PRTH - NASDAQ

Good morning, and welcome to the Priority Technology Holdings Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Meghna Mehra with Investor Relations. 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. 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 Investor 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 concluding, I want to reflect on a handful of topics we've detailed in the past that are core to our differentiation and consistent performance through varying economic environments and an emerging trend that I believe will be an important catalyst for outsized growth and equity value creation at Priority. Tim has already discussed the mix shift in our earnings quality over the past 4-plus years as adjusted gross profit from recurring revenue now represents 62% of total adjusted gross profit on the increased strength of 31% and 23% in this key metric for B2B and the Enterprise segments, respectively. As with everything we do, we have built these business lines with intention over years of thoughtful planning and cost-efficient execution to be in a position to capitalize on emerging trends early in their cycle to create asymmetric risk-reward profiles. Now when including our results in the second quarter of 2025, that vision and execution delivered 5-year compound annual adjusted EBITDA growth of nearly 20% through the end of June 2025. I offer this perspective because I believe some of the recently publicized transactions reflect an acceleration in the embedded finance value creation thesis and fintech consolidation with a number of players seeking strategic assets deepen their access to business distribution pools, particularly small and medium-sized businesses and add products that you could characterize as nondiscretionary to be a single source solution provider to improve their unit economics. Recent transactions like Xero's acquisition of Melio for $2 billion, Bain Capital portfolio company, Acrisure's purchase of Heartland Payroll for $1.1 billion or TPG's purchase of AvidXchange reinforce this emerging dynamic. And we continue to curate and evolve Priority's flexible commerce engine, connecting payments and banking on a single platform to centralize all money movement at scale for our partners and with our expanding menu of core business applications, to go along with that capability. Through our Priority Tech Ventures activity, we're enabling solutions for payroll, benefits and vertical markets with large profit pools, including construction and prop-tech, among others, at attractive entry points, giving our strategies time to manifest profits and margin expansion, while the accelerating trend toward full-service platforms continues to emerge. As always, I first want to thank my colleagues at Priority who continue to work incredibly hard to deliver industry-leading results. Your commitment and dedication to improving everything we do is clear, providing our partners and customers with a constant reminder that they made the right choice to partner with Priority. Last, we continue to appreciate the ongoing support of our investors and analysts. And for those in attendance who are new to Priority, we're taking the time to participate in today's call. Operator, we'd like to now open the call for questions.

[Operator Instructions] Our first question today comes from Bryan Bergin with TD Cowen.

And our next question today comes from Brian Kinstlinger with Alliance Global Partners.

And our next question comes from Jacob Stephan with Lake Street Capital Markets.

Congrats on the nice quarter here. Maybe just kind of help us think through some of the average monthly enrollments of CFTPay, it looks like they accelerated nicely. You've got almost 1 million clients there. But I mean, is this really a function of better cross-selling efforts? Is this a function of new client wins? What's the driving factor here?

The primary driver there has been investment from some of our partners. So there's been a favorable condition for some time in terms of customer acquisition. I think we've spoken about it, just some of the changes in credit counseling and so forth. So some of our partners have just amped up their efforts in sales and marketing. And we had the expectations that, that would kick in, in the latter part of the year, and you're seeing that acceleration. So we don't expect that to abate anytime soon.

Got it. And maybe just on the Priority Tech Ventures investments you're making. Help us understand kind of how these pieces into the overall portfolio? Are these kind of companies you're taking early-stage investments in and bringing them on to the tech stack as you -- as they kind of grow? Or how are you thinking about that?

Yes, sure. Just -- I'll digress for a moment, but you'll probably recall from more than 1 year ago, we had noted that just the venture space generally was struggling for capital. And there were some just well-built technology platforms out there that collecting, storing, lending, sending money was a core part of the value chain, payroll for one, property tech and real estate property management, benefits, another. And the platforms out there that we're competing with were somewhat legacy and not that they weren't at scale. There are a number of excellent competitors out there, but they were probably less capital efficient operating -- from an operating cost standpoint. So we were able to find platforms at real attractive prices that fit well into our core customer base like payroll, buying RollFi, like our Prisma product where we've been able to build out a presence in property management and treasury activity in that segment or the benefits space as well. So all these are -- especially payroll and benefits, they're nondiscretionary. Every business needs them. We've got a few hundred thousand small businesses. It doesn't take a genius to figure out, well, you buy it at the right price point, you get it into the sales funnel and you incentivize really strong sales teams that I think we deliver. You can just see those results in small business growth. Then it's really making our partners' portfolios worth more at Priority. That's a phenomenon you're seeing in the SMB space when you look at acquiring and why the volume is consistent and why we drive loyalty because we invest in their ability to make things happen and make money. So it's really bringing all that together. And that's what Tech Ventures has been designed to do. And we're excited about the potential within that segment, particularly given, as I said, our price point of entry.

And our next question today comes from Tim Switzer at KBW.

Okay. Great. Good color. And then, can you also discuss -- it sounds like you haven't seen any material impacts at all from tariffs and some of the macro uncertainty. But if things did sort of turn around, we're starting to see a weaker labor market here, how would that impact the revenue outlook you have overall and particularly in SMB versus Enterprise?

The other thing I'll just note, and this is what gives us the optimism for the remainder of the year is our ISV partners have continued to grow. We're still -- those you harvest over a longer period of time once they connect. So we have a number of those contracted that are just being harvested. So as those-- as that occurs, you'll -- that gives us confidence in the acquiring segment's stability. Now aside from that, and to your point on, let's say, a potential labor market impact or on tariffs, those are environments where we generally see our B2B payables segment accelerate because working capital becomes a greater concern, folks are looking for sources like Plastiq and our payables suite to extend working capital. So -- that's been a benefit in previous economic cycles. So we would expect that to continue. And then, of course, within the CFTPay segment, again, that's just -- when consumers become a bit more stressed, they're more likely to look for assistance. And we're really well positioned to work with our partners in that segment to provide that assistance, and we see generally enrollments accelerate.

And our next question comes from Harold Goetsch with B. Riley.

Congratulations, you're really executing well. I just wanted to ask about some of the larger ISOs that you are having success with. Can you just kind of describe their go-to-market? Are they leading with a software-enabled solution or a point-of-sale system, yours or reselling [ some ]? Give us a color on what is working in SMB? Because what is working seems to be like growing nicely above what you would see from the card network. They're only growing 6%, 7%. So you clearly have some success there and I want to know more -- a little bit more about that.

And this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

All right. Well, we would like to thank everybody for taking the time to express your continued interest in Priority. We are -- I appreciate the final comment, Hal, on our execution. And rest assured, we'll be continued laser-focused on just that. So thanks, everyone, and we look forward to getting together next quarter to demonstrate our execution.