Priority Technology Holdings, Inc.

Good morning and welcome to Priority Technology Holdings second quarter 2022 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Chris Kettman. Please go ahead.

Good morning, and thank you for joining us. With me today are Tom Priori, Chairman and Chief Executive Officer of Priority Technology Holdings, and Mike Volkamer, 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 Priori.

Thank you, Chris. And thanks 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 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 four, our strong results in Q2 were a continuation of the positive performance for the year overall. On a year-to-date basis, total revenue was up 34% to nearly $320 million and grew organically by 19.6%, excluding the FinCERA 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 five and some of the company's performance statistics. As we've 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 and $665 million and EBITDA of $145 to $150 million that we projected for 2022. demonstrating Priority's ability to perform in challenging economic environments. 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 six 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 seven, we've included the growth rates of the top five non-bank merchant acquirers in the US. 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 SMB's 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 percent 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 half a 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 are positioning priority to capitalize on trends before they materialize. For the better part of the last two years, we've highlighted our expectations that weaker economic conditions would emerge And we're building priority with intention, seeking to remain lean and positioning our innovative agile technology to leverage a combination of traditional and counter cyclical assets, serving broad segments of the economy. 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.