Priority Technology Holdings, Inc. (NASDAQ:PRTH) Q4 2024 Results Conference Call March 6, 2025 11:00 AM ET Company Participants Chris Kettmann - Investor Relations Tom Priore - Chairman and Chief Executive Officer Tim O'Leary - Chief Financial Officer Conference Call Participants Jacob Stephan - Lake Street Capital Markets Brian Kinstlinger - Alliance Global Partners Tim Switzer - KBW Brian Bergen - TD Cowen Isabella Hondros - DGA Group Operator Good morning, and welcome to the Priority Technology Fourth Qu ...

Revenue Growth - Consolidated revenue for the year ended December 31, 2024, was $879.7 million, an increase of $124.1 million or 16.4% from $755.6 million in 2023[174] - Merchant card fees revenue increased by $75.2 million or 12.6% to $670.4 million in 2024, driven by the acquisition of Plastiq and increased transaction counts[176] - Money transmission services revenue rose by $32.0 million or 32.6% to $130.1 million in 2024, primarily due to an increase in customer enrollments[177] - Outsourced services and other services revenue increased by $17.4 million or 35.1% to $67.0 million in 2024, attributed to higher interest income and additional revenues from the B2B Payments segment[178] - B2B Payments segment revenue increased to $89.1 million for the year ended December 31, 2024, up 116.5% from $41.2 million in 2023, driven by the acquisition of Plastiq and increased interest revenue[199] - Enterprise Payments segment revenue reached $180.4 million in 2024, a 36.6% increase from $132.2 million in 2023, attributed to higher customer enrollments and growth in interest income[202] Operating Expenses - Total operating expenses for 2024 were $746.3 million, an increase of $72.2 million or 10.7% from $674.1 million in 2023[180] - Adjusted EBITDA from the SMB Payments segment was $108.9 million in 2024, a slight decrease of $0.6 million or 0.6% from $109.5 million in 2023[197] - Adjusted EBITDA for the B2B Payments segment rose to $7.6 million in 2024, a 245.5% increase from $2.2 million in 2023, primarily due to higher revenues despite increased operating expenses[200] - Adjusted EBITDA for the Enterprise Payments segment was $154.9 million in 2024, reflecting a 39.8% increase from $110.9 million in 2023, driven by revenue growth offset by increased salaries[203] Net Income and Financial Performance - Net income for 2024 was $24.0 million, a significant increase of $25.3 million from a net loss of $1.3 million in 2023[190] - Operating income improved to $133,421 in 2024, up 63.7% from $81,524 in 2023[258] - The company reported a basic and diluted loss per common share of $0.31 for 2024, improving from a loss of $0.63 in 2023[258] - The total shareholders' deficit attributable to shareholders increased to $(166,840) in 2024 from $(147,718) in 2023[256] Cash Flow and Working Capital - Working capital improved to $53.4 million at December 31, 2024, compared to $29.2 million at the end of 2023, with cash and cash equivalents increasing to $58.6 million from $39.6 million[207] - Net cash provided by operating activities was $85.6 million in 2024, a 5.3% increase from $81.3 million in 2023, driven by net income growth[211] - Net cash used in investing activities decreased to $35.5 million in 2024 from $55.7 million in 2023, with no business acquisitions in 2024 compared to $28.2 million spent on acquiring Plastiq in 2023[212] - Total cash and cash equivalents, and restricted cash at the end of 2024 reached $993,864 thousand, up from $796,223 thousand in 2023[268] Debt and Financing - Long-term debt obligations increased to $945.5 million in 2024 from $654.4 million in 2023, marking a $291.1 million rise[215] - The company entered into a $835.0 million term facility and a $70.0 million revolving credit facility under the 2024 Credit Agreement, with the term facility maturing in May 2031[216] - As of December 31, 2024, the company had $945.5 million in outstanding borrowings under its Credit Agreement, with a potential cash interest expense fluctuation of approximately $9.5 million per year for a hypothetical 1.00% change in the SOFR rate[228][229] Tax and Valuation - The effective tax rate decreased to 35.6% in 2024 from 118.3% in 2023, primarily due to a reduction in valuation allowance against deferred tax assets[188] - The company recognized interest and penalties associated with uncertain tax positions as a component of income tax expense[351] Internal Controls and Compliance - The company has identified a material weakness in internal control over financial reporting related to automated controls for data transformation from third-party processors, affecting revenue and expense determinations[246] - The company’s internal control over financial reporting was found to be ineffective as of December 31, 2024, due to identified deficiencies[245] Asset Management - Total current assets increased to $1,105,085 in 2024, up 25.5% from $881,294 in 2023[256] - Total liabilities rose to $1,991,885 in 2024, an increase of 32.5% from $1,502,796 in 2023[256] - The company’s total assets grew to $1,826,860 in 2024, up 13.1% from $1,615,337 in 2023[256] Business Operations and Strategy - The company aims to enhance its payment solutions through its proprietary Priority Commerce Engine, focusing on optimizing cash flow and working capital for customers[270] - The Company’s B2B Payments segment enables customers to automate accounts payable and other commercial payments functions[284] Acquisitions and Goodwill - The acquisition of Plastiq was completed on July 31, 2023, for a total purchase consideration of approximately $37.0 million, including $28.5 million in cash[366][367] - The fair value of the acquired intangible assets includes $13.0 million for customer relationships, $7.0 million for referral partner relationships, $6.5 million for technology, and $3.9 million for trade name[369] - The company tests goodwill and indefinite-lived intangibles for impairment annually, concluding no impairment for the years ended December 31, 2024, 2023, and 2022[316]

