Priority Technology Holdings Inc (PRTH) 2026 Q2 法說會逐字稿

Good morning and welcome to the priority commerce second quarter 2026 earnings call all participants will be in listen-only mode should you need assistance please signal a conference specialist by pressing the star key followed by zero after today's remarks there will be an opportunity to ask questions to ask a question you may press star then one on your touchtone phone. To withdraw your question, please press then 2. Please note this event is being recorded. I would now like to turn the conference over to Meghna Mehra. Please go ahead.

Good morning and thank you for joining us. With me today are Tom Priore, Chairman and Chief Executive Officer of Priority Commerce and Tim O'Leary, Chief Financial Officer.

Before giving our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. The company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. We provide a detailed discussion of the various risk factors in our SEC findings, and we encourage you to review these findings.

Additionally, we may refer to non-GAAP measures, including but not limited to EBITDA and adjusted EBITDA during the call. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our press release and SEC filings available in the Investors section of our website. Before I turn the call over to Tom, I would like to say that on today's call, we will only be discussing priorities, financial and operating results in our case. On or answering questions related to the special committee's ongoing evaluation of the Take Private proposal. Please continue to refer to the company's prior press releases for the latest on that topic. With that, I would like to turn the call over to our Chairman and CEO, Tom Priore.

Thank you, Meghna, and thanks to everyone for joining us this morning for our second quarter 2026 earnings call.

I will begin today's call by highlighting our aggregate second quarter performance and outlook before handing the call over to Tim, who will provide segment-level performance, key trends and developments across our business segments and priority overall.

This morning, we reported solid growth in both revenue and profits for the second quarter.

As summarized on Slide 3, Priority had a strong Q2 by every key financial metric, growing net revenue by over 9%, generating adjusted gross profit and adjusted EBITDA growth of 8% and 6% respectively, and increasing adjusted EPS by 12% year-over-year to $0.29.

We ended the quarter with 1.8 million total customer accounts operating on our commerce platform, which is up almost 13% from Q2 last year.

Annual transaction volume of $151 billion increased by 8% and average account balances under administration grew by 26% to $1.8 billion compared to last year's second quarter.

Tim will provide more context on the full-year outlook later on the call, but I can reflect that the value of our diverse partners and customer experience with our unified commerce platform provides continued confidence that we will sustain the momentum in our merchant solutions, payables and treasury solution segments.

Based on this momentum, we are maintaining our full-year financial guidance.

But expect to be at the higher end of our revenue range and lower end of our gross profit and adjusted EBITDA ranges, reflecting continued investment and mix related margin pressure that Tim will detail.

Turning our attention to aggregate Q2 results on Slide 4, revenue of $262.3 million increased 9% from the prior year.

This led to an 8% increase in adjusted gross profit to $99.9 million and a 6% improvement in adjusted EBITDA to $59.4 million.

Highlighted on Slide 5, our steady Q2 performance contributed to year-to-date revenue growth of 10% to $511.8 million, fueling an 11% increase in adjusted gross profit to $198.7 million.

And just over a 9% improvement in adjusted EBITDA to $117.5 million.

For those of you who are new to Priority, Slide 6 and 7 highlight our vision for Connected Commerce.

The Priority Commerce platform is purpose-built to streamline collecting, storing, lending and sending money.

It delivers a flexible financial tool set for merchant acquiring, payables and treasury solutions designed to accelerate. Operate cash flow and optimize working capital for businesses.

I would encourage you to play the short one to two-minute videos embedded in the product links on the slide to get a deeper appreciation of why customers are consistently partnering with Priority to reach their commerce goals and why we are emerging as a go-to solution provider for embedded commerce and finance solutions.

Slide 7 highlights a typical partner experience with our commerce API's orchestration capabilities for payments and treasury solutions.

They enable partners to use a commerce surface tailored to their specific needs.

Customers connecting via our API can access all routes for digital payment acceptance, create traditional and virtual bank accounts, issue physical and virtual debit cards, enable lockbox for checks.

