Priority Technology Holdings, Inc. Aktie

[Audio Gap] I'll turn the conference over to Meghna Mehra, Managing Director of ICR. Thank you, Meghna. You may now begin.

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 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 priorities financial and operational results and outlook. We will not be commenting on 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 this morning. I'll cover our aggregate first quarter performance and outlook before handing the call over to Tim, who'll provide segment-level performance, key trends and developments across our business segments and priority overall. This morning, we reported strong growth in both revenue and profits for the first quarter. As summarized on Slide 3, priority had a solid Q1 by every key financial metric, growing net revenue by 11% and generating adjusted gross profit and adjusted EBITDA growth of 13% each and increasing adjusted EPS by 27% year-over-year to $0.28.

We ended the first quarter with 1.8 million total customer accounts operating on our commerce platform, which is up 50,000 from the end of 2025. Annual transaction volume increased by $3 billion from year-end to $153 billion and average account balances under administration improved by over $100 million from year-end to $1.8 billion. [Audio Gap] commerce platform and elegant product solutions provides continued confidence that we will sustain the momentum in our merchant solutions, payables and Treasury Solutions segments.

Turning our attention to aggregate Q1 results on Slide 4. Revenue of $249.6 million increased 11% from the prior year. This led to a 13% increase in adjusted gross profit to $98.8 million and a 13% improvement in adjusted EBITDA to $58.1 million. Adjusted gross profit margin of 39.6% increased 70 basis points from the prior year's first quarter, reflecting the ongoing performance of our diverse high-margin payables and Treasury Solutions segments. Combined with the accretive impact of acquisitions completed in the second half of 2025. And for those of you who are new to Priority, Slides 5 and 6 highlight our vision for connected commerce.

The Priority commerce platform is purpose-built to streamline collecting storing, lending and sending money. It delivers a flexible financial tool set for merchant acquiring, payables and treasury solutions designed to accelerate cash flow and operate working capital for businesses. I would encourage you to play the short 1- to 2-minute videos embedded in the product links on the slide to gain a deeper appreciation of why customers are consistently partnering with priority to reach their commerce goals and why we're emerging as a go-to solution provider for embedded commerce and finance solutions.

Slide 6 highlights the typical partner experience with our commerce API's orchestration capabilities for payments and treasury solutions. This enables partners to use a single API tailored to their specific objectives. Customers connecting via our API can access all routes for digital payment acceptance, create traditional and virtual bank accounts, issue physical and virtual debit cards enabled lockbox for checks, configure single vendor and advanced bulk vendor payments and many other commerce options that create new revenue opportunities and operating efficiency.

We continue to standardize payment operations and key operational workflows across diverse industry segments, where money movement and treasury tools are critical to the value chain to broaden and diversify our revenue sources while maintaining our cost discipline. This vision explains why priority has consistently performed across varying economic cycles. Our customers and current market conditions, particularly the accelerating narrative of AI's impact on SaaS providers, reinforce our belief that systems connecting payments and treasury solutions to accept and distribute funds in multiparty environments will be critical as businesses put greater demand on software and payment solution providers to deliver a full suite of core business solutions on a single relationship.

At this point, I'd like to hand the call over to Tim, who will provide further insights into the health of our business segments along with current trends in each that factored into our first quarter results and our confidence for sustained performance in 2026.

Thank you, Tom, and good morning, everyone. We had solid overall financial performance in the first quarter on a consolidated basis and across each of our operating segments. Q1 reported revenue growth of 11.1% included organic growth of 9.1%, fueled by strong 35.6% growth in payables and 17.5% growth in Treasury solutions, complemented by 6.7% reported growth in Merchant Solutions which included 3.9% organic growth.

As shown on Slide 8, adjusted gross profit from our payables and Treasury Solutions segments represented 63% of the total for the quarter and 62% on a trailing 12-month basis. As an organic comparison to prior data points, if you exclude the impact of acquisitions, those percentages would have been 66% for the quarter and 65% for the trailing 12-month period. Strong growth in payables and Treasury Solutions, combined with the impact of acquisition-related activity, also allowed for overall margin expansion as adjusted gross profit margins improved by over 70 basis points from Q1 of '25, and gross profit from recurring revenue increased 90 basis points to over 63% in the first quarter.

I'll move now to the segment level results and start with Merchant Solutions on Slide 9. Merchant Solutions generated Q1 revenue of $161.8 million which is $10.1 million or 6.7% higher than last year's first quarter. Revenue growth was a mix of 3.9% organic growth, complemented by the boom and DMS acquisitions completed in the second half of 2025. Total card volume in merchant solutions was $18.1 billion for the quarter, which is up 2.5% from the prior year. From a merchant standpoint, we averaged 175,000 accounts during the quarter, which is down from $178,000 last year, while new monthly boards averaged 2,800 during the quarter.

Adjusted gross profit for the first quarter was $36.7 million, which is up $3.6 million or 10.8% from Q1 of last year. Gross margins of 22.7% are over 80 basis points higher than the comparable quarter last year due to the [ Boom ] commerce and DMS acquisitions, partially offset by the impact of certain higher-than-normal credit losses during the quarter. Lastly, adjusted EBITDA was $27.7 million which is up $2 million or 7.9% compared to last year.

Moving to the payable segment. Revenue of $32.4 million was 35.6% higher than last year's Q1. And buyer funded revenues grew 37.1% year-over-year to $25.4 million, while supplier-funded revenues grew 30.6% year-over-year to $7 million. Adjusted gross profit was $9.2 million in the quarter, which is a 26.4% increase over the prior year. For the quarter, gross margins were 28.4%, which is down 210 basis points compared to last year's first quarter. This decline is largely due to continued shift in revenue mix with buyer funded revenues reported of lower gross margins giving GAAP requirements to recognize revenue on a gross versus net basis.

The payables segment contributed $5.5 million of adjusted EBITDA during the quarter which is a $2 million or 55.1% year-over-year increase. The acceleration of adjusted EBITDA growth compared to revenue and adjusted gross profit was driven by continued strong operating leverage in the segment including a 3% year-over-year reduction in operating expenses before D&A. Moving to the Treasury Solutions segment. Q1 revenue of $58.8 million was an increase of $8.8 million or 17.5% over the prior year's first quarter.

Revenue growth was driven by continued strong enrollment trends and an increase in the number of build clients enrolled in CFT Pay to over 1.1 million, combined with a 28% year-over-year increase in the number of integrated partners and organic same-store sales growth from existing Passport program managers. Higher account balances in both CFT Pay and Passport were able to more than offset the impact of lower interest rates in the quarter compared to Q1 of last year.

As a result of those factors, adjusted gross profit for the segment increased by 12.8% to $52.9 million, while adjusted gross profit margins were 89.8% for the quarter. Gross margins were approximately 370 basis points lower than the prior year's first quarter due to mix shift resulting from over 140% revenue growth in Passport and 170% revenue growth in Priority tech ventures, both of which operate at lower gross margins in the CFT Pay platform where margins have remained very stable. Adjusted EBITDA for the quarter was $46.7 million, an increase of $4.2 million or 10% year-over-year.

Overall profitability in Treasury Solutions was driven by low double-digit revenue growth in CFT Pay combined with strong and profitable growth in Passport, which offset investments we continue to make in newer software and vertical assets within Priority Tech Ventures. Moving to consolidated operating expenses. Salaries and benefits of $28.5 million increased by $2.7 million or 10.7% compared to Q1 of last year, and was down slightly on a sequential basis compared to Q4. The year-over-year increase was primarily driven by an increase in stock compensation expense, combined with acquisition-related headcount additions of $19.2 million increased by $4.1 million or 27.4% compared to Q1 of last year because of higher cloud and software expenses, combined with an increase in nonrecurring legal and transaction-related expenses.

With respect to our capital structure on Page 13, debt at the end of the quarter was $1.02 billion. We ended the quarter with over $192 million of available liquidity, including all $100 million of borrowing capacity available under our revolving credit facility and $92.2 million of cash on the balance sheet. With respect to free cash flow, we generated $28 million of free cash flow in the quarter based on adjusted EBITDA of $58.1 million, less $5.5 million of CapEx, $21 million of interest expense and $3.6 million of income taxes. For the LTM period ended March 31, adjusted EBITDA of $232 million, combined with net debt of $927.8 million resulted in net leverage of 4x at quarter end, which is down from 4.2x at the end of Q4.

