Good day, and welcome to the Priority Technology Holdings Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that 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. Before I turn the call over to Tom, I would like to say that on today's call, we will only be discussing Priority's financial and operational results and outlook. We will not be commenting or answering questions related to the special committee's ongoing evaluation of the take-private proposal. Please continue to refer to the company's prior press releases for the latest on that topic. 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 fourth quarter and full year 2025 earnings call. I'll begin today's call by highlighting our aggregate fourth quarter and full year 2025 performance, discuss full year financial guidance for 2026 and provide an overview of key strategic updates. I'll then hand the call over to Tim, who will provide segment level performance, key trends and developments across our business segments and Priority overall. As summarized on Slide 3, Priority grew net revenue for the year by 8%, generated adjusted gross profit and adjusted EBITDA growth of 14% and 10%, respectively, and increased adjusted EPS by $0.52 or 102% year-over-year to $1.03 for fiscal 2025. We ended the year with 1.8 million total customer accounts operating on our commerce platform, up from 1.2 million at the end of last year. Annual transaction volume in 2025 increased by $20 billion to $150 billion and average account balances under administration improved by $500 million from the prior year to $1.7 billion. Tim will provide more context on the full year 2026 guidance specifics later in the call, but I can reflect that the value our diverse partners and customers see in our unified commerce platform and elegant product solutions provides confidence that we will sustain the momentum in our Merchant Solutions, Payables and Treasury Solutions segment. We anticipate achieving 6% to 9% top line revenue growth to a range of $1.010 billion to $1.040 billion and generating adjusted EBITDA of $230 million to $245 million in 2026 despite headwinds related to lower interest rates, a challenging macroeconomic and consumer spending environment and the continued investment in early-stage growth opportunities within Priority Tech Ventures. Turning our attention to our aggregate Q4 results on Slide 4. Revenue of $247.1 million increased 9% from…

Thank you, Tim. Before concluding, I wanted to offer our perspective on widely publicized research about the impact of AI on SaaS business models and how the plummeting cost of app development is influencing priority. To put it simply, we are and have been fully bought in and have been positioning for this eventuality for some time. Our expectations of how vertically specialized applications could and would be built and deployed has informed our strategy to: one, maintain a highly disciplined tech expense structure framework with CapEx consistently representing approximately 10% of EBITDA; two, establishing the Priority Tech Ventures platform to drive growth in new verticals with large addressable TAMs and executing through nimble application teams that could self-test the usability of the Priority Commerce engine; and three, prioritizing the optimization of the Priority Commerce engine and its API as a foundational moat for emerging SaaS providers to connect to Priority for all modalities of payments and sophisticated banking and treasury tools without the burdens required to manage compliance, regulatory requirements or risk responsibilities. These capabilities are important distinctions because while AI tools can dramatically affect the proliferation of app development and drive operating cost efficiency, they cannot replace money transmission licenses or regulatory requirements or critical payment operations connections that influence the profitability of SaaS platforms. Last, I want to reflect on the ultimate Bayer story that AI will displace an overwhelming number of white-collar professionals, spike unemployment and accelerate a transition to lower-paying jobs. The deep downside economic risks or potential outliers are why we continue to invest in defensive and early digital cycle segments like real estate, sports entertainment, health care and auto. Perhaps more compelling to consider is that the population of workers potentially considered most at risk from broad AI adoption is arguably the most likely segment to benefit from the services of CFTPay during a period of debt resolution or credit improvement. I would not call these predictions, but rather our purposefullly positioned hedges to preserve long-term stability and consistent performance at Priority. As always, I want to thank all of my colleagues at Priority for continuing 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 consistent reminder that they made the right choice to partner with Priority. Finally, 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 would now like to open the call for questions.

[Operator Instructions] Our first question today comes from Vasu Govil with KBW.

