Priority Tech (PRTH) Earnings Call Transcript

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DATE

Nov. 6, 2025 at 10 a.m. ET

CALL PARTICIPANTS

• Chairman & Chief Executive Officer — Thomas Charles Priore
• Chief Financial Officer — Timothy O’Leary

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RISKS

• Timothy O’Leary cited “same store sales weakness” according to Hal Goetsch beginning in August and accelerating in September, particularly affecting the restaurant, construction, and wholesale trade verticals within merchant solutions.
• A reduction in year-over-year revenue due to the runoff of historical residual purchases and lower revenue from a particular end market generated a headwind of $2 million in the quarter.
• Higher benefit costs and “care premiums going up” according to Timothy O’Leary are expected to persist into next year, with non-cash expenses and acquisition-related growth also contributing to increased salaries and employee benefits.

TAKEAWAYS

• Merchant solutions volume composition -- Restaurant vertical is “it's mid teens, you know, high teens, 16, 17%,” according to Timothy O’Leary, of total volume; construction is “mid single digits,” and wholesale trade is “comparable, maybe a little bit higher” than construction.
• Year-over-year headwind -- Historical residual purchase runoff and lower revenue from end markets contributed to a $2 million negative impact, declining from $4.5 million in each of the first two quarters.
• Expense drivers -- Increases in salaries and benefits were driven by recent acquisitions not yet anniversaried, higher benefit costs, and non-cash components such as stock compensation and long-term incentive mark to markets; SG&A increases included “software and public cloud expenses.”
• Quarter-over-quarter cost control -- Salary and benefits declined by $1 million compared to fiscal Q2, demonstrating sustained cost discipline despite ongoing platform investments.
• Merchant solutions organic growth -- Organic growth of 4% in fiscal Q3 is anticipated to improve to mid-single digits in fiscal Q4, supported by “a little bit of an uptick in October,” according to Timothy O’Leary, in volume trends.
• Acquisition impacts -- BoomCommerce (mid-fiscal Q3) and DMS (Oct. 1) acquisitions are set to provide full or partial quarter fiscal Q4 impact, which management says contributes “a lot of comfort,” according to Timothy O’Leary, to the fiscal Q4 outlook.
• Revenue and profit guidance range -- The $15 million range in full-year revenue guidance hinges on the activation pace of large enterprise clients, with higher activation driving results “right to the bottom line.”
• Future growth outlook -- Guidance for next year referenced “mid single digit organic growth on the merchant solutions side,” according to Timothy O’Leary, “low double digit growth in payables,” and “high teens, you know, 20% type growth,” according to Timothy O’Leary, in treasury solutions.
• Deposits under administration -- “largest quarterly increase” reported, with deposits under administration rising $200 million sequentially since fiscal Q2.
• Portfolio risk profile -- Management stated, “we're not looking to increase the risk across the portfolio,” having reduced risk earlier due to network regulation changes.
• Segment reporting shift -- Segment names were changed to align with clients’ usage of commerce solutions, reflecting a shift to solution-driven reporting rather than customer size.
• Nonrecourse financing facility -- Company implemented a nonrecourse facility at the segment level to support residual buybacks and partner development funding, intended to “not have that drag,” according to Hal Goetsch, seen from older residual portfolio runoff.

SUMMARY

Priority Technology Holdings (NASDAQ:PRTH) management acknowledged broad-based merchant same-store sales softness through late fiscal Q3 ended Sept. 30, 2025, with most pronounced effects in restaurants, construction, and wholesale trade verticals. The company’s full-year revenue outlook remains dependent on activation timing of a substantial enterprise pipeline, while fiscal Q4 guidance incorporates positive impacts from recent acquisitions and improving October transaction volumes. Cost discipline is highlighted by management despite benefit inflation and higher non-cash compensation, supported by sequential declines in salary and benefit expense and careful management of risk exposure within the portfolio.

• CEO Priore emphasized a strategic shift toward segments with defensive characteristics, such as automotive commerce and benefits/payroll, expecting these to support “stable cash flows” outside traditional card acquiring activities.
• Management confirmed unchanged, constructive relationships with key distribution partners despite industry repricing, with POS reseller positioning enabling cost advantages in bulk purchases, although future Fiserv/Clover conditions may be less favorable due to tariffs.
• The company’s adoption of solution-based segment reporting is designed to provide investors with better transparency on customer usage patterns and income sources, aligning internal performance tracking with the evolving profile of client relationships.

