Priority Technology Holdings, Inc. Q2 FY2025 earnings call

• Strong Q2 financials: Net revenue grew 9%, adjusted gross profit and adjusted EBITDA grew 13% and 9% respectively. Adjusted EPS increased to $0.26.
• Connected commerce vision: Priority Commerce Engine streamlines collecting, storing, lending, and sending money, offering flexible financial tools.
• Recurring revenue shift: Over 62% of adjusted gross profit in Q2 came from recurring revenues.
• Remediation of material weakness: Team substantially completed work to remediate automated control deficiencies, though material weakness will remain until auditor validation.

SMB Segment

• Q2 revenue: $163.2 million, up 5.2% from last year's Q2. Core portfolio grew 9.5%, partially offset by residual purchases and specialized acquiring attrition. Card volume $18.7 billion, up 2.3% y-o-y. Adjusted gross profit $35.4 million, margins 21.7%. Adjusted EBITDA $27.7 million.

B2B Segment

• Q2 revenue: $25 million, up 14.4% y-o-y. Buyer-funded revenues grew 12.7%, supplier-funded grew 21.7%. Adjusted gross profit $7.3 million, up 30.8% y-o-y. Adjusted EBITDA $3.8 million, up 146% y-o-y.

Enterprise Segment

• Q2 revenue: $52.7 million, up 20.6% y-o-y. Driven by strong enrollment in CFTPay and Passport. Adjusted gross profit $49.7 million, up 22.6% y-o-y. Adjusted EBITDA $45.6 million, up 22.3% y-o-y.

• Revised revenue guidance: Narrowed to $970 million to $990 million, up from prior range.
• Adjusted EBITDA guidance: Narrowed to $222.5 million to $227.5 million, refining around midpoint.
• Confidence from continued growth in connected commerce platform, combining payments and banking capabilities.

• Material weakness related to automated controls around third-party processors data ingestion and validation: Substantially remediated but will remain until testing and auditor validation complete.

Q: Bryan Bergin asked about core SMB growth, drivers of underlying strength.

A: Timothy O’Leary responded that core SMB growth was 9.5% vs 10% in Q1, driven by strong growth in larger ISOs, with moderating headwinds from residual purchases and specialized acquiring.

Q: Kevin asked about SMB volume trends and impact of tariffs/macro uncertainty.

A: Timothy O’Leary stated SMB portfolio performed well, with resilience in subcomponents like retail sectors, and same-store sales being a headwind but not new.

Q: Jacob Stephan inquired about CFTPay average monthly enrollments and Priority Tech Ventures investments.

A: Thomas Charles Priore said CFTPay enrollments accelerated due to partner investment, and Tech Ventures invests in platforms like payroll, property tech that fit core customer base for growth.

Q: Tim Switzer asked about capital allocation and impact of tariffs on revenue outlook.

A: Timothy O’Leary mentioned acquisition prefunded, and Thomas Charles Priore noted countercyclical business lines offsetting SMB pressures, with B2B payables and CFTPay benefiting in economic challenges.

Q: Harold Goetsch asked about larger ISOs' go-to-market.

A: Thomas Charles Priore said they lead with a technology suite enabling vertical solutions, and Timothy O’Leary added high-quality customer service is a key component.