Priority Technology Holdings Inc (PRTH) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, welcome to the Priority Technology Holdings Fourth Quarter 2018 Earnings conference call.

(Operator Instructions). As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Chris Kettmann. Please go ahead.

Good morning and thank you for joining us today. With me are Tom Priore, Chairman and Chief Executive Officer of Priority Technology Holdings; and Mike Vollkommer, Chief Financial Officer.

Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, regarding future expectations about the Company's business, management's plans for future operations or similar matters, which are subject to certain risks and uncertainties.

The Company's actual results could differ materially due to several important factors. Many of which are beyond the Company's control, including those risks and uncertainties described in the current report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2018.

Any forward-looking statements we made today are only as of today's date. And we undertake no obligation to publicly update or review any forward-looking statements. Additionally, we may refer to non-GAAP measures, including adjusted revenue, EBITDA, adjusted EBITDA and earn-out adjusted EBITDA during the call. Please refer to our public filings and disclosures, including those referenced in our press release announcing this call for definition of our non-GAAP measures and the reconciliation of these measures to net income.

With that, I would now like to turn the call over to our Chairman and CEO, Tom Priore.

Thank you, Chris, and thanks to everyone for joining us. I'll begin the call this morning in a bit of quandary. As a steward of the investments we have made together, it is my responsibility to acknowledge the challenges of the past quarter and 2018 more generally.

Nevertheless, I would submit that the reportable metrics by which we are measured are overshadowing the real subject we should be discussing, the underlying story of strength of the enterprise as a whole and the foundation that we -- that has been reinforced for continued growth.

In fact, if you indulge me by allowing my comments to largely focus on the subjects of growth and opportunity, I'm confident you will come away from this call aligned with us on the future of Priority.

For the fourth quarter of 2018, consolidated revenue of $100.5 million declined 16.3%. This decline was being driven by one factor and one factor only. As we initially discussed two quarters ago in a prudent risk management decision, we chose to close the accounts of roughly 1,200 merchants in order to ensure compliance and good standing with MasterCard's subscription e-commerce criteria.

The closure of these merchants was not necessarily the issue but rather the delay on the part of MasterCard to provide the necessary revised merchant guidelines that would allow us to resume -- to resume boarding. And after receiving the new standards in mid-October and confirming our ability to satisfy the new requirements, we have re-established our boarding activity in this segment.

In fact, adjusted consolidated revenue, excluding the impact of the subscription-billing e-commerce merchants actually by grew 4.2% to $93 million for the quarter.

Gross profit margin for the quarter, an important metric for Priority, also increased to 29.8% from 24.6%. Overall, consolidated revenue was largely -- was relatively unchanged year-over-year with the subscription e-commerce billing business impact, largely offset by increases in bankcard processing dollar volume -- or excuse me, dollar value, and merchants bankcard transaction volume of 10.1% and 6.1%, respectively.

So, in fact, extracting the impact of subscription e-commerce merchants, adjusted consolidated revenue of $359.2 million represents an increase of 8.9% over 2017 and a gross profit margin increase to 25.9% from 24.5% in 2018.

Now, Mike will discuss in far greater detail both our fourth quarter and full-year 2018 results. The impact of the lost e-commerce revenue from the aforementioned merchants will absolutely be addressed as well a breakout of the strong underlying growth we've seen throughout the company after carving out the subscription e-commerce business.

Like the rest of the leadership at Priority, Mike believes in transparency and accountability, and his comments will reflect that dedication to the facts. Before that, however, I'd like to draw your attention to the progress we're seeing across the enterprise and the incredible opportunity that we have ahead of us.

I'd like to change things up a bit and begin by talking about one of the less developed but arguably most exciting segments of our business, our integrated partners channel. This area represents a key component of Priority's future and exemplifies why we view ourselves more as a FinTech enterprise with strong core payments technology rather than a traditional payment processor or merchants acquiring.

In fact, one need only to look at our established SaaS platform products in real estate, health care and hospitality verticals to see that we're evolving at an extremely rapid pace. One of the fastest growing segments of the payments ecosystem, integrated payment solutions provide an opportunity for Priority to revolutionize traditional merchant services and leapfrog into software-based transaction technology products and services.

The integrated partners division has been purpose-built from the ground up to supply the resources that our reselling partners, ISVs, third party integrators and progressive-minded merchants need to leverage the full range of software integrated payment options available via Priority's proprietary payments cloud, a cloud we call [Vortex].

In addition to providing high utility revenue generating resource that the integrated partners team offers consulting and development services, enabling priority to address the specific business requirements of prospects and partners, create lucrative new revenue streams of payments and payment adjacent services in the process.

