00:11 Hello. Thank you for standing by, and welcome to the Priority Technology Holdings third quarter earnings Conference call. At this time all participants are in a listen-only mode. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Chris Kettmann. Please go ahead.

00:42 Good morning, and thank you for joining us. With me today are Tom Priore, Chairman and Chief Executive Officer of Priority Technology Holdings; 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 which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward looking statements. 01:07 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. 01:24 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. 01:43 With that, I would like to now turn the call over to our Chairman and CEO, Tom Priore.

01:49 Thank you, Chris. And thanks everyone for joining us for our third quarter earnings call. I would like to begin this morning's call by providing a brief recap of our quarter three results, as well as highlighting the continued momentum we've seen so far in the fourth quarter. 02:06 Following Mike's segment level review, of our third quarter results and balance sheet, I'll provide some final thoughts on our position in the marketplace. The closing of the Finxera transaction on September seventeen and our prospects for the future. 02:22 As we noted in our earnings release, we continued our first half momentum with a strong quarter three generating market leading top and bottom line growth. On a consolidated basis, total revenue for the quarter increased twenty one point six percent to one hundred and thirty two point five million. 02:43 Our top line strength drove a sixteen point eight percent increase in gross profit to thirty nine point seven million and twenty percent growth in adjusted to EBITDA to twenty three point six million. Similarly, income from operations increased seventeen point two percent to eight point three million. Importantly, these results reflect several encouraging trends when looking ahead to the fourth quarter. 03:12 Our total bankcard volume grew twenty two point one percent for the quarter, despite self-imposed risk paring in our specialized e-commerce business that achieved five point three million of revenue from our quarterly results. 03:28 Furthermore, we absorbed an anticipated sixteen point three percent decline in our commercial B2B segment due to the wind down of an American Express program that began in Q4 twenty twenty and the loss of three point nine million of revenue from the sale of rent payment in September twenty twenty. 03:51 As with prior periods, our innovative product consistently fueled new contract wins. New merchant adoption remain consistent with an average of four thousand four hundred and seventy three per month in quarter three. 04:08 A peak into the start of Q4 revealed continued strength in our processing platform. October’s bankcard volume grew seventeen point one percent year over year, which bodes well for our top and bottom line results during the period. 04:26 At this point, I'd like to pause and hand it over to Mike, who will provide further insight into our performance during the quarter, current trends in each business segment, and the improvements on our balance sheet.

04:40 Thank you, Tom, and good morning. For a comprehensive discussion of our comparative results, please refer to management's discussion and analysis in our Form ten Q, a link for that can be found on the IR portion of our website. As far as the Q3 segment results, consumer payments revenue was one hundred and twenty four million dollars. This is a twenty four point nine percent increase over ninety nine point three percent in the twenty twenty quarter. 05:08 Growth was driven by thirty million dollars or thirty three point three percent revenue growth in our base merchant business, which was partially reduced by the five point three million dollar reduction within our specialized e-commerce business associated with our prudent risk pairing actions. 05:26 Merchant bankcard volume processed in this segment was thirteen point eight billion, this is a twenty three percent increase over eleven point two billion in the twenty twenty quarter. 05:38 Merchant bankcard transactions of one hundred and fifty one point five million increased twenty three point six percent from one hundred and twenty two point six million in the twenty twenty quarter. An average ticket of ninety one point one nine dollars decreased slightly from ninety one point six two. 05:56 Consumer payments operating income was fourteen point seven million dollars. This is a thirty two point one percent increase of three point six million over operating income of eleven point one million in the twenty twenty quarter. Key drivers were a six point six million dollar increase in gross profit and zero point eight million of lower SG and A expense, partially offset by one point three million dollars of higher salary and employee benefits expense and two point five million of higher depreciation and amortization expense. 06:31 Commercial payments revenue in the third…