INDUSTRY GLOSSARY

• Residual purchases: Payments made to buy out ongoing revenue streams, often from independent sales organizations (ISOs), usually providing recurring high-margin income for acquiring companies until those residuals “run off.”
• Nonrecourse facility: A loan or credit facility where only specified collateral secures the debt, and the lender’s claim is limited to that collateral, insulating the parent company from direct liability if the collateral underperforms.
• Deposits under administration: Total customer cash or assets managed by the company on behalf of clients, typically off-balance-sheet, representing entrusted funds for payment, treasury, or banking services.

Full Conference Call Transcript

Thomas Charles Priore: and addressable market segments to continue to deliver stable free cash flow and long-term shareholder value. As always, I want to thank all my colleagues at Priority who continue to work incredibly hard to deliver 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, for taking the time to participate in today's call. Operator, we now like to open the call for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And our first question will come from Hal Goetsch of B. Riley Securities. Please go ahead.

Hal Goetsch: Hey. Thank you, guys. Hey. Thanks for, I think it's a good idea to reclassify these segments into the different three segments you've renamed, and that reflects what, what they do. And appreciate that. Just wanted to ask about, you know, given you reported Q2 in the in the you know, you know, August time period and there's been a some same store sales weakness. When did you start seeing that? I mean, another company called Shift4 Payments mentioned that typical same store sales for restaurants as well. But you know, what did you start seeing? What could you go over some of the segments you saw some weakness in? That's my first question. Thanks.

Timothy O’Leary: Hey, Hal. Thanks for the question and the feedback on the segment names. Yeah. We started seeing some of that in August, and it's it certainly accelerated in September. As we look across all the different verticals, you know, for the merchant solutions business. Yeah, there were a handful that definitely saw a trend line that was, you know, against us It was relatively broad based though, but the ones we called out, you know, restaurants, construction, whole wholesale trade, were the ones that were a little bit even more onerous, you know, at the tail end of the quarter. You know, there were others that were down slightly, but not as much of an impact.

You know, things like education and some other verticals, but you know, we really started seeing it in August and then that accelerated into September.

Hal Goetsch: Okay. And you mentioned, like, some of the residuals. Can you kinda what was the impact of know, his merchant attrition was decent. Monthly ads were still really good. What were some of those other components that if you clarify what they mean and how long the impact will be from those?

Timothy O’Leary: Those It was you mentioned some residuals and impacts. What were those again? Yes. Yes. So I was I was referencing lower revenue in the quarter from that end market. And then historical residual purchases you know, we had done some larger residual purchases back in 2021. But from a capital allocation strategy, you know, the last few years, we've been focused on deleveraging and taking out the preferred equity. So we haven't done a lot of additional residual buybacks. So those older portfolios, as they start to run off over time, that presents a headwind. And you're running off effectively what is a 100% margin because you've bought back those residuals from the resellers.

So that headwind has continued you know, combined, you know, those two things had about a $2 million impact. You know, on the quarter on a year over year basis. That's down from what it was in the first two quarters of the year where we talked about, you know, more onerous headwind where that was, you know, $4.5 million or so. So it's it's come down, which we expected it to moderate. We'll see another consistent, you know, type of headwind in Q4. But definitely less than we saw in the first half of the

Thomas Charles Priore: Okay. Hey, Hal. Just one other point, which I think is just it's important to reference. On the residual on the residual based question you have, one of the major drivers of putting together the financing facility that we have It's nonrecourse. Is that I mean, really, that positions us in our space There's there's no one else who has something like this. That will enable us to instead of having that financing be you know, at the holdco level, we now have it at the facility level that's nonrecourse but gives us that's a place where we'll buy those residuals. We will make other you know, lending facilities too.

RISV and ISO partners to put gas in their tank to supercharge their marketing, to do development that will, you know, help them accelerate adoption on their products, So it's it's a it's a very, very valuable facility that you will see reflected in that way. Going forward.

Hal Goetsch: And it will Okay. Help us really not have that drag that, you know, Tim just alluded to.

Timothy O’Leary: Excellent. Okay. And one follow-up on that on this has been a real building year, an investment year. And I look at that, based on maybe where know, maybe even the dollar increase in salaries and employee benefits that We had a couple acquisitions. It's it's the cost of living. Looks to be, like, a pretty solid dollar increase year over year. In salaries and benefits. When we you know, will there be a moderation of that, maybe, based on the investment you spent this year, I mean, going into 2022? Because I know you gave some initial sales commentary, gross profit.

Margin guidance commentary, but give us a thought about, you know, the, you know, some of the expense items that, trajectories exiting 2025, into 2026? Thanks.

