Priority Technology Holdings, Inc. Stock

Thank you. Good morning and welcome to the Priority Commerce Second Quarter 2026 Earnings Call. Participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.

I'd like to turn the conference over to Megan Mayra. Please go ahead. Good morning and thank you for joining us. With me today are Tom Priori, Chairman and Chief Executive Officer of Priority Commerce 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 in 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 findings, and we encourage you to review these findings. Additionally, we may refer to non-GAAP measures, including but not limited to EBITDA and adjusted EBITDA during the course.

Reconciliations of a 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. on the call over to Tom, I would like to say that on today's call, we will only be discussing priorities, financial and operating results in our case. 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 that topic. With that, I would like to turn the call over to our Chairman and CEO, Tom Fiore.

Thank you, Meghna. And thanks to everyone for joining us this morning for our second quarter of 2026 earnings call. I'll begin today's call by highlighting our aggregate second 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 solid growth in both revenue and profits for the second quarter. As summarized on slide three, Priority had a strong Q2 by every key financial metric, growing net revenue by over 9%. generating adjusted gross profit and adjusted EBITDA growth of 8% and 6%, respectively. and increasing adjusted EPS by 12% year-over-year to $0.29. We ended the quarter with 1.8 million total customer accounts operating on our commerce platform, which is up almost 13% from Q2 last year. annual transaction volume of 151 billion increased by 8%, and average account balances under administration grew by 26% to $1.8 billion compared to last year's second quarter. Tim will provide more context on the full year outlook later in the call. But I can reflect that the value of our diverse partners and customer experience with our unified commerce platform provides continued confidence that we will sustain the momentum in our merchant solutions, payables, and treasury solution segments.

Based on this momentum, we are maintaining our full year financial guidance, but expect to be at the higher end of our revenue range and lower end of our gross profit and adjust the EBITDA ranges. reflecting continued investment and mix related margin pressure that Tim will detail. Turning our attention to aggregate Q2 results on slide 4, revenue of $262.3 million increased 9% from the prior year. This led to an 8% increase in adjusted gross profit to $99.9 million and a 6% improvement in adjusted EBITDA to $59.4 million. Highlighted on slide five, our steady Q2 performance contributed to year-to-date revenue growth of 10% to $511.8 million, fueling an 11% increase in adjusted gross profit to $198.7 million, and just over a 9% increase in adjusted gross profit. an improvement in adjusted EBITDA to $117.5 million. 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. 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 one to two minute videos embedded in the product links on the slide to get 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 7 highlights a typical partner experience with our Commerce API's orchestration capabilities for payments and treasury solutions. They enable partners to use a commerce surface tailored to their specific needs. 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 to create new revenue 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. Our focused execution explains why priority consistently performed across varying economic cycles. Our customers and current market conditions reinforce our belief in our mission to deliver single-point commerce solutions that provide businesses with one view and total command of their financial environment 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 performance in 2026. Thank you, Tom, and good morning, everyone.

We had solid overall financial performance in the second quarter across each of our operating segments, which resulted in Q2 reported revenue growth of 9.4%, including organic growth of 7.2% on a consolidated basis. This growth was fueled by strong 21.6% growth in payables and 14.9% growth in treasury solutions, by 7.7% growth in merchant solutions, which included 4.5% organic growth. Strong continued growth in payables and treasury solutions resulted in 66% of our total adjusted gross profit coming from those two segments when you compare to trailing fold-month results on an organic basis. Moving now to the segment level results in more detail, I'll start with merchant solutions on slide nine. Merchant Solutions generated Q2 revenue of $175.8 million, which is $12.5 million, or 7.7% higher than last year's second quarter. Revenue growth was a mix of 4.5% organic growth, complemented by the boom in DMS acquisitions, completed in the second half of 2025. As a reminder, and as we move into the back half of the year, we'll have partial third quarter impact from boom, which closed on August 18th last year.

In Q4, we'll then provide a clean year-over-year comparison as the DMS acquisition closed on October 1st of last year. Total card volume in Merchant Solutions was $19.5 billion for the quarter, which is up 3.6% from the prior year. Within that aggregate volume, we saw overall strength in wholesale trade and retail, but it was a mixed bag within the broader retail category as convenience stores, gas stations, and food stores were up, while home furnishings and building materials were down. We also continue to see some softness in construction and restaurants, which improved from Q1, but we're down on a year-over-year basis. Adjusted gross profit for the second quarter was $39.8 million, which is up $4.4 million, or 12.4% from Q2 of last year. Gross margins of 22.7% of over 100 basis points higher than the comparable quarter last year due to the boom in DMS acquisitions, partially offset by the impact of higher residual expenses in the portfolio. Lastly, adjusted EBITDA was $30.9 million, which is up 3.1 million, or 11.3% compared to last year.