Additionally, the pursuit of these sorts of business has a little downside risk with incredible upside and increased stickiness as a result of the embedded nature of software combined with a payment solution.

With those thoughts as background, I'm excited to announce we have just entered in -- entered into a transformational partnership in a real estate payments business Priority real estate technology. This new venture involves a real estate payments asset, expected to generate more than $10 million in EBITDA over the next 12 months, which [is] only increase as we expand our sales and marketing efforts.

Everything is signed. The funds for the acquisition are in escrow and both Priority and our new partners are prepared to disclose all the details. Due to travel issues with one of our partner's company's board members, we are still waiting for their board approval to make the formal announcement, which we expect to do in the next few days.

Regardless, what I can say is that this partnership provides an explosive launching pad into the high growth real estate payment space by creating that single platform that addresses the needs of a wide range of landlord constituents from integrated enterprise property managers like the large REITs in the United States as well as middle market landlord partners and small and local landlords.

It is meaningful to note that our prior acquisition of RadPad and Landlord Station were vital in gaining access to these assets. In addition to giving us the ability to enable small to midsize landlord and property managers to accept -- to access tools normally only available to large enterprises, these acquisitions gave us the legitimacy necessary to partner with a proven industry leader in a real estate vertical. Now, we look forward to providing you more detail on the partnership in the days ahead.

Some additional thoughts on integrated partners, this operating entity also contains our in-house asset accelerator, which plays host to a portfolio of assets of priority and is responsible for moving these growing businesses to the point that they become parts of the larger payment ecosystem.

The accelerator can provide payments-focused development resource, components of payment technology or guidance and assistance to third parties with aligned interests. Like our priority real estate technology platform, our other integrated partner businesses, Priority health care technology and Priority hospitality technology, focused on specific industry verticals but share common resources in our technology development teams, providing economies of scale and the chance to share innovation and solutions with one another.

The effects of these synergies and our evolving model are beginning to show impressive results. In the health care space, for instance, Priority PayRight has continued to refine both our technology and sales approach, making great headway in both their core business and the burgeoning third-party payer business space. The team has carved out a respectable niche in home -- in the home and health care arena as well as promising business development efforts with some key vertical markets brought to the table by our ISO and agent partners.

Since becoming part the Priority platform in early 2018, some highlights of the PayRight's performance over -- performance year-over-year include a 713% increase in third party payer billing volume, 150% increase in PayRight's payment gateway processing volume, a 285% increase in portfolio residuals and approximately 140% increase in total gross revenue and 270% increase in net revenue.

In addition to this initial success, discussions have began with some industry leading enterprise players in revenue cycle management and health care procurement to make Priority PayRight a part of their larger solution. I think it's clear that we're off to a great start after only nine months and we believe the future is even brighter for Priority PayRight and health care payments optimization.

The other example I mentioned Priority hospitality technology was just created a short number of months ago, has been steadily gaining momentum with new adoption of its e|tab products. In the first month of operation on Priority's platform, merchant boarding of e|tab increased from 15 merchants per month to over 100.

To this last point, just as important as the promise for the future is the success we've already -- we're already seeing in integrated partners as it stands today. While we acknowledge its revenue base is relatively small compared to our merchant acquiring business, it grew in triple digits over the past year.

What's more, operating margins in these businesses not only beat those of traditional payment processing but also those of software as a service companies. Building on these results and the platform we built, including our imminent partnership in the real estate vertical, we're expecting great things from integrated partners in 2019 and beyond as we further leverage our technology infrastructure advantages and new market opportunities.

And now, let's talk about our core acquiring business. 2018 was the year of growth and change for Priority's flagship business Priority Payment Systems. During the year, PPS became the sixth largest non-bank merchant acquirer in the U.S., the fact, we are proud of. This was driven by strong performance in overall volume with more than 10% growth in dollar volumes on a [approximate] basis compared to the prior year as well as an increase in transaction volume within the portfolio -- within the portfolio, realizing 5%-plus growth year-over-year.

New merchant boarding held steady at approximately 4,000 new merchant boards per month and portfolio attrition continues at one of the lowest rates in the industry, driven by our industry-leading technology and service.

Key acquisitions of several high-performing brands and offices and strategic purchases of several other assets allowed us to enter new verticals, leverage technologies and deploy resources towards inside sales and other direct product selling efforts in partnership with our resellers.

A great example of Priority's focus to strategically grow our customer business was a recent acquisition of a merchant portfolio of asset from Direct Connect Merchant Services and Blue Parasol Group.

As part of the transaction, Priority added a diverse and low-risk merchant portfolio processing $1.7 billion in annual volume as well as a productive sales engine contributing to enterprise growth.

