and consistently winning in the marketplace. B2B payments again, reported a strong quarter as it added new partner channels on the strength of our CPX product. For the second quarter, our B2B segment delivered year-over-year revenue growth of 32.5% and operating income increased $700,000. It should be noted that one of our managed services customers will not be renewing their contract and will be winding down in Q4. This anticipated transition supported our decision to focus investment in our CPX product. That focus is paying dividends demonstrated by CPX’s 56% year-over-year revenue growth in Q2, as we continue to harvest and build a considerable pipeline of business opportunities. Lastly, our enterprise payment segment, which provides embedded payments and banking solutions to modernize legacy platforms and accelerate software partner strategies to monetize payments, reported year-over-year revenue growth of $18 million in Q2 and $5.5 million increase in operating income. Enterprise payments is currently supporting over 30 active integrations managing over 390,000 deposit accounts and over 0.5 billion in deposits. Our enterprise segment is consistently piling up integration wins in sectors like real estate and construction, treasury software systems and legacy payment operating platforms. Construction in particular is a vertical, where we see huge opportunity in the years ahead. This thesis was reinforced by our learnings from the Construction Financial Management Association’s Annual Conference in May. Cash flow management was a key area of focus with surveys showing nearly 85% of construction firms have experienced cash flow issues over the past year. Priority’s integrated payment and banking platform provides a perfect solution to their ongoing cash flow challenges. Before turning it over to Mike, I’d like to briefly address the frequent speculation among economic pundits regarding the current and impending economic downturn. While we can’t predict the future, we hope our insights and performance reflect that we are diligent observers of leading indicators influencing the macroeconomic environment and our positioning priority to capitalize on trends before they materialize. For the better part of the last 2 years, we have highlighted our expectations that weaker economic conditions would emerge and we are building priority with intention seeking to remain lean and positioning our innovative agile technology to leverage a combination of traditional and countercyclical assets, serving broad segments of the economy. And as the saying goes, adversity does not build character. It reveals it. Despite the adversity of COVID, we grew top and bottom line results. As the inflationary and recessionary environment arrived, we have only accelerated our growth trajectory. Our organization strongly believes that our unique and diversified technology and product offering sets us apart from the competition and positions us for greater success than virtually any payment company out there. And the results speak for themselves. At this point, I’d like to hand it over to Mike who will provide further insight into our performance during the quarter along with current trends in each business segment. Mike?

