Good morning, and welcome to the Priority Technology Holdings Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Meghna Mehra with Investor Relations. Please go ahead.

Good morning, and thank you for joining us. With me today are Tom Priore, Chairman and Chief Executive Officer of Priority Technology Holdings; 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 filings, and we encourage you to review these filings. 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 Investor section of our website. With that, I would like to turn the call over to our Chairman and CEO, Tom Priore.

Thank you, Meghna, and thanks, everyone, for joining us for our second quarter 2025 earnings call. Once again, I'll begin today's call by highlighting our aggregate performance that reinforces our strong revenue and adjusted EBITDA guidance for 2025, before handing it over to Tim, who will provide segment-level performance, key trends and developments within each of the business segments, and Priority overall. This morning, we reported continued solid growth in both revenue and profit, despite lingering economic uncertainty over the impact of tariffs and government cuts that extended into the second quarter. Summarized on Slide 3, Priority had a strong Q2 by every key financial metric, growing net revenue by 9%, generating adjusted gross profit and adjusted EBITDA growth of 13% and 9%, respectively, and increased adjusted EPS by $0.15 year-over-year to $0.26. We ended the second quarter with over 1.6 million total customer accounts operating on our commerce platform, up from 1.3 million at the end of last quarter. Annual transaction volume in the LTM period increased by nearly $5 billion from Q1 to $140 billion, and average account balances under administration improved to $1.4 billion versus $1.3 billion in the first quarter of 2025. Tim will walk you through the full year 2025 guidance specifics and some of the more noteworthy trends we're seeing within SMB acquiring, B2B payables, and the Enterprise payment segments later in the call. Based on strong growth trends and a continued favorable shift in our business mix, I'm confident that Priority can achieve 10% to 12.5% top-line revenue growth, which is why we're increasing the low end of our revenue expectations to $970 million and narrowing the overall range to $990 million at the high end, while refining adjusted EBITDA around the midpoint of our original full year guidance, increasing the low end…

Thank you, Tim. Before concluding, I want to reflect on a handful of topics we've detailed in the past that are core to our differentiation and consistent performance through varying economic environments and an emerging trend that I believe will be an important catalyst for outsized growth and equity value creation at Priority. Tim has already discussed the mix shift in our earnings quality over the past 4-plus years as adjusted gross profit from recurring revenue now represents 62% of total adjusted gross profit on the increased strength of 31% and 23% in this key metric for B2B and the Enterprise segments, respectively. As with everything we do, we have built these business lines with intention over years of thoughtful planning and cost-efficient execution to be in a position to capitalize on emerging trends early in their cycle to create asymmetric risk-reward profiles. Now when including our results in the second quarter of 2025, that vision and execution delivered 5-year compound annual adjusted EBITDA growth of nearly 20% through the end of June 2025. I offer this perspective because I believe some of the recently publicized transactions reflect an acceleration in the embedded finance value creation thesis and fintech consolidation with a number of players seeking strategic assets deepen their access to business distribution pools, particularly small and medium-sized businesses and add products that you could characterize as nondiscretionary to be a single source solution provider to improve their unit economics. Recent transactions like Xero's acquisition of Melio for $2 billion, Bain Capital portfolio company, Acrisure's purchase of Heartland Payroll for $1.1 billion or TPG's purchase of AvidXchange reinforce this emerging dynamic. And we continue to curate and evolve Priority's flexible commerce engine, connecting payments and banking on a single platform to centralize all money movement at scale for our partners and with our expanding menu of core business applications, to go along with that capability. Through our Priority Tech Ventures activity, we're enabling solutions for payroll, benefits and vertical markets with large profit pools, including construction and prop-tech, among others, at attractive entry points, giving our strategies time to manifest profits and margin expansion, while the accelerating trend toward full-service platforms continues to emerge. As always, I first want to thank my colleagues at Priority who continue to work incredibly hard to deliver industry-leading results. Your commitment and dedication to improving everything we do is clear, providing our partners and customers with a constant 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, we're taking the time to participate in today's call. Operator, we'd like to now open the call for questions.

[Operator Instructions] Our first question today comes from Bryan Bergin with TD Cowen.

I wanted to start off on just core SMB growth. So just first, what was that core growth net of the VAP and the residual headwind versus the 1Q growth of about 10%? I may have missed it, sorry, if I did. And then can you dig into the drivers of the underlying strength of SMB here? Just any outperformance drivers that you want to detail? Timothy O’Leary: Yes. So it was 9.5% for the quarter compared to the 10% number you referenced for Q1. And as I think about the core, what I define in that core is really just taking the SMB or the acquiring business and then backing out the impact of the residual purchases and then the specialized acquiring business and then getting down to that core. So we're continuing to see very strong growth in our larger ISOs. They continue to perform very well. They're adding a lot of volume, right? The volume growth in that same core component was north of 10%, right? So we do see some attrition at the lower end of the portfolio. A lot of that is same-store sales. We're actually seeing the headwinds from same-store sales in the market now where our controllable churn as we think about the actual merchant base that remains on the platform has remained very steady in kind of the high single- digits area. The same-store sales is a little bit of a headwind, but our larger ISOs continue to grow at a very healthy clip, and we continue to add new ISOs onto the platform as well. So those are really the main drivers of what we're seeing there with that strong core performance.

