Good day, and welcome to the Priority Technology Holdings Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Meghna Mehra, Managing Director of 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 Investors 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 to everyone for joining us for our third quarter 2025 earnings call. I'll begin today's call by highlighting our aggregate performance, full year guidance on revenue, adjusted gross profit and adjusted EBITDA and key strategic updates. I'll then hand the call over to Tim, who'll provide segment level performance, key trends and developments across our business segments and Priority overall. As summarized on Slide 3, Priority grew net revenue by 6% generated adjusted gross profit and adjusted EBITDA growth of 10% and 6%, respectively, and increased adjusted EPS by $0.10 or 56% year-over-year to $0.28 in the third quarter. We ended the third quarter with over 1.7 million total customer accounts operating on our commerce platform, up from 1.4 million at the end of last quarter. Annual transaction volume in the LTM period increased by nearly $4 billion from quarter 2 to $144 billion and average account balances under administration improved by almost $200 million from the prior quarter, our largest quarterly increase to date to $1.6 billion. Certainly, a solid showing for the quarter, but candidly, with mixed performance at the segment level. We produced continued strong results by all key metrics within payables and treasury solutions on the strength of 14% and 18% revenue growth, respectively. However, growth moderated to 2% in our Merchant Solutions segment as same-store sales decelerated in multiple areas. But constructively, merchant attrition remained stable, leading us to conclude that macroeconomic factors influencing spending are affecting performance and will likely persist through the remainder of the year. The result is that revenue growth we had projected of 10% to 12.5% for the full year is expected to come in at the lower end of our range at 8% to 10%. The impact is a modest revision to our full…

Thank you, Tim. Before concluding, I want to offer perspective on what it means to grow. In aggregate, Q3 was not among our best-performing quarters purely as a measure of economic growth despite the strong performance in our Payables and Treasury Solutions segments. But make no mistake, our third quarter was one of intense internal growth that has set critical foundations for developing and increasing enterprise value. During the quarter, we activated card acquiring in Canada, added real-time payment capabilities and implemented a unique financing source to fuel our partners' growth. Additionally, we reduced our borrowing cost by 100 basis points, executed 2 accretive acquisitions without impacting net leverage and generated free cash flow to pay down $15 million of debt, all while continuing to refine our operational muscle by integrating a host of ISV and enterprise customers on our commerce platform with addressable annual transaction volume of over $10 billion to capture in the coming months and adding more incremental deposits under administration, nearly $200 million than in any other quarter in our history. While the scoreboard may not reflect it yet, we were busy grinding out wins each day that underscore how we are built with intention for the long-term and built to last. It's why since becoming publicly listed in 2018 through challenging periods, we have produced compound annual adjusted EBITDA growth of 18%. We will continue to curate Priority's commerce offering by connecting payments and treasury solutions on a single platform that centralizes all money movement at scale for our partners, allowing us to expand our portfolio of core business applications 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'd now like to open the call for questions.

[Operator Instructions] And our first question will come from Harold Goetsch of B. Riley Securities.

It's a good idea to reclassify these segments into treasury, the different 3 segments you've renamed I think that reflects what they do, and I appreciate that. I just wanted to ask about -- given you reported Q2 in the August time period, and there's been some same-store sales weakness. When did you start seeing that? I mean another company called Shift4 Payments mentioned difficult same-store sales for restaurants as well. But what did you start seeing? And could you go over some of the segments you saw some weakness in? That's my first question. Tim O’Leary: Hal, thanks for the question and the feedback on the segment names. We started seeing some of that in August, and it certainly accelerated in September as we look across all the different verticals for the Merchant Solutions business. There were a handful that definitely saw a trend line that was against us. It was relatively broad-based, though, but the ones we called out, restaurants, construction, wholesale trade were the ones that were a little bit even more onerous at the tail end of the quarter. There were others that were down slightly, but not as much of an impact, things like education and some other verticals, but we really started seeing in August and then that accelerated into September.

Okay. And you mentioned like some of the residuals. Can you kind of -- what's the impact of the merchant attrition was decent. Monthly adds were still really good. What were some of those other components? If you could clarify what they mean and how long the impact will be from those? It was -- I think you mentioned some residuals and impacts. What were those again? Tim O’Leary: Yes. So I was referencing lower revenue in the quarter from specialized acquiring, which we've talked about the last couple of quarters, given some of the dynamics in that end market and then historical residual purchases and not to rehash a lot of the nuances there, but we had done some larger residual purchases back in 2021. But from a capital allocation strategy, 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 100% margin because you bought back those residuals from the resellers. So that headwind has continued. Combined, those 2 things had about a $2 million impact on the quarter on a year-over-year basis. That's down from what it was in the first 2 quarters of the year where we talked about a more onerous headwind where that was $4.5 million or so. So it's come down, which we expected it to moderate. We'll see another consistent type of headwind in Q4, but definitely less than we saw in the first half of the year.