Thank you, Tom and good morning. Our MDA included in the Form 10-Q provides a discussion of our comparative second quarter and year-to-date results. The link can be found on our website. As Tom mentioned, we had strong financial performance across all business segments in the second quarter and first half of 2022. As I review the segment level contribution to the consolidated second quarter results, please refer to the supplemental slides for further details. Consolidated revenue of $166.4 million increased 33.1% driven by strong growth across all segments. SMB payments revenue of $142.5 million increased 18.5% driven by bank card, dollar volume growth of 10.9%, 9% growth in transactions and 1.7% growth in average ticket. Merchant boarding trends were strong. New monthly merchant boards averaged over 4,500 in the quarter consistent with historical monthly averages ranging from 4,300 to 5,000. The average merchant count of 247,500 in the second quarter of 2022 grew 7% over second quarter 2021 and specialized merchant acquiring continued renewed merchant growth in the quarter and is expected to continue on this plan’s growth trajectory throughout the second half of the year. B2B payments revenue of $5.3 million increased 32.5%. In CPX, strong volume trends within existing and new customers drove a 56.3% revenue growth and in managed services, revenue grew 16.7%. Enterprise payments revenue of $18.6 million increased $17.9 million from $0.7 million in the prior year. CFTPay acquired in September 2021 drove this growth. Gross profit of $55.7 million increased 58.2%. SMB gross profit of $35.5 million increased 9.2% and B2B gross profit of $3.2 million increased 28%. In enterprise, gross profit amounted to $17 million, which increased $16.8 million from $0.2 million in the prior year. Gross profit margin of 33.5% increased 540 basis points from 28.1%. The results of enterprise drove this overall margin expansion. Other operating expenses of $42.6 million increased 53.2%. This increase is primarily driven by acquisition and business growth. Salaries and benefits of $15.8 million increased 51.9% from $10.4 million as a result of a nearly 70% increase in headcount, mainly driven by the third quarter 2021 acquisition of Finxera. Additional headcount has been added in connection with growth initiatives. SG&A of $9.3 million increased 38.8% from $6.7 million. Acquisition-related increase was $1.6 million and the remaining $1 million increase is driven by business expansion. Depreciation and amortization of $17.5 million increased 63.6% driven by the 2021 acquisitions. Operating income of $13.1 million increased 77% from $7.4 million. SMB operating income of $14 million declined 2.8% from $14.4 million due largely to a $1.7 million increase in salary and employee benefits due to higher headcount and stock-based compensation, a $1.2 million increase in SG&A expenses and a $0.6 million increase in depreciation and amortization. Now, the increase in headcount and SG&A are attributable to growth initiatives. B2B operating income of $663,000 increased $641,000 from $22,000 driven by gross profit growth of $627,000. Enterprise operating income of $5.7 million increased $5.5 million from $0.2 million in the prior year and corporate expense of $7.3 million approximated $7.2 million in the 2021 quarter. And both quarters include non-recurring expenses, $1.7 million in the ‘22 quarter and $1.8 million in the ‘21 quarter. Adjusted EBITDA of $33.9 million increased 61.4% from $21 million. Interest expense of $12.3 million increased $5 million from $7.3 million. Higher comparative debt levels driven by the 2021 acquisition financings drove the increased interest expense. Now, our debt levels continued to decline. Net debt of $606.1 million declined $5.7 million from $611.8 million at March 31, 2022. Now, total debt of $628 million at June 30, 2022 included a $12 million temporary 5-day increase in revolver borrowings during the last week of June. However, total debt has subsequently been reduced to $613.8 million with the entire $14.5 million previously outstanding under revolver being repaid. We have had a total debt reduction of $34.7 million since acquisition of Finxera in September of 2021 and this is comprised of scheduled amortization payments of $4.7 million and revolver payments of $30 million. So we currently have the entire $40 million of borrowing capacity available under the revolving credit facility. The senior preferred stock on our balance sheet of $220 million at June 30th is net of $21.9 million of unaccreted discounts and issuance costs. The second quarter preferred dividend of $7.7 million is comprised of $3.57 million of cash, $4.16 million of PIK, and it’s supplemented on our income statement with accretion of the discounts and issuance costs of $0.8 million. Now, I’d like to turn the call back over to Tom.

Thank you, Mike. On Slide 20, we’ve laid out the key reasons why Priority is extremely well positioned to win, both in the current market and the years ahead. Priority’s has been purpose-built and has managed with precision. The numbers, particularly our results through the economic ups and downs of the past few years reinforce the effectiveness of our model and forward-looking decision making of our organization. Importantly, I would like to take an opportunity to thank the Priority team for their hard work and dedication to getting the job done. None of our success over the past several quarters could have happened without a full team effort to meet the needs of our customers in today’s rapidly evolving marketplace. Thank you to the team for all you have done and what you continue to do daily. On a personal level and on behalf of all my teammates at Priority, I’d like to extend my gratitude and utmost appreciation to Mike. We announced he will be retiring from the CFO role in early September. While we have several highly qualified candidates that we are excited about who will ably fill the position, Mike has been a catalyst in the evolution of Priority as an up incoming public company and a fantastic partner. While Mike will be stepping away from the CFO role, we’re pleased that he’ll remain with the company in advisory capacity, ensuring a smooth transition in the years ahead. He’ll also be assisting us in executing strategic projects and advising young companies that we are accelerating. So thank you, Mike, for all you’ve done and everything I know you’ll continue to do to make Priority a great company. Let me conclude by stating what I believe should be abundantly clear. Priority’s positioned as a payment powerhouse, the numbers bear that out. But with the technology and infrastructure we’ve built, we are much, much more, and we are really just at the early stages of liftoff. Priority is now a payment and banking technology business that offers clear advantages for business to accelerate cash flow. We’re laser focused on delivering a unified commerce solution through the combination of payments and banking on a single platform. And we will continue to deliver on that vision going forward. We appreciate your time participating on today’s call and the ongoing support of our investors and analysts. Operator, we now like to open the call for questions.

