Priority Technology Holdings, Inc.

Rory Technology Holdings, third quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Mr. Chris Kettner. 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 Tim O'Leary, 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 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 now turn the call over to our chairman and CEO, Tom Priori.

Thank you, Chris. And thanks to everyone for joining us for our third quarter 2022 earnings call. I would also like to personally welcome Tim O'Leary, who was named CFO in September. We're excited to have him on the team. We once again delivered excellent quarterly results, reporting strong revenue and EBITDA growth during the period. Our third quarter revenue increased almost 26% from the prior year to a record $166.4 million, which led to a nearly 50% increase in gross profit to $58.5 million and a 48.7% improvement in adjusted EBITDA to $35.1 million. These results were fueled by a 510 basis point expansion in gross margin to 35.1%, operating income of 14.1 million increased nearly 70% from the third quarter of 2021. As you can see on slide four, our strong Q3 results extended the positive momentum we've been seeing throughout the year. On a year-to-date basis, total revenue is up 31.1% to just over 486 million, and grew organically by 12.7% in the third quarter, and 17% on a year-to-date basis, excluding the impact of the Fincera acquisition. Gross profit increased by 56% to $165.9 million, and adjusted EBITDA was up over 60% to $100.5 million through the first three quarters of 2022. Year-to-date Gross margin of 34.1% increased 540 basis points from 28.7% we reported in the first nine months of 2021. Tim will go into the segment level detail on our third quarter results shortly. Before he does, let's look at slide five and some of the company's aggregate performance statistics. Our unified commerce platform efficiently serves the SMB, B2B, and enterprise payment segments at scale. supporting over 254,000 active SMB merchant accounts, more than 420,000 active bank deposit accounts, and is processing total annual payment volume of over $110 billion, with more than 80% derived from integrated software connections. Our sophisticated technology solutions, balanced operating segments, and industry-leading customer service continue to resonate with the market. and we're proud of the results we're delivering. For those of you who are new to the company, slide six highlights how our proprietary unified commerce platform is purpose-built to collect, store, and send money, combining robust payments and banking functionality to monetize the merchant networks we serve. Our customers continue to reinforce our belief that systems combining features of both payments and banking to accelerate cash flow and distribute funds in multi-party environments will be critical as businesses put greater demands on software and payment solution providers. To position ourselves to benefit more quickly from this trend and the continued rise in interest rates, we've made the decision to accelerate our investment in our banking product initiatives and operating resources. This will result in modestly higher than estimated operating expenses in the back half of this year. Consequently, we are forecasting a revision in our full year adjusted EBITDA guidance. While we still expect to achieve full year revenue of $650 to $665 million, we anticipate our adjusted EBITDA will range between $140 to $145 million versus our initial guidance of $145 to $150 million. We believe accelerating the feature development of our native Priority Passport offering to deliver a full suite of proprietary payment and banking solutions into the SMB and B2B markets and enterprise partners, particularly in the current interest rate environment, will result in outsized benefit to our shareholders in the coming years. Our largest segment, SMB payments, continues to do incredibly well. reporting 9.2% year-over-year bank card volume growth and revenue growth of 12.1% in the third quarter. As we've done in the past, we compiled the table on slide seven, highlighting the aggregate growth rates of the top five non-bank merchant acquirers in the U.S. As you can see, priority remains on a meaningfully higher aggregate growth trajectory than all of these peers. Even by purely organic growth measures, we outpace our peer group, proving our forward-looking acquiring product and thoughtful investment in vertical markets continues to resonate with customers, and it's a significant competitive differentiator. Moving on to slide eight, B2B payments again reported strong results as it continues to add new partner channels on the strength of our CPX products. For the third quarter, our B2B segment delivered year-over-year revenue growth of 16.5%, a gross profit increase of $600,000, and gross margin expansions of 410 basis points compared to the prior year quarter. This growth occurred despite the expected wind-down of a large managed service customer, which we discussed on our last earnings call. Priority's significant investment in our CPX product continues to pay off, evidenced by the sizable pipeline of business opportunities we've announced throughout the year with CISPRO Systems, Intelier, Premier Healthcare, and Century Bank, among others. Lastly, our enterprise payment segment, which provides embedded payments and banking solutions to our partners, reported quarterly revenue of $21.7 million and gross profit of $20 million. Total payments volume and billed clients continues to grow along with increased deposit balances and the rates on those deposits. Although prior year comparisons are not especially meaningful, given our acquisition of Fincera in September 2021, the sequential growth from Q2 2022 to Q3 2022 was 16.3% for the top line, along with 17.4% increase in gross profit. Our strong performance trends continue to reinforce the counter-cyclical strength of the existing platform and reflect additional wins in sectors like real estate and construction and treasury software systems. Before wrapping up, I'd be remiss if I did not address the increasing probability that we are headed into a prolonged economic downturn, fueled by higher interest rates, continued inflationary pressure, supply chain disruptions, and volatile geopolitical events. Unlike many of our peers who are retrenching, cutting resources, and reducing investments, we are accelerating our initiatives in new revenue channels that are early in the conversion cycle to digital payments and others poised to benefit from current and future higher interest rates and an inflationary environment. Priority will continue to build with intention while remaining lean and positioned to invest purposefully in our unique and diversified business platform that continues to operate from a position of strength, regardless of broader economic cycles. At this point, I'd like to hand it over to Tim, who will provide further insight into our performance during the quarter, along with current trends in each business segment.