For further comparison, if you were to include the run rate EBITDA impact of acquisitions, pro forma net leverage would have been 3.8x at quarter end. Based on strong momentum across our business segments, combined with high visibility into continued performance for the remainder of the year, we are maintaining our full year financial outlook with a revenue forecast to range between $1.01 billion to $1.04 billion and adjusted EBITDA forecast to range between $230 million to $245 million.

With that, I'll now turn the call back over to Tom for his closing comments.

Thank you, Tim. In conclusion, 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.

[Operator Instructions] And our first question is from Vasu Govil with KBW.

I want to maybe start with the [ Babel ] segment. It was really strong growth there, nice acceleration from last quarter, even -- can you maybe just drill down on what drove the trends there? And if any onetimers that we should be mindful of as we think about modeling into the rest of the year?

Sure. We've had view when we acquired the business that this was really well situated to move upmarket towards really market more as a working capital solution for larger organizations. And that's just starting at the numbers you're seeing is that manifesting. So larger customers, larger volumes utilizing it for both domestic and cross-border opportunities as a very viable working capital solution that is better priced than revolver. [Audio Gap] there'll be more to come.

And if I could just ask a quick follow-up. I know some of your peers have been calling out some margin pressure. Do you do higher memory chip costs for hardware. Just wondering if that's an issue if that's a concern for you? And if so, is that baked into the outlook?

I wouldn't -- first of all, yes, I mean that's always a focus, I'll just say, but not due to hardware. I'll just say payments generally, of course, as it continues to commoditize in certain respects, it's why the kind of the breadth of our platform to add payables and other treasury-oriented tools is becoming the differentiator on platform. So it's definitely not hardware related, but it's a condition that we feel really comfortable about mitigating and -- but the devil be in the details and the work that gets done.

Tim, anything you feel you want to add just from a statistical standpoint, what you're saying

Yes. The only thing I'd say is some of the POS equipment, we did see price increases and some of the tariffs that impacted that segment. That's a relatively small revenue stream for us. We got ahead of some of that with some equipment purchases before the tariffs kicked in with the last price increase. But overall, it's really not a big impact on the P&L. Most of the margin compression we've seen has been just from a continued mix shift within the business.

Our next questions are from the line of Jacob Stephan with Lake Street.

Maybe looking at the EBITDA number this quarter, it typically trended above where historically, Q1 is as a percentage for the balance of the year. Just wondering if you could kind of touch on how you see the quarterly cadence kind of breakdown over the remainder of the year.

Sure. yes. I think our pattern is going to be consistent. I think we're obviously continuing to see growth in the business on the top line, seeing the benefit of some of the acquisitions from last year along with just strong organic performance. So we'll expect continued progression through the year. Obviously, we've maintained our guidance. And if you take the midpoint of that guidance and do your own extrapolation, you would expect to see some growth in EBITDA as you move through the year to get to those numbers.

Got it. And maybe just on the recurring piece of the business, payables plus treasury. I think at this point, it was 65% excluding acquisitions. Do you feel like there's a natural kind of ceiling as to how high the consolidated number could be? Or do you see a path to even further kind of expanding on that.

I think you'll continue to see that number expand. Obviously, the growth we saw this quarter in payables helped add to that. that figure, with 35.6% growth in payables, you'll continue to see that percentage coming from payables and treasury solutions grow over time. Obviously, Merchant Solutions continues to grow as well, and we had nice organic and overall growth in that segment. But just that higher growth coming from payables and treasury is going to continue to have that mix shift towards those higher value segments.

The thing I would just point to, Jacob, is if you look at the continued growth in our deposit base, right, that's very intentional that we are focused on segments where I said we're a collect store and send platform. That storage piece is a differentiator. So the more and more we are attaching to segments where storing money is an important part of the value chain, and that money remains in the network and creates earnings streams for ourselves and all our partners -- that will be a substantial catalyst to the continued recurring contribution growth of those 2 segments.

[Operator Instructions] The next question is from the line of Bryan Bergin with TD Cowen.

So I'll go on the merchant side and see your macro perspective here. So just give us a perspective on what you're seeing across the various industry sectors any signs of change or inflection in any of those SMB markets that you flagged in the last quarter or 2 that were slower and you think about in that business, too, just the total card volume growth, what's the reasonable run rate expectation on card volume growth relative to the trajectories discussed by the networks?

Sure. Thanks, Brian. Yes, I think some of the trends have been consistent from what we had the last couple of quarters, right? We continue to see a little bit of softness in restaurants not as much as we had over the last 2 quarters on a year-over-year basis, if you think about the change year-over-year, but certainly down a little bit from last year and then down a little bit from Q4 as well, just given some of the seasonality you get with restaurants in Construction was also still a little bit soft and the legal services was down as well.

Where we saw strength was real estate as we continue to expand some of our property management solutions and real estate tech continue to see growth there, which I would argue is more us taking share than it is the market necessarily continue to grow in real estate. So I think that's a positive for us. And then we also saw very strong growth and nice improvement in retail trade, specifically with areas like auto and gas, with gas prices being up as well as into food stores and grocery with inflation having a benefit there as well.

Okay. And as far as that card volume growth level, the [ $2.5 million ] relative to kind of what the Masco talked about, what's a reasonable as we kind of build models and think about run rate expectations? Where do you feel like that can go?

I think that's a normalized level of organic growth from a card volume standpoint, I think we've seen in the last several quarters probably a little bit of a delta between what even some of the banks are reporting from issuing volume and what the networks are reporting from a volume growth compared to where some of the other acquirers are showing volume growth. So I think our numbers are relatively normalized. Organically, we're a little north of 2%, right? The delta there is the acquisitions late last year. But I think we're modeling something in that same kind of low single-digit organic volume growth range as we got to our guidance for the year.

And then on payables. So really strong growth there. Curious if the underlying activity you're seeing is signaling anything to you in the customer base or if it's really just that movement up market that's really driving that strength. And as you start the year strong from the guide, I think you were thinking that segment would be like an 8% to 10% grower. Any caveats there as you move to the balance of the year as?

I think the growth there is -- it's twofold. It's continued solid growth in our historical core in that business combined with Tom's point earlier, the upside we're starting to see from some of these large enterprise-sized customers that we've onboarded here more recently. It took some time to get those relationships integrated and up and running, but now that we're seeing the benefit of that, the growth rate here has definitely improved. I don't think there's nothing really in those numbers that is onetime in nature. We did have a solid quarter relative to some of our supplier enablement business, but that's going to continue to have a solid trend line as well.

Thank you. At this time, I'll turn the floor back to Tom for closing remarks.

Operator, I think that's it-- that was the last question.

Yes, please go ahead, Tom, with your closing comments.

We can end the call there, operator.

Thank you. Thank you, everyone, for joining us today. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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, Meghana, 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 of 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 segments.

We anticipate achieving 6% to 9% top line revenue growth to a range of [ $1.01 billion to $1.04 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 a 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 the prior year. This led to a 19% increase in adjusted gross profit to $100.2 million and a 16% improvement in adjusted EBITDA to $60.1 million. Adjusted gross profit margin of 40.6% increased 360 basis points from the prior year's fourth quarter, reflecting the ongoing performance of our diverse high-margin payables and Treasury Solutions segments, combined with the accretive impact of acquisitions completed in the second half of 2025.

Now for those of you who are new to Priority, Slides 6 and 7 highlight our vision for Connected Commerce. The Priority Commerce platform is purpose-built to streamline collecting, storing, lending and sending money. It delivers a flexible financial tool set for merchant acquiring, payables and treasury solutions designed to accelerate cash flow and optimize working capital for businesses. I would encourage you to play the short 1- to 2-minute videos embedded in the product links to gain a deeper understanding and appreciation for why customers are consistently partnering with Priority to reach their commerce goals and why we are emerging as a go-to solution provider for embedded commerce and finance solutions.

Slide 7 highlights a typical partner experience with our commerce APIs orchestration capabilities for payments and treasury solutions. This enables partners to use a single API tailored to their specific objectives. Customers connecting via our API can access all routes for digital payment acceptance, create traditional and virtual bank accounts, issue physical and virtual debit cards, enable lockbox for checks, configure, single vendor and advanced bulk vendor payments and many other commerce options at their own pace.

