Priority Technology Holdings, Inc. (PRTH) is a leading provider of merchant acquiring and commercial payment solutions, offering a comprehensive suite of payment products and services to customers across a diverse range of industries. The company’s innovative technology platform and strategic acquisitions have positioned it at the forefront of the rapidly evolving payments landscape.
Business Overview and History: Priority Technology Holdings was founded in 2018 when the company went public. Prior to its public offering, Priority had already begun diversifying its acquiring assets to add segments in e-commerce, real estate, construction, and healthcare administration. These additions were made at attractive and relatively low-risk entry points, as these industries were still early in their digital transformations.
Throughout its history, Priority has prudently and consistently built out its complete B2B payables suite, adding capabilities to the platform opportunistically. In 2020, despite the volatility of the COVID-19 pandemic, Priority Technology Holdings transformed a significant gain from the RentPayment.com sale to complete its vision for unified commerce by adding Finxera’s counter-cyclical ISV partnerships, while quickly refactoring the banking-as-a-service stack for deployment across its platform.
In 2023, the company acquired Plastiq, a leading provider of B2B payments and working capital solutions, further enhancing its B2B payments capabilities. Last year, Priority accelerated its investment in the Priority Commerce Engine, focusing on feature development, data scaling capacity, and risk and compliance capabilities. This was done in recognition of the opportunity to capitalize on customers’ need for embedded finance and capture market share from competitors that were expected to falter.
The company’s intentional and foresighted decision-making over the past several years has enabled it to deliver consistent financial performance, including a compound annual adjusted EBITDA growth rate of 19.8% from 2018 to 2023.
Financial Performance and Outlook: Priority’s financial performance has been consistently strong, with the company reporting record revenue and adjusted EBITDA in recent quarters. For the full year 2024, the company expects to generate revenue in the range of $875 million to $883 million, representing an increase of approximately 16% over the prior year. This growth is primarily driven by the robust performance across Priority’s three business segments: SMB Payments, B2B Payments, and Enterprise Payments.
In the third quarter of 2024, the company reported revenue of $227.05 million, a 20.1% increase from the prior-year period. Adjusted gross profit increased by 18.9% to $86 million, with a margin of 37.9%. Adjusted EBITDA rose by 22% to $54.6 million, showcasing the company’s ability to drive operational efficiency and profitability. Net income for the quarter stood at $10.61 million.
For the first nine months of 2024, Priority delivered 17% revenue growth to $652.6 million, 21% adjusted gross profit expansion to $244.1 million, and a 23% improvement in adjusted EBITDA to $152.5 million.
The SMB Payments segment, which serves small-to-medium-sized businesses, continued to demonstrate strong organic growth, with a 13.2% increase in revenue to $158.77 million and a 3.7% improvement in adjusted EBITDA to $28.64 million in Q3 2024. This growth was primarily driven by increased transaction count and processed merchant bankcard dollar volume.
The B2B Payments segment, bolstered by the Plastiq acquisition, saw a 58.3% surge in revenue to $22.14 million in Q3 2024. Adjusted EBITDA for this segment increased to $1.93 million, up from $1.36 million in the prior year period, primarily due to the contribution from the Plastiq business.
The Enterprise Payments segment, which caters to larger enterprises, reported a 33.9% revenue increase to $47.10 million in Q3 2024. Adjusted EBITDA for this segment rose by 37.6% to $40.94 million, driven by an increase in billed clients, new customer enrollments, and higher interest income from increased balances of permissible investments.
For the full year 2023, Priority reported revenue of $755.61 million and a net loss of $1.31 million. Operating cash flow for 2023 was $81.26 million, while free cash flow amounted to $60.00 million.
Based on the strong year-to-date performance, Priority has increased its full year 2024 adjusted EBITDA guidance to $200 million to $204 million, representing an 18% to 21% increase over 2023. The company has affirmed its full year 2024 revenue and adjusted gross profit guidance.
Liquidity and Solvency: As of September 30, 2024, Priority had $41.07 million in cash and cash equivalents and $70 million in available borrowing capacity under its revolving credit facility. The company’s total debt stood at $832.9 million, with a net debt position of $791.8 million.
Priority’s liquidity position remains robust, with a current ratio of 1.04 and a quick ratio of 1.06 as of the end of the third quarter. The company’s cash flow from operations during the nine-month period ended September 30, 2024, was $61.9 million, while its free cash flow amounted to $37.7 million. For Q3 2024 specifically, operating cash flow was $19.85 million, and free cash flow was $14.52 million.
The company’s debt structure is well-managed, with the majority of its long-term debt maturing in 2031. Priority’s interest coverage ratio of 1.44 and a cash flow to debt ratio of 0.08 demonstrate its ability to service its debt obligations. The debt-to-equity ratio stands at -13.44, reflecting the company’s capital structure.
Risks and Challenges: Like any growing company, Priority faces a range of risks and challenges that investors should consider. The payments industry is highly competitive, with established players and emerging fintech firms constantly vying for market share. Priority’s ability to maintain its competitive edge and continue to innovate its product offerings will be crucial to its long-term success.
Additionally, the company’s reliance on a diverse customer base, including small and medium-sized businesses, financial institutions, and enterprise clients, exposes it to potential macroeconomic fluctuations and industry-specific trends. Any changes in consumer spending patterns, regulatory environment, or technological advancements could impact Priority’s financial performance.
Moreover, the integration and optimization of the recently acquired Plastiq business will require significant management attention and operational expertise. Failure to seamlessly integrate this acquisition could negatively affect Priority’s financial results and synergies.
Conclusion: Priority Technology Holdings has established itself as a leading provider of unified commerce solutions, leveraging its innovative technology and strategic acquisitions to drive growth and profitability. The company’s diversified revenue streams, robust financial performance, and strong liquidity position suggest that it is well-positioned to capitalize on the ongoing transformation in the payments industry.
The payments industry has seen consistent growth, with a CAGR of around 10-12% over the past several years. Priority has been able to outperform the industry, growing revenue at a CAGR of over 19% from 2018 to 2023. The company’s focus on innovation and expanding its suite of products and services has allowed it to capitalize on industry trends and gain market share.
Priority primarily operates in the United States, where it has built a strong presence across its three business segments. The company has not reported any major scandals, short seller reports, or CEO departures, which speaks to its operational stability and management continuity.
As Priority continues to execute its strategic roadmap, investors should closely monitor the company’s ability to maintain its competitive edge, effectively integrate its recent acquisitions, and navigate the evolving regulatory and technological landscape. With its proven track record and ambitious vision, Priority Technology Holdings remains an intriguing opportunity for investors seeking exposure to the dynamic payments sector.
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