• Revenue: $219.9 million, increased by over 21% from prior year.
• Adjusted Gross Profit: $81.7 million, a 22% increase.
• Adjusted EBITDA: $51.6 million, a 25% improvement.
• Adjusted Gross Profit Margin: 37.2%, increased 40 basis points from the prior year quarter.
• SMB Revenue: $155.1 million, a 4.8% increase from the prior year.
• SMB Bankcard Dollar Volume: $15.8 billion, increased 4.6% from the prior year.
• SMB Adjusted EBITDA: $28.6 million, up slightly from the prior year.
• B2B Revenue: $21.9 million, increased by $18.9 million from the prior year.
• B2B Adjusted EBITDA: $1.5 million, compared to $600,000 in the prior year.
• Enterprise Revenue: $43.7 million, a 38.9% increase from the prior year.
• Enterprise Adjusted EBITDA: $37.2 million, up 45% from the prior year.
• Interest Expense: $21.7 million, increased $3.9 million from the prior year.
• Unrestricted Cash: $34.6 million at the end of the quarter.
• Full Year Revenue Guidance: $875 million to $883 million, approximately 16% increase over 2023.
• Full Year Adjusted EBITDA Guidance: $196 million to $200 million, a 16% to 19% increase over 2023.

• Warning! GuruFocus has detected 7 Warning Signs with PRTH.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Priority Technology Holdings Inc (NASDAQ:PRTH) reported record financial results for the second quarter of 2024, with revenue increasing by over 21% from the prior year.
• The company achieved a 25% improvement in adjusted EBITDA to $51.6 million, highlighting strong operational leverage.
• The SMB segment experienced a 12.2% organic revenue growth year-over-year, excluding the impact of a large reseller.
• The Enterprise segment saw a 38.9% increase in revenue, driven by favorable trends in new enrollments and stable interest rates.
• The company successfully refinanced its debt, resulting in over $6 million of annualized free cash flow improvement and a $22 million annualized increase in net income available to common shareholders.

Negative Points

• Gross margins in the SMB segment decreased to 23% from 23.9% in the previous year's second quarter.
• The B2B segment's gross margins were lower in Q2 due to changes in the business mix and timing of incentive fees.
• Interest expense increased by $3.9 million from Q2 2023 levels due to acquisition-related debt increases.
• The company anticipates increased operating expenses in the second half of the year due to SOX 404 compliance and cloud migration costs.
• The company remains exposed to potential economic slowdowns, which could impact the SMB segment despite efforts to maintain high retention rates.

Q & A Highlights

Q: Can you touch on the recapitalization and its impact on Q3 results? Is the preferred dividend expected to be around $4.7 million in Q3? A: Yes, the preferred dividend will be approximately $4.8 million in Q3, with $2 million as PIK and $2.8 million in cash. The full run rate impact of the recapitalization will be reflected in Q3.

Q: Could you discuss the expense outlook for the latter half of the year and into 2025? A: Expenses will accelerate in Q3 and Q4, with a 60:40 split towards Q4 due to SOX 404 compliance and cloud migration costs. These costs should normalize in 2025 without further acceleration.

Q: How would an economic slowdown impact the business, and do interest rates play a role? A: Interest rates have a minimal impact on free cash flow due to hedging. A slowdown might affect the SMB segment, but high retention rates and market share gains should help offset potential declines.

Q: Can you elaborate on the non-transaction-dependent sources of recurring gross profit? A: Recurring gross profit includes monthly subscription fees, income from permissible investments, and other regular fees from merchants and resellers, which are not dependent on transaction volumes.

Q: Is there any seasonality expected with Plastiq in the back half of the year? A: There is not much seasonality, but larger enterprise customers may contribute significant volume at lower margins. Timing differences with these customers might affect quarterly results.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.