This transaction was not just about the purchase of quality assets, however. Direct Connect's increasing focus on software integrated payments perfectly aligns with our technology-oriented growth story. And the strong sales relationships we gained increased diversification across industries, geographies and merchant sizes.

We expect to capture operational expense synergies as part of the acquisition as well as the opportunity to enhance effectiveness and productivity via access to Priority's purpose-built reseller tools and merchant products.

It's also worth nothing that during the quarter, we expanded our senior secured credit facility by an additional $130 million to finance acquisitions such as Direct Connect. The remainder will be used to complete other contracted transactions in acquiring and the aforementioned real estate venture.

In addition to our growth in acquisitions, there were a number of significant operational enhancements during the year. Citizens Bank became a new sponsor and bank partner. And our confidence in that relationship continues to be extremely high.

We were also able to improve our processing expense with current vendors and disciplined moves have been made to place Priority Payment Systems in a better position to capitalize on what we see as increasing demand for differentiated products and services, including consumer finance, hospitality, rent payments and health care payments and cash discount programs among others.

There has also been a renewed focus on investing at our most important assets, our employees. In addition to adding talent throughout the organization, we have implemented more advanced employee training and education programs as well as new systems to promote employee engagement and participation.

Furthermore, we've instituted an employee stock option and restricted stock program to further align our employee base with shareholder goals. Looking ahead, 2019, we'll see long anticipated deployment and adoption of MX Connect, a critical asset for our evolution as a truly integrated enterprise.

MX Connect will allow us to consolidate our network of resellers, ISOs and agents on a single platform, a platform designed from the ground up to enable Priority to further differentiate itself in the marketplace and operate at the highest levels of efficiency.

We will be -- we will also be introducing a host of enhancements to our MX Merchant platform including the roll out of our integrated partners' offerings, furthering our technological competitive advantage. MX Connect has been largely implemented for our in-house workflows and is poised for broad release externally to our reselling partners pending final quality assurance testing.

While there will be additional challenges as we seek to expand and grow our business in core acquiring, particularly relating to the e-commerce merchant business, we will continue to cement our leadership position in the evolving -- in the evolving landscape of payments.

Now, moving on to commercial payments, in a recent study published by Goldman Sachs, the global payments business for B2B or commercial payments was estimated at over 120 trillion of commerce annually and is anticipated to grow to $200 trillion over the next decade.

Surprisingly, we continue to see an incredible lack of efficiency in the space. For example, in the U.S. alone, over 50% of the B2B volume is still remitted by paper checks, which can cause businesses significant processing fees. In fact, it's anticipated that businesses incur over $2.7 trillion in the annual B2B administrative costs, 80% of which is paid by small businesses.

Technology deployed intelligently here has the potential to cut these costs by up to 75%, translating into a potential $1.5 trillion opportunity for those that can bring solutions to bear against this challenge. And that's where Priority's commercial payments and our proprietary CPX platform excels.

In the past year alone, our commercial payments division has advanced steadily, growing nearly 13% over 2017 in really what we would characterize as the year of investment.

Additionally, as I'll note slightly later on this discussion, we've been awarded what we believe as some of the most sought-after contracts in the B2B payment space. While we know we can do even better, we are pleased with the traction we are seeing in the platform for growth that has been built.

A standout example of the sought-after contracts is the business partnership we announced with Restaurant365. Restaurant365 is an industry leader in integrated restaurant management software and represents a $6.5 billion payment opportunity. Our CPX automated AP system will be directly integrated into their platform, allowing us to support their merchants in making payments to vendors and suppliers. This relationship will allow us to offer merchant acquiring services as well to those restaurants, greatly increasing the potential value of our business relationship with them.

Along with this, another notable win is including Citizens Bank's automated payables contract, commercial payments has seen strong growth from within. The 2018 CPX acquiring grew approximately 36% over the prior year. And the supply enablement team exceeded the previous year's performance closing approximately 41% of all leads generated.

Additionally, ACH.com was awarded the business of Daxko, a leading supplier of solutions for health and wellness software, making them eligible to handle 800,000 to 1 million in total transactions per month.

From a technology perspective, we believe the CPX portal continues to extend its competitive advantage, and in full support for virtual card, ACH and check on a single platform. It is now completely operational and supporting several hundred corporate clients and thousands of suppliers. Additionally, aspects of some of the larger integrations taking place will further enhance and extend the reach of our proprietary commercial payments platform.