Configure single vendor and advanced bulk vendor payments and many other commerce options to create new revenue and operating efficiency.

We continue to standardize payment operations and key operation workflows across diverse industry segments where money movement and treasury tools are critical to the value chain to broaden and diversify our revenue sources while maintaining our cost discipline.

Our focused execution explains why Priority consistently performed across varying economic cycles.

Our customers and current market conditions reinforce our belief in our mission to deliver single-point commerce solutions that provide businesses with one view and total command of their financial environment.

At this point, I would like to hand it over to Tim. Will provide further insights into the health of our business segments, along with current trends in each that factored into our second quarter results and our confidence for sustained performance in 2026.

Thank you, Tom, and good morning, everyone.

We had solid overall financial performance in the second quarter across each of our operating segments, which resulted in Q2 reported revenue growth of 9.4%, including organic growth of 7.2% on a consolidated basis.

This growth was fueled by strong 21.6% growth in Payables and 14.9% growth in Treasury Solutions, complemented by 7.7% growth in Merchant Solutions. Which included 4.5% organic growth.

Strong continued growth in Payables and Treasury Solutions resulted in 66% of our total adjusted gross profit coming from those two segments when you compare to trailing full-month results on an organic basis.

Moving now to the segment level results in more detail, I will start with Merchant Solutions on Slide 9.

Merchant Solutions generated Q2 revenue of $175.8 million, which is $12.5 million or 7.7% higher than last year's second quarter.

Revenue growth was a mix of 4.5% organic growth, complemented by the boom in DMS acquisitions completed in the second-half of 2025.

As a reminder and as we move into the back half of the year.

We will have partial third quarter impact from Boom, which closed on August 18 last year and Q4 will then provide a clean year-over-year comparison as the DMS acquisition closed on October 1 of last year.

Total card volume in Merchant Solutions was $19.5 billion for the quarter, which is up 3.6% from the prior year.

Within that aggregate volume, we saw overall strength in wholesale trade and retail, but it was a mixed bag within the broader retail category as convenience stores, gas stations and food stores were up, while home furnishings and building materials were down.

We also continue to see some softness in construction in restaurants. Which improved from Q1, but were down on a year-over-year basis.

Adjusted gross profit for the second quarter was $39.8 million, which is up $4.4 million or 12.4% from Q2 of last year.

Gross margins of 22.7% are over 100 basis points higher than the comparable quarter last year due to the boom in DMS acquisitions, partially offset by the impact of higher residual expenses in the portfolio.

Lastly, adjusted EBITDA was $30.9 million, which is up $3.1 million or 11.3% compared to last year.

Moving to the Payables segment, revenue of $30.4 million was 21.6% higher than Q2 of last year.

Buyer-funded revenues grew 26.3% year-over-year to $25.3 million, while supplier-funded revenues grew 2.6% year-over-year to $5.1 million.

Adjusted gross profit was $6.5 million in the quarter, which is a 10.4% decrease from the prior year For the quarter, gross margins were 21.4%, which is down 760 basis points compared to last year's second quarter.

The decline is a result of larger enterprise-level customers operating at lower overall initial margin profiles.

Increased card network and interchange expenses and continued shift in revenue mix with buyer-funded revenues reported at lower gross margins given GAAP requirements to recognize revenue on a gross versus net basis.

The payable segment contributed $3.1 million of adjusted EBITDA during the quarter, which is a $660,000 or 17.5% decrease from last year.

Operating expenses before D&A were down slightly in the quarter compared to last year, with the decline in adjusted EBITDA resulting from the lower gross margin in the buyer-funded business unit.

Moving to the Treasury Solutions segment, Q2 revenue of $60.5 million was an increase of $7.9 million or 14.9% over the prior year second quarter.

Revenue growth was driven by slower but stable new enrollment trends in CFTPay and a 15% increase in the number of billed clients over 1.1 million, combined with a 30% year-over-year increase in the number of integrated partners along with organic growth from existing passport program managers.