12:18 Thank you, Mike. Before wrapping up, I would like to provide a few final thoughts on our positioning in the marketplace and our prospects for the future. With the final regulatory approval in September of our nationwide money transmission licenses and results in closing of the Finxera transaction, we are positioned to stake our claim as a payments powerhouse. 12:44 We possess payment solutions to collect store and send money on a single technology platform that operates at scale in high growth verticals. Powering modern commerce. 12:58 Today's, SMBs and enterprise businesses recognize the value of a modern payment partner that can handle traditional acquiring and payment facilitation requirements, as well as provide tools to distribute funds to employees, gig workers, and vendors from a single digital platform. 13:19 That is why we already have new beta clients embedding our payments and banking solutions into their platforms and why a multibillion dollar company like Wix, whose SaaS e-commerce solutions serve millions of SMBs globally, recently partnered with Priority to be a preferred payment solution for its clients. 13:45 As a follow-up to this call, I would encourage you to look at the investor presentation we filed today that is posted on our website. It provides an updated overview of our differentiated solution and investment story. And the numbers speak for themselves. 14:04 On a consolidated pro forma basis, including the impact of the COVID period, we produced a two year revenue constant annual growth rate of sixteen percent. A two year adjusted EBITDA constant annual growth rate of thirty seven percent. On Q3, LTM twenty twenty one pro forma revenue of approximately five fifty million, we achieved gross profit margins of thirty nine percent and free cash flow conversion of forty five percent of adjusted EBITDA, while maintaining recurring net revenue of ninety four percent. 14:51 We're optimistic that the continued outperformance of our diverse payment software business line that have been constructed with intention and managed to perform in varying business cycles will gain the recognition they warrant from the investment community. I want to close by thanking our team for another excellent quarter and delivering on our mission to build innovative payment technology that powers moderate commerce. 15:19 Operator, we'd now like to open the call for questions.

15:25 Thank you. Our first question comes from Brian Kinstlinger with Alliance Global. You may proceed with your question.

15:45 Hi guys. Great profitability. Can you comment on the success rate in volume maybe you're having with the cross-selling of the instant client banking as a service to your legacy priority customer base and how quickly can you educate your entire customer base about this offering?

16:09 Sure, Brian, Candidly, the opportunity across our existing client base in the SMB space, and frankly in the B2B space is actually still upside to our performance? The customers we have now that are coming in are largely new and are implementing the digital banking and payments infrastructure into their platform. 16:58 We have a handful of existing ISV partners that are, I'll just say implementing new features that we offer. So, those are additional revenue opportunities to the upside as those features get released into their platforms. Well, we'll be finalizing the feature set that will include banking and embedded wallets into our existing customer base in Q1 twenty twenty two. 17:47 As an example of that, if I'm an acquiring customer of priority, I can within early part of twenty twenty two, be immediately permissioned for a bank account to facilitate instant funding and get cash from my acquiring processing into my business more quickly. That has yet to be cross-sold. 18:24 So, we’re right now being, I would say, very conservative about what we think the additive to prospect of that are. And we'll have more meaningful guidance as we roll into twenty two, but hopefully that gives you some insight into, I'll just say what's embedded in our performance today and what the future we think can hold.

18:55 Great. And then in terms of merchant acquiring, your execution has been quite steady over the last many months, almost over a year, but you posted such solid growth. So, how do you accelerate number of merchant acquisitions to sustain say twelve percent revenue growth, given you're now at a larger base?

19:19 Well, I think it's twofold. Number one is, we just continue to be the platform for the retail community. So, our new wins of new resellers is consistent. So, that will certainly be a source of consistency. The other and again, that's I think this speaks to why we just are trying to be very measured about the way we're looking at the margin growth within our customer base. 19:53 So, we think the biggest opportunity we have for the consistency of our revenue growth is adding product features like instant funding and then the utility of the bank account to pay out to vendors to employees, etcetera from that operating account with priority. And so, we'll, as we get metrics around that, I think we'll be in a position to share what the value of that is from an incremental revenue and margin basis per merchant.

20:40 Got it. Makes sense. My last question, I'll get back in the queue with a couple more is, your B2B or CPX business has been fairly slow to take off, maybe the only piece of the priority story has not enjoyed rapid success that your overall business has experienced. Maybe if you could just add some detail of what's going on there, is the platform ready for adoption, does it need more R&D spend, is it long sales cycles? And how we should think about this as we look into twenty twenty two?

21:13 Sure. A great question. So, we've really experienced just a longer sales cycle. We have had a number of new adoptions through this past quarter. So, that as you sign, let's just say a buyer customer or an ISV, you know starting to convert their spend on to their suppliers is an activation process that takes a little bit of time. 21:52 So, we're in the process of doing that. As well, I would just submit to you our early product offering was on the FI channel, and that proved to be an even further extended sales cycle because of COVID. So, we redirected a lot of our sales efforts into the middle market and that has borne fruit. So, I think you'll see the effect of that and the acceleration of new contract signings. 22:34 And now we're seeing some of the banks that we're in the pipeline have been much more actively engaging as of Q2 twenty twenty two and our sort of our coming to a decision process. So, those really change the trajectory pretty meaningfully just because their existing books that that represent large conversions.