Okay. Very good. As we look at the revised 2025 revenue guide, can you talk about some of the underlying assumptions at the low end versus the high end? And then just we just kind of run the math on the second half implied growth, I think it's about 13.5% at the midpoint versus 9% year-to-date. Can you just help us with the conviction you have on that acceleration? Timothy O’Leary: Sure. Yes. I think some of it is driven by SMB, right? We're going to have moderating headwinds in SMB from some of those 2 areas that I spoke about. Just looking at kind of year-over-year comparatives there, those will moderate a little bit in the second half of the year. We also have a number of large customer wins that we're rolling on to the platform. They haven't really shown up in the numbers just yet. And we've been, I'd say, probably conservative as you think about the timing of those and the impact they have on the balance of the year. So I think that could be some potential upside if those come on faster and ramp faster than what we've modeled at this stage. So as you think about kind of the low end and high end, those are 2 of the variables. I think we also have modeled 2 rate cuts right now into the forecast. Obviously, those numbers are still moving around as you think about what could happen in the broader macro economy. I think most estimates right now would show 2, maybe 2.5 if you kind of look at the averages. So we've got that built into the forecast as well. And then deposit balances continue to grow, right? So if those accelerate even faster than what we've been seeing, that could be some further upside to the upper end of that range.

And our next question today comes from Brian Kinstlinger with Alliance Global Partners.

This is Kevin for Brian. So last quarter, you spoke about the resilience in the SMB segment. Have you seen any shift in the volume trends for some of those businesses given the softening jobs and business sentiment, especially now that we're starting to see the new tariff policies in effect? Timothy O’Leary: We really haven't. I think the portfolio has performed very well overall. And we talked in Q1 about some of the resilience within our portfolio and just the mix of end customers we serve and even if you break that apart and say that we've got, call it, roughly 30% in retail, there's a lot of subcomponents within that, that have resilience, right? Whether it's beer, wine liquor stores, auto parts stores, gas stations, right? There's a lot of areas there that are somewhat more resilient to any kind of a recession or a downturn. So it's performed well. Same-store sales on a macro level is definitely a headwind, but that's been the case now for several quarters in a row. So I don't think that's a new phenomenon that we're seeing.

Okay. Great. And just another one. With the recent closing of the new credit facilities and stronger balance sheet, how have you been thinking about capital allocation in the near and longer term? Timothy O’Leary: I don't think it's changed. I think our allocation strategy is to continue to overall look to delever, but remain opportunistic on the acquisition front as we see opportunities in the marketplace, with some dislocation out there and the ability to acquire attractive assets at what we think are very attractive valuation multiples. I think the real driver of this refinancing was to take advantage of a favorable market condition and our continued strong performance and lower the interest rate. So saving 100 basis points on the rates was really the main driver in that refinancing effort.

And our next question comes from Jacob Stephan with Lake Street Capital Markets.

Congrats on the nice quarter here. Maybe just kind of help us think through some of the average monthly enrollments of CFTPay, it looks like they accelerated nicely. You've got almost 1 million clients there. But I mean, is this really a function of better cross-selling efforts? Is this a function of new client wins? What's the driving factor here?

The primary driver there has been investment from some of our partners. So there's been a favorable condition for some time in terms of customer acquisition. I think we've spoken about it, just some of the changes in credit counseling and so forth. So some of our partners have just amped up their efforts in sales and marketing. And we had the expectations that, that would kick in, in the latter part of the year, and you're seeing that acceleration. So we don't expect that to abate anytime soon.

Got it. And maybe just on the Priority Tech Ventures investments you're making. Help us understand kind of how these pieces into the overall portfolio? Are these kind of companies you're taking early-stage investments in and bringing them on to the tech stack as you -- as they kind of grow? Or how are you thinking about that?

Yes, sure. Just -- I'll digress for a moment, but you'll probably recall from more than 1 year ago, we had noted that just the venture space generally was struggling for capital. And there were some just well-built technology platforms out there that collecting, storing, lending, sending money was a core part of the value chain, payroll for one, property tech and real estate property management, benefits, another. And the platforms out there that we're competing with were somewhat legacy and not that they weren't at scale. There are a number of excellent competitors out there, but they were probably less capital efficient operating -- from an operating cost standpoint. So we were able to find platforms at real attractive prices that fit well into our core customer base like payroll, buying RollFi, like our Prisma product where we've been able to build out a presence in property management and treasury activity in that segment or the benefits space as well. So all these are -- especially payroll and benefits, they're nondiscretionary. Every business needs them. We've got a few hundred thousand small businesses. It doesn't take a genius to figure out, well, you buy it at the right price point, you get it into the sales funnel and you incentivize really strong sales teams that I think we deliver. You can just see those results in small business growth. Then it's really making our partners' portfolios worth more at Priority. That's a phenomenon you're seeing in the SMB space when you look at acquiring and why the volume is consistent and why we drive loyalty because we invest in their ability to make things happen and make money. So it's really bringing all that together. And that's what Tech Ventures has been designed to do. And we're excited about the potential within that segment, particularly given, as I said, our price point of entry.