I guess just the first one on the macro environment. I know you've called out the pullback in restaurants, construction and some other verticals. Just curious if you're seeing a stabilization in that trend versus last quarter? And sort of what's baked into your guide with respect to the macro environment? Tim O’Leary: Vasu, thanks for the question. I think we've seen Q4 stabilize from what we saw in Q3. Obviously, Q3 caught us by a little bit of surprise as we move through the quarter, which caused us to update our guidance for the full year. But say Q4 came right in line with what we expected from a volume standpoint and how we expected the macro environment to operate. I think as we think about the '26 guidance, we've assumed a similar macro environment that we're operating in now. We haven't assumed any changes to the positive or the negative. We really looked at some of the current trends we've seen from Q3 and Q4. Obviously, we saw a little bit of a slowdown in our core organic growth in the Merchant Solutions business in the second half of the year, and our guide reflects that in '26 as you think about the organic along with the total growth rates on Merchant Solutions. And then we also have expected interest rate declines, which have some headwinds to the business overall, which we've also called out on some of the growth rates for the payables and Treasury Solutions platforms.

And I wanted to ask about the enterprise business pipeline as well. I know in the past, you've talked about how the pipeline is really strong, but particularly in the ISV space, but it can take some time as customers convert, the time lines can be variable. Just looking for an update on both on the pipeline and what you're seeing in terms of time lines for ramping within the customers?

Yes. I think -- well, first off, the pipeline remains strong. And in the verticals we've reflected in the past, real estate, we're seeing very good adoption, but converting renters over, for instance, or property level conversion just takes time and go step by step. Sports and entertainment, kind of very similar circumstance. And then ISV adoption, you go through the process of integration and release and then work your way through the population of customers. So those sales cycles and conversion cycles are longer or -- because it's less predictable, we've tried to be conservative in the way we've reflected that in guidance. And so nothing has changed in terms of the dynamic of adoption. And if anything, it's reinforced our belief in investing in the commerce platform. And I'll say all of those dynamics are kind of what informs our outlook for 2026 and how we best manage it.

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

Maybe just to start out on average CFTPay monthly enrollments. I know I saw a sequential decrease in Q3 to Q4. Nothing kind of out of the ordinary in terms of seasonality. But I'm wondering if you can kind of correlate that with the significant ramp in partners? And also, is there a potential to accelerate that average monthly enrollment number? Tim O’Leary: Thanks, Jacob. Yes, as you noted, the slowdown in new enrollments in Q4 compared to Q3 is seasonal. That's a predictable pattern we see every year, and you should see an uptick again in Q1 as people come out of the holiday season and look to resolve some of their debts and their consumer wellness. So we'll continue to see those types of trends. As you think about the broader environment for that platform, Tom noted potentially some upside there as you see any uptick in unemployment as AI continues to have an impact on the white collar employee base. But overall, we're just projecting very steady type growth, right? We're not projecting any large uptick in enrollments until we see a change in the macro environment. And most of the new integrated partners that you're referencing that was disclosed in the earnings presentation, that's really coming on the non-CFTPay side of the business. So as you think about how we continue to build the treasury solutions platform and the success we're having on the embedded finance side and working across the Connected Commerce engine. Most of the new increase in partners is coming there, which is why you're seeing very high growth rates on the Passport side and even on the Priority Tech Ventures side, where those are triple-digit type growth rates year-over-year. So that's where we continue to add a lot of new partners. There's not a lot of new partners to add on the CFTPay side. We have leading market share there and continue to add small partners, but most of the growth is coming from the non-CFTPay side of treasury solutions as you think about the new integrated partners.

Okay. Got it. That's helpful. And then maybe supplier-funded issuing dollars was down year-over-year on an absolute dollar basis, but you guys said that revenue was up 20% there. Wondering if you can kind of put some context behind those 2 data points. Tim O’Leary: Sure. Yes. Two components there moving against each other. So the dollar volume, as you noted, was down largely due to one of our bank channel partners. One of the avenues we go to market there is through bank partners who use our automated payables platform on a white label basis. One of those bank channel partners was acquired. So that contract was put on hold for a while. We've since rewon that contract with the larger bank that acquired them. So we're optimistic about that business overall still, but that did put a slowdown in some of the volume last year while they worked through that integration on the acquisition. The uptick overall on the supplier funded side was also from some of the balances we manage. We have an ACH.com business that sits within our payables platform and balances there continue to grow as we continue to expand the ACH business and benefited from those larger float balances. So that was really the largest driver of the revenue growth on the supplier funded side.