23:07 Great. Thank you. I'll get back in the queue.

23:12 Thank you. Our next question comes from George Mihalos with Cowen. You may proceed with your question.

23:19 Hey guys. Thanks for taking my questions. I guess the first one that I wanted to ask, maybe I'll roll to in one shot, just as it relates to the specialized acquiring some of the merchants that you, sort of took a more prudent approach, was kind of hoping you can talk a little bit about that, is it sort of verticals specific or something particular that made you take another look at them and then the revenue yield within consumer, that has been fairly stable, now call it around basis points, is that a good measure to be thinking going forward into twenty twenty two as we model the company out?

24:06 Thanks for the questions, George. With regards to specialized, and I think I had mentioned it in the previous quarter. This is a segment where the transaction – call it the transaction management is really important to us, how the e-commerce subscription client is managing the transaction activity and we saw some signals with certain customers that just, we thought were really pushing the envelope for the way they were managing their consumers. And we took action to parse them out of the portfolio. 25:03 And that we had anticipated would create some drag in that segment. And as you can see, our organic growth was already outstanding and was kind of well positioned to just cleanse it, and we were able to put some other risk monitoring practices in place that we think we'll call it out faster. 25:32 And now, we're kind of a much more active in the segment. And, but we're going to continue to really be diligent within this segment because we think it's a responsible way to operate. And frankly, we'd like to see others who are in the segment do the same because we think we would help the overall marketplace just behave more consistently in the subscription e-commerce segment. 26:07 So, hope that gives you some granularity there. We're already seeing let's just say if you think about the net merchant base in that segment. 26:18 That's already been increasing again. So, we like the trend we're seeing there is developing in the Q4. 26:28 With regards to margin, look,, on the basis that exists today and this sort of goes back to Brian's question. As the basis exists today? Yes. I would say what you're seeing in terms of the margin is a good proxy. The game changer there is as we start to drive adoption of Instant funding and other, I'll call it banking oriented or pay out opportunities within that base. 27:03 That's going to drive the incremental margin opportunity we see in the SMB space. Because every single merchant as we move forward, George, if you could think about it this way, every single merchant that's on the priority platform will be activated for a bank account. And then it's incumbent upon us to drive the adoption of those features within it because it just makes economic sense for the customer. 27:34 And the extent of which we do that is going to change the margin trajectory, right. Because it's just incremental to an existing customer.

27:45 Got you. That's very helpful. I’m just curious, early days, obviously, but sort of initial thoughts as you've got Finxera under the umbrella right now, any surprises positive, negative, any sort of change in terms of how you're thinking about the acquisition and the opportunity related to with? Thanks guys.

28:05 From a technological standpoint, the convergence of our payments and banking platform to operationalize it has gone at or slightly faster than the pace we had modeled to. The other thing I'll say cautiously optimistic on, so look new boarding’s on the CFT pay, the consumer finance platform. So, these are consumers in opening accounts for saving for debt payments. New boardings are almost right at the pre-COVID period. So, that's very positive. 28:56 And a lot of the macroeconomic news is now in terms of just the overall debt in the U.S. consumer is creeping up. So, that generally bodes well for the consumer finance segment. And we think we’ll be an aspect of performance for us in the future, but that could surprise to the upside. 29:28 So, right now, trends are positive. We're seeing net new account creation in that segment, particularly a stimulus has receded. And you were seeing some macro trends that could present some further, kind of green sprouts to that segment as well that we're following closely.

29:55 Great. Appreciate the color, guys. Thank you.

29:58 Thank you.

30:03 Thank you. Our next question comes from Andrew Scutt with ROTH Capital Partners. You may proceed with your question.

30:14 Good morning and congrats on the strong quarter. Most of my questions have been answered, but just wanted to see if you could provide some additional commentary on the base merchant revenues this quarter maybe walk through the dynamics and what verticals may have performed well? Thanks.

30:34 Sure. Mike, if you want to sort of comment on an aggregate level, just in terms of the revenue growth within the consumer segment – Andrew was it the consumer segment you wanted to focus on?