Given our expanding customer base and segments, our commerce platform creates 2 important benefits for Priority's long-term success. First, it enables our partners to develop their offering, to seize new opportunities and respond to emerging trends as they add features and embedded solutions.

Both parties maintain clear visibility into quantifiable revenue growth opportunities, building customer confidence and driving mutual success. Second, by standardizing operational workflows across diverse industry segments where money movement and treasury tools are critical to the value chain. we can identify and refine key operational metrics in compliance, payment operations, risk and application support. This enables us to scale efficiently, maintain cost discipline and ultimately, improve profitability. This vision explains why we've been able to evolve priority into a consistently high-performing payments and banking financial technology company with strong recurring revenue prospects.

Our customers incur market conditions, particularly the accelerating narrative of AI's impact on SaaS providers, reinforce our belief that systems connecting payments and treasury solutions to accept and distribute funds in multiparty environments will be critical as businesses put greater demands on software and payment solution providers, to deliver a full suite of core business services in a single relationship. At this point, I'd like to hand it over to Tim, who will provide further insights into the health of our business segments, along with current trends in each that factored into our fourth quarter results and our confidence for sustained performance in 2026.

Thank you, Tom, and good morning, everyone. As Tom mentioned, we had solid overall financial performance in the fourth quarter and for the full year. For the full year, consolidated revenue growth of 8.3% included 7.7% of organic growth, excluding the impact of acquisitions. For the fourth quarter, reported revenue growth of 8.8% included organic growth of 6.8%, fueled by strong 13% growth in Payables and 18% growth in Treasury Solutions complemented by 6% reported growth in Merchant Solutions, which included 3% organic growth.

As shown on Slide 9, adjusted gross profit from our Payables and Treasury Solutions segments represented 62% of the total for the year, while for the fourth quarter, they combined to represent 60%. For easier organic comparison to prior data points, if you exclude the impact of acquisitions, those respective percentages would have been 63% for the full year and 65% for the quarter.

The 3 percentage point year-over-year organic increase in Q4 is indicative of our continued investment in higher growth, higher margin operating segments. Strong growth in Payables and Treasury Solutions combined with the impact of acquisition-related activity, also allowed for overall margin expansion as adjusted gross profit margins improved by nearly 360 basis points from Q4 2024 and over 130 basis points sequentially from Q3.

If you normalize for the nonrecurring inventory write-off in Q4 of 2024, which negatively impacted gross margins in that period, the year-over-year gross margin expansion is still a very healthy 210 basis points. I'll move now to the segment level results and start with Merchant Solutions on Slide 10. Merchant Solutions generated Q4 revenue of $165.3 million which is $9.6 million or 6.2% higher than last year's fourth quarter.

Revenue growth was a mix of 3% organic growth in the core portfolio combined with just over 3% revenue growth in the quarter contributed by the Boom Commerce and DMS acquisitions. Slower growth in the core portfolio compared to the first half of the year was a trend we discussed in our Q3 earnings call and was largely attributable to a few key industry verticals, including restaurants, construction and certain retail trade markets, including home furnishings and building materials.

Total card volume was $18.5 billion for the quarter, which is up 2.3% from the prior year. From a merchant standpoint, we averaged 179,000 accounts during the quarter which is up from $177,000 last year, while new monthly [ boards ] averaged 3,000 during the quarter. Adjusted gross profit for the fourth quarter was $40.1 million, which is up $8.1 million or 25.5% from Q4 of last year.

Gross margins of 24.3% or 370 basis points higher than the comparable quarter last year due to the Boom Commerce and DMS acquisitions. If you exclude the impact of acquisitions, Organic gross profit was flat and gross margins were 60 basis points lower than the prior year's fourth quarter.

Lastly, adjusted EBITDA was $30.6 million, which is up $4 million or 14.9% from last year as inorganic EBITDA more than offset the impact of lower EBITDA from specialized acquiring in the core portfolio.

Moving to the payables segment. Revenue of $26.8 million was 12.7% higher than Q4 of last year. buyer Funded revenues grew 10.9% year-over-year to $20.9 million while supplier-funded revenues grew 20% year-over-year to $5.8 million. Adjusted gross profit was $7.4 million in the quarter, which is a 15.9% increase over the prior year. For the quarter, gross margins were 27.6%, which is over 70 basis points favorable to last year's comparable quarter.

The payables segment contributed $3.9 million of adjusted EBITDA during the quarter, which was a $1.5 million or 60.8% increase year-over-year. The acceleration of adjusted EBITDA growth compared to revenue and adjusted gross profit was driven by continued strong operating leverage in the segment including an almost 9% year-over-year reduction in operating expenses before D&A.

Moving to the Treasury Solutions segment. Q4 revenue of $57.3 million was an increase of $8.7 million or 17.8% over the prior year's fourth quarter. Revenue growth was driven by continued strong enrollment trends and an increase in the number of Billed Clients enrolled in CFTPay to over 1.1 million combined with a 30% year-over-year increase in the number of integrated partners and organic same-store sales growth from existing Passport program managers.

Higher account balances in CFTPay and Passport were able to more than offset the impact of lower interest rates in the quarter compared to Q4 of last year. As a result of those factors, adjusted gross profit for the segment increased by 15.7% to $52.7 million, while adjusted gross profit margins were 91.9% for the quarter. Gross margins were approximately 170 basis points lower than the prior year's fourth quarter due to mix shift resulting from strong 110% revenue growth in Passport and over 200% revenue growth in Priority Tech Ventures both of which operate at lower gross margins than the CFTPay platform.

Adjusted EBITDA for the quarter was $47.6 million, an increase of $5.5 million or 13.2% year-over-year. Overall profitability in Treasury Solutions was driven by low teens revenue growth in CFTPay combined with strong profitable growth in Passport, which offset investments we continue to make in newer vertical software assets within Priority Tech Ventures. While many of these investments are still scaling and not yet profitable, we view them as highly compelling opportunities to enhance Priority's already comprehensive product suite and expand further into both new and existing markets, including construction, payroll and benefits, asset management and sports and entertainment, including the [ NIL ] marketplace.

Moving to consolidated operating expenses. Salaries and benefits of $28.8 million increased by $5.6 million or 24.2% compared to Q4 of last year. The year-over-year increase was primarily driven by a $2.4 million increase in stock compensation expense combined with a $2.1 million increase related to acquisition activity. SG&A of $17.7 million increased by $5 million or 38.8% compared to Q4 of last year as a result of increased accounting and S-OX-related expenses, combined with higher cloud and software expenses. With respect to our capital structure on Page 14. Debt at the end of the quarter was [ $1.02 billion ] and we ended the quarter with $177 million of available liquidity, including all $100 million of borrowing capacity available under our revolving credit facility and $77 million of unrestricted cash on the balance sheet.

With respect to free cash flow, we generated $28 million of free cash flow in the quarter based on adjusted EBITDA of approximately $60 million, minus $6 million of CapEx, $22 million of interest expense and just over $4 million of income taxes. On a run rate basis, that same metric totals approximately $112 million, which equates to almost $1.34 of free cash flow per diluted share.

For the LTM period ended December 31, and adjusted EBITDA of $225.2 million combined with net debt of $945.4 million resulted in net leverage of 4.2x at quarter end, which is down from 4.4x at the end of with increased EBITDA and free cash flow contributing to lower net debt. For further comparison, if you were to include the run rate EBITDA impact of acquisitions, pro forma net leverage would have been 3.9x at year-end.

Page 15 highlights our financial guidance for the full year. As Tom highlighted earlier, we are forecasting 6% to 9% top line growth, inclusive of 4% to 7% organic growth. for the full year to a revenue range of $1.01 billion to $1.04 billion. Adjusted gross profit is expected to range from $405 million to $425 million, with gross margins expanding by 75 to 100 basis points from full year 2025 levels.

Lastly, adjusted EBITDA is forecast to range from $230 million to $245 million. To provide some color on the guidance by segment, we expect 6% to 8% revenue growth in Merchant Solutions, inclusive of approximately 3% to 4% organic growth. As we continue to add new resellers and win new large enterprise customers while also inorganically benefiting from the impact of acquisitions made in 2025.