Revenue Growth and Financial Performance - Priority's revenue CAGR from 2021 to 2023 was ~21%, with Adjusted Gross Profit CAGR at ~33% and Adjusted EBITDA CAGR at ~32%[9] - Q3 2024 consolidated revenue increased 17% to $652.6 million, with adjusted gross profit up 21% to $244.1 million and adjusted EBITDA growing 23% to $152.5 million[25] - Revenue for Q4 2024 is expected to be between $225.2M and $227.2M[50][51] - Revenue growth for 2025 is forecasted to be in the range of 10.0% to 14.0%[54] - Total Revenue for Q3 2024 was $227.0 million, with Recurring and Re-Occurring revenue contributing 97% of the total[60] Segment Performance - Q3 2024 revenue breakdown: SMB segment generated $158.8M with a 22.4% Adj. Gross Profit margin, B2B segment generated $22.1M with a 28.5% margin, and Enterprise segment generated $47.1M with a 93.6% margin[11] - SMB segment revenue grew 13% YoY in Q3 2024, with adjusted gross profit margin at 22.4%[23][29] - B2B segment revenue surged 58% YoY in Q3 2024, with adjusted gross profit margin reaching 28.5%[23][31] - Enterprise segment revenue increased 34% YoY in Q3 2024, with adjusted gross profit margin at 93.6%[23][35] - B2B segment added 28,000 suppliers in 2024 and now has 90,000 buyers on its platform as of Q3 2024[31] - Enterprise segment account balances reached $1.1 billion in Q3 2024, with 100% nationwide MTL coverage[33] Recurring Revenue and Profitability - ~60% of Q3 2024 Adjusted Gross Profit came from recurring revenue, with ~97% of Q3 2024 revenue being recurring or re-occurring[9] - Recurring revenue for Q3 2024 was $66.9 million, accounting for 29% of total revenue, while Re-Occurring revenue was $153.7 million, making up 68% of total revenue[60] - Adjusted Gross Profit from Recurring revenue in Q3 2024 was $51.3 million, representing 60% of total Adjusted Gross Profit[60] - Priority's Free Cash Flow Conversion was ~89% YTD 2024, driven by a highly visible revenue model with largely recurring or re-occurring revenue[9] - Free Cash Flow for YTD September 2024 was $135.5 million, with a Free Cash Flow Conversion rate of 88.8%, up from 87.7% in the same period last year[61] Adjusted EBITDA and Margins - Priority's Adjusted EBITDA margin is estimated to expand by 456 basis points since 2021, reaching 23.3% in 2024E[21] - Adjusted EBITDA for Q3 2024 increased to $54.6 million, up from $45.0 million in Q3 2023, with an Adjusted EBITDA Margin of 24.1% compared to 23.8% in the same period last year[59] - Adjusted EBITDA for YTD September 2024 was $152.5 million, up from $123.7 million in the same period last year, with an Adjusted EBITDA Margin of 23.4% compared to 22.2%[61] - Adjusted Gross Profit for Q4 2024 is projected to range from $82.7M to $86.5M[50][51] - Adjusted EBITDA for Q4 2024 is estimated to be between $49.7M and $54.1M[50][51] - Adjusted Gross Profit margin for 2025 is expected to be between 37.5% and 39.0%[54] - Adjusted EBITDA margin for 2025 is anticipated to range from 22.5% to 24.0%[54] Market Position and Opportunities - The company has a $25 trillion addressable market in North America for accounts payable/receivable flows and a $112B embedded finance market, with only ~17% captured[12] - The U.S. consumer card payment volume is expected to grow by $4 trillion from 2022A to 2027E[15] - Priority is the 6th largest U.S. non-bank merchant acquirer, with $127B in LTM Q3 2024 volume and 1.1M merchants[19] Acquisitions and Strategic Moves - The company completed the acquisition of Plastiq in Q3 2023 and continues to pursue strategic acquisitions in vertical markets and geographic expansion[31][46] - The company acquired RentPayment from Yapstone, Inc for $71M in 2019, leading to a 25% revenue growth and 65% increase in Adj. EBITDA[47] - Finxera was acquired for $407M net of cash in 2021, leveraging its technology platform for Banking & Treasury Solutions[47] - Plastiq assets were acquired out of bankruptcy for $37.3M in 2023, achieving Adj. EBITDA positivity within 2 quarters[47] Financial Metrics and Ratios - Priority's LTM Q3 2024 volume was $46.4B, with $1.1B in account balances and $70.3B in total card dollar volume[11] - YTD Q3 2024 free cash flow grew 25% to $147.1 million, with free cash flow conversion at 89.9%[38] - CapEx spend for YTD Q3 2024 was $21.3 million, representing 2.8% of revenue[40] - Net leverage ratio decreased to 4.0x as of Q3 2024, down from 8.8x in 2021[43] - Capex for YTD September 2024 was $17.0 million, slightly higher than the $15.3 million in the same period last year[61] - Interest Expense for YTD September 2024 increased to $65.8 million, compared to $55.5 million in the same period last year[61] - Depreciation and Amortization for YTD September 2024 decreased to $44.2 million, down from $53.3 million in the same period last year[61] - Income Before Taxes for Q3 2024 was $15.5 million, with a margin of 6.8%, compared to $4.2 million and a margin of 2.2% in Q3 2023[59] Ownership and Market Cap - The company has a 75.0% insider ownership and a market cap of $739M as of January 14, 2025[6] Adjusted Gross Profit and EBITDA Details - Adjusted Gross Profit for the nine months ended September 30, 2024, was $244.1M, with a margin of 37.4%[58]