Hal, just one other point, which I think is important to reference on the residual base 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 no one else who has something like this that will enable us to -- instead of having that financing be 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 lending facilities to our ISV and ISO partners to put gas in their tank to supercharge their marketing, to do development that will help them accelerate adoption on their products. So it's a very, very valuable facility that you will see reflected in that way going forward. And it will help us really not have that drag that Tim just alluded to.

Excellent. Okay. And I have one follow-up on that on -- this has been a real building year and investment year. And I look at that based on maybe where -- maybe even the dollar increase in salaries and employee benefits, we had a couple of acquisitions -- it's is cost of living, but it looks to be like a pretty solid dollar increase year-over-year in salaries and benefits. Will we -- will there be a moderation of that maybe based on the investment you spent this year going into 2022? I know you gave some initial sales commentary and gross profit margin guidance commentary. But give us a thought about some of the expense items that trajectories exiting 2025 into 2026. Tim O’Leary: Yes. So 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, at the very beginning of this year with the lettuce business up in Canada, right? So we had a couple of acquisitions that we haven't anniversaried yet. So that's part of the increase. Benefit costs also is certainly higher, and we're going to see the same impact next year with health care premiums going up. And then there was also a meaningful component of that increase was non-cash related to stock comp and some mark-to-markets on long-term incentive plans. So a lot of it was non-cash but definitely acquisition related in addition to on the SG&A side, you had some of the increased software and public cloud expenses that we expected, and we'll continue to see some of that growth. But I think this is a good run rate to think about going into next year, and we actually -- we were down $1 million from Q2, right? So we've actually continued to be very disciplined about the actual salary and benefits we have in the organization, but some of the acquisitions certainly added to that.

The next question comes from Jacob Stephan of Lake Street Capital Markets.

Just kind of first, asking on the guidance as well. Some of these -- the construction vertical, the restaurants and wholesale trade, maybe can you kind of help us think through what potentially that represents as a whole of Merchant Solutions? Tim O’Leary: Sure. Happy to Jacob. So the restaurant sector for us, we still feel like we're underweight in that vertical compared to the broader market, but it's mid-teens, high teens, 16%, 17% of our volume. Construction is in 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 slowdown we saw from a same-store sales standpoint was broad-based. So those verticals were probably impacted a little bit more, but it was across a lot of the different end markets that we service.

Okay. And I know we talked a little bit about maybe potentially opening up some -- a greater risk profile in the portfolio, but has this kind of shifted that thought process at all? Tim O’Leary: I don't know if we're looking to increase the risk profile. I think we managed 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 network regulations and getting in front of that to create some headroom. But we're not looking to increase the risk across the portfolio. I think we're generally a low-risk portfolio and where we do play in the specialized acquiring segment, we're very disciplined about how we approach that from a risk standpoint.

Maybe one other point on that. Look, and I'll point to the acquisition. 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 really leaning into that segment. So where that kind of reflects the risk side is, say, we're looking at industries I would consider more defensive. In the auto segment, sales are slowing. They're moderating for sure. And what that typically means, and you're seeing this in the stat is people own their cars longer, even if it's a pre-owned environment, it's just the cars are around longer, which means more service. So leaning into that narrative and when sales go down, service goes up. So we really like the defensive nature of that. We're going to lean into that. We have some really good partners in addition to what we acquired with DMS. So those are sort of the type of strategies we're going to lean into because we think they make tremendous sense just from an addressable market and the nature 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. We're examining other strategies and segments like that. Tim alluded to this as well. Our benefit costs are going up. There's a lot of controversy around affordable care and how that's all changing. 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, card acquiring is one of them, but I can't underscore this enough. 2/3 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 benefits segment, getting into things like auto, like that's how you create stable cash flows to really reward our investors for 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 upside optionality to win.

Yes. Understood. And obviously, we see that reflected in the guidance with both profit metrics actually moving up. Let me ask this question. So there's a $15 million kind of delta on the revenue line with -- we're essentially almost halfway through Q4 here. What are really the puts and takes that kind of get you to the high end versus where we might be at $950 million for the full year?

So I'll say -- I'm going to ask Tim to follow up on this. But look, I'm going to just talk about our pipeline and Tim will maybe talk to trend. The upside guidance is activation of the pipeline. If it activates faster than we've kind of modeled, that all falls right to the bottom line. And these customers, they're considerable. These are not -- these are coming from 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 will be one major influence in terms of where upside can come from. Let me let Tim comment on the trend line. And then I kind of have one other thought I want to share, but I want to let Tim weigh in here. Tim O’Leary: The other factor is certainly the volumes in Merchant Solutions, right? We took a pretty forensic analysis looking at quarter-to-date trends and looking at October trends compared to August and September and definitely have seen a little bit of an uptick in October, right? Not dramatic, but certainly improvement from what we saw in 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, it grew 4% in Q3. We think we'll do better than that in Q4, given some of the trends we've seen so far in October, plus to Tom's point, some of these larger customers and ISVs we've onboarded to the platform which goes back to why we changed the segment names. As we interact with the investor community, there was an increasing confusion on what is SMB and what is enterprise because people were associating it with just the size of customer. And as we think about continuing to add some of these large customers that 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 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 sets 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.