Payables organic top line growth in 2026 is expected to be in the 8% to 10% range, which is lower on a comparative basis to 2025's reported growth, given certain market headwinds, including the impact of lower interest rates and certain card network changes. Lastly, Treasury Solutions is expected to continue its momentum, although we have moderated our growth expectations in 2026 to low double-digit percentages to account for the impact of lower interest rates, combined with strong growth already experienced in the past 3 years, contributing to the simple math of a larger denominator.

If you take those segment level growth rates and then factor in an estimated $10 million of intercompany eliminations at the consolidated level that brings you to the 6% to 9% guidance range for revenue growth for the full year. Lastly and separate from guidance, I'm pleased to announce that as of December 31, 2025, the company successfully remediated [indiscernible] material weakness in its internal controls over financial reporting that was identified in December 31, 2024. Further, our internal assessments and external audits have confirmed that the company maintained effective internal controls [indiscernible] financial reporting as of the end of the 2025 fiscal year. With that, I'll now turn the call back over to Tom for his closing comments.

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 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 [ bear ] story that AI will displace an overwhelming number of white-collar professionals, spike unemployment and accelerate a transition to lower-paying jobs. 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 purposely 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?

Thanks for the question. I think we've seen Q4 stabilized from what we saw in Q3. Obviously, Q3 caught us by a little bit of surprise as we moved 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 environments 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 be 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 a property level conversion just takes time and go step by step. [indiscernible] sports and entertainment, kind of very similar circumstance. And then ISV adoption, you go through the process of integration and release and and then work your way through the population of customers. So those sales cycles and conversion cycles are longer are 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 Stephen with Lake Street Capital Markets.

Maybe just to start out, -- maybe just to start out on average CFTPay monthly enrollments. I know I saw a sequential down increase 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?

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-CFT-Pay side of the business. So as you think about how we continue to build a 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, 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 the non-CFTPay side mof 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.

Sure. Yes, 2 components that are 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 in the supplier funded side was also from some of the balances we manage, right? 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 a, I'll just call it, maybe a macro thesis sort of step back, each of them and where we will deploy our 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. As you mentioned, the NIL and college sports arena. And I would say also, we see some opportunities in international remittance that, 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's 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 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 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 on. 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 or 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're -- 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 1 other comment before you move to your next question. 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?

Sure. So we -- as 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, 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's 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 is what we expect to continue. We'll look at some M&A opportunistically. I think as Tim likes to note, 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 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 will kind of be more value-seeking to be candid.

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.

If I can just point something out for you. And Tim, that's a 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 [indiscernible]

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? 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 Hale 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?

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 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.

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 year revenue guidance to $950 million to $965 million from $970 million to $990 million. Importantly, however, as a result of our expanding gross profit margins, which has continued to 38.9% year-to-date, we are raising the low end of our full year gross profit guidance from $365 million to $370 million with the upper end remaining at $380 million and modestly improving our full year adjusted EBITDA guidance to $223 million to $228 million.

I'd like to cover one bit of housekeeping before we dive more fully into our results. In our press release this morning, you'll note that we are now categorizing our operating segments as Merchant Solutions, Payables and Treasury Solutions instead of SMB, B2B and enterprise. As Priority's business mix and solution set continues to evolve, we believe this will provide greater clarity to stakeholders about the revenue sources driving performance through our commerce platform. These categories also reflect the evolution of our client base with increasingly larger customers and a diverse set of reselling partners accessing Priority for multiple features across acquiring, payables and treasury solutions.

Now turning our attention to our aggregate Q3 results on Slide 4. Revenue of $241.4 million increased 6% from the prior year. This led to a 10% increase in adjusted gross profit to $94.8 million and a 6% improvement in adjusted EBITDA to $57.8 million. Adjusted gross profit margin of 39.2% increased 140 basis points from the prior year's third quarter, reflecting the ongoing performance of our diverse, high-margin Payables and Treasury Solutions segment.

Highlighted on Slide 5, our Q3 performance contributed to year-to-date revenue growth of 8% to $705.9 million fueling a 12% increase in adjusted gross profit to $274.4 million and an 8% improvement in adjusted EBITDA to $165.1 million, while expanding our adjusted gross profit margin by 150 basis points to 38.9%.

For those of you who are new to Priority, Slides 6 and 7 highlight our vision for Connected Commerce. The Priority Commerce platform is purpose-built to streamline collecting, storing, lending and sending money. It delivers a flexible financial tool set for merchant acquiring, payables and treasury solutions designed to accelerate cash flow and optimize working capital for the businesses we serve. I would encourage you to play the short 1- to 2-minute videos embedded in the product links on this slide to gain a deeper appreciation of why customers are consistently partnering with Priority to reach their commerce goals and why we are emerging as a go-to solution provider for embedded commerce and finance solutions.

Slide 7 highlights a typical partner experience with our commerce APIs, orchestration capabilities for payments management and treasury solutions. This enables partners to use a single API tailored to their specific objectives. Customers connecting via our API can access all routes for digital payments acceptance, create traditional and virtual bank accounts, issue physical and virtual debit cards, enable lockbox for checks, configure single vendor and advanced bulk vendor payment programs and many other commerce options at their own pace.

In the third quarter alone, we contracted with new enterprise ISV partners in hospitality, marina infrastructure management, construction supply, class action administration and mortgage lending with over $10 billion in incremental annual transaction volume to harvest, while continuing to expand our success in sports entertainment, automotive, property management and payroll and benefits.

Given our expanding customer base and segments, our commerce platform creates 2 important benefits for Priority's long-term. First, it enables our partners to develop their offering to seize new opportunities and respond to emerging trends as we add features and embedded solutions. Both parties maintain clear visibility into quantifiable revenue growth opportunities, building customer confidence and driving mutual success.

And second, by standardizing operational workflows across diverse industry segments where money movement is critical to the value chain, we can identify and refine key operational metrics in compliance, payment operations, risk and application support. This enables us to scale efficiently, maintain cost discipline and ultimately improve profitability. This vision explains why we've been able to evolve Priority into a consistently high-performing payments and banking financial technology company with strong recurring revenue prospects.

Our customers and current market conditions reinforce our belief that systems connecting payments and treasury solutions to accept and distribute funds in multiparty environments will be critical as businesses put greater demands on software and payment solution providers to deliver a full suite of core businesses services on a single relationship. We're committed to meeting our customers where they are by curating the experience for our partners to make working with Priority seamless and easy.

Before we move on to a detailed segment level performance review, I want to highlight a few key investments during Q3 on Page 8, namely our acquisitions of Boom Commerce and Dealer Merchant Services and the launch of our residual financing facility to power growth in ISO and ISV partnerships.

The Boom transaction adds veteran sales depth with exclusive distribution partnerships, expanding our West Coast capabilities, while the addition of the DMS team will underpin our strategy to lean into the future of automotive commerce with vertically focused distribution and integrated payments, treasury and payable solutions to this steadily growing and historically defensive area of consumer spending.

Last, our launch of the residual financing facility helps us put fuel in the tank of our ISO and ISV partners to grow their customer base on our commerce platform.

At this point, I'd like to hand it over to Tim, who'll provide further insights into the health of our business segments, along with current trends in each that factored into our third quarter results and confidence for sustained performance through the end of 2025.

Thank you, Tom, and good morning, everyone. I'll start on Slide 10. As Tom mentioned, we had solid overall financial performance in the third quarter that benefited from the diversification of our platform as strong growth in our higher-margin Payables and Treasury Solutions segments offset the impact of slower growth in our Merchant Solutions segment this quarter.

The strong 14% and 18% growth, respectively, in Payables and Treasury Solutions allowed for overall margin expansion as adjusted gross profit margins improved by nearly 140 basis points from Q3 last year and over 70 basis points sequentially from Q2 this year. Consistent growth from our Payables and Treasury Solutions segments also resulted in the continued favorable shift in Priority's gross profit mix.

For the quarter, Payables and Treasury Solutions comprised nearly 63% of adjusted gross profit. If you evaluate that same metric on a trailing 12-month basis, Payables and Treasury Solutions contributed over 62% of gross profit for the 12 months ended September 30, which represents a 23 percentage point increase from the beginning of 2023. This trend, which you can clearly see on the page here, is highly indicative of our commitment to investing in higher growth, higher-margin operating segments, which will expand Priority's total addressable market and in turn, enhance shareholder value.