The combination of our agile technology platform, a seasoned team of industry experts guiding the business and momentum from the recent success stories, creating enhanced visibilities to the enterprise, we are confident Priority Commercial Payments is well-positioned for breakout performance in 2019. We expect this component of our business to exceed 200% growth in revenue for the 2019 calendar year.

In summation, positive fundamentals and strong underlying growth in the fourth quarter were somewhat marginalized by the suspension and boarding of e-commerce subscription merchants. We are fighting through this channel -- challenge with strategy and tactics. We believe we'll be -- prove to be a winning combination over the long term, maintaining our commitment to our core acquiring partners and growth trajectory while further differentiating ourselves in commercial payments and the integrated payments segments.

Our partnership with a leading real estate platform along with the acquisition of Direct Connect in the fourth quarter solidifies our foundation of growth and we remain more excited than ever about the opportunities ahead of us. I believe when you take the entire picture into account, you will see a consistent theme, an unwavering focus on driving long-term shareholder value.

I appreciate the opportunity to share that perspective with you and now, I will ask Mike Vollkommer to provide further information on our financial results. Mike?

Thank you, Tom, and good morning. I'll review the fourth quarter and full-year consolidated results and full-years ended December provide additional comments on segment performance. You will note that we have changed the allocation of our corporate expense to our reportable segments.

Previously, all overhead and shared service costs were allocated to the consumer payment segment. We have performed analysis of the drivers of these costs and have allocated the costs accordingly to both consumer payments and commercial payments and managed services segments.

While consumer payments continues to be allocated the largest share of these costs, the new unallocated corporate expense component reflects expenses retained at Priority Technology Holdings, which are solely related to the functions of the corporate office. This allocation methodology has been retroactively applied to all periods presented and those revised amounts are included in our press release for your reference.

Throughout my summary, I will cite GAAP and adjusted non-GAAP measures. Today's press release provides a reconciliation of these measures.

The comparative revenue for the fourth quarter and full year periods have been negatively affected by the wind down of high-margin accounts with certain subscription-billing e-commerce merchants, which I'll refer to as subscription-billing merchants.

The wind down of merchants in this channel was due to the industry-wide changes for enhanced card association compliance. This revenue entirely within the consumer payment segment was $7.5 million and $13.7 million in the fourth quarters of 2018 and 2017, respectively, and was $65.2 million and $95.6 million for the full-years ended December 31, 2018 and 2017, respectively.

Income from operations for the fourth quarter and full-year period has also been negatively affected by the subscription-billing wind down as well as the incurrence of nonrecurring expenses largely associated with the July 2018 business combination and conversion to a public company such as legal, accounting, advisory and consulting expenses plus certain legal settlements incurred in those periods.

Income from operations associated with the subscription-billing merchants was $3 million and $10.3 million in the fourth quarters of 2018 and 2017, respectively, and was $21.3 million and $31.9 million for the full-years ended December 31, 2018 and 2017. The nonrecurring expenses entirely within corporate were $2.1 million in both fourth quarters and were $12.4 million and $5.6 million for the full-years ended 2018 and 2017.

Within my comments, I will refer to adjusted revenue and adjusted income from operations, both non-GAAP measures, which exclude these amounts from the comparative periods. We do review these non-GAAP measures to evaluate the underlying revenue, profitability and trends.

Now, consolidated revenue in the fourth quarter of 2018 amounted to $100.5 million, a decline of $19.5 million compared with the 2017 fourth quarter. As Tom mentioned, this decline was driven by the wind down of subscription-billing merchants. Adjusted consolidated revenue was $93 million in 2018 -- in the 2018 quarter compared with $89.3 million in the 2017 quarter, which is a 4.2% increase.

Total merchant bankcard volume processed of $9.4 billion, grew by 6% in the fourth quarter of 2018 as compared with $8.9 billion in the 2017 fourth quarter.

To consumer payments revenue in the fourth quarter of 2018 amounted to $92.5 million, a decline of $20.7 million or 18.3% compared with the 2017 fourth quarter. Revenue from the subscription-billing merchant declined $23.2 million. So, adjusted revenue in this segment grew 3%.

Commercial payments and managed services revenue in the fourth quarter of 2018 amounted to $8 million, a 17.9% increase over $6.8 million in the 2017 fourth quarter.

Consolidated revenue for the full-year 2018 of $424.4 million approximated full-year 2017 revenue of $425.6 million. Now, adjusted consolidated revenue was $359.2 million for the full-year 2018, which compares with $330 million in the -- in 2017, and that's an 8.9% increase.

Total merchant bankcard volume processed of $38.2 billion grew by 10.1% in the full-year of 2018 as compared with $34.7 billion in the full-year of 2017.

Consumer payments revenue for 2018 amounted to $395 million, a decline of $5.3 million compared with 2017.