Higher account balances in both CFTPay and Passport were able to more than offset the impact of lower interest rates in the quarter compared to Q2 of last year.

As a result of those factors, adjusted gross profit for the segment increased by 7.7% to $53.6 million, while adjusted gross profit margins were 88.5% for the quarter.

Gross margins were approximately 590 basis points lower than the prior year second quarter due to continued mix shift resulting from over 125% revenue growth in Passport and almost 400% revenue growth in priority tech ventures, both of which operate at lower gross margins than the CFTPay platform where margins have remained very stable.

Adjusted EBITDA for the quarter was $47.5 million.

An increase of $2 million or 4.3% year-over-year as high single-digit growth in CFT pay was partially offset by investments we continue to make in newer vertical software assets within Priority Tech Ventures.

Moving to consolidated operating expenses.

Salaries and benefits of $29.1 million increased by $2.1 million or 7.7% compared to Q2 of last year and was up slightly on a sequential basis compared to Q1.

The year-over-year increase was primarily driven by an increase in acquisition-related headcount additions.

SG&A of $16.8 million increased by $2.9 million or 20.8% compared to Q2 of last year and was down sequentially compared to Q1.

The year-over-year increase was because of higher cloud and software expenses, an increase in marketing spend and certain non-recurring legal and transaction-related expenses.

Depreciation and amortization was higher this quarter related to the accelerated depreciation of certain DMS assets.

Going forward, we expect quarterly D&A to return to more normalized levels.

With respect to our capital structure on Page 13, debt at the end of the quarter remained at $1.02 billion and we ended the quarter with over $220 million of available liquidity, including all $100 million of borrowing capacity available under our revolving credit facility and $120.3 million of cash on the balance sheet.

With respect to free cash flow. We generated $27.4 million of free cash flow in the quarter based on adjusted EBITDA of $59.4 million, less than $7.1 million of CapEx, $21.1 million of interest expense and $3.8 million of income taxes.

For the LTM period ended June 30, adjusted EBITDA of $235.3 million combined with net debt of $899.7 million resulted in net leverage of 3.8 times at quarter end, which is down from 4 times at the end of Q1.

For further comparison, if you were to include the run rate impact of acquisitions, pro forma net leverage would have been 3.75 times at quarter end.

From a capital allocation standpoint, we will focus on continued deleveraging throughout the balance of 2026, but we will also continue to evaluate tuck-in acquisitions in attractive verticals or new markets.

The last topic I will address before turning it back over to Tom relates to our financial guidance for the full year.

Based on strong revenue trends in the first half of the year and visibility into favorable trends continuing in the second-half of the year. We are maintaining our revenue guidance range of $1.01 billion to $1.04 billion and expect to be at the higher end of that range.

As noted earlier, we are seeing some margin pressures across all three operating segments related to business mix, higher residual expenses, increased card network and interchange expenses and continued investments in new vertical software assets and Priority Tech ventures.

Considering these factors in tandem with strong revenue expectations, we are maintaining our forecasted gross profit range of $405 million to $425 million and our adjusted EBITDA range of $230 million to $245 million, and we expect to be at the lower end of those respective ranges.

As we move through Q3 and have enhanced visibility into our full year results, we will provide further guidance on our Q3 earnings call.

With that. I will now turn the call back over to Tom for his closing comments.

Thank you, Tim.

Before concluding, I wanted to reflect on observations we shared during our Q4 2025 earnings call.

During it, I noted our continued focus toward optimizing the priority commerce engine and API as a foundational moat purpose-built to operate core payments. And financial workflow applications in our key industry verticals.

Leveraging our commerce engine for payments and treasury solutions, we can deliver one view of a business's financial environment with total command of their cash flow.

Customers can see all modalities of payments reconciled in a single view and utilize sophisticated banking and treasury tools to optimize their working capital without the responsibilities of managing compliance, regulations or risk.