As noted on prior calls, the continued shift in our business mix also helps enhance the highly visible and recurring nature of our business model. During the quarter, over 64% of adjusted gross profit came from recurring revenues that are not dependent on transaction counts or card volumes, which compares to just under 60% in Q3 of last year.

Moving now to the segment level results and starting with Merchant Solutions on Slide 11. Merchant Solutions generated Q3 revenue of $161.9 million, which is $3.1 million or 2% higher than last year's third quarter. Revenue growth was a combination of 4% growth in the core portfolio, combined with just over $1 million of revenue in the quarter from the Boom Commerce acquisition, partially offset by lower revenue from both specialized acquiring and historical residual purchases. As expected, those headwinds moderated in Q3 compared to the first half of the year, but will continue into Q4.

Lower growth in the core portfolio compared to first half of the year was largely attributable to a pullback in consumer spend within a few industry verticals, including restaurants, construction and wholesale trade. Total card volume was $18.5 billion for the quarter, which is up 2.2% from the prior year. From a merchant standpoint, we averaged 179,000 accounts during the quarter, which is up from 178,000 last year, while new monthly boards averaged 3,400 during the quarter.

Adjusted gross profit for the second quarter was $35.5 million, which is consistent with Q3 of last year. Gross margins of 21.9% are 50 basis points lower than the comparable quarter last year, largely attributable to lower revenue from both specialized acquiring and historical residual purchases. Lastly, adjusted EBITDA was $27.7 million, which is down $900,000 or 3.2% from last year due to increased salaries and benefits and elevated software expenses related to the previously discussed cloud migration.

Moving to the Payables segment. Revenue of $25.2 million was 13.6% higher than Q3 of last year and sequentially increased from $25 million in Q2. Our buyer-funded revenues grew 11.8% year-over-year to $20 million, while supplier-funded revenues grew 21.3% year-over-year to $5.1 million. Adjusted gross profit was $7.2 million in the quarter, which is a 13.6% increase over the prior year. For the quarter, gross margins were 28.5%, which is consistent with last year's comparable quarter.

The Payables segment contributed $3.5 million of adjusted EBITDA during the quarter, which was a $1.5 million or 79% year-over-year increase. The acceleration of adjusted EBITDA growth compared to revenue and adjusted gross profit was driven by strong operating leverage in the segment, including a 12.5% year-over-year reduction in operating expenses before D&A.

Moving to the Treasury Solutions segment. Q3 revenue of $55.7 million was an increase of $8.6 million or 18.2% over the prior year. Revenue growth was driven by continued strong enrollment trends and an increase in the number of billed clients enrolled in CFTPay, combined with an increase in the number of integrated partners and organic same-store sales growth from existing Passport program managers.

Higher account balances in both CFTPay and Passport were able to more than offset the impact of lower interest rates in the quarter compared to Q3 of last year. As a result of those factors, adjusted gross profit for the segment increased by 18.3% to $52.1 million, while adjusted gross profit margins remained strong at 93.6% for the quarter.

Adjusted EBITDA for the quarter was $46.7 million, an increase of $5.7 million or 14% year-over-year. Overall profitability in Treasury Solutions was driven by consistent and strong high teens revenue growth in CFTPay, combined with 100% revenue growth in Passport, which offset investments we continue to make in newer vertical software assets within Priority Tech Ventures. While many of these investments are still scaling, we view them as highly compelling opportunities to enhance Priority's already comprehensive product suite and expand further into new and existing markets, including construction, payroll and benefits, asset management and sports and entertainment, including the NIL marketplace.

Moving to consolidated operating expenses. Salaries and benefits of $26.1 million increased by $4.4 million or 20.2% compared to Q3 of last year, but declined by $1 million when compared sequentially to Q2. The year-over-year increase was primarily driven by higher non-cash stock compensation expense, along with increased headcount from organic growth combined with acquisition-related activity. SG&A of $15.7 million increased by $3.3 million or 26.7% compared to Q3 of last year as a result of increased accounting and SOX-related expenses, along with higher legal, marketing and software expenses.

Now I'd like to take a moment to discuss our capital structure. Debt at the end of the quarter was $1 billion, and we ended the quarter with $157 million of available liquidity, including all $100 million of borrowing capacity available under our revolving credit facility and $57 million of unrestricted cash on the balance sheet. As Tom noted earlier, we closed a new $50 million residual financing facility during the quarter, and we also refinanced our broadly syndicated term loan on more favorable terms.

The residual financing is a securitization style structure, and it is nonrecourse to priority, which is why the outstanding balance of $23 million at quarter end is not reported in the totals you see on this page. Subsequent to quarter end, we upsized the $1 billion term loan by $35 million to finance the cash portion of the DMS acquisition. But as highlighted in our press release this morning, I'm pleased to reiterate that we made a $15 million prepayment to the term loan at the end of October. While the total quantum of our debt has increased this year due to acquisitions and the acceleration of certain deferred consideration related to the Plastiq acquisition, we've applied $25 million of prepayments to the term loan this year between $10 million in Q1, combined with the $15 million payment last week. Given strong free cash flow generation, we expect to continue to apply excess cash to debt reduction throughout 2026.

With respect to free cash flow, we generated $29 million of free cash flow in the quarter based on adjusted EBITDA of approximately $58 million, minus $6 million of capital expenditures, $21.5 million in cash interest expense and just under $1 million in cash taxes. On a year-to-date basis, that same metric totaled $71 million. If you were to annualize that figure to $95 million and look at it on a per share basis, we generate $1.17 of free cash flow per share, which I know is a metric that many investors have referenced in our prior discussions.

For the LTM period ended September 30, adjusted EBITDA of $216.8 million represents $3.1 million of sequential quarterly growth from $213.7 million at the end of Q2. This growth in adjusted EBITDA, combined with net debt of $943 million resulted in net leverage of 4.35x at quarter end, which is up from 4.1x at the end of Q2 due to acquisition activity and a partial quarter of acquired EBITDA benefit.

If you were to recalculate leverage on a pro forma basis for a full year effect of the Boom and DMS acquisitions and related balance sheet activity, net leverage would be 4.1x, which is neutral to where we finished Q2. We will continue to evaluate opportunities to acquire strategic assets that provide priority with higher-margin vertically focused sales channels, but debt reduction on both the dollar basis and the leverage ratio are focus areas for 2026.

Moving to Slide 16 and our revised financial guidance. We have adjusted our full year revenue guidance to reflect the year-to-date results, combined with our most up-to-date outlook for Q4. The revised revenue range of $950 million to $965 million implies an 8% to 10% full year growth rate and is reflective of mid-single-digit organic revenue growth in our Merchant Solutions segment for Q4.

Despite lower revenue growth expectations for the full year, we have raised the low end of the adjusted gross profit range by $5 million to $370 million, with the upper end remaining at $380 million. Adjusted EBITDA is expected to range from $223 million to $228 million, which is up slightly from prior guidance of $222.5 million to $227.5 million. The revised full year guidance is inclusive of approximately $6 million of adjusted EBITDA related to acquisitions. While there is certainly some impact to adjusted EBITDA from lower revenue growth in Merchant Solutions, the full year guide is also reflective of continued investment in Priority Tech Ventures.

Lastly, we will provide more details related to our 2026 outlook during our fourth quarter earnings call, but preliminary expectations are for high single-digit revenue growth with adjusted gross margins expanding by 75 to 100 basis points or more.

With that, I'll now turn the call back over to Tom for his closing comments.

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.

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?

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.

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?

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?

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.

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.

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.

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?

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?

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.

Good morning, and welcome to the Priority Technology Holdings Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded.

I would now like to turn the conference over to Meghna Mehra with 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 Investor 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, everyone, for joining us for our second quarter 2025 earnings call. Once again, I'll begin today's call by highlighting our aggregate performance that reinforces our strong revenue and adjusted EBITDA guidance for 2025, before handing it over to Tim, who will provide segment-level performance, key trends and developments within each of the business segments, and Priority overall.

This morning, we reported continued solid growth in both revenue and profit, despite lingering economic uncertainty over the impact of tariffs and government cuts that extended into the second quarter.