Revenue from the subscription-billing merchants declined $30.4 million. So, adjusted revenue in this segment grew 8.2%.

Commercial payments and managed services revenue for the full-year 2018 amounted to $29.4 million, a 16.3% growth over $25.3 million in 2017.

Consolidated operating expenses in the fourth quarter of 2018 amounted to $95.2 million compared with $109 million in the 2017 fourth quarter. The decline was driven by $19.9 million of lower cost to revenue which was partially offset by increases of $3.6 million in depreciation and amortization, $2.4 million of salaries and SG&A costs. Both fourth quarters included $2.1 million of nonrecurring expenses in the corporate segment.

Consumer payments' operating expenses in the fourth quarter of 2018 amounted to $79.4 million, a decline of $16.2 million compared with $95.6 million in the 2017 fourth quarter. The reduction was driven by $20.3 million of lower cost of revenue partially offset by increases of $3.3 million in depreciation and amortization and $0.8 million of all other costs.

Commercial payments and managed services operating expenses in the fourth quarter of 2018 amounted to $9.5 million, and that's an increase of $2.6 million compared with $7 million in the prior year fourth quarter. The increase was driven by $0.5 million of higher costs of revenue, $2 million increase in salaries and SG&A and a slight increase in depreciation and amortization.

Corporate expense in the fourth quarter of 2018 amounted to $6.2 million, and that's compared with $6.4 million in the 2017 fourth quarter. And as I have mentioned, nonrecurring expenses amounted to $2.1 million in both fourth quarters.

Operating expenses for the full-year of 2018 amounted to $404.5 million compared with $390.4 million in the full-year of 2017. Increases of $9.1 million in salaries and other administrative costs, $6.8 million in nonrecurring expenses and $5.1 million in depreciation and amortization were partially offset by a decline of $6.9 million in cost of revenue.

Now, nonrecurring costs, as I had mentioned, totaled $12.4 million in the full-year of 2018 compared with $5.6 million in 2017.

Consumer payments' operating expenses for the full-year amounted to $344.5 million compared with $344.8 million in full-year of 2017. Now, a decline of $9.3 million in cost of revenue was almost entirely offset by an increase of $4.6 million in depreciation and amortization and cost of revenue $4.3 million of all other costs.

Commercial payments and managed services operating expenses for full-year 2018 amounted to $32.4 million compared with $24.3 million in full-year of 2017. Increases were $2.5 million in cost of revenue, $5.3 million in salaries and SG&A, and $0.3 million in depreciation and amortization.

Corporate expense for full-year of 2018 amounted to $27.7 million compared with $21.2 million for full-year of 2017. Nonrecurring expenses amounted to $12.4 million in 2018 compared with $5.6 million in 2017, so excluding nonrecurring expenses, the corporate expense amounted to $15.3 million in 2018 and that compares with $15.6 million in 2017.

Consolidated income from operations was $5.3 million in the fourth quarter of 2018 compared with $10.9 million in the 2017 fourth quarter. Adjusted consolidated income from operations of $4.4 million in the fourth quarter of 2018 compared with $2.7 million in the fourth quarter of 2017.

Consumer payments' income from operations in the 2018 fourth quarter amounted to $13.1 million, and that's a decline of $4.5 million compared with the 2017 fourth quarter.

Income from operations driven by the subscription-billing merchants declined $7.3 million quarter-over-quarter. So, adjusted income from operations in this segment grew to 38.5%.

Commercial payments and managed services operating loss in the fourth quarter of 2018 amounted to $1.5 million, and that compares with an operating loss of $0.2 million in the 2017 fourth quarter.

Consolidated income from operations was $19.9 million for the full-year of 2018 compared with $35.2 million for the full-year of 2017. Subscription-billing income from operations was $21.3 million in 2018 and $31.9 million in 2017. And also, adjusting for the corporate nonrecurring expenses discussed earlier, adjusted income from operations was $11 million in the full-year of 2018, and that compares with $8.9 million in 2017, which is a growth of 22.8%.

Consumer payments income from operations for the full-year of 2018 amounted to $50.5 million, a decline of $4.9 million compared with the full-year of 2017. The income from operations was driven by the subscription-billing merchants declined $10.6 million. So, adjusted income from operations in this segment grew 23.8%.

Commercial payments and managed services operating loss for the full-year of 2018 was $2.9 million and that compares with full-year operating income of just about $1 million for 2017.

Now, the consolidated gross profit margin in 2018 improved as the year progressed with 24.6% in the fourth quarter of 2017 and also the same percent in the first quarter of 2018, expanding to 29.8% in the fourth quarter of 2018.