Timothy O’Leary: Sure. Yeah. So that a lot of the increase was driven by acquisitions. Right? So you go back and think about the acquisitions late last year. With our payroll platform, the very beginning of this year with the lettuce business up in Canada. Right? So we had a couple acquisitions that we haven't anniversaried yet, so that's part of the increase. Benefit costs are also certainly higher, and we're gonna see the same impact next year with care premiums going up. And then there was also a you know, meaningful component of that increase which is noncash related to you know, stock comp and some mark to markets on long term incentive plans.

So a lot of it was, you know, non cash, but, you know, definitely acquisition related in addition to on the SG and A side, you had some of the increased you know, software and public cloud expenses that we expected. And we'll continue to see some of that growth. But I think this is a you know, a good run rate to think about going into next year and we actually we were down a million dollars from Q2 Right? So we've actually Yeah. Continue to be very disciplined about the actual you know, salary and benefits we have in the organization, but, you know, some of the acquisitions certainly added to

Hal Goetsch: Okay. Thank you.

Operator: The next question comes from Jacob Stephan of Lake Street Capital Markets. Please go ahead.

Jacob Michael Stephan: Hey, good morning, guys. Appreciate you taking the questions. Just kinda first, you know, asking on the guidance as well. You know, some of these the construction vertical, the you know, the restaurants and wholesale trade, maybe can you kinda help us think through you know, what potentially that represents as a as a whole of merchant solutions. Perhaps too. Hey, Jacob. Yeah. So the restaurant sector for us, we still feel like we're underweight. In that vertical compared to the broader market, but it's it's mid teens, you know, high teens, 16, 17%. You know, of our volume. You know, construction is in the, you know, the mid single digits. From a percentage basis points.

Wholesale trade is comparable, maybe a little bit higher than that. But again, some of the some of the slowdown we saw from same store sales standpoint was broad based. So those verticals were probably impacted a little bit more, but it was you know, across a lot of the different end markets that we service. Okay. And I know we talked a little bit about, you know, maybe potentially opening up some a greater risk profile in the portfolio, but has this kind of shifted that thought process at all? I don't know if we're looking to increase the risk profile. I think we manage that very effectively.

I think we had pared back some of the risk earlier in the year given some of the changes in the end market and some of the, the network regulations. And getting in front of that to create some headroom. But yeah, we're we're not looking to increase the risk across the portfolio. I think we're we're generally a low risk portfolio and, where we do you know, play in the specialized acquiring segment. We're very about how we approach that from a risk standpoint.

Thomas Charles Priore: Maybe one other maybe one other point on that. Look, I and I'll point to I'll point to the acquisition, the We have a thesis around the future of automotive commerce. And the acquisition of DMS is a I wouldn't call it a first step. I'll just call it an evolution. Of sort of what we built in preparation of you know, of really leaning into that segment. So where that kind of reflects the risk side is hey. We're looking at industries I would consider more defensive. The in the auto segment, sales are slowing. They're moderating for sure.

And what that typically means, and you're seeing this in the stats, is people own their cars longer even if it's a pre owned you know, environment, it's just the cars are around longer, which means more service. So leaning into that narrative and know, when sales go down, service goes up. So, you know, we really like the defensive nature of that. We're gonna lean into that. We have some really good partners in addition to what we you know, acquired with DMS.

So those are those are sort of the types of strategies we're we're gonna lean into because we think they make tremendous sense just from a addressable market and the nature of you know, of the cash flow. They're very stable. And they actually, when the economy maybe isn't as great, they tend to go up. So we're looking for other segments. You know, we're we're examining other strategies and segments like that. You know, Tim alluded to this as well. You know, our benefit costs are going up. There's a lot of controversy around affordable care, and how that's all changing. Well, well, we're leaning into payroll and benefits. Right?

That's just a place to be because the money we are fundamentally a commerce engine designed to move money through systems. Of commerce. Certainly, you know, card acquiring is one of them, but I can't underscore this enough. Two thirds of our gross profit is coming from segments outside of requiring. That's not accidental. So as we lean into these segments that just are defensive in nature, getting into the benefit segment, getting into things like auto, like, that's how you create you know, stable cash flows to really reward our investors for you know, thinking over the long term.

So I just invite everyone to examine those conditions and where we're positioned because we have very good cost basis entering these markets. And a lot of, you know, upside optionality to win.

Jacob Michael Stephan: Yeah. Understood. And, obviously, you know, we see that reflected in the guidance, with you know, both profit metrics actually moving up. Let me ask this question. So the you know, there's a $15 million kinda delta on the revenue line, with you know we're we're essentially almost halfway through Q4 here. You know, what are really the puts and takes that kinda get you to the high end versus, you know, where we might be at $9.50?