Summarized on Slide 3, Priority had a strong Q2 by every key financial metric, growing net revenue by 9%, generating adjusted gross profit and adjusted EBITDA growth of 13% and 9%, respectively, and increased adjusted EPS by $0.15 year-over-year to $0.26. We ended the second quarter with over 1.6 million total customer accounts operating on our commerce platform, up from 1.3 million at the end of last quarter.

Annual transaction volume in the LTM period increased by nearly $5 billion from Q1 to $140 billion, and average account balances under administration improved to $1.4 billion versus $1.3 billion in the first quarter of 2025. Tim will walk you through the full year 2025 guidance specifics and some of the more noteworthy trends we're seeing within SMB acquiring, B2B payables, and the Enterprise payment segments later in the call.

Based on strong growth trends and a continued favorable shift in our business mix, I'm confident that Priority can achieve 10% to 12.5% top-line revenue growth, which is why we're increasing the low end of our revenue expectations to $970 million and narrowing the overall range to $990 million at the high end, while refining adjusted EBITDA around the midpoint of our original full year guidance, increasing the low end to $222.5 million and narrowing the overall range to $227.5 million at the high end.

Our confidence comes from the adoption we continue to experience for our connected commerce platform, combining payments and banking capabilities to streamline collecting, storing, lending, and sending money to create revenue and operational success for our customers.

Turning our attention to our Q2 results noted on Slide 4. Revenue of $239.8 million increased 9% from the prior year. This led to a 13% increase in adjusted gross profit in $92.4 million and a 9% improvement in adjusted EBITDA, $56 million. Adjusted gross profit margin of 38.5% increased 135 basis points from the prior year's second quarter.

Highlighted on Slide 5, our steady Q2 performance contributed to year-to-date revenue growth of 9% to $464.4 million, fueling a 14% increase in adjusted gross profit to $179.7 million and a 10% improvement in adjusted EBITDA to $107.3 million, while expanding adjusted gross profit margin by 150 basis points to 38.7%.

For those of you who are new to Priority, Slides 6 and 7 highlight our vision for connected commerce. The Priority Commerce Engine is purpose-built to streamline collecting, storing, lending, and sending money and delivers a flexible financial tool set for merchant services, payables, and banking and treasury solutions to accelerate cash flow and optimize working capital for businesses.

I would encourage you to play the short 1 to 2-minute videos embedded in the product link on this slide. It will give you a more fulsome appreciation for their value and how they're being leveraged by our growing customer base. While our financial performance demonstrates that partners consistently choose Priority to help power their businesses, I thought it would be useful for investors to gain a deeper appreciation of why we are emerging as a go-to solution provider for embedded finance solutions.

Slide 7 highlights a typical enterprise partner experience for our commerce API, offering payment orchestration, banking optimization and payables management solutions within a single point connection that allows our partners to choose their [ venture ], and leverage our solutions in a way that best suits their objectives. Importantly, this framework is consistently applied whether the partner is a sports management software company, a debt resolution provider leveraging CFTPay, a vertically focused software provider or property management technology company.

Customers connect and can access all routes for digital payment acceptance as well as lockbox for checks, create FDIC eligible pass-through insured full feature virtual bank accounts with both virtual and physical card issuing, bill payments and automated payables options at their own pace.

Our tightly coupled platform creates 2 important benefits for Priority's long-term prospects. First, it allows our partners to evolve their offering to respond to opportunities and emerging trends as we add features and new embedded solutions in collaboration with their goals. Both parties have a clear line of sight to quantify and tap into revenue growth opportunities. And this creates loyalty and gives us the ability to grow with our partners' businesses.

Second, by maintaining operational workflow consistency across implementations and diverse industry segments, where collecting, storing and sending money is an important part of the value chain, we can clearly identify and refine our operational metrics in key performance areas like compliance, payment operations, risk management, application support and others, to ensure that we scale cost efficiently. We are committed to meeting our customers where they are by curating the experience for our partners in order to make working with Priority seamless and easy.

This vision explains why we've been continually able to transform Priority into a high-performing payments and banking financial technology company with consistently strong recurring revenue prospects. Our customers and current market conditions reinforce our belief that systems connecting payments and banking solutions to accept and distribute funds in multiparty environments will be critical as businesses put greater demands on software and payment solution providers to deliver a full suite of core business services in a single relationship.

At the end of my comments, I'll speak to this accelerating trend toward bundled services in greater depth. But at this point, I'd like to hand it over to Tim, who will provide further insights into the health of our business segments, along with current trends in each that factored into our second quarter results and our confidence for sustained and accelerated performance in the second half of 2025.

Thank you, Tom, and good morning, everyone. I'll start on Slide 9. As Tom mentioned, we had strong financial performance across the business in the second quarter, and the Priority Commerce engine continues to generate high growth in our higher-margin operating segments as B2B revenue grew over 14% and Enterprise revenue grew over 20% on a year-over-year basis for the quarter. The strong growth in those segments also allowed for overall margin expansion as adjusted gross profit margins improved by 135 basis points from Q2 last year.

Consistent with Q1 and as shown in the charts, the adjusted gross profit from our B2B and Enterprise segments represented over 60% of the total for the quarter. The continued shift in our business mix also contributes to the highly visible and recurring nature of our business model as over 62% of adjusted gross profit in Q2 came from recurring revenues that are not dependent on transaction counts or card volumes.

Moving now to the segment level results and starting with the SMB segment on Slide 10. SMB generated Q2 revenue of $163.2 million, which is $8.1 million or 5.2% higher than last year's second quarter. SMB's revenue growth was a combination of strong 9.5% growth in the core portfolio, partially offset by the attrition of historical residual purchases, along with lower revenue in specialized acquiring. Those headwinds will continue in Q3 and Q4, but with a moderating impact compared to what we saw in Q1 and Q2, where it was a 4% to 5% drag on overall growth rates for SMB.

Total card volume was $18.7 billion for the quarter, which is up 2.3% from the prior year and 5.6% from Q1. From a merchant standpoint, we averaged approximately 179,000 accounts during the quarter, which is consistent with last year and up from 178,000 in Q1, while new monthly boards averaged 4,000 during the quarter compared to 4,100 in Q2 of last year and Q1 of this year.

Adjusted gross profit in SMB for the second quarter was $35.4 million, which is consistent with gross profit in Q2 of last year and sequentially is almost 7% higher than the first quarter's gross profit. Gross margins of 21.7% are comparable to the 21.8% in the first quarter, but down 130 basis points from last year. On a year-over-year basis, margins were impacted by lower specialized acquiring revenue and the attrition of historical residual purchases. If you were to adjust for the impact of those 2 items, gross margins in the core portfolio increased by 125 basis points on a year-over-year basis.

Lastly, for SMB, adjusted EBITDA was $27.7 million, which is down $850,000 from last year's second quarter and up $2 million from Q1 of this year. Adjusted EBITDA was slightly lower than the comparative quarter last year as a result of increased salaries and benefits, along with higher SG&A resulting from increased headcount, along with higher software expenses related to the previously discussed cloud migration.

Moving to B2B. Revenue of $25 million was 14.4% higher than Q2 of last year and sequentially increased from $23.9 million in Q1. Our buyer-funded revenues grew by 12.7%, while supplier-funded revenues grew by 21.7% on a year-over-year basis. I offered a more detailed explanation on our Q1 earnings call, but when we use the terms buyer-funded and supplier-funded, we are referring to which party in the payables transaction is paying the interchange or credit card-related fees for the payment.

Consistent with Q1, the buyer-funded businesses increased focus on larger customers and bank referral partners continue to show success in the quarter as companies seek to optimize their working capital and streamline their payables operations.

Adjusted gross profit was $7.3 million in the quarter, which is a 30.8% increase over the prior year. For the quarter, gross margins were 29.1% or 365 basis points higher compared to 25.4% in the second quarter of 2024.

The B2B segment produced $3.8 million of adjusted EBITDA during the quarter, which was a $2.2 million or 146% increase over the comparable period in 2024. The acceleration of adjusted EBITDA growth compared to adjusted gross profit was driven by strong operating leverage in the segment, including a 13% reduction in operating expenses, excluding D&A, on a year-over-year basis.

