• Revenue: $227.1 million in Q4, a 14% increase from the prior year.
• Adjusted Gross Profit: $83.9 million in Q4, a 15% increase from the prior year.
• Adjusted EBITDA: $51.7 million in Q4, a 16% increase from the prior year.
• Adjusted Gross Profit Margin: 37% in Q4, up 40 basis points from the prior year.
• Full Year Revenue: $879.7 million, a 16% increase from the prior year.
• Full Year Adjusted Gross Profit: $328.1 million, a 19% increase from the prior year.
• Full Year Adjusted EBITDA: $204.3 million, a 21% increase from the prior year.
• SMB Segment Revenue: $155.7 million in Q4, an 11.1% increase from the prior year.
• SMB Segment Adjusted EBITDA: $26.6 million in Q4, a 6.4% increase from the prior year.
• B2B Segment Revenue: $23.7 million in Q4, a 10.9% increase from the prior year.
• B2B Segment Adjusted EBITDA: $2.4 million in Q4, a $2 million increase from the prior year.
• Enterprise Segment Revenue: $48.7 million in Q4, a 27% increase from the prior year.
• Enterprise Segment Adjusted EBITDA: $42 million in Q4, a 27% increase from the prior year.
• Interest Expense: $23.1 million in Q4, a $2.5 million increase from the prior year.
• Debt Levels: $945.5 million gross and $886.9 million net at the end of the quarter.
• Cash and Liquidity: $58.6 million of unrestricted cash and $70 million borrowing capacity available.

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

Release Date: March 06, 2025

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 the strongest revenue performance in its history for both the fourth quarter and the full year 2024.
• The company achieved a 16% increase in net revenue, a 19% growth in adjusted gross profit, and a 21% improvement in adjusted EBITDA for the full year 2024.
• The company ended the year with approximately 1.2 million total customer accounts and processed over $130 billion in annual transaction volume.
• The B2B and Enterprise segments showed significant growth, with adjusted gross profit from these segments representing 59% of the total for the year.
• The company anticipates 10% to 14% top-line revenue growth and 8% to 13% adjusted EBITDA growth in 2025, despite potential macroeconomic headwinds.

Negative Points

• The company faces potential headwinds related to lower interest rates and a murky macroeconomic environment.
• There was a material weakness in internal controls over financial reporting, specifically related to automated controls and IT general controls.
• The SMB segment experienced a negative impact due to the write-off of certain obsolete inventory and the maturation of prior portfolio purchases.
• Interest expense increased by $2.5 million due to higher comparative debt levels.
• The company is undergoing a shift from CapEx to OpEx due to cloud migration, which is expected to increase expenses in the short term.

Q & A Highlights

Q: How does Priority Technology Holdings plan to balance debt paydown with capital allocation for CapEx or SG&A? A: Tim O'Leary, CFO, stated that the company will continue to evaluate the best use of capital from a shareholder value standpoint. Debt paydown remains a key focus, but they will also consider M&A opportunities. The company is converting some CapEx to OpEx as they move platforms to a common cloud basis, which will add efficiencies over time.

Q: How have recent interest rate forecasts been factored into Priority's 2025 guidance? A: Tim O'Leary explained that the guidance considers the Fed's dot plot and interest rate curves, adopting a conservative approach. The company factored in the impact of rate cuts observed between Q3 and Q4 of 2024, which influenced their 2025 projections.

Q: What impact do tariffs have on Priority's business, particularly in the consumer segment? A: Thomas Priore, CEO, noted that tariffs have not significantly impacted the acquiring side of the business. Instead, they see increased demand for digital payments and working capital solutions, especially in the B2B segment, as businesses seek efficiencies through automated payables.

Q: Why has the gross margin percentage for consumer payments seen a decline, and what is the sustainable margin for this sector? A: Thomas Priore explained that the decline is due to the maturation of prior portfolio purchases. The sustainable gross margin is expected to be in the mid- to upper 20s. Tim O'Leary added that a $3.5 million inventory write-off also impacted margins, but core margins expanded by 120 basis points when normalized.

Q: What factors could drive Priority to the higher end of their 2025 guidance range? A: Thomas Priore mentioned that cross-selling in the SMB space, B2B pickups in buyer and supplier-funded strategies, and momentum in the Enterprise segment could drive results to the higher end of the guidance range. The company has been conservative in its projections, allowing room for upside.

Q: How has the bundling of Plastiq with CPX in the B2B segment affected sales activity? A: Thomas Priore reported positive customer reactions, with increased usage of tools by existing customers and new interest from businesses with gaps in their payment stacks. Tim O'Leary noted consistent volume growth and a positive impact on revenue.

Q: What are the expectations for free cash flow conversion in 2025? A: Tim O'Leary indicated that cash flow is somewhat neutral to interest rate changes due to effective hedging. CapEx will remain consistent, primarily for capitalized software development, and M&A activity will be relatively small unless transformative opportunities arise.

Q: Will Priority continue to provide adjusted EPS figures, and what are the expectations for 2025? A: Tim O'Leary confirmed that adjusted EPS will continue to be provided. The company expects EPS to potentially double to around $1 per share in 2025, based on normal course growth.

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