Consolidated operating income margin was 5.3% in the fourth quarter of 2018 and 9.1% in the 2017 fourth quarter. The adjusted operating income margin was 4.7% in the fourth quarter of 2018 and 3.1% in the fourth quarter of 2017.

Consumer payments operating income margin was 14.1% in the 2018 fourth quarter and 15.5% in the 2017 fourth quarter. The adjusted operating income margin was 11.8% and 8.8% in the fourth quarters, respectively.

Now, the full-year consolidated gross profit margin was 25.9% in 2018 and 24.5% in 2017. But as I have said earlier, the gross profit margin improved as the year went on so the full-year average is less than what the fourth quarter gross profit margin was reported.

Full-year consolidated operating income margin was 4.7% in 2018 and that compares with 8.3% in the prior year. The adjusted operating margin was 3.1% and 2.1% in the two years, respectively.

Consumer payments operating income margin was 12.8% to the full-year of 2018 and 13.9% in the full-year of 2017. And the adjusted operating income margin was 8.9% in 2018 and 7.7% in 2017.

So, the effect of income tax rate for the full-year of 2018 was 10.5% and the fourth quarter was 17.3%. The full-year 2018 tax benefit was only applicable to pretax earnings subsequent to July 25th when we moved from a pass-through partnership entity to a C corporation tax status.

On a pro forma basis, considering it's a C corp status applied to the full-year, the 2018 effective tax rate would have been 15.6%. The actual and pro forma effective rates for 2018 may not be indicative of the effect of rates for the future periods. However, the full-year pro forma rate is a reasonable rate to model for 2019 at this point. Certain permanent differences in state and local taxes are currently causing the pro forma rate to be below the statutory rates.

Net loss for the fourth quarter of 2018 of $3.7 million compares with net income of $1.9 million in 2017 quarter. The adjusted loss was $4.0 million in the fourth quarter of 2018, and that compares with $6.3 million in the fourth quarter of 2017.

Full-year 2018 net loss of $15 million compares with net income of $4.6 million in 2017. Adjusted net loss was $22.4 million in the full-year of 2018 and that compares with $21.7 million in the full-year of 2017.

And I would refer you to the attachments to our press release, which reconciles the GAAP numbers to these adjusted numbers. Adjusted EBITDA amounted to $14.6 million in the fourth quarter of 2018 compared with $16.9 million in the fourth quarter of 2017. The full-year amounts were $52.9 million in 2018 and $56.9 million in 2017. The reconciliation of net income, loss to these amounts are included in the attachments to the press release.

Next, I'll talk about liquidity at yearend 2018 as compared with -- as compared with 2017. Our liquidity -- our working capital, current assets plus with current liabilities, was $21.1 million at yearend 2018 and $39.5 million at yearend 2017.

As of December 31, 2018, we had unrestricted cash totaling $15.6 million compared to $28 million at December 31, 2017. These unrestricted balances do not include cash of $18.2 million at the yearend of 2018 and $16.2 million at the yearend 2017 related to customer settlement funds and reserves.

At yearend 2018, we had availability of $25 million under our revolving facility. On January 11, 2018, the second amendment to the senior credit facility increased borrowings by $67.5 million. On December 24, 2018, the third amendment increased borrowings by an additional $60 million. Now, this third amendment also allows for a delayed draw of an additional $70 million, which Tom talked about earlier.

As of yearend 2018, we had outstanding long-term debt of $412.7 million compared with $283.1 million at yearend 2017, an increase of $129.6 million. The debt consisted of outstanding term debt of $322.7 million under the senior credit facility and $90 million in term debt under the subordinated Goldman Sachs credit agreement. Additionally, under the senior credit facility, as we had mentioned, we have $25 million untapped revolving credit facility.

Now, talking briefly about our outlook for 2019, based on a reasonably conservative view of 2019, we expect to deliver modest revenue growth over 2018 despite a forecasted $50 million gross revenue decline from the subscription e-commerce business year-over-year. In addition, we are targeting earn-out adjusted EBITDA and non-GAAP measure of approximately $75 million for the full-year of 2019. Our underlying growth continues to be driven by strong organic volumes and improved gross profit trends, along with positive impact of several strategic accretive acquisitions.

That concludes my comments and I'll turn the call back over to Tom.

Thank you, Mike. Now, we'd like to open the line up for questions.

Thank you. (Operator Instructions). And our first question comes from the line of George Mihalos with Cowen. Your line is now open.

Hey, good morning, guys. Just a two-part question to kick things off. I guess firstly, if we back out the impact from the e-comm business that's dwindled down, should we expect the underlying growth in the rest of the business to accelerate from that 4% growth that you saw in the fourth quarter?