We continue to build out the surface layers for these key verticals and are seeing the success of this focus.

As just a few examples, Priority Commerce Sports continues to accelerate.

We recently announced the Pittsburgh Steelers as our first NFL franchise and Texas Rangers in Major League Baseball, with others across all five major sports leagues waiting in the wings to go live.

In a recent press release, Doug Stuber.

Vice President of Finance for the Pittsburgh Steelers summarized how our commerce platform is serving the changing expectations of finance teams in sports for more connected financial operations.

He noted Priority Commerce offered the combination of payments technology and passport treasury orchestration and collaborative approach we were looking for, making them the clear choice.

Another example, Priority Commerce Automotive is now the endorsed partner by 19 state automotive dealership associations, with Florida and California recently announcing their support.

Additional enterprise wins we have gathered in areas like hospitality and healthcare reinforce our belief. And the appeal of our connected payments and treasury capabilities to solve operational pain points and deliver new revenue opportunities to our customers.

And needless to say, executing our vision for the future of commerce cannot be manifested without the focused execution of my colleagues at Priority who continue to work incredibly hard to deliver results.

Your commitment and dedication to continuous improvement is providing our partners and customers with a consistent reminder that they made the right choice to partner with Priority.

Last, we continue to appreciate the ongoing support of our investors and analysts and for those in attendance who are new to Priority for taking the time to participate in today's call.

Operator.

We would like to now open the call for questions.

(Operator Instructions)

Vasundhara Govil, KBW.

Hi.

Thank you for taking my question. I guess I wanted to ask about the gross margin pressure that you talked about, particularly in the payables and treasury solutions where it seems to be a little bit more intense.

If we just pull up and look out into the medium term, like how should we expect those gross margins to evolve as these businesses scale more?

Thanks for the question.

So if you think about this quarter, the payables pressure we saw was really a combination of two factors.

First and foremost was mix shift as we continue to see much higher growth from the buyer-funded revenue stream, which, as I noted, comes in at lower gross margins given the gross reporting requirement we have from a GAAP revenue standpoint. So, that is going to automatically put some pressure on margins given that reporting format. And then we also had a number of large enterprise customers, whereas we have talked about historically the last several quarters, we are seeing success going up market into larger enterprise customers, some of those are coming on at lower initial margins.

We are looking at those as opportunities where those customers have a lot of other needs. So, beyond just the payables component, it is working with them on banking and treasury and adding other services into there and expanding the margins. So, that process is still ongoing. So, we are optimistic we will see some margin stabilization there as we continue to see higher growth in payables.

I am sorry, and buyer funded revenues, pushing margins down, being offset by a combination of cross-sell opportunities into some of those similar customers.

On the treasury side.

It is going to continue to see margin compression naturally as the CFTPay platform has been very stable from a gross margin standpoint.

It is really a growth factor with the other treasury solutions expanding at triple-digit growth rates, and those are operating at meaningfully lower gross margins. Those margins are more in the 30% to 40% gross margin range. So, as those businesses continue to trend on a very favorable growth note, we will see natural margin. In the treasury business. So, i think overtime, you will see that business get closer to 80% gross margins, but that is going to be on the success of what we are seeing in priority tech ventures and passport.

That is super helpful. And then if I may ask one on just the merchant acquiring business, as we think about the second-half, I know you started to see some macro headwinds in the back part of last year. So, as we begin to lapse those, should we expect some acceleration and growth there? And then any way to quantify how much macro is still weighing on the growth, I guess, in that business today?

I think we saw certainly a macro slowdown last year in the back half where organic growth was down in the 3% range this quarter for 4.5% organic growth. So, we continue to execute in that market. we will see some natural organic pressure or overall pressure in Q4 as we anniversary the acquisitions from last year, but we are still very much on track toward our full year guide there. We had mentioned 6% to. Percent overall growth -- I am sorry, 6% to 8% growth in merchants with 3% to 4% organic.

