Priority Technology Holdings, Inc. (PRTH) Earnings

Management highlights

- Overall Q2 2026 Financial Performance * Consolidated net revenue grew over 9% YoY, adjusted gross profit grew 8% YoY, adjusted EBITDA grew 6% YoY, and adjusted EPS grew 12% YoY to $0.29 * Total customer accounts reached 1.8 million, up almost 13% YoY; annual transaction volume hit $151 billion, up 8% YoY; average account balances under administration grew 26% YoY to $1.8 billion * Year-to-date revenue grew 10% YoY to $511.8 million, adjusted gross profit grew 11% YoY to $198.7 million, and adjusted EBITDA grew just over 9% YoY to $117.5 million - Platform and Strategic Vision * The Priority Commerce unified platform is purpose-built to streamline end-to-end money movement, including collecting, storing, lending, and sending funds, with flexible tools for merchant acquiring, payables, and treasury solutions to optimize business working capital * API orchestration capabilities enable customized commerce surfaces for partners, supporting all payment acceptance routes, virtual/traditional bank accounts, card issuance, lockbox services, and bulk vendor payments to drive new revenue and operational efficiency * Management continues to standardize operations across high-value industry verticals to diversify revenue while maintaining cost discipline - Recent Operational Wins * Priority Commerce Sports signed its first NFL client (Pittsburgh Steelers) and first MLB client (Texas Rangers), with additional clients across all five major North American sports leagues scheduled to go live * Priority Commerce Automotive is now the endorsed partner for 19 U.S. state automotive dealership associations, including recent additions Florida and California * New enterprise wins in hospitality and healthcare validate demand for the company's connected payments and treasury capabilities - Balance Sheet and Capital Allocation * End-of-quarter total debt was $1.02 billion, with $220 million in total available liquidity ($120.3 million in cash and full $100 million revolving credit facility capacity) * Q2 2026 free cash flow was $27.4 million; net leverage as of quarter end was 3.8x, down from 4.0x at the end of Q1 2026 * 2026 capital allocation priorities are continued deleveraging, with evaluation of tuck-in acquisitions in attractive verticals and new markets

Guidance

- Management maintained the full-year 2026 revenue guidance range of $1.01 billion to $1.04 billion, and expects full-year revenue to land at the higher end of this range - Management maintained the full-year 2026 adjusted gross profit guidance range of $405 million to $425 million, and expects full-year adjusted gross profit to land at the lower end of this range - Management maintained the full-year 2026 adjusted EBITDA guidance range of $230 million to $245 million, and expects full-year adjusted EBITDA to land at the lower end of this range - The downward positioning within gross profit and EBITDA ranges reflects ongoing margin pressure from business mix shifts, higher residual expenses, increased card network and interchange fees, and continued investments in new vertical software assets in Priority Tech Ventures - Updated guidance will be provided on the Q3 2026 earnings call once management has greater full-year visibility

Segment performance

1. Merchant Solutions: Q2 2026 revenue was $175.8 million, up 7.7% year-over-year (YoY), comprising 67% of total Q2 revenue. Adjusted gross profit was $39.8 million, up 12.4% YoY, with a 22.7% gross margin (up 100 basis points YoY). Adjusted EBITDA was $30.9 million, up 11.3% YoY. Total card volume for the segment reached $19.5 billion, up 3.6% YoY. 2. Payables: Q2 2026 revenue was $30.4 million, up 21.6% YoY, comprising 11.6% of total Q2 revenue. Buyer-funded revenue reached $25.3 million (up 26.3% YoY) and supplier-funded revenue reached $5.1 million (up 2.6% YoY). Adjusted gross profit was $6.5 million, down 10.4% YoY, with a 21.4% gross margin (down 760 basis points YoY). Adjusted EBITDA was $3.1 million, down 17.5% YoY. 3. Treasury Solutions: Q2 2026 revenue was $60.5 million, up 14.9% YoY, comprising 23.1% of total Q2 revenue. Adjusted gross profit was $53.6 million, up 7.7% YoY, with an 88.5% gross margin (down 590 basis points YoY). Adjusted EBITDA was $47.5 million, up 4.3% YoY. Combined, Payables and Treasury Solutions contributed 66% of total adjusted gross profit (based on trailing twelve month organic results). Consolidated Q2 2026 net revenue was $262.3 million, up 9% YoY, with 7.2% organic consolidated growth.

Risks & headwinds

- Macro economic weakness has created softness in verticals including construction, restaurants, home furnishings, and building materials, and has slowed new enrollment growth for CFT Pay as referral partners pull back on marketing spend - Gross margin pressure across all segments from multiple structural and temporary factors: business mix shifts toward lower-margin revenue streams, GAAP gross vs net reporting requirements for buyer-funded payables that lower reported margins, higher card network and interchange price increases implemented by MasterCard and Visa, and investments in lower-margin new growth initiatives - The ongoing special committee evaluation of the take-private proposal creates overhang on the company's stock price and cannot be commented on during this call - Integration of recent acquisitions carries temporary costs including accelerated depreciation of certain DMS assets, though D&A is expected to return to normalized levels in future quarters

Analyst Q&A

• Q: How will gross margins in payables and treasury solutions evolve over the medium term amid current margin pressure?

  A: For payables, current pressure comes from mix shift toward fast-growing lower-margin buyer-funded revenue (due to GAAP gross reporting rules) and lower initial margins from new large enterprise customers. Management expects margin stabilization as it cross-sells additional treasury and banking services to these new enterprise customers to expand margin over time. For treasury solutions, natural margin compression will continue as high triple-digit growth outpaces the higher-margin core CFTPay platform, with faster growing newer offerings (Passport, Priority Tech Ventures) running at 30-40% gross margins. Over time, treasury gross margins are expected to stabilize near 80% as these new businesses scale.

• Q: Is the current mid-single-digit organic growth rate in merchant solutions a reasonable long-term run rate, and how will growth trend in the second half of 2026 as prior acquisition anniversaries hit?

  A: Management confirms that the 3% to 4% annual organic growth guidance remains appropriate for the merchant solutions segment over the long term, and the current Q2 4.5% organic growth rate aligns with this expected trend. Even if Q2 revenue levels repeat through the second half, the segment will remain well within its full-year growth guidance of 6% to 8% total growth. New large client wins in verticals like professional sports will add incremental organic revenue growth over time as high-volume operations go live.

• Q: What portion of treasury segment gross margin compression comes from Passport/Priority Tech Ventures versus lower deposit yields, and what is driving slower CFTPay new enrollments?

  A: All of the year-over-year treasury margin compression comes from mix shift toward the faster growing lower-margin Passport and Priority Tech Ventures lines; lower interest rates have no impact, as deposit growth fully offset lower rates, and core CFTPay gross margins have remained very stable. Slower new CFTPay enrollments are driven entirely by the current macro environment: referral partners have pulled back on marketing spend to control customer acquisition costs, not low customer demand. CFTPay remains a very sticky business with low customer churn, and billed client growth remains strong.

• Q: Can you distinguish between temporary and structural factors impacting current gross margin and EBITDA?

  A: Most margin pressure is concentrated at the gross margin level, from mix shifts that are structural as the company grows its lower-margin new lines of business, and the recent MasterCard/Visa interchange price increases are also recurring. A small number of one-time headwinds in the first half include non-recurring legal/transaction costs related to the special committee take-private evaluation and temporary elevated cloud expenses. EBITDA margins have remained stable overall, as the company has disciplined expense management, so most changes do not flow through to the EBITDA level.