Thank you. And the first question will be from Steve Moss from B. Riley FBR. Please go ahead.

Hi, good morning. Maybe just starting with your good uptick here quarter over quarter in B2B volumes and enterprise volumes. The revenues maybe didn’t quite follow at the same pace. Just kind of curious if you can give some color around dynamics there and how you’re thinking about it for the second half of this year.

Steve, perhaps you could shed a little light on the observation where that revenues didn’t track at the same pace. Are you referring to something specifically?

So referring to just enterprise payment volumes, for example, $387 million versus $216 last quarter, I think in terms of payment volumes.

I’d have to take a look at the volumes that you’re referring to. But I’d say that we’re outperforming our internal targets. But I’ll marry up those volumes because I don’t have that readily available.

Yes. Let me just speak just about volume more generally. I think actually what you see if you kind of dig into the trend like across the business, say, acquiring volume was up 10%, but revenue organically in that channel grew 18%. So we’re actually seeing margin expansion from some of our higher margin sectors. If you look at B2B similarly, that volume is outperforming expectations and has grown with revenue growing 56% year-over-year. On the enterprise side, I’m not sure you mentioned it specifically, but we’re actually seeing tremendous growth in that channel that is also, I’ll just say, trending above our expectations, given the countercyclical nature of that asset class that does very, very well as economic times become a little bit more challenging on the consumer side. So that’s why I’d like to maybe take it offline and just understand specifically what you’re looking at because we’re…

Yes, we will drill into it because it may be a mix of ACH and card volume that drives different top line.

Right. Okay. It might be just the way we’re marrying up on my end. And then in terms of the gross profit margin, nice trends there. Just kind of any updated color on your expectations as we head into the second half of this year?

Look, we had expectations that would trend up through the year. We that’ll continue. That’ll be particularly driven by the growth in enterprise, which is just by virtue of the segment, higher margin. And we’re seeing only accelerating growth in that channel. And as specialized acquiring to rebound in the SMB segment, that’ll also add to margin. So we think those two segments specifically will be a catalyst to expanding margin through the second half of the year.

Okay. Great, thanks very much for the color. I will step back there.

Thank you, Steve.

And the next question will be from Brian Kinstlinger from Alliance Global Partners. Please go ahead.

Great. Thanks for taking my questions. And Mike, just want to express, you’ll be missed on these calls for sure.

Thank you.

The first question I’ve got is the consumer payments processing volume increased 11% year-over-year and revenue in that segment increased 19%. So can you walk us to the difference? I assume this could be specialized merchants acquiring where you’re taking on more risk or maybe touch on the mix to striving better revenue growth and volume growth year-over-year?

Sure. So that is a contributor. We’ve also seen some margin increase in other segments that are just higher producing segments in our book. As you may recall, we probably participate less. If you were to look at, let’s say, the U.S. economy in its totality, we’re probably underrepresented in the restaurant sector and we do more in retail and wholesale trade and business services, which are higher margin, and of course, we do that for a reason. We think the product needs in that sector are more sophisticated and our products deliver a really tight solution in that segment. Yes, you are right. We’re seeing expanded margin from the specialized sector. The only thing I would clarify for you is that’s actually not a riskier sector for us. In the course of our history in this segment, which is over 10 years, we’ve actually never had a loss in it. So the way we manage that segment is with our partners, they actually take 100% of loss responsibility and through the combination of reserves at the merchant level and at our partner level, that is always, and we anticipate will continue to cover any potential for losses. But largely speaking, that segment has a great deal of supportive analytics for the way we position merchant reserves. So we use that to protect our partners as well. And they don’t incur losses either. So that segment is really borne by the merchants operating in that sector. That’s the way the market operates. There is very few peers in the space that do it well, but there is a handful of us. So just to kind of clarify on that risk point.