And then somewhat related to that, you're forecasting sort of a further decline in the e-comm revenue. Can you talk a little bit about some of your onboarding efforts maybe to bring some of that revenue back online and how you're thinking about that throughout the course of the year?

Sure, yes.

Yes. Do you want to -- why don't you lead off, Mike, and I'll supplement sort of the second part of George's question?

Yes. I think the -- in the fourth quarter, that revenue growth, it was a mix of the volume, brought the number down. So, I would suspect that we will see acceleration from that as we go into 2019, that percentage of growth.

And I would just answer it this way, George. Part of the -- so, we feel like we're being very conservative about our re-boarding efforts. Our largest quarters for that aspect of our portfolio was quarter four and quarter one --

In 2017?

-- of 2018. So, quarter four 2017 and quarter one 2018. So, net-net, even with new boarding, we would expect there to be an overall decline.

Now, the other aspect of this business is as it boards, its income profile increases because an element of the revenue is chargebacks, which don't show up for a number of months. So, the book sort of builds up and then you get some consistency around that component of revenue.

So, even as we board, let's say, a merchant in January, I'll call the revenue peak of that merchant probably when we show up until April or May. So, it takes some time to build the portfolio. We're going to -- we've taken a very judicious approach to how we've anticipated it, which given the circumstances we think is the pragmatic approach.

But we [not only] anticipate the remaining component of our portfolio and -- but as a lesser percentage even as a -- even on a constant basis sort of as a component of our portfolio.

Yes, the re-boarding of those merchants will be incremental to the base forecast that we based our outlook on. So, we're being very conservative about, with respect to that segment of the business.

And I think the second part of your question is, if you look at the growth trend we're anticipating with the remainder of the business, we see that being in the mid-double-digits this year across the breadth of the platform, so, including higher percentage of growth in integrated partners and commercial payments in particular. We're looking at -- and we have an expected growth rate of mid-teens.

Okay, that's helpful. And that includes obviously the contribution from Direct Connect in 2019, the mid-teens?

Yes, yes, yes.

Okay, okay. And then maybe just switching gears on the real estate opportunity that you have. Is that embedded in the guidance today that's sort of $10 million annual run rate number, is that in the guide now? And to the extent that that comes on, is -- I'm assuming that's more of a second half event for 2019.

It is -- it is in the guidance and we will have that as of the back half of Q1.

Okay. And then just last question for me, as we look at the commercial payment segment, again, I understand there's a benefit there from Direct Connect. But you won some big business. It seems to be accelerating. Can you talk about outside of Direct Connect what else is driving that business? Is it one big win, for example? I know you did mention Citizens. And then may be related to that, what the outlook is for winning more of these Citizens-type deals to the extent they're out there?

So, it's not a result of one big contract. And we do have -- we do have expectations that you'll see substantial announcements out of that business of other large institutional wins. And those will be a combination of both financial institutions and other software platforms.

Yes, I would be -- I would be surprised if we don't beat our outlook for that business this year just based on the momentum that they have in the pipeline. But we didn't work that into the base outlook.

I would say it this way, George. The existing pipeline that is in process of being negotiated exceeds $25 billion of processing volume for acquiring and a percentage of that will be card-based revenue as well. And I mean virtual card issuing other card-based payments.

Thank you. (Operator Instructions). And our next question comes from the line of Eric Spector with Fortress. Your line is now open.

Thanks for taking my questions. Just a few one here. What portion of the 8.9% growth in 2018 when you exclude the e-comm subscription [rations] is organic versus from acquisition?

Okay. In 20 -- the percentage I don't have offhand, but we have about revenue in 2018 with respect to acquisitions of about $3.7 million.

And so, the overwhelming majority of that is organic.

Yes.

And the reason for that, just if you look at the acquisitions we executed, nearly all of them would be -- well, actually, all of them with the exception of Direct Connect, which came in the fourth quarter were existing resellers. So, that revenue was already in our -- was already in our numbers.

Right. Yes

Got it, thank you.

Yes. So, the revenue from acquisition is coming from PayRight and RadPad and Direct Connect, and Direct Connect was at the tail end of the year.

Got it. In your 2019 revenue expectations, you called out growth and I just want to make sure that that is also -- you're expecting organic growth there that this real estate acquisition isn't kind of skewing it from an organic decline to organic growth.

Yes, it's not. In fact, the numbers that we've quoted do not include the impact of acquisitions at the revenue line.

Okay, thanks. For the bridge that you, guys, provided from adjusted EBITDA to that earn-out adjusted EBITDA, can you just quickly clarify what is included in the line items pro forma impact for acquisitions and the line item contracted revenue and savings?

