Priority Technology (PRTH) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported the strongest revenue performance in its history for both Q4 and the full year, with net revenue growing by 16% and adjusted EBITDA increasing by 21% for the full year 2024 [7][10] - Q4 revenue reached $227.1 million, a 14$83.9 million and a 16% improvement in adjusted EBITDA to $51.7 million [9][10] - For the full year 2024, total revenue was$879.7 million, with adjusted gross profit increasing to $328.1 million and adjusted EBITDA reaching$204.3 million [10][30] Business Segment Data and Key Metrics Changes - The SMB segment generated Q4 revenue of $155.7 million, an 11.1$32 million, up 0.4% from the previous year [18][20] - The B2B segment reported revenue of $23.7 million, a 10.9$6.4 million, reflecting a 24% growth [22][23] - The Enterprise segment saw Q4 revenue of $48.7 million, a 27$45.6 million [24][25] Market Data and Key Metrics Changes - The company processed over $130 billion in annual transaction volume during the prior 12 months, with approximately 1.2 million total customer accounts on its commerce platform [7][10] - Bank card dollar volume in the SMB segment was$15.5 billion for the quarter, up 6.6% from the prior year [18][19] Company Strategy and Development Direction - The company aims to sustain momentum in its acquiring, payables, and Enterprise segments, with a revenue growth forecast of 10% to 14% for 2025 [8][36] - The focus remains on refining customer experiences and innovating SaaS payments and banking solutions to meet evolving customer needs [12][41] - The company is positioned as a consolidator in the payments and financial technology space, targeting opportunities in sectors with legacy technology and inefficient operations [41][42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue growth despite potential headwinds from lower interest rates and a challenging macroeconomic environment [8][36] - The company noted that over 63% of adjusted gross profit in Q4 came from recurring revenues, indicating a shift towards a more stable revenue model [17][18] - Management highlighted the importance of maintaining a disciplined approach to capital allocation, balancing debt paydown with potential M&A opportunities [50][58] Other Important Information - The company redeemed its preferred stock during the quarter, which resulted in a fourth-quarter preferred dividend of only 2.65 million [31][35] - A material weakness in internal controls over financial reporting was disclosed, but it did not result in a restatement of financial results [33][35] Q&A Session Summary Question: Capital allocation strategy between debt paydown and increased CapEx or SG&A - Management emphasized the importance of balancing debt paydown with M&A opportunities, while also considering the shift from CapEx to OpEx as platforms migrate to the cloud [50][52] Question: Impact of recent rate cut forecasts on guidance - Management confirmed that they have factored in the expected rate cuts into their 2025 guidance, adopting a conservative approach [54][56] Question: Impact of tariffs on businesses served - Management noted that while tariffs may create inflation, they have not seen significant negative impacts on the acquiring side, and demand for B2B solutions is increasing [67][68] Question: Reasons for declining gross margin percentage in consumer payments - Management explained that the decline is partly due to residual purchases running off and a one-time inventory write-off of 3.5 million, but core margins have actually expanded [71][78] Question: Magnitude of CapEx to OpEx shift - Management estimated a $4 million impact from the CapEx to OpEx shift for 2025, which will affect underlying profitability [110] Question: Guidance on adjusted EPS expectations - Management indicated that adjusted EPS for 2025 could approach$1 per share based on normal growth trends [120]