Yes. And let me add one point. In the specialized, revenue is driven not just by volume, but also chargeback fees, which is not volume related. So you’ll see, as that continues to grow, as it has in the past into Q3 and Q4, it’ll drive a bit of a spread between card volume and revenue growth.

And Brian, maybe to put a fine, like a really kind of genetic level point on this, if you think about our role within the sector, we’re in effect providing transaction insurance. Well, if a merchant has greater charge-backs, think of it just like ensuring a home. If a home is in a high hurricane area, you’re going to pay more for insurance. The same way it works here. If you are exhibiting behavior that just makes it riskier, then more reserves flow in, chargeback expenses are debited to the merchant and you’re paying more for processing. So that gives us the ability to what I’ll call risk based price and then along with the reserves, make it a really kind of aligned approach to the way the merchants managed in the market, but not expose our platform to merchant conduct.

Thank you. When you talk about margin, I think you’re talking about net take from gross because actually what I love on the second question for you two is reconcile what you’ve said there and why revenue is growing faster than volume. But if you look at the gross margin on consumer payments, it’s actually down year-over-year, the reported gross margin. So maybe you can speak to that, Mike.

What Tom is alluding to, what’s driving the top line is pricing in those sectors. There is a mix of ISOs that drive a lot of that. And so in the recent quarters, there is been a shift to the higher commissioned ISO partners of ours. So that puts a bit- that’s when we talk about mix, it’s really ISO mix. And so that does have a bit depressing effect on the margin, but that’ll become a bit overshadowed as we go into the second half of the year with the expansion we expect from specialized merchant acquiring.

That’s helpful. Thank you for the clarification. Then can you update us on the timing of the launch of your new cross-selling banking-as-a-service platform to offer instant cash to your merchants through Finxera, and how should we think about when that might begin to materially impact the segment revenue?

We expect to be in beta towards the beginning of Q4 end of Q3, and we will continue to perfect that through the quarter for anticipated launch in 2023 with specifically the feature you described. We are active with what I’ll described as the banking-as-a-service tools and acquiring through our pay fact channel, which is live with customers kind of utilizing the banking as a service and the virtual account features. So we are launching through pay fact payment facilitation. We will continue to test there, rollout beta on testing with, I’ll call, traditional acquiring merchants and for a more full scale, market launch in the beginning of 23.

Great. One question on CPX, I think if you look at the revenue, if you adjust the first quarters, they are pretty similar in the first and second quarter for CPX. I think you’ve talked frequently that it takes time to onboard and opt in and bring in that volume. Can you update us on where you are in that evolution and when you might expect to see a hockey stick potentially of processing volume increases?

Sure. If you look back, let’s just use as a very tangible example. In the previous quarter, we onboarded a number of large network partners, Premier Healthcare being one, Procurement Partners, being another, both in the healthcare space, Century Bank, SYSPRO, which is in the manufacturing space. So, over this last quarter, we have been busy integrating the ERP technology of those partners into our CPX platform. Those are largely complete across those network partners. And now we go out and begin to harvest. So, on some of those, leads have already begun coming in that our sales activation teams are working to activate, and we expect that to start to boost toward the latter part of Q3 and early Q4. And then that will give us some better intelligence around conversion timing so we can project their volume growth into 2023. But I think you can appreciate, we have been very conservative about their activation trends and are likely to continue to be because they are chunky.

Yes. Understood. The last question is just following up on the first question. I think Mike, if you look at processing dollar volume of integrated partners in the first quarter was $216 million and in the second quarter was $387 million. That’s a huge increase. Revenue increased yet to a much smaller degree sequentially. So, is that a bunch of ACH because that’s a fixed fee on a large volume and should we not expect revenue to grow with the volume? That’s I think essentially the question.