We feel like we are running well on track for that on the organic side. And even if you just took the Q2 revenue numbers and repeated that in Q3 and Q4, we will be well within the revenue guide for Merchant Solutions.

Thank you very much, and I will hop back in queue.

Just one other point. I just want to note that. We did not speak to is the -- I know you watched this very closely, but MasterCard and Visa did push through some price increases at the interchange level.

And those just occurred last quarter. So, there is some reconciliation of those, how we may treat those from a pricing standpoint that. That I think will factor into the second-half of the year. But that was a source of pressure on margins. Cost of goods sold just went up because of interchange increases.

That makes sense.

Thank you for the color.

Hal Goaetsch, B. Riley.

Hey guys, just wanted to ask about the accounting change on the buyers funded payables, supplier funded payables. Is that a big driver? Is that a majority of the mix shift in margins in that segment?

To be clear, it is not a change in accounting. Ever since we acquired the plastic business, we have had to account for their revenue on a gross basis since we are the merchant of record.

So we account for gross, and then our cost of sales there is interchange. So, as that business becomes a more and more meaningful portion of payables on a revenue basis, it is going to run at lower margins because of that accounting aspect.

And if you think about the revenue mix, the buyer-funded piece grew 26% this quarter and is becoming a majority of the revenue stream within payables from a gross profit basis. Those two businesses, buyer-funded, supplier-funded, are a little more even with each other because of the accounting nature, but the buyer-funded revenue stream is the vast majority on a revenue basis.

If you think about it, it is a little counterintuitive. we are kind of being punished, in a sense, margin-wise for the growth of that business just because of the way the accounting works.

So if you kind of drill it down, when we sell more buyer funded, which I think this speaks to the agility of the solution that.

Customers, particularly upmarket customers, are looking to use card strategies as a source of working capital in ways that they may not have considered in the past and normally would look to a revolving credit line. And this is more efficient. So, we are seeing the success of that narrative. And then coupled with that increase in buyer-funded. Utilization, NASS Card and Visa both pushed through cost increases in interchange.

So there is some squeeze in the cost of goods sold as that is being utilized. And because of the fact of the accounting treatment that Tim mentioned, it is a bit of a double whammy.

I will tell you, on your merchant side, I mean, I think you are, I do not know if you saw Global Payments was breaking out by segment, and I think your SMB performance is very comparable, if not better. I think that is a positive sign that you got a solid business there in the SMB, which you often forget about given the growth in payables and treasury.

So, well done.

Thank you.

Thanks, Hal.

Jacob Stephan, Lake Street Capital Markets.

Yeah, hey, guys.

Maybe just to start for me, on the Treasury margin, just 800 basis points of compression year over year, I guess, how much of that is passport versus tech ventures? Or just kind of lower yields on deposits. Maybe if you could help break that out for us?

It is not lower rates than deposits. We outgrew the lower rates this year compared to last year in Q2 with just deposit growth, and CST pay margins have remained very constant. So, it is really a mixed shift with Passport and Priority Tech Ventures.

Broadly, it may move quarter to quarter based on some of the revenue mix within those businesses, whether it is transactional revenue or float revenue.

Consider those as in the 30% to 40% gross margins, and Passport grew 125% year-over-year in the quarter, and Party Tech Ventures revenue grew almost 400%. So, as those businesses continue to become a more meaningful portion of the revenue and treasury solutions, you are going to see natural margin compression, but we actually view that as a positive thing over time because that just means we are having success with those other treasury solutions outside of just the core CFT Pay platform.

Got it. Very helpful.

Maybe just touching on CFT paid then.

Average monthly enrollments were down year-over-year, but your average billed clients grew pretty nicely. I guess when does that kind of enrollment trend start to ultimately show up in the treasury segment?

I think it is a macro environment.

Component now as we think about our partners from a referral standpoint and how they see the environment and where they want to invest dollars from a marketing standpoint to capture new enrollments, right? So they are always going to look at their customer acquisition costs and whether they are getting a return on that marketing spend.