If I can add one last point. And look, this is just -- let's be candid about it. We've outperformed certainly our segment peers for a considerable number of quarters. And that's not -- I would say we're not rewarded for it. So having a measured expectation to ensure we just -- we stay on track and on target, we think probably is a more thoughtful approach. So as we start to see this enterprise pipeline convert, I'll call it enterprise customer pipeline convert, I think we'll feel a lot better about just how we model that throughput.

The next question comes from Bryan Bergin of TD Cowen.

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 potentially how much within the residual portfolio may still be a risk as we look to 4Q and beyond? Just trying to get a sense of the scale of these in totality, just to get a sense on further potential volatility in performance just on a quarter-to-quarter basis. Tim O’Leary: Sure. So specialized, it's actually -- it's grown quarter-over-quarter as we've moved through this year, you're just coming off a much larger year last year. This year has obviously been dampened a little bit by some of the network changes. But we actually -- but we saw some improvement in that business from 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, we still have a meaningful amount of residuals there that will run off over time. It's a slow burn, but you're seeing, call it, $0.5 million a quarter of an impact, maybe $1 million a quarter of a year-over-year impact as that runs down.

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 offering. So just anything to call out on the underlying changes there and your outlook on that strategic relationship. Tim O’Leary: You might be referring to -- I'm not sure [ what you're ] referring to. I think we continue to see good trends across our portfolio with POS systems. Tom, you can probably offer a little more color specifically, but we've still been very active in that market.

And Bryan, I apologize, I'm actually -- I'm remote, so I'm on my mobile and you broke up a little bit on your question. Would you mind repeating it?

Yes. Just with all the changes going on with Fiserv and Clover, repricing and things like that, is there any downstream impact to the activity that you may be seeing?

We haven't seen changes in trend on POS, specific to Clover. We're one of their larger resellers, you certainly reflect that. There's -- we actually -- because of our positioning, we've been able to really have a constructive relationship on material costs. So making some bulk purchases has been helpful. So I don't know that, that will necessarily continue with Fiserv based on some of the conversations that we've had and just because there -- the impact of tariffs are actually starting to flow through. With that said, our other segment of POS, MX POS, we've [Technical Difficulty] within in the app. But again, it's starting from a small base. So that's really a '26 directive for us.

The next question comes from Vasu Govil of KBW.

I guess the first one, just on the gross profit guide. I know the guide implies a pretty meaningful step-up here in 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? Tim O’Leary: Sure. I think there's a couple of factors. So some of it is the higher organic growth we think we're going to see in the Merchant Solutions segment based on what we've seen already in just some of the October trends in addition to some of the onboarded larger customer wins. And 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 Boom Commerce in the middle of the quarter. So we had a partial quarter impact in Q3 and then DMS, which we closed on October 1, right? So we'll get a full quarter impact of that in Q4. So there is an acquisition-related impact there as well, which gives us a lot of comfort around what we see for Q4.

That's super helpful. And I guess just thank you for the preliminary color on next year. I know it's still preliminary and there are probably a lot of puts and takes there. But just historically, you benchmarked yourself as a low double-digit grower. Obviously, the macro is a little bit of a challenge here. But anything you can give us on sort of how you're thinking about the building blocks and the puts and takes to get to that high single-digit range? Tim O’Leary: Sure. I think it's continued mid-single-digit organic growth on the Merchant Solutions side, followed by low double-digit growth in Payables and what we think is going to be high teens to 20% type growth in Treasury Solutions. Obviously, some 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. As Tom referenced, we had our largest quarterly increase in deposits under administration this quarter. We grew deposits under administration by $200 million since Q2 and you see that accelerating. So despite some of the lower interest rates, we're outrunning that with continuing to grow the franchise and grow what we're seeing 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 I just wanted to give everybody at least an initial guidance on how we're seeing next year based on current trends and the acquisitions in addition to just some of the new customers we onboarded already that we're seeing some impact from, but not a lot yet.

If I may just remark on that, what will influence that as we guide through the year is enterprise clients, they operate a little bit differently in that you'll start to absorb their portfolio, particularly in the 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 balancing out. And just prudence seems to be the best path. And we have a high degree of confidence in what has been reflected. Yes. And thank you, by the way, for joining us. It's great to have you.

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

All right. Well, I want to thank everyone once again for all of your focus on priority and for really helping us deliver our value story to investors. And for those investors on the call, thank you for your ongoing support. We will get back to work.

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