Yes. I need to say, I am going to take a look into that volume. In enterprise, it’s a lot with CFTPay, it’s fee based revenue of the volume process. That’s not a driver of revenue. What could be driving that and I will take a look at it and revert back to, it could be MRIs activities as well. But there may be – we will take a look because like as I said, in CFTPay, volume isn’t the driver as much as the account fees and the transaction numbers. So, we will need to make sure that we are putting out the right metrics, but I will take a look at this question in detail and get back to you.

Great. Okay. Thank you, guys.

The next question is from Albert Ragsdale from LCA. Please go ahead.

Good morning. I have a couple of questions for you. First, I would like to hear a little bit more about how you think recession could impact the results?

Sure. Well, I mean look, we have – I think as the numbers bear out, obviously, a recessionary environment’s going to certainly have impact on the U.S. consumer. It’s already begun to. I think you have heard some others in the payments arena start to reflect its impact. While we recognize it’s there, we are winning market share. I mean it’s just the case in the numbers we anticipate we will continue to. Our boarding trends have been very consistent. The merchants that elect to come on to the Priority platform have an attractive profile when you look at sort of the small merchants in the U.S. They tend to be on the higher end of volume with monthly card volume exceeding 20,000. Most of our peer group has the average merchant volume that’s probably slightly less than or half of ours based on the statistics I have seen. So, it just competes very well with stable merchants, right. Merchants doing more volume, they are healthier merchants. So, we kind of expect to remain on the trend of boarding 4,900 merchants a month. And that will lead to net growth in the book. Where I think our opportunities kind of skew more towards the upside is we have made a conscious effort to get into countercyclical or early stage segments of the economy for digital payments. Rent payment, perfect example. We are seeing very good growth there. In difficult environments, you are going to find renters are more likely to finance their rent over two payments by putting on their credit card or trying to find other means to extend payment terms. So, we see benefits there as more converts to digital. More property managers are looking to get their cash faster. So, they are opting into digital payments and utilizing software to collect from renters where in years past they haven’t. High 70%s and most recent stats, 80% of rent payments are still paid by check. So, there is a lot of wallet share to grab there. And then the other segment I would highlight is, look, our CFTPay business and consumer finance segment that serves consumers that are engaged in that consolidation and debt settlement, as you might expect in a stressed economy, we see more consumers electing to enter into such programs. At the height of the COVID stimulus, we were seeing boarding of new consumers that were probably in the high teens, thousand, maybe touching occasionally 20,000. That’s nearly doubled. So, that’s a countercyclical trend we don’t see changing in the near-term, or I will say in the medium-term. So, we think those are segments that will make Priority, a performer in challenging economic environments, because these are segments that are designed to perform well in such environments. So, we are not going to predict the timing of everything, but we think we have got a strong setup. And hopefully, that gives you some granularity around I will call it, the rise of our performance through difficult economic cycles.

Yes, that’s helpful. Thanks. And for my second question, I know you have touched on the pandemic economy a little bit earlier. I was wondering if you are still seeing a COVID impact on the business.

We are seeing a continuation of trends that we have seen albeit at a slightly reduced level. For instance, there was a lot more in-app and online purchase activity through COVID that has started to go more to card present, right. So, we are seeing mix change a little bit between card not present, card present in the acquiring space. But while that margin shift affects us a bit, we are also just seeing new merchant growth, right, just new businesses are being formed, or were formed at the tail end of COVID. So, that as often happens, weaker businesses get called out in those difficult economic environments and new ones take their place. So, that is I would say at this point, that’s the only kind of shift we have seen, but I don’t think that will – COVID has made some permanent changes in the SMB space. Where we are probably seeing the most pronounced impact and continuation of the COVID influence is in the automated payables arena. Business models in the middle market to enterprise segment have been permanently changed to and those business are looking to drive automation and the influences there are twofold. One is certainly COVID and remote working and just driving automation, just given the working environment. And then of course the other is businesses are now looking for every area that they can reduce cost or pick up incremental revenue. And automated payables is a pretty fruitful area to look, particularly given suppliers needs for accelerated cash flow and willingness to perhaps accept some pricing discount or the cost of digital payments to get cash faster into their businesses. So, we think that’s a secular shift that’s going to continue for a while, and we are probably most excited about that as a long-term trend.