Thomas Charles Priore: For the full year. So I'll say I'm gonna I'm gonna ask Tim to follow-up on this, but look, I'm gonna just talk about our pipeline. And you know, Tim will maybe talk to Trend. The upside guidance is activation of the pipeline. If it activates faster, than you know, we've kinda modeled, that all falls right to the bottom line. And these customers, they're they're considerable. These are not these are coming from, you know, large enterprise segment And it's why we have evolved our segment level reporting to reflect how customers are using commerce. Engine. The customers that come in, they're using everything. They're using acquiring. They're using payables. They're certainly using the treasury solutions that we provide.

So this gives us better visibility into just what's generating the income. If you will. And then as a result of that, just how sticky it is. So that'll be one you know, major influence. In terms of, you know, where upside can come from. Let me let Tim comment on the on the trend line, and then know, I kinda have one other thought I wanna share, but I wanna Tim weigh in here.

Timothy O’Leary: Because I think the other factor is certainly the volumes in merchant solutions. Right? We took a pretty forensic analysis looking at you know, quarter to date trends and looking at October trends compared to August and September and you know, definitely have seen a little bit of an uptick in October. Right? Not dramatic, but certainly improvement from what we saw in October August and September. Which gives us the comfort to think about the guide for the balance of the year where we're referencing mid single digits organic growth for merchant solutions, So you think about that core you know, it grew 4% in Q3.

You know, we think we'll do better than that in Q4 given some of the trends we've seen so far in October, plus you know, to Tom's point, you know, some of these larger, you know, customers and ISVs we've we've onboarded to the platform. Which goes back to why we change the segment names. As we interact with the investor community, there was an increasing confusion on, you know, what is SMB and what is enterprise because people were associating it with just the size of customer.

As we think about continuing to add some of these large customers that you know, everybody was expecting that to go into enterprise, They might be coming on and the entry point might be acquiring where we're doing ticket sales. For the Minnesota Wild or know, others like that. Or they might come on for payables. We're working with them on automated payables. So we're trying to reorient the segments to the solution set provided because the customer sizes are certainly changing as we evolve the business. And more of our clients are coming on to the full commerce platform.

Jacob Michael Stephan: Okay. Very helpful, guys. If I

Thomas Charles Priore: if I can add one last point and look, I you know, this is just let's be candid about it. You know, we've outperformed you know, certainly our segment peers for a considerable number of quarters and that's not I would say we're not rewarded for it. So, you know, having a measured expectation you know, to ensure we just know, we stay on track and on target, you know, we think you know, probably is you know, is a more thoughtful approach.

So as we you know, as we start to see this enterprise pipeline convert, I'll call it enterprise customer pipeline convert you know, I think we'll we'll feel a lot better about you know, just how we model that throughput.

Jacob Michael Stephan: Okay. Very much appreciated. I'll hop back in the queue.

Operator: The next question comes from Bryan C. Bergin of TD Cowen. Please go ahead.

Bryan C. Bergin: Hi, guys. Good morning. Thank you. So in the Merchant segment, just trying to think about as we step back and think on the remaining portfolio, how much of the book is still in specialized acquiring and portfolio may still be a risk as we look to 4Q and beyond? Just trying to get a sense of the scale of these totality just to get a sense on further potential volatility in performance just on a quarter to quarter basis?

Timothy O’Leary: Sure. Hi, Brian. Yeah. So what specialized, it's it's actually it's grown quarter over quarter as we've moved through this year. You're just coming off you know, a much larger year last year This year's obviously been dampened a little bit by some of the network changes, but we actually we saw some improvement in that business, you know, from You know, Q1 to Q2 and from Q2 to Q3. And we expect that to continue into Q4. So it's still a year over year headwind but that business is improving, and we'll obviously anniversary some of those headwinds as we move into next year. So I think that will dissipate itself.

On the historical residual purchases, you know, we still have, you know, a meaningful amount of residuals there that will run off over time. It's a slow burn, but you're seeing, you know, call it a you know, a half a million dollars, you know, a quarter of an impact, maybe a million dollars a quarter of a year over year impact, as that runs down.

Bryan C. Bergin: Okay. That's helpful. And then you have a large partner that's going through some challenges here in strategic changes driven by their new management. Just curious, are you seeing any impact in your business from that as you are a large distribution partner to their SMB So just anything to call out on underlying changes there and your outlook on that strategic relationship?

