PRTH - NASDAQ

Good day, and welcome to the Priority Technology First Quarter 2024 Conference Call. [Operator Instructions] [Audio Gap] 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 Tim O'Leary, Chief Financial Officer. Before giving our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. 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, Tim. Before wrapping up, I'd like to take a minute to talk about the differentiated organic growth performance of Priority that Tim noted during his comments. To summarize, during the past 12 months, on a purely organic basis, Priority's revenue increased 16.3%, while gross profit expanded 20.3%, resulting in 29.2% improvement in adjusted EBITDA. Our consistently market-leading organic growth results reflect that today's businesses are adopting a broader expectation for their payment technology providers to deliver solutions that transcend basic merchant acquiring and help them accelerate cash flow and optimize working capital. Priority was built with intention during the past several years to meet these exacting customer needs and be their trusted partner by establishing our Priority Accelerated Commerce Engine, delivering tech-enabled services that collect, store, lend and send money on a single platform for acquiring, payables and banking needs. The value of our product suite is evident not only in our growth numbers and margins, but also in talking to our customers and partners as they expand their engagement with our solutions. As evidence, consider the following opportunities being harvested within our existing customer base and distribution channels in the first quarter alone. Since launching the cross-selling of Plastiq bill payment in late January with our acquiring partners, run rate revenue contribution from that channel already exceeds $1.2 million annually and has been growing month-over-month by over 100%. Additionally, Q1 downloads across our POS suite represented 20% of total new boards as we continue to activate new distributors with 8 going live this quarter and 27 new resellers executing contracts. The growing penetration of our POS tools will increase our mix of recurring SaaS revenue, improved merchant loyalty and continue to open additional paths for banking and payables product adoption that increases margin per merchant. Our Banking as a Service offering now maintains over $980 million in average daily balances, up from an average of $920 in Q4 2023. Importantly, nearly 25% of that comes from improved technology integration with our acquiring, payables and enterprise business partners, up from 17% in Q4 2023. Lastly, in April, we launched our specialty finance offering, Priority Capital, in partnership with Pipe, a leading small business specialty financier. Our initial outreach to just over 50,000 merchants resulted in approximately 36,000 customers receiving offerings for working capital lines of credit totaling $1.9 billion of recurring origination opportunities for Priority and our partners to capture. And we have over 100,000 more customers to whom we can introduce Priority Capital. The cumulative success of these ongoing initiatives represents pure upside to our current projections. I offer these noteworthy activities to reinforce that Priority's technology and operations are built for the future and are proving ready for the current test under fire. We're confident our future results will demonstrate how we've taken unified commerce to the next level by meeting the demands of modern businesses and empowering our customers to thrive in a real-time economy through unmatched speed and transparency to their cash flow. And we're delivering this message as we broaden the unified commerce conversation, and it resonates with current and prospective customers alike. Our vision and ahead of the curve offering has been the key driver of our market outperformance and most importantly, reflects the clear advantages we create through our unique capabilities and style of engagement, which provides long-term runway for enormous upside. I want to thank my colleagues at Priority who continue to execute our unified commerce vision and for never accepting being ordinary. Your unrelenting drive and dedication is evident in everything you do and the market is taking notice. Lastly, we greatly appreciate the ongoing support of our investors and analysts and those in attendance who are new to Priority for taking the time to participate in today's call. Operator, we'd now like to open it up for questions.

[Operator Instructions] And today's first question comes from Tim Switzer with KBW.

Can you guys talk a little bit about the integration and growth of Plastiq now that it's been in the run rate for a couple of quarters now? How has that trended relative to your expectations? And if there's been any surprises one way or the other on performance and conversations with customers as you continue with it?

Yes. Sure, Tim. I would say, look, nothing that has been a surprise. The -- we had pretty conservative estimates going in. I would say from a financial standpoint, it's outperforming those expectations and kind of what we -- but we had a very -- we have a conservative outlook in terms of synergizing the business. So I think you may recall when we first announced it, we had it as a drag to EBITDA through the end of 2023. We were able to get at EBITDA positive and net income positive before the end of the year. The trend on it has accelerated. And we would anticipate through the remainder of the year, it will outperform initial expectations. The -- but it's been a quick turnaround. You may recall when we first acquired it, projected EBITDA or I should say its run rate EBITDA was probably negative mid- to high-teens. And that's been reversed very, very quickly. We certainly think it could do something in the high-single digits to low-double digits of adjusted EBITDA contribution and certainly be on that run rate by the back half of the year. And that's been a result of, as I noted in other comments, integrating it into other channels. That's been successful. But we have -- that's blocking and tackling that we just need to continue to do. And then we've seen -- and this was our suspicion. We thought it could really be positioned for larger customers, more enterprise-oriented that could more fully leverage their credit capacity as a cheaper source of working capital. That's proven to be the case. So we're seeing larger enterprise customers that are doing $10 million, $20 million, upwards of $50 million in payments using our buyer funded strategies that Plastiq's technology enabled as a complement to our broader payables offering. So that's been a source of growth, and we'll expect that to -- that continue to be the case.

Great. Yes, that sounds good. And following up on that, are there any other areas or businesses you'd be interested in acquiring or any other M&A activity you guys are looking into right now?

[Operator Instructions] Our next question comes from Jacob Stephan with Lake Street.

If I can add just real quick on that question. The other thing we've seen, because we just have a more expansive offering from what Plastiq had originally been or how they had originally been oriented, we've seen margin expansion within that business because we've been able to offer other fast pay tools and things that the constituent using Plastiq found valuable that increased that gross profit take rate, as Tim noted, without necessarily increasing volume because we're adding revenue on pay in and pay out given some of the tools that we've been able to add into the mix.

Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to Tom Priore for closing remarks.

All right. Well, I would like to thank everybody for taking the time to allow us to reflect on the first quarter of [ 2023 ]. As you can see, it was quite a successful one. I feel like the business is set up to continue to perform at that rate through the remainder of the year, and we'll look forward to the opportunity to update you once again as we progress through quarter 2. Thank you, everyone, and I hope everyone has a great remainder of the week.