Thank you.

Albert, let me clarify that enterprise volume and revenue guys and the reason why I was a little caught off-guard is because that’s really not the driver of the revenue. We disclose that, we have disclosed total bank card volume process, but the drivers in that enterprise payment, the key drivers to the revenue are different metrics. So, we will take it on ourselves to start to publish those metrics, which we can link to the revenue growth for you all. So, there is a disconnect between revenue – bank card volume and bank card transactions in that segment to the revenue growth. But we will clarify that as we go forward.

Thank you. And the next question is a follow-up question from Brian Kinstlinger from Alliance Global Partners. Please go ahead.

Alright. Thanks. One question on the B2B business. You mentioned you are going to be winding down a customer at the end of the fourth quarter, I think is what you said. So, can you just help us for modeling purposes, understand the size of that customer, how material and maybe revenue in 2022 and were they evenly split quarter-to-quarter?

Yes. In the second half of the year, it would have impacted us by $1.5 million at a normalized run rate. So, it’s…

Meaning quarterly revenue was about $1.5 million each quarter.

No, I am talking about the EBITDA.

EBITDA is impacted by $1.5 million. What about revenue?

The margin is much lower because it’s – I don’t have that number off-hand, but it’s all considered in our guidance. But if you are trying to model that out, let me see if I can put my finger on it. It’s probably about $5 million.

$5 million, annual run rate.

In the second half.

In the second half.

$5 million, second half, which generates, just to be clear, about $1.5 million in EBITDA.

Right.

Okay. That’s helpful. Thank you, guys.

Yes. But just to be clear, that was in our guidance. So, it was an expected transition that we had anticipated in the way we were managing the business on an annual basis in 2022.

Yes. There is a lot of folks in that business because it’s an outbound call center. And so we will save some expense and there is a high turnover in there. So, there is a lot of hidden cost that might not get totally allocated there. So, we will be rationalizing some other costs to offset that. So, it was all built in, as Tom said, to our guidance from the beginning of the year.

On just a personal note or maybe related to the personnel in that business, the fickleness of that partner at times kind of led us to be very conservative about just the uncertainty that sometimes they would present.

So, I remember you ramped up and ramped down. I remember you have had to call up ramping up and ramping down without naming a customer. So, I assume it’s the same customer that maybe leads to some unpredictability over time.

Yes, exactly.

Yes, that is correct, Brian.

Okay. Alright. Thanks again guys.

Thank you.

Thank you.

And the next question is also a follow-up. It’s from Steve Moss from B. Riley FBR. Please go ahead.

Just one more. Just going back – I just want to touch on CapEx, just kind of any updated thoughts on CapEx here? I know you talked about it in the past fairly consistent here, but just curious with all the partners that you have added, Tom, if maybe there is a little bit of a step up or kind of still $8 million, $9 million, if you will, on the annual basis.

Yes. And you could see in our cash flow statement on the software, that’s the development of capitalized software. So, you can probably double what’s in there for the full year. And the other items are basically earn-outs that we had with some residual purchases in the past, but on the capitalized software, you are looking at about the run rate in the first half.

Okay. Understood.

And just to be perfect around that, we don’t have technical debt that we need to rationalize. So, I only see that coming down as a percentage of revenue.

Right. That’s right.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Tom Priore for any closing remarks.

Well, thank you very much. In closing, I just want to thank everyone for your ongoing support of our business and interest, for those of you new to the story, in learning more about Priority. We are excited about not only the way we close the first half of the year, but our anticipated performance through the remainder of the year. Look forward to our next opportunity to speak. Hope everyone has a great closeout to the summer. And we will look forward to speaking to you on the Q3 call.