Timothy O’Leary: I'm not are you might be referring to

Thomas Charles Priore: sure I'm not sure you're referring to.

Timothy O’Leary: I think we continue to see you know, good trends across our portfolio with you know, POS systems. And then Tom, you can probably offer a little more color specifically, but we've still been very active in that market.

Thomas Charles Priore: Yeah. And, Brian, I apologize. I'm I'm actually I'm I'm remote, so I'm on my mobile, and you broke up a little bit on your question. Would you mind repeating it? Yeah. Just with all the changes going on with Fiserv and Clover, repricing and things like that, is any downstream impact to the activity that you may be seeing?

Timothy O’Leary: We haven't seen changes in trend on POS. Specific to Clover. We're we're one of their larger resellers, I can you certainly reflect that. There's yeah. We actually because of our positioning, we've been able to really have a constructive relationship on material costs So you know, making some bulk purchases has been has been helpful. So, I don't I don't know that will necessarily continue with Fiserv based on know, some of the conversations that we've had and just because they're they're you know, the impact of tariffs are actually starting to flow through. With that said, you know, our other segment of POS, MX POS, you know, we've Within in the app?

But again, it's starting from a small base. So know, that's really a 26 directive. For us.

Bryan C. Bergin: Okay. Understood. The next

Operator: question comes from Vasu Govil of KBW. Please go ahead. I guess the first one, just on the gross profit guide. I know the guide implies a pretty meaningful step up here the fourth quarter. I think Tim, you alluded to it a little bit before, but maybe you could just remind us what drives that acceleration from 3Q to 4Q?

Timothy O’Leary: Sure. I think there's a couple factors. So some of it is the higher organic growth we think we're gonna see in the merchant segment based on what we've seen already in just some of the October trends. In addition to some of the onboarded you know, larger customer wins and you know, we've been we think, conservative relative to the ramp on those in the balance of the year. But then you've obviously you've got the impact of the acquisitions. Right? So we acquired BoomCommerce in the middle of the quarter so we had a partial quarter impact in Q3. And then DMS, in which we closed on October you know, first. Right?

So we'll get a full quarter impact of that in Q4. So you know, there is an acquisition related impact there as well, which gives us a lot of comfort around, see what we see For Q4.

Vasu Govil: That's super helpful. And I guess just thank you for the preliminary color on NexDir. Know it's still preliminary, and there are probably a lot of puts and takes there. But just you know, historically, you have benchmarked yourself as a low double digit grower Obviously, the macro is a little bit of a challenge here. But anything you can give on sort of how you are thinking about the building blocks and the puts and takes to get to that high single digit range?

Timothy O’Leary: Sure. I think it's it's continued, you know, mid single digit organic growth on the merchant solutions side followed by you know, low double digit growth in payables and, you know, what we think is gonna be you know, high teens, you know, 20% type growth in treasury solutions. Obviously, of the growth rate in treasury solutions has come down just given a lot of large numbers, but continue to see very strong trends there. You know, as Tom referenced, we had our largest quarterly increase in deposits under administration this quarter. You know, we grew deposits under administration by $200 million. Since Q2 and you know, see that accelerating.

So despite some of the lower interest rates, you know, we're outrunning that with, you know, continue to grow the franchise and grow over on the deposits under administration. Across our customer base. So to your point, it is early. We'll have more details on our full year outlook on the Q4 earnings call, but just wanted to give everybody at least an initial guidance on how we're seeing next year based current trends and the acquisitions in addition to and just how are some of the new customers we onboarded already that we're seeing some impact from, but not a lot yet.

Vasu Govil: And I Thank you very much. Just

Thomas Charles Priore: if I may just remark on that, what will influence that, you know, as we guide through the year is enterprise clients, they operate a little bit differently in that You'll you'll start to absorb their portfolio, particularly in the IS ISV space. Right? You'll start to absorb their portfolio as they extend the solutions throughout their client base? So to the extent those are those accelerate, then things pick up. So that's really what we're what we're balancing out. And you know, just prudence seems to be the know, the best path. And we have a high degree of confidence in what, you know, has been reflected.

Vasu Govil: Thank you, Tom. Thanks for the color.

Thomas Charles Priore: Yeah. And thank you, by the way, for joining us. It's great to have you.

Operator: Appreciate that. This concludes our question and answer session. I would like to turn the call back over to Tom Priore for any closing remarks.

Thomas Charles Priore: Alright. Well, I wanna thank everyone once again for all of your focus on Priority. And you know, for you know, for really helping us deliver our value story to investors. And for those investors on the call, know, thank you for your ongoing support. We will get back to work.

Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

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