The next question comes from Brian Kinstlinger with Alliance Global Partners.

can you highlight the key strategic priorities and our investments for 2026, especially as it relates to the growth ventures piece? And then maybe separately expand on how you're attacking the NIL, sports and entertainment and other key markets. and touch on the competitive landscape in these markets right now?

Yes, sure. From a standpoint of where we'll invest, I think those investments have been made to establish platforms. And just taking, I'll just call it maybe a macro thesis sort of step back, each of them and where we will deploy are segments where collecting, storing, sending money is an important part of the value chain, particularly, I would say, benefiting from storing money as it gets repositioned in the commerce environments that they serve. So those are real estate, health care, the -- as you mentioned, the NIL and college sports arena. And I would say also, we see some opportunities in international remittance that we'll continue to just go deep into those verticals. Most of those are sitting on legacy systems and legacy software providers. So I'll kind of tie in a little bit of the AI theme that everyone has spoken about. We think we've been ahead of the game in sort of building nimble platforms that are more comprehensive, provide more solutions into operators in that space and can do so at a better price point because they're just -- they're built on more modern technology stacks and are not burdened by a lot of redundant expense. So we'll continue to -- and our guidance reflects that we'll continue to invest in those high-growth areas. But we're already seeing -- we're seeing the benefits of those where conversion of larger players in real estate, specifically to your question on NIL, that environment is -- we were on with a very large university. Their comment was this is the best NIL platform, most comprehensive NIL platform I've seen. So look, we know we have the right tool set. Now it's about driving adoption and distribution. So a lot of our construction work is done. It's now about sales. Those sales cycles are longer, just given the nature of who the constituent is. You're going through either large institutions that are private institutions or public institutions. So just by the very nature of a state university, right, it takes time. Maybe it's going through an RFP, right? There are processes to get to the end game that we're really well positioned to win, but they take time to win. So we've -- we feel really confident about where we're set. And now it's just about being relentlessly focused on execution as we have in the past.

Great. And then my second question, my follow-up is you obviously gave EBITDA guidance...

Can I make one other comment before you move to your question? A good indicator. So I would just say those -- all of those deposits, right, where you see that growth within Passport that Tim commented on, a lot of that, he made the observation that's coming through the Tech Ventures channel, right? So think about that NIL environment, you mentioned, money comes in to a student athlete, it sits there. They're going to then use that to manage their life, whether that's using the debit card to order food on Uber Eats or whatever is next as a college student. So you'll see those balances -- you'll see growth reflected in the earnings on those balances.

Great. My follow-up on the EBITDA guidance, what does that equate to operating cash flow? And then how should we think about the cash or excess cash being used as it relates to paying down debt? Tim O’Leary: Yes. So we -- if you think about operating cash flow, we did $36 million of operating cash flow in Q4. As I look at it from an EBITDA walk down to free cash flow, it was $28 million, right, taking out some of the working capital changes, which I know we've spoken about are in our mind, somewhat timing issues since we're not a working capital-intensive business. So if I take that $28 million of free cash flow in Q4, there's no reason that should come down going into '26. So -- if you annualize that, you're north of $110 million of free cash flow. I think that number will grow from where we finished out on Q4, right? So we're a very cash flow positive business. We have $77 million of cash on the balance sheet at quarter end from last year. So we've got plenty of liquidity, and we'll continue to look at opportunities to pay down the debt. We've kept the balance sheet liquid right now, but we obviously generate a lot of cash flow, so we can continue to address the debt this year. And I made the comment in my prepared remarks, but just to emphasize it, if you look at our leverage on a pro forma basis, so if you include a full year effect of the acquisitions, we actually finished under 4x leverage, right? So we're 3.9x if you give us a full year credit for the acquired EBITDA. Obviously, that debt is already on the balance sheet. So we feel like we're in a very good position to continue to delever the balance sheet between free cash flow and just EBITDA growth.