And our next question today comes from Tim Switzer at KBW.

I have a couple of follow-ups on the capital stack with this tuck-in acquisition you guys are talking about. Is that anything where you might need to raise more debt for it? Or will there be debt coming along with it? And do you guys have any plans at all to utilize the share repurchase authorization? Timothy O’Leary: Sure. The acquisition is largely prefunded, right? So the $1 billion of debt was obviously an upsize from the existing debt level we had. Part of that increase in the proceeds went to prepaying the deferred consideration on Plastiq. The balance of it went to the balance sheet in cash and we will be there for this tuck-in acquisition, assuming that [ when ] closes. If not, it will remain there as we continue to look at opportunities in the broader marketplace. But we're excited about this opportunity that's in front of us. It won't have a large impact on the balance of this year. But going into full year '26, that will have a nice uplift for us on the rest of the P&L.

Okay. Great. Good color. And then, can you also discuss -- it sounds like you haven't seen any material impacts at all from tariffs and some of the macro uncertainty. But if things did sort of turn around, we're starting to see a weaker labor market here, how would that impact the revenue outlook you have overall and particularly in SMB versus Enterprise?

Yes. In fact, let's -- let me let Tim speak to the SMB segment and then I think as we've publicized, right, very intentionally, we have built out countercyclical business lines that I'll just say, do well in economically challenging environments. And then I'll sort of maybe reflect on that countercyclical component that offsets any pressures that emerge in SMB, which I'll just say at this stage, we're not seeing. But Tim, go ahead. Timothy O’Leary: Sure. And Tim, I'd maybe offer a more nuanced response to kind of what you said about SMB and not seeing any impact from the tariffs because I think it's hard to delineate what's the impact from the tariff versus just broader economy, but we have been seeing some headwinds from same-store sales, and that's been continuing for several quarters now. So I think that could be part of the impact of the economy or tariffs. So I don't want to say we're not seeing any impact in SMB because that probably lays into that. We're just -- we're outrunning it, right? Our ISO base is growing. We're adding more ISOs onto the platform. And we continue to just really grow the core business at a faster pace. So we're outrunning some of those headwinds.

The other thing I'll just note, and this is what gives us the optimism for the remainder of the year is our ISV partners have continued to grow. We're still -- those you harvest over a longer period of time once they connect. So we have a number of those contracted that are just being harvested. So as those-- as that occurs, you'll -- that gives us confidence in the acquiring segment's stability. Now aside from that, and to your point on, let's say, a potential labor market impact or on tariffs, those are environments where we generally see our B2B payables segment accelerate because working capital becomes a greater concern, folks are looking for sources like Plastiq and our payables suite to extend working capital. So -- that's been a benefit in previous economic cycles. So we would expect that to continue. And then, of course, within the CFTPay segment, again, that's just -- when consumers become a bit more stressed, they're more likely to look for assistance. And we're really well positioned to work with our partners in that segment to provide that assistance, and we see generally enrollments accelerate.

And our next question comes from Harold Goetsch with B. Riley.

Congratulations, you're really executing well. I just wanted to ask about some of the larger ISOs that you are having success with. Can you just kind of describe their go-to-market? Are they leading with a software-enabled solution or a point-of-sale system, yours or reselling [ some ]? Give us a color on what is working in SMB? Because what is working seems to be like growing nicely above what you would see from the card network. They're only growing 6%, 7%. So you clearly have some success there and I want to know more -- a little bit more about that.

Yes. It is -- we lead with a technology suite, right? We like to say choose your [ venture ]. So enabling a more agile approach to, I'll call it, like vertical solutions that our resellers focus on is -- just has been a benefit. So that is not just -- it's certainly POS that -- to some extent, but the menu of options that are available to accelerate cash flow and optimize working capital, that's really our value proposition and sort of build your a la carte menu the way your business operates, that's been the winning formula. And it's not a one size fits all. I think that comes from the deep understanding of who our reselling partners are and enabling that flexibility for them to play to their strengths. Timothy O’Leary: I would just add on to that, Hal, that I think the other component in addition to the technology Tom talked about is having high-quality customer service, right? And being available for those reselling partners to get problems solved as well as the merchants to solve their issues. So I think having that high level of customer service and actually having somebody pick up the phone and resolve that problem is also a key component for us.

And this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

All right. Well, we would like to thank everybody for taking the time to express your continued interest in Priority. We are -- I appreciate the final comment, Hal, on our execution. And rest assured, we'll be continued laser-focused on just that. So thanks, everyone, and we look forward to getting together next quarter to demonstrate our execution.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.