Moving to the Enterprise segment. Q2 revenue of $52.7 million was an increase of $9 million or 20.6% over the prior year. Revenue growth was driven by continued strong enrollment trends and an increase in the number of billed clients in CFTPay, combined with an increase in the number of integrated partners and organic same-store sales growth with existing Passport program managers. Higher account balances in both CFTPay and Passport were able to more than offset the impact of 100 basis points of lower interest rates in the quarter compared to Q2 of last year.

As a result of those factors, adjusted gross profit for the Enterprise segment also increased by 22.6% to $49.7 million, while adjusted gross profit margins were 94.4% in the quarter. Adjusted EBITDA for the quarter was $45.6 million, an increase of $8.3 million or 22.3% from the prior year's first quarter.

Overall profitability in Enterprise was driven by continued strong performance in CFTPay, combined with an acceleration of revenue and profitability in Passport, which offset investments we continue to make in newer verticals within Priority Tech Ventures that we believe will provide the next leg of the growth stool for the Enterprise segment.

Moving to consolidated operating expenses. Salaries and benefits of $27.1 million increased by $4.9 million or 22.3% compared to Q2 of last year and SG&A of $13.9 million increased by $2.7 million or 24% from Q2 of 2024. The increase in salaries and benefits was driven by higher stock compensation expense in the quarter, along with increased headcount from organic growth, along with acquisition-related activity in late Q4 of last year and early Q1 of this year. SG&A expenses were higher in the quarter as a result of increased accounting and FOX-related expenses, along with higher marketing and software expenses.

Moving to the capital structure and liquidity overview. Debt at the end of the quarter was $935.5 million, and we ended the quarter with $120.6 million of available liquidity, including all $70 million of borrowing capacity under our revolving credit facility and $50.6 million of unrestricted cash on the balance sheet. For the LTM period ended June 30th, adjusted EBITDA of $213.7 million represents $4.5 million of sequential quarterly growth from $209.2 million at the end of Q1. This growth in adjusted EBITDA, combined with our net debt of $884.9 million, resulted in net leverage of 4.1 at quarter end, which is down from 4.2x at the end of Q1.

As highlighted in our press release on Monday, I'm pleased to reiterate that we closed on the issuance of new senior credit facilities to refinance our existing debt on favorable terms. The new senior credit facilities consist of an upsized $100 million 5-year revolver and a new $1 billion 7-year term loan. In addition to extending maturities, we successfully lowered the interest rate on the upsized term loan by 100 basis points, which will save Priority and its shareholders nearly $7 million of interest expense on an annualized basis.

Proceeds from the $1 billion term loan were used to refinance existing debt, pay related transaction fees and expenses, accelerate payment of certain deferred considerations related to the Q3 2023 acquisition of Plastiq and to put cash on the balance sheet that will be used for strategic growth initiatives, including a tuck-in acquisition that we anticipate closing within the next several weeks.

Moving now to Slide 15 and our revised financial guidance. We are narrowing our original full year revenue guidance to a range of $970 million to $990 million, which compares to the prior guidance of $965 million to $1 billion. As Tom noted earlier, we expect to see an acceleration of growth in the second half of the year. That acceleration is due to the timing of our sales pipeline, the impact of year-over-year comparatives and moderating headwinds in specialized acquiring and the attrition from historical residual purchases, which were 4% to 5% drags against strong growth in core operating performance in SMB during the first half of the year.

Consistent with the revised revenue guidance, we are also narrowing our adjusted gross profit and adjusted EBITDA guidance ranges to the middle of our prior guidance ranges. As noted on the slide, the updated ranges are $365 million to $380 million and $222.5 million to $227.5 million, respectively.

Before I turn the call back over to Tom, I also want to provide an update on our progress in the remediation of the material weakness related to the design and operating deficiencies in certain automated controls around ingestion and validation of third-party processors data.

As noted in our 10-K and comments on our last earnings call, the material weakness did not result in a restatement or any change to our consolidated financial results. And as of today, I'm pleased to say the team has substantially completed the work necessary to remediate the deficiency and is now testing those controls in a production environment. So while we're confident that the hard work on this project is behind us, the material weakness will remain until we complete our testing procedures and receive validation from our external auditor.

With that, I'll now turn the call back over to Tom for his closing comments.

Thank you, Tim. Before concluding, I want to reflect on a handful of topics we've detailed in the past that are core to our differentiation and consistent performance through varying economic environments and an emerging trend that I believe will be an important catalyst for outsized growth and equity value creation at Priority. Tim has already discussed the mix shift in our earnings quality over the past 4-plus years as adjusted gross profit from recurring revenue now represents 62% of total adjusted gross profit on the increased strength of 31% and 23% in this key metric for B2B and the Enterprise segments, respectively. As with everything we do, we have built these business lines with intention over years of thoughtful planning and cost-efficient execution to be in a position to capitalize on emerging trends early in their cycle to create asymmetric risk-reward profiles.

Now when including our results in the second quarter of 2025, that vision and execution delivered 5-year compound annual adjusted EBITDA growth of nearly 20% through the end of June 2025. I offer this perspective because I believe some of the recently publicized transactions reflect an acceleration in the embedded finance value creation thesis and fintech consolidation with a number of players seeking strategic assets deepen their access to business distribution pools, particularly small and medium-sized businesses and add products that you could characterize as nondiscretionary to be a single source solution provider to improve their unit economics.

Recent transactions like Xero's acquisition of Melio for $2 billion, Bain Capital portfolio company, Acrisure's purchase of Heartland Payroll for $1.1 billion or TPG's purchase of AvidXchange reinforce this emerging dynamic. And we continue to curate and evolve Priority's flexible commerce engine, connecting payments and banking on a single platform to centralize all money movement at scale for our partners and with our expanding menu of core business applications, to go along with that capability.

Through our Priority Tech Ventures activity, we're enabling solutions for payroll, benefits and vertical markets with large profit pools, including construction and prop-tech, among others, at attractive entry points, giving our strategies time to manifest profits and margin expansion, while the accelerating trend toward full-service platforms continues to emerge.

As always, I first want to thank my colleagues at Priority who continue to work incredibly hard to deliver industry-leading 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, we're taking the time to participate in today's call.

Operator, we'd like to now open the call for questions.

[Operator Instructions] Our first question today comes from Bryan Bergin with TD Cowen.

I wanted to start off on just core SMB growth. So just first, what was that core growth net of the VAP and the residual headwind versus the 1Q growth of about 10%? I may have missed it, sorry, if I did. And then can you dig into the drivers of the underlying strength of SMB here? Just any outperformance drivers that you want to detail?

Yes. So it was 9.5% for the quarter compared to the 10% number you referenced for Q1. And as I think about the core, what I define in that core is really just taking the SMB or the acquiring business and then backing out the impact of the residual purchases and then the specialized acquiring business and then getting down to that core. So we're continuing to see very strong growth in our larger ISOs. They continue to perform very well. They're adding a lot of volume, right? The volume growth in that same core component was north of 10%, right? So we do see some attrition at the lower end of the portfolio.

A lot of that is same-store sales. We're actually seeing the headwinds from same-store sales in the market now where our controllable churn as we think about the actual merchant base that remains on the platform has remained very steady in kind of the high single-digits area. The same-store sales is a little bit of a headwind, but our larger ISOs continue to grow at a very healthy clip, and we continue to add new ISOs onto the platform as well. So those are really the main drivers of what we're seeing there with that strong core performance.

Okay. Very good. As we look at the revised 2025 revenue guide, can you talk about some of the underlying assumptions at the low end versus the high end? And then just we just kind of run the math on the second half implied growth, I think it's about 13.5% at the midpoint versus 9% year-to-date. Can you just help us with the conviction you have on that acceleration?

Sure. Yes. I think some of it is driven by SMB, right? We're going to have moderating headwinds in SMB from some of those 2 areas that I spoke about. Just looking at kind of year-over-year comparatives there, those will moderate a little bit in the second half of the year. We also have a number of large customer wins that we're rolling on to the platform. They haven't really shown up in the numbers just yet. And we've been, I'd say, probably conservative as you think about the timing of those and the impact they have on the balance of the year. So I think that could be some potential upside if those come on faster and ramp faster than what we've modeled at this stage.

So as you think about kind of the low end and high end, those are 2 of the variables. I think we also have modeled 2 rate cuts right now into the forecast. Obviously, those numbers are still moving around as you think about what could happen in the broader macro economy. I think most estimates right now would show 2, maybe 2.5 if you kind of look at the averages. So we've got that built into the forecast as well. And then deposit balances continue to grow, right? So if those accelerate even faster than what we've been seeing, that could be some further upside to the upper end of that range.