Core Viewpoint - Priority Technology Holdings, Inc. (PRTH) is expected to report its fourth-quarter 2024 results on March 6, with a consensus estimate for revenues at $226.2 million, indicating a 13.5% year-over-year growth driven by strong reseller relationships [1][3]. Revenue Expectations - The Zacks Consensus Estimate for PRTH's fourth-quarter revenues is $226.2 million, reflecting a 13.5% increase compared to the previous year [3]. - The anticipated revenue growth is attributed to the company's effective acquisition and retention of high-quality resellers focused on growth [3]. Earnings Projections - The consensus estimate for earnings is 6 cents per share, a significant improvement from a loss of 16 cents in the same quarter last year [5]. - Focus on expense discipline and strong margins is expected to positively impact the bottom line [5]. Market Trends and Strategies - Merchant bankcard processing dollar value and B2B issuing dollar volume are projected to have improved due to PRTH's ability to leverage market trends effectively [4]. - The company's innovative strategies are likely to have supported growth in average billed clients and average monthly new enrollments [4]. Earnings Prediction Model - The current model does not predict a definitive earnings beat for PRTH, with an Earnings ESP of 0.00% and a Zacks Rank of 2 (Buy) [6][7].

Priority Technology Holdings, Inc. (PRTH) stock has shown remarkable growth over the past year. The stock has gained 227.3%, outperforming the industry's 53.6% rally and the Zacks S&P 500 composite's 18.5% growth.One Year Price PerformanceImage Source: Zacks Investment ResearchPRTH has performed better than its industry peers, such as Byrna Technologies Inc. (BYRN) and Cellebrite (CLBT) . BYRN has gained 129.8% and CLBT has returned 59.1% over the same period.In the last trading session, the PRTH stock clos ...

Core Viewpoint - Priority Technology (PRTH) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Performance - The Zacks rating system is based on changes in earnings estimates, which are closely correlated with stock price movements, particularly due to institutional investors' reliance on these estimates for valuation [4][6]. - Priority Technology is projected to earn -$0.20 per share for the fiscal year ending December 2024, reflecting a year-over-year change of 68.3% [8]. - Over the past three months, the Zacks Consensus Estimate for Priority Technology has increased by 49%, indicating a positive trend in earnings expectations [8]. Zacks Rating System - The Zacks Rank stock-rating system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - Only the top 5% of Zacks-covered stocks receive a 'Strong Buy' rating, highlighting the superior earnings estimate revision feature of these stocks [9][10].