Yes. Before Mike answers that question, I also -- and thank you for asking that because it helps me with a reminder. As a follow-up to this call, we will be posting a short slide deck that provides a bridge on the consolidated adjusted EBITDA and adjusted revenue components that we discussed on the call today so that you can see the extracted impact of the subscription e-commerce book of business.

So, the earn-out adjusted EBITDA is the calculation that has its birth in the -- in our loan facility. And we use that in determining compliance with leverage ratios.

So, the pro forma impacts of acquisitions, in that document, you pro forma your current last 12-month performance as if those -- the acquisitions made in the period happened at the beginning of that period. So, that's what pro forma impacts of acquisitions is.

And the contracted revenue and savings, that's kind of another piece of that. It's the contracts where we're driving savings and costs that can be reflected as if they had been in place for the entire year. So, that's a true pro forma recast of the year.

The adjusted EBITDA before those further adjustments, it's really true view of what I -- although EBITDA is not a GAAP measure, it's a true view of GAAP EBITDA, your base EBITDA and then other nonrecurring and noncash items added back.

Thank you.

Does that answer your question?

Yes, it does, thank you. Just a couple more. In the commercial payment segment, we're seeing a nice top-line growth 16% for the year. Can you kind of help bridge me between that level of growth and the decline in operating income sort of what happens sort of in the middle and maybe what's going on with gross margin? Is that a better way to look at it and what would that sort of have been?

So, your question was commercial payments?

Yes.

Well, this year -- as Tom had mentioned, this year was a year of investment in commercial payments. So, we've added folks to -- in the sales team and the administration and that's largely driving the pipeline of business that Tom had mentioned, the $25 billion. So, it was a year of investment both not only in finishing out the technology but also the people. So, that has -- with that level of revenue, it has a depressing effect on margins but it is an investment in what's coming this year and in the future.

Okay. And then my last sort of set of questions, I'm sorry, is a follow-up to that. Can you kind of guide us to a gross margin profile for the consumer payments segment and the commercial payments segment?

We're not at this -- not at this point, but I think as we progress, we will do that.

Is there anything that you can call out with respect to gross margin percentage for those segments? So, even though we saw an operating income decline in commercial payments, are the gross margin percentage trends favorable sort of [intra]-segment irrespective of the overall mix?

So --

Go ahead.

-- I think we can come back to you with also just some further specificity. And now that we've -- that we've kind of carved out this corporate segment, but historically, our [op] margin has ran at -- I would say by industry standards, a pretty high level, which is a testament to our efficiency with which we operate the platform. It's historically run in the high 40%s on an op margin basis.

Last year, it did not -- that did not -- that did not change. I think it was 47% versus the prior year, it was close to 49%. But now that we've kind of better reflected the corporate segment, I think we should provide you with an update of that profile in each of the operating businesses, which will be how we measure it going forward. And we're happy to do that. We can add that to the slide deck.

Yes, we're going to be working [on it].

(Inaudible) [clipboard] in really a day or so here. It just ties up some of the -- some of the materials that we discussed, which we know are hard to follow on the phone.

Yes, thank you. And then my final question, and it might be something that you, guys, follow up with in the slide deck or can speak to offline, but as it relates to the specific reseller channels within consumer, if there was anything you could call out with respect to gross margin trends be it retail, e-comm and wholesale or ISV and VAR.

Yes. We haven't -- we haven't really seen a meaningful change. And I would submit to you that the industry is generally seeing a compression of margins. And ours -- and I'll say this, ex the e-commerce impact, right, which is -- that is a high margin sector. So, ex-e-commerce, we've actually had a steady to slightly increasing historically margin and that's been a result of selling software as a service product into those channels, it's increased margin per merchant, it's given better revenue opportunities to our resellers.

And by the way, I'm happy to, if you'd like, take this conversation offline. I can give you specificity around just the types of products that resonate with different channels because they are different by channel. But historically, we've seen a slight increase but certainly a stability in our margin. And then, of course, the one influence that's been negative on margin has been the erosion of high margin subscription e-commerce, which we're re-establishing at a new baseline.

Thank you. And that does conclude today's question-and-answer session. I would like to now turn the call back to Tom Priore for any further remarks.

Well, I'd like to thank everyone for their -- for their participation in the call. We've -- we look very much forward to the -- to 2019 and delivering the results that we anticipate. We look forward to our update in the coming quarter. And obviously, if there is any follow-ups that folks would like to address coming out of this call, feel free to either follow up with directly or Chris Kettmann to arrange times to speak further. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.