And our next question today comes from Brian Kinstlinger with Alliance Global Partners.

This is Kevin for Brian. So last quarter, you spoke about the resilience in the SMB segment. Have you seen any shift in the volume trends for some of those businesses given the softening jobs and business sentiment, especially now that we're starting to see the new tariff policies in effect?

We really haven't. I think the portfolio has performed very well overall. And we talked in Q1 about some of the resilience within our portfolio and just the mix of end customers we serve and even if you break that apart and say that we've got, call it, roughly 30% in retail, there's a lot of subcomponents within that, that have resilience, right? Whether it's beer, wine liquor stores, auto parts stores, gas stations, right? There's a lot of areas there that are somewhat more resilient to any kind of a recession or a downturn. So it's performed well. Same-store sales on a macro level is definitely a headwind, but that's been the case now for several quarters in a row. So I don't think that's a new phenomenon that we're seeing.

Okay. Great. And just another one. With the recent closing of the new credit facilities and stronger balance sheet, how have you been thinking about capital allocation in the near and longer term?

I don't think it's changed. I think our allocation strategy is to continue to overall look to delever, but remain opportunistic on the acquisition front as we see opportunities in the marketplace, with some dislocation out there and the ability to acquire attractive assets at what we think are very attractive valuation multiples. I think the real driver of this refinancing was to take advantage of a favorable market condition and our continued strong performance and lower the interest rate. So saving 100 basis points on the rates was really the main driver in that refinancing effort.

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

Congrats on the nice quarter here. Maybe just kind of help us think through some of the average monthly enrollments of CFTPay, it looks like they accelerated nicely. You've got almost 1 million clients there. But I mean, is this really a function of better cross-selling efforts? Is this a function of new client wins? What's the driving factor here?

The primary driver there has been investment from some of our partners. So there's been a favorable condition for some time in terms of customer acquisition. I think we've spoken about it, just some of the changes in credit counseling and so forth. So some of our partners have just amped up their efforts in sales and marketing. And we had the expectations that, that would kick in, in the latter part of the year, and you're seeing that acceleration. So we don't expect that to abate anytime soon.

Got it. And maybe just on the Priority Tech Ventures investments you're making. Help us understand kind of how these pieces into the overall portfolio? Are these kind of companies you're taking early-stage investments in and bringing them on to the tech stack as you -- as they kind of grow? Or how are you thinking about that?

Yes, sure. Just -- I'll digress for a moment, but you'll probably recall from more than 1 year ago, we had noted that just the venture space generally was struggling for capital. And there were some just well-built technology platforms out there that collecting, storing, lending, sending money was a core part of the value chain, payroll for one, property tech and real estate property management, benefits, another. And the platforms out there that we're competing with were somewhat legacy and not that they weren't at scale. There are a number of excellent competitors out there, but they were probably less capital efficient operating -- from an operating cost standpoint.

So we were able to find platforms at real attractive prices that fit well into our core customer base like payroll, buying RollFi, like our Prisma product where we've been able to build out a presence in property management and treasury activity in that segment or the benefits space as well. So all these are -- especially payroll and benefits, they're nondiscretionary. Every business needs them. We've got a few hundred thousand small businesses. It doesn't take a genius to figure out, well, you buy it at the right price point, you get it into the sales funnel and you incentivize really strong sales teams that I think we deliver. You can just see those results in small business growth. Then it's really making our partners' portfolios worth more at Priority.

That's a phenomenon you're seeing in the SMB space when you look at acquiring and why the volume is consistent and why we drive loyalty because we invest in their ability to make things happen and make money. So it's really bringing all that together. And that's what Tech Ventures has been designed to do. And we're excited about the potential within that segment, particularly given, as I said, our price point of entry.

And our next question today comes from Tim Switzer at KBW.

I have a couple of follow-ups on the capital stack with this tuck-in acquisition you guys are talking about. Is that anything where you might need to raise more debt for it? Or will there be debt coming along with it? And do you guys have any plans at all to utilize the share repurchase authorization?

Sure. The acquisition is largely prefunded, right? So the $1 billion of debt was obviously an upsize from the existing debt level we had. Part of that increase in the proceeds went to prepaying the deferred consideration on Plastiq. The balance of it went to the balance sheet in cash and we will be there for this tuck-in acquisition, assuming that [ when ] closes. If not, it will remain there as we continue to look at opportunities in the broader marketplace. But we're excited about this opportunity that's in front of us. It won't have a large impact on the balance of this year. But going into full year '26, that will have a nice uplift for us on the rest of the P&L.

Okay. Great. Good color. And then, can you also discuss -- it sounds like you haven't seen any material impacts at all from tariffs and some of the macro uncertainty. But if things did sort of turn around, we're starting to see a weaker labor market here, how would that impact the revenue outlook you have overall and particularly in SMB versus Enterprise?

Yes. In fact, let's -- let me let Tim speak to the SMB segment and then I think as we've publicized, right, very intentionally, we have built out countercyclical business lines that I'll just say, do well in economically challenging environments. And then I'll sort of maybe reflect on that countercyclical component that offsets any pressures that emerge in SMB, which I'll just say at this stage, we're not seeing. But Tim, go ahead.

Sure. And Tim, I'd maybe offer a more nuanced response to kind of what you said about SMB and not seeing any impact from the tariffs because I think it's hard to delineate what's the impact from the tariff versus just broader economy, but we have been seeing some headwinds from same-store sales, and that's been continuing for several quarters now. So I think that could be part of the impact of the economy or tariffs. So I don't want to say we're not seeing any impact in SMB because that probably lays into that. We're just -- we're outrunning it, right? Our ISO base is growing. We're adding more ISOs onto the platform. And we continue to just really grow the core business at a faster pace. So we're outrunning some of those headwinds.

The other thing I'll just note, and this is what gives us the optimism for the remainder of the year is our ISV partners have continued to grow. We're still -- those you harvest over a longer period of time once they connect. So we have a number of those contracted that are just being harvested. So as those-- as that occurs, you'll -- that gives us confidence in the acquiring segment's stability.

Now aside from that, and to your point on, let's say, a potential labor market impact or on tariffs, those are environments where we generally see our B2B payables segment accelerate because working capital becomes a greater concern, folks are looking for sources like Plastiq and our payables suite to extend working capital. So -- that's been a benefit in previous economic cycles. So we would expect that to continue.

And then, of course, within the CFTPay segment, again, that's just -- when consumers become a bit more stressed, they're more likely to look for assistance. And we're really well positioned to work with our partners in that segment to provide that assistance, and we see generally enrollments accelerate.

And our next question comes from Harold Goetsch with B. Riley.

Congratulations, you're really executing well. I just wanted to ask about some of the larger ISOs that you are having success with. Can you just kind of describe their go-to-market? Are they leading with a software-enabled solution or a point-of-sale system, yours or reselling [ some ]? Give us a color on what is working in SMB? Because what is working seems to be like growing nicely above what you would see from the card network. They're only growing 6%, 7%. So you clearly have some success there and I want to know more -- a little bit more about that.

Yes. It is -- we lead with a technology suite, right? We like to say choose your [ venture ]. So enabling a more agile approach to, I'll call it, like vertical solutions that our resellers focus on is -- just has been a benefit. So that is not just -- it's certainly POS that -- to some extent, but the menu of options that are available to accelerate cash flow and optimize working capital, that's really our value proposition and sort of build your a la carte menu the way your business operates, that's been the winning formula. And it's not a one size fits all. I think that comes from the deep understanding of who our reselling partners are and enabling that flexibility for them to play to their strengths.

I would just add on to that, Hal, that I think the other component in addition to the technology Tom talked about is having high-quality customer service, right? And being available for those reselling partners to get problems solved as well as the merchants to solve their issues. So I think having that high level of customer service and actually having somebody pick up the phone and resolve that problem is also a key component for us.

And this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

All right. Well, we would like to thank everybody for taking the time to express your continued interest in Priority. We are -- I appreciate the final comment, Hal, on our execution. And rest assured, we'll be continued laser-focused on just that. So thanks, everyone, and we look forward to getting together next quarter to demonstrate our execution.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.