Priority Technology Holdings, Inc. (PRTH) Earnings

Management highlights

- Overall Q1 2026 Financial Performance * Consolidated net revenue grew 11% YoY to $249.6 million, with 9.1% organic growth * Adjusted gross profit grew 13% YoY to $98.8 million, with adjusted gross margin expanding 70 bps YoY to 39.6%, driven by the mix of high-margin Payables and Treasury Solutions and accretive 2025 H2 acquisitions * Adjusted EBITDA grew 13% YoY to $58.1 million, and adjusted EPS grew 27% YoY to $0.28 * The company ended Q1 with 1.8 million total customer accounts (up 50,000 from end-2025), annual transaction volume of $153 billion (up $3 billion from end-2025), and average account balances under administration of $1.8 billion (up over $100 million from end-2025) * Consolidated operating expenses: Salaries and benefits increased 10.7% YoY to $28.5 million, driven by higher stock compensation and acquisition-related headcount; SG&A increased 27.4% YoY to $19.2 million, driven by higher cloud/software costs and non-recurring legal/transaction expenses * End-of-Q1 capital structure: Total debt of $1.02 billion, total available liquidity of over $192 million ($100 million revolving credit capacity + $92.2 million cash on hand); net leverage of 4.0x (down from 4.2x at end-Q4 2025), 3.8x pro forma including run-rate EBITDA from recent acquisitions * Q1 free cash flow was $28 million - Strategic & Operational Highlights * The Priority Commerce platform is purpose-built to streamline collecting, storing, lending, and sending money, offering flexible financial tools for merchant acquiring, payables, and treasury solutions to improve business cash flow and working capital * The platform's API orchestration capabilities enable partners to access a full suite of services (digital payment acceptance, bank accounts, debit cards, lockbox, bulk vendor payments, etc.) via a single tailored API, creating new revenue opportunities and operating efficiency * Management is continuing to standardize payment and operational workflows across industry segments to broaden and diversify revenue while maintaining cost discipline * Management believes growing demand for integrated, full-suite business solutions from software and payment providers (accelerated by AI adoption among SaaS companies) creates strong tailwinds for the company's unified platform model

Guidance

- Management maintained its full-year 2026 financial guidance based on strong Q1 momentum and high visibility into continued full-year performance * Full-year 2026 revenue is guided in the range of $1.01 billion to $1.04 billion * Full-year 2026 adjusted EBITDA is guided in the range of $230 million to $245 million - Management expects adjusted EBITDA to grow sequentially through the remainder of the year to hit the guided full-year range, consistent with historical quarterly cadence

Segment performance

1. Merchant Solutions: Generated Q1 2026 revenue of $161.8 million, a 6.7% year-over-year increase (3.9% organic growth, with the remainder driven by 2025 H2 acquisitions). It contributed 64.8% of total consolidated revenue. Total card volume reached $18.1 billion, up 2.5% YoY. Adjusted gross profit was $36.7 million, up 10.8% YoY, with an adjusted gross margin of 22.7% (up 80 bps YoY). Adjusted EBITDA was $27.7 million, up 7.9% YoY. 2. Payables: Generated Q1 2026 revenue of $32.4 million, a 35.6% year-over-year increase. It contributed 13.0% of total consolidated revenue. Buyer-funded revenue grew 37.1% YoY to $25.4 million, while supplier-funded revenue grew 30.6% YoY to $7 million. Adjusted gross profit was $9.2 million, up 26.4% YoY, with an adjusted gross margin of 28.4% (down 210 bps YoY due to mix shift to lower-margin buyer-funded revenue and gross vs net revenue recognition rules). Adjusted EBITDA was $5.5 million, up 55.1% YoY driven by operating leverage. 3. Treasury Solutions: Generated Q1 2026 revenue of $58.8 million, a 17.5% year-over-year increase. It contributed 23.6% of total consolidated revenue. Adjusted gross profit was $52.9 million, up 12.8% YoY, with an adjusted gross margin of 89.8% (down 370 bps YoY due to mix shift to faster-growing lower-margin Passport and Priority Tech Ventures lines). Adjusted EBITDA was $46.7 million, up 10% YoY. Combined adjusted gross profit from Payables and Treasury Solutions represented 63% of total Q1 adjusted gross profit (66% when excluding 2025 acquisitions), and 62% on a trailing 12-month basis (65% excluding acquisitions).

Risks & headwinds

- Higher than normal credit losses in the Merchant Solutions segment negatively impacted gross margins in Q1 2026, partially offsetting acquisition-driven margin expansion - Gross margin compression continues to occur from ongoing mix shift toward lower-margin high-growth segments (buyer-funded payables, Passport, and Priority Tech Ventures in Treasury Solutions) - Minor POS equipment price increases and tariff impacts affect the Merchant Solutions segment, but this is a small revenue stream for the company and management mitigated the impact via advance equipment purchases, resulting in no material impact to the P&L - General commoditization of traditional payment services creates mild margin pressure, which management mitigates via expansion of higher-margin payables and treasury tools on its unified platform - Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from projections, with detailed risk factors available in the company's SEC filings

Analyst Q&A

• Q: What drove the strong accelerated growth in the Payables segment this quarter, and are there any one-time factors that should be accounted for in full-year modeling? Are you seeing margin pressure from higher memory chip costs for hardware, similar to peer comments? /

  A: The strong growth is driven by the ongoing strategic shift upmarket, where the Payables offering is gaining traction as a lower-priced alternative to traditional revolver working capital solutions for larger domestic and cross-border customers. There are no material one-time factors impacting the quarter's results. Margin pressure related to memory chip hardware costs is not a material issue for the company. Minor POS hardware price increases from tariffs have impacted a small revenue stream, but management mitigated this impact via advance purchases, so it has no material effect on the P&L. Any margin compression the company sees comes from internal mix shift to higher-growth lower-margin lines, not hardware costs.

• Q: Can you discuss the expected quarterly EBITDA cadence for the rest of 2026? Is there a natural ceiling to how high the share of recurring revenue from Payables + Treasury Solutions can go, or will the mix continue to shift? /

  A: Quarterly cadence will follow the company's historical pattern, with EBITDA expected to grow sequentially through the remainder of the year to hit the maintained full-year guidance midpoint. The share of recurring revenue from Payables and Treasury Solutions will continue to expand: these segments are growing faster than Merchant Solutions (which is still growing both organically and overall), so the mix will continue to shift to these higher-value segments. Growth in the company's deposit base, a core differentiator of the platform, will act as a sustained catalyst for higher recurring contribution from these two segments.

• Q: What is your current macro view of the Merchant Solutions segment, including trends across different industry sectors and a reasonable expected run rate for organic card volume growth? /

  A: Trends are consistent with prior quarters: there is still mild softness in restaurants, construction, and legal services, but restaurant softness has moderated from prior quarters. Strength is seen in real estate (driven by share gains from expanded property management solutions), and retail trade (specifically auto, gas, and grocery, which benefit from inflation and higher gas prices). Low single-digit organic card volume growth around the 2% level seen this quarter is considered normalized, and this is the range baked into full-year guidance, aligned with broader acquirer industry trends.