30:48 Yes, yes.

30:50 And then I could provide some dynamics as to the industry verticals where we've seen relative performance there.

31:02 Sure. Well, coming out of COVID, I mean there’s clearly been a migration to a higher mix at the point of sale of electronic payments. So that's certainly driving the great volume growth that we've been seeing. And dynamic that we've seen in the mix of business is we're almost returning back to pre-COVID kind of vertical mix. We – back in April, obviously in April of twenty, our hospitality restaurant business was way down because many of those merchants had shut. 31:36 Now, we're kind of almost back to the same sort of mix and the up sixteen, seventeen percent in the overall vertical mix. But just I think our products that Tom was referring to obviously, is a great interest to our merchant base. So, that's helping with signing new merchants and new ISOs. And that's driving volume growth, but then also the macro issue, just the overall growth across the industry of people going over to electronic is certainly helpful as well. 32:10 Did that answer your question?

32:14 Yes. That was great. Thank you very much, guys.

32:19 Thank you. Our next question….

32:23 I'm sorry. Andrew just to put out fine point on it. There's a couple of, where we've seen continued growth. So, Mike is spot on. We've seen hospitality kind of get especially in the smaller, call it a small restaurant segment is kind of back up to what it has been. In fact, you could probably experience this, right, just up and down your neighborhood. 33:01 The capacity in restaurants ironically has expanded because now they’ve allowed people to set up inside and outside across most of the countries. So, we've seen that reach pre-COVID levels. Professional services as well has been a strong growth area. So, our tools are really well designed for the contractors landscapers, kind of your service businesses that are particularly mobile and in office. We've seen good incremental growth there. And that's probably permanent. 33:50 Particularly because the networks have enabled more flexibility around how card acceptance is, and by the way, many of the states have opened up things called cash discounting or convenience billing, etcetera and have enabled businesses to charge consumers for the convenience of using digital payments. 34:23 So, that's encouraged more to do so. And particularly those that in the past probably were a little bit more reluctant like service businesses. So, we expect that trend to continue for a good bit further. And we're really optimistic about the prospects of driving this convergence of banking that leads cash acceleration and then the use of digital payments to buy goods and services on a single platform will mean for businesses like that, because cash acceleration there really has that's the name of the game for small businesses.

35:16 Thank you. Your next question comes from Brian Kinstlinger with Alliance Global. You may proceed with your question.

35:22 Great. Thanks. Two follow-ups. Can you talk about the trends or visibility you have into that managed services client that you talk about? How big could this customer be to small business for your managed services piece? And then I forget, so I apologize, in the third quarter, was there any revenue and managed services related to that customer that was winding down or is that completely wound down?

35:47 It's the same customer and – but they just run different programs, and so what I would say is, we're in conversations actually to institute another program with them. So, it's positive trends there. For sure.

36:08 Got it. Got it. Okay. And then the only other question I had as we head into twenty twenty two, I’m not asked plenty official guidance upon this. I know you're not prepared for that, but you made an acquisition, you've got a couple of different businesses, is there any seasonality we should be thinking about?

36:27 We are – we don't have a ton of seasonality in our book. Look, as you might expect like Q4 is typically a little bit larger for us just because of the holiday period, but not wildly so. So, we see historically a little bit of pickup in Q4, but generally speaking, we're pretty consistent through the year. 36:59 You're not talking about a variance of more than a couple of percent relative to the rest of the year.

37:08 Great. Okay. Thank you so much.

37:14 Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Tom Priore for any closing remarks.

37:24 Well, I want to thank everyone for taking the time to participate in our quarterly earnings call. As you can probably tell, we're very excited about the prospects for the future and we certainly believe that the trends that you've seen in our business, particularly those in times when the market has been less favorable are reflective of the consistency that our platform can deliver. So, we will – as we had reflected in the past, we are laser focused on execution. We remain . 38:13 We have – we think a very differentiated plan that is going to be high value to the customers we serve. And we are laser focused on delivering those solutions that we know they're looking for from the active conversations that we consistently have, which is what sort of gives us the level of confidence in what we can deliver, we'll continue to be very measured and we thank you for the support of our business and willingness to understand more about it and where we're headed. 38:50 Hope everyone has a great day and enjoys the upcoming Thanksgiving holidays and remain safe. Thanks very much everyone.

39:04 Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.