Core Viewpoint - Momentum investing focuses on "buying high and selling higher," contrasting with traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investing can be risky as stocks may lose momentum when their valuations exceed future growth potential [1] - Identifying the right entry point for fast-moving stocks is challenging, and investors may end up with expensive shares that have limited upside [1] Group 2: Bargain Stocks with Momentum - Investing in bargain stocks that have recently shown price momentum may be a safer strategy [2] - The Zacks Momentum Style Score is useful for identifying strong momentum stocks, while the 'Fast-Paced Momentum at a Bargain' screen helps find attractively priced fast-moving stocks [2] Group 3: Priority Technology (PRTH) Analysis - Priority Technology (PRTH) has shown a price increase of 3.5% over the past four weeks, indicating growing investor interest [3] - PRTH gained 23.8% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer timeframe [4] - The stock has a beta of 1.2, suggesting it moves 20% higher than the market in either direction [4] Group 4: Valuation and Earnings Estimates - PRTH has a Momentum Score of A, indicating a favorable time to invest [5] - The stock has a Zacks Rank 2 (Buy) due to upward revisions in earnings estimates, which attract more investors [6] - PRTH is trading at a Price-to-Sales ratio of 0.78, meaning investors pay 78 cents for each dollar of sales, indicating a reasonable valuation [6] Group 5: Additional Investment Opportunities - PRTH has potential for further growth at a fast pace, and there are other stocks that meet the 'Fast-Paced Momentum at a Bargain' criteria [7]

Core Viewpoint - Priority Technology (PRTH) has shown a significant price increase of 17% over the past four weeks, with a mean price target of $13.50 indicating a potential upside of 36.9% from its current price of $9.86 [1] Price Targets - The average price targets from analysts range from a low of $10 to a high of $16, with a standard deviation of $2.65, suggesting variability in estimates [2] - The lowest estimate indicates a modest increase of 1.4%, while the highest estimate suggests a substantial upside of 62.3% [2] Analyst Sentiment - There is strong agreement among analysts regarding PRTH's ability to report better earnings than previously predicted, which supports the potential for stock upside [4] - Over the last 30 days, the Zacks Consensus Estimate for the current year has increased by 10%, with no negative revisions [10] Zacks Rank - PRTH holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate factors, indicating a strong potential for near-term upside [11] Earnings Estimate Revisions - A positive trend in earnings estimate revisions has been correlated with near-term stock price movements, suggesting that the recent optimism among analysts could lead to further price increases [9][12]

Core Insights - The article emphasizes the importance of a ranking system focused on earnings estimates and revisions to identify winning stocks, while also considering various investment strategies such as value, growth, and momentum [1][2] Value Investing - Value investing is highlighted as a favored strategy that seeks to identify companies undervalued by the market, utilizing various valuation metrics [2] - The Zacks Style Scores system is mentioned, particularly its "Value" category, which helps investors find stocks with high value grades and strong Zacks Ranks [3] Company Spotlight: Priority Technology (PRTH) - Priority Technology (PRTH) is noted for having a Zacks Rank of 2 (Buy) and an A grade for Value, indicating it is a strong candidate for value investors [4] - PRTH's Forward P/E ratio is reported at 14.03, significantly lower than the industry average of 40.84, suggesting it may be undervalued [4] - The stock's Forward P/E has fluctuated between a high of 22.72 and a low of -4,545.91 over the past 52 weeks, with a median of -16.29 [4] - The P/S ratio for PRTH is 0.89, compared to the industry's average of 1.65, further indicating its potential undervaluation [5] - Overall, PRTH's strong value metrics and positive earnings outlook position it as an impressive value stock at this time [6]

Core Viewpoint - Momentum investing focuses on "buying high and selling higher" rather than traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investors often face challenges in determining the right entry point for fast-moving stocks, which can lead to investments with limited upside or potential downside [2] - A safer approach involves investing in bargain stocks that exhibit recent price momentum, utilizing tools like the Zacks Momentum Style Score to identify these opportunities [3] Group 2: Case Study - Priority Technology (PRTH) - Priority Technology (PRTH) has shown significant recent price momentum, with a four-week price change of 76.2%, indicating growing investor interest [4] - Over the past 12 weeks, PRTH's stock has gained 76.5%, and it has a beta of 1.2, suggesting it moves 20% more than the market in either direction [5] - PRTH has a Momentum Score of A, indicating a favorable time to invest based on its momentum characteristics [6] Group 3: Earnings Estimates and Valuation - An upward trend in earnings estimate revisions has contributed to PRTH earning a Zacks Rank 2 (Buy), which is associated with strong momentum effects [7] - PRTH is currently trading at a Price-to-Sales ratio of 0.90, suggesting it is undervalued as investors pay only 90 cents for each dollar of sales [7] Group 4: Additional Opportunities - Besides PRTH, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, presenting further investment opportunities [8] - The Zacks Premium Screens offer over 45 different strategies tailored to help investors find winning stock picks [9]