The next question comes from Bryan Bergin with TD Cowen.

This is David Duke on for Bryan Bergin at TD Cowen. Just on overall strategy. As you look at the year ahead, are there any meaningful shifts in priorities whether that's organic investment, M&A or investing in those high-margin segments.

No strategic shifts. I mean what we've reflected in the past and is what we expect to continue. We'll look at some M&A opportunistically. I think as Tim likes to note, we have -- we've got a broad funnel, but very narrow filter for what comes through and we think is additive and accretive. So we're very discerning on M&A. And from a from a SaaS standpoint, I think, particularly now, we've historically been very judicious, and we have conviction around where we invest and why. And that is -- I think performance in that regard speaks for itself. So we're going to -- we're acutely focused on maintaining that discipline, particularly in an environment where AI is changing the landscape so quickly. So I'd say, if anything, we're going to become more discerning and more -- we'll kind of be more value seeking to be candid. Tim O’Leary: The oNly thing I'd add to that, though, is it's not a change in strategy, but we're going to continue to emphasize growth going through direct sales on large enterprise-type customers. We'll continue to add top sales talent to attack that market. We continue to support wholeheartedly the reseller community across merchant solutions. But as we continue to go upmarket on some of these enterprise sales, we'll continue to add top sales talent there, which as you think about the EBITDA guidance for the year, that's part of the reason you see the guide we have out is we know we're going to continue to invest in the overall platform and team to continue to have the right type of pipeline from a future growth standpoint.

Got it. Yes.

It's -- if I can just point something out for you. And Tim, it's really just a great observation. If you look at some of the announcements you've heard from peers, they're jettising talent. So we're -- we've been very intentional about kind of the way we've built the business, looking for these opportunities to emerge. So this is a year to capitalize on them for sure. And that's going to require...

So my follow-up to that is just on the 2026 guide, can you help us bridge the gap between gross profit and EBITDA growth? I know that you guys just touched on it there. But specifically, how much of that divergence is from the interest rate headwind and the investments? Tim O’Leary: I think it's mainly from the investments in the business, both personnel from a sales talent standpoint, continue to add to the development team. We've also got a little bit lower capitalization rates, right? As Tom mentioned, right, the construction is largely done now is execution. So as you go from construction mode to execution mode, you have less ability to capitalize certain development costs there. So that's part of the impact as you go from gross profit to EBITDA. It's less about the interest rate headwind because that's going to be a headwind in gross profit as well. Obviously, it flows straight through, so it does have some impact there. But most of the headwind you see on the interest rates is flowing through at the gross profit level also. It's mainly about investing in the business from a personnel and a technology standpoint.

The next question comes from [ Dylan Hines ] with B. Riley Securities.

I'm on for Hal Goetsch. I was wondering about payables, so Payable EBITDA up 61% in 4Q on 13% revenue growth, which is very impressive operating leverage. I was wondering how sustainable is that trajectory? Like is there a natural margin ceiling for payables and the trajectory can hold? Would it be from continued cost takeout or revenue scale? Tim O’Leary: We'll continue to be very efficient in that business. There's not a lot of incremental personnel added to that from an operational side. It's it's really sales talent to continue to go after additional distribution channels. You also have the benefit in '25 of the increase in balances on the ACH business, which I mentioned earlier, that flows through at a very high margin. So I think you'll see EBITDA growth more closely correlate with revenue growth going forward. I don't think there's a big margin shift to be had in the payable segment right now. As we add some of the larger enterprise customers coming on for payables, whether it's using buyer funded or supplier funded. Some of those are coming on at larger volumes but a little bit lower margins, right? So I think you'll have an offset there between the 2. So I think operating efficiencies will offset some of the margin pressure you maybe see from larger customers, but I think you'll see that growth rate more closely correlate with revenue growth.

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

Thank you very much. We'd like to just express our appreciation to all of our investors and analysts who continue to support Priority. I hope everyone has a great remainder of the week and the markets treat you well. Thank you, and have a great day.

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