Priority Technology Holdings, Inc.

Good day and welcome to the Priority Technology Holdings Third Quarter 2025 Earnings Call. All participants will be in 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 your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Meghna Mehra, Managing Director of Investor Relations. 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 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 course. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate gap measures can be found in our press release and SEC findings available in the investor section of our website. With that, I would like to turn the call over to our Chairman and CEO, Tom Priori.

Thank you, Meghna. And thanks to everyone for joining us for our third quarter 2025 earnings call. I'll begin today's call by highlighting our aggregate performance, full-year guidance on revenue, adjusted gross profit, and adjusted EBITDA, and key strategic updates. I'll then hand the call over to Tim, who'll provide segment-level performance, key trends, and developments across our business segments and Priority overall. As summarized on slide three, Priority grew net revenue by 6%, generated adjusted gross profit and adjusted EBITDA growth of 10% and 6% respectively, and increased adjusted EPS by 10 cents. or 56% year-over-year, to 28 cents in the third quarter. We ended the third quarter with over 1.7 million total customer accounts operating on our commerce platform, up from 1.4 million at the end of last quarter. Annual transaction volume in the LTM period increased by nearly 4 billion from quarter two to 144 billion, and average account balances under administration improved by almost 200 million from the prior quarter. Our largest quarterly increase to date to 1.6 billion. Certainly a solid showing for the quarter, but candidly with mixed performance at the segment level. We produced continued strong results by all key metrics within payables and treasury solutions on the strength of 14 and 18% revenue growth respectively. However, growth moderated to 2% in our merchant solution segment as same-store sales decelerated in multiple areas. Constructively, merchant attrition remained stable, leading us to conclude that macroeconomic factors influencing spending are affecting performance and will likely persist through the remainder of the year. The result is that revenue growth we had projected of 10% to 12.5% for the full year is expected to come at the lower end of our range at 8% to 10%. The impact is a modest revision to our full-year revenue guidance to $950 to $965 million from $970 to $990 million. Importantly, however, as a result of our expanding gross profit margins, which has continued to 38.9% year-to-date, We are raising the low end of our full year gross profit guidance from 365 million to 370 million, with the upper end remaining at 380 million, and modestly improving our full year adjusted EBITDA guidance to 223 to 228 million. I'd like to cover one bit of housekeeping before we dive more fully into our results. In our press release this morning, you'll note that we are now categorizing our operating segments as merchant solutions, payables, and treasury solutions instead of SMB, B2B, and enterprise. As Priority's business mix and solution set continues to evolve, we believe this will provide greater clarity to stakeholders about the revenue sources driving performance through our commerce platform. These categories also reflect the evolution of our client base with increasingly larger customers and a diverse set of reselling partners accessing priority for multiple features across acquiring, payables, and treasury solutions. Turning our attention to our aggregate Q3 results on slide four, revenue of 241.4 million increased 6% from the prior year. This led to a 10% increase in adjusted gross profit to 94.8 million, and a 6% improvement in adjusted EBITDA to $57.8 million. Adjusted gross profit margin of 39.2 increased 140 basis points from the prior year's third quarter, reflecting the ongoing performance of our diverse high margin payables and treasury solution segment. Highlighted on slide five, our Q3 performance contributed to year-to-date revenue growth of 8%, to $705.9 million, fueling a 12% increase in adjusted gross profit to $274.4 million, and an 8% improvement in adjusted EBITDA to $165.1 million, while expanding our adjusted gross profit margin by 150 basis points to 38.9%. For those of you who are new to priority, slides six and seven highlight our vision for connected commerce. The Priority Commerce platform is purpose-built to streamline collecting, storing, lending, and sending money. It delivers a flexible financial tool set for merchant acquiring, payables, and treasury solutions designed to accelerate cash flow and optimize working capital for the businesses we serve. I would encourage you to play the short one to two minute videos embedded in the product links on this slide to gain a deeper appreciation of why customers are consistently partnering with Priority to reach their commerce goals, and why we are emerging as a go-to solution provider for embedded commerce and finance solutions. Slide seven highlights a typical partner experience with our commerce APIs, orchestration capabilities for payments management and treasury solutions. This enables partners to use a single API tailored to their specific objectives. Customers connecting via our API can access all routes for digital payments acceptance, create traditional and virtual bank accounts, issue physical and virtual debit cards, enable lockbox for checks, configure single vendor and advanced bulk vendor payment programs, and many other commerce options at their own pace. In the third quarter alone, we contracted with new enterprise ISV partners in hospitality, marina infrastructure management, construction supply, class action administration, and mortgage lending with over 10 billion in incremental annual transaction volume to harvest, while continuing to expand our success in sports entertainment, automotive, property management, and payroll and benefits. Given our expanding customer base and segments, our commerce platform creates two important benefits for priorities long-term. First, it enables our partners to develop their offering to seize new opportunities and respond to emerging trends as we add features and embedded solutions. Both parties maintain clear visibility into quantifiable revenue growth opportunities, building customer confidence and driving mutual success. And second, By standardizing operational workflows across diverse industry segments where money movement is critical to the value chain, we can identify and refine key operational metrics in compliance, payment operations, risk, and application support. This enables us to scale efficiently, maintain cost discipline, and ultimately improve profitability. This vision explains why we've been able to evolve priority into a consistently high performing payments and banking financial technology company with strong recurring revenue prospects. Our customers and current market conditions reinforce our belief that systems connecting payments and treasury solutions to accept and distribute funds in multi-party environments will be critical as businesses put greater demands on software and payment solution providers. to deliver a full suite of core business services on a single relationship. We're committed to meeting our customers where they are by curating the experience for our partners to make working with priority seamless and easy. Before we move on to a detailed segment level performance review, I want to highlight a few key investments during Q3 on page eight. Namely, our acquisitions of BoomCommerce, and dealer merchant services, and the launch of our residual financing facility to power growth in ISO and ISV partnerships. The boom transaction adds veteran sales depth with exclusive distribution partnerships, expanding our West Coast capabilities. While the addition of the DMS team will underpin our strategy to lean into the future of automotive commerce with vertically focused distribution, and integrated payments, treasury and payable solutions to this steadily growing and historically defensive area of consumer spending. Last, our launch of the residual financing facility helps us put fuel in the tank of our ISO and ISV partners to grow their customer base on our commerce platform. At this point, I'd like to hand it over to Tim, who'll provide further insights into the health of our business segments along with current trends in each, that factored into our third quarter results and confidence for sustained performance through the end of 2025.