In this macro environment, they have pulled back a little bit on the marketing spend and they have seen a little bit slower enrollments.

So it is a combination of that macro environment and then we continue to look at adding new partners to the platform.

We already have large market share in that arena, so it is a very sticky business as we talked about in the past. So, it is tough to win new customers, it is also very difficult to lose customers. You are not going to see a lot of shift from a partner standpoint, and it is really the macro environment that is controlling the new enrollment growth right now. But we continue to see strong performance there. Obviously, Bill clients continues to grow, which is a larger driver of revenue for us than the new enrollments.

And then we are also managing interest rates very effectively with our strategies around that.

I appreciate all the color.

(Operator Instructions)

Bryan Bergin, Cowen.

Hey, guys. Good morning.

Thank you.

On profitability, maybe I will ask this a different way on the margin. So, if you step back at a high level, are you able to bucket perhaps temporary costs versus costs that hang around in the structural run rate? I get the mixed dependent factors that are going to influence gross margin and payables and treasuries. But putting that aside, what would you say are temporary headwinds or investment step-ups, I heard things like tech, marketing, the network costs that you are going to have to laugh for a bit, but if we try to simplify all this, is there a way to summarize how those short-term kind of versus lasting factors in total will move forward as we think about EBITDA margin?

Yes, I think the EBITDA margins are probably less impacted for what we have talked about. So, most of what we have discussed with the mix, some of the incremental costs we have seen from the card network and internet changes, that is all hitting at the gross margin level. So, if you look at flow through from gross to adjusted EBITDA, it is been pretty consistent. We have managed expenses. Extremely well. So, we do have some one-time items in the first half of the year, whether it is related to the special committee or some of the increased public cloud expenses, but that was less of a factor overall. It is really the gross margin item, which some of those are going to be recurring items as we continue to invest and where you are going to see change over time is.

Using the real estate that we have collected with some of these larger enterprise customers to ultimately drive margins with continuing to cross-sell and having those same clients be on banking and treasury or if they are on banking and treasury or acquiring now, having payables be the cross-sell opportunity. So, it is using the platform to its fullest extent with those large enterprise customers that is going to be the driver of margins.

Understood.

On Merchant Solutions, so I know that the 8% revenue growth in 2Q benefited from roughly 350 bps from acquisition. I know 3Q still has a partial contribution from Boom. Can you just maybe help quantify what that might be remaining? And as we think forward, is the current mid-single-digit organic growth rate a reasonable run rate for Merchant?

We believe it is. we are continuing to see success there, so we do think that that mid-single-digit, I think we initially got it at 3% to 4% organic growth.

I think that is still the appropriate level to think about longer-term for that business.

And from a margin standpoint, we think we are going to be relatively consistent from where we sit today through the balance of the year as you think about the margin profile in merchant.

All right, the other thing I would just call out, just, we are pretty transparent about some of the partnerships that we are building out, right? they are just, they are larger in nature, right? Signing up Pittsburgh Steelers, Texas Rangers.

You are attaching to high volume ticketing and other activities in stadiums. So, our goal is to continue with that success.

You are going to see it impact our revenue growth rate organically. So, I would keep a lookout for new logos, and you will have a real good sense.

Yeah, that is a good point. You had some nice wins there.

My last kind of question or maybe statement is obviously on the unresolved special committee assessment. I understand you can not say much, but this is clearly overhanging fundamental performance. And I guess the question or unknown is whether there's particular milestones the Board is assessing or some time frame by which this is meant to be completed by because obviously until something changes there, it seems to preclude share movement and this is effectively one of the only things that current investors are keyed in on. So, certainly a consideration for the board here. Thanks, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Tom Priori for any closing remarks.

Well, on behalf of Tim and I just want to thank everyone for your participation in today's call. Hopefully the results continue to reflect sustained focus on execution, and we will look forward to reporting back again in the near future.

The conference has now concluded.

Thank you for attending today's presentation. You may now disconnect.