Moving to the payable segment, revenue of $30.4 million was 21.6% higher than Q2 of last year. Buyer-funded revenues grew 26.3% year-over-year to $25.3 million, while supplier-funded revenues grew 2.6% year-over-year to $5.1 million. Adjusted gross profit was 6.5 million in the quarter, which is a 10.4% decrease from the prior year. For the quarter, gross margins were 21.4%, which is down 760 basis points compared to last year's second quarter. decline is a result of larger enterprise level customers operating at lower overall initial margin profiles. increased card network and interchange expenses, and continued shift in revenue mix with buyer-funded revenues reported at lower gross margins given GAAP requirements to recognize revenue on a gross versus net basis. The payable segment contributed $3.1 million of adjusted EVDA during the quarter, which is a $660,000 or 17.5% decrease from last year. Operating expenses before D&A were down slightly in the quarter compared to last year, with the decline in adjusted EBITDA resulting from the lower gross margin in the buyer-funded business unit. Moving to the Treasury Solution Segment, Q2 revenue of $60.5 million was an increase of $7.9 million or 14.9% over the prior year's second quarter.

Revenue growth was driven by slower but stable new enrollment trends in CFTP pay and a 15% increase in the number of billed clients to over 1.1 million, combined with a 30% year-over-year increase in the number of integrated partners, along with organic 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 Q2 of last year. As a result of those factors, adjusted gross profit for the segment increased by 7.7% to 53.6 million, while adjusted gross profit margins were 88.5% for the quarter. Gross margins were approximately 590 basis points lower than the prior year second quarter due to continued mix shift resulting from over 125% revenue growth in Passport and almost 400% revenue growth in Priority Tech Ventures, both of which operate at lower gross margins than the CFTPay platform where margins have remained very stable. Adjusted EBITDA for the quarter was $47.5 million, an increase of $2 million, or 4.3% year-over-year, as high single-digit growth in CFT pay was partially offset by investments we continue to make in newer vertical software assets within Priority Tech Ventures. Moving to consolidated operating expenses, salaries and benefits of $29.1 million increased by $2.1 million, or 7.7%, compared to Q2 of last year, and was up slightly on a sequential basis compared to Q1. The year-over-year increase was primarily driven by an increase in acquisition-related headcount additions.

SG&A of 16.8 million increased by 2.9 million, or 20.8%, compared to Q2 of last year, and was down sequentially compared to Q1. The year-over-year increase was because of higher cloud and software expenses, an increase in marketing spend, and certain non-recurring legal and transaction-related expenses. Depreciation and amortization was higher this quarter related to the accelerated depreciation of certain DMS assets. Moving forward, we expect quarterly DNA to return to more normalized levels. With respect to our capital structure on page 13, debt at the end of the quarter remained at $1.02 billion, and we ended the quarter with over $220 million of available liquidity, including all $100 million of borrowing capacity available under our revolving credit facility, and $120.3 million of cash on the balance sheet. With respect to free cash flow, we generated $27.4 million of free cash flow in the quarter based on adjusted EBITDA of $59.4 million, less $7.1 million of CapEx, $21.1 million of interest expense, and $3.8 million of income taxes. For the LTN period ended June 30th, adjusted EBITDA of $235.3 million combined with net debt of $899.7 million resulted in net leverage of 3.8 times a quarter end, which is down from four times at the end of Q1.

For further comparison, if you were to include the run rate impact of acquisitions, proforma net leverage would have been 3.75 times at quarter end. From a capital allocation standpoint, we will focus on continued deleveraging throughout the balance of 2026, but we'll also continue to evaluate tuck-in acquisitions in attractive verticals or new markets. The last topic I'll address before turning it back over to Tom relates to our financial guidance for the full year. Based on strong revenue trends in the first half of the year and visibility into favorable trends continuing in the second half of the year, we're maintaining our revenue guidance range of $1.01 to $1.04 billion and expect to be at the higher end of that range. As noted earlier, we are seeing some margin pressures across all three operating segments related to business mix, higher residual expenses, increased card network and interchange expenses, and continued investments in new vertical software assets and priority tech ventures. Considering these factors in tandem with strong revenue expectations, we are maintaining our forecasted gross profit range of $405 to $425 million and our adjusted EBITDA range of $230 to $245 million. And we expect to be at the lower end of those respective ranges.

As we move through Q3 and have enhanced visibility into our full year results, we will provide further guidance on our Q3 earnings call. With that, I'll now turn the call back over to Tom for his closing comments. Thank you, Tim. Before concluding, I wanted to reflect on observations we shared during our Q4 2025 earnings call. During it, I noted our continued focus toward optimizing the Priority Commerce Engine, an API, as a foundational moat purpose-built to operate core payments and... financial workflow applications in our key industry verticals. Leveraging our commerce engine for payments and treasury solutions, we can deliver one view of a business's financial environment with total command of their cash flow. Customers can see all modalities of payments reconciled in a single view and utilize sophisticated banking and treasury tools to optimize their working capital without the responsibilities of managing compliance, regulations, or risk. We continue to build out the surface layers for these key verticals and are seeing the success of this focus.

As just a few examples, Priority Commerce Sports continues to accelerate. We recently announced the Pittsburgh Steelers as our first NFL franchise and Texas Rangers in Major League Baseball, with others across all five major sports leagues waiting in the wings to go live. In a recent press release, Doug Stuber, Vice President of Finance for the Pittsburgh Steelers, summarized how our commerce platform is serving the changing expectations of finance teams in sports for more connected financial operations. Thank you. He noted, Priority Commerce offered the combination of payments technology and passport, treasury orchestration, and collaborative approach we were looking for, making them the clear choice. As another example, Prouty Commerce Automotive is now the endorsed partner by 19 state automotive dealership associations, with Florida and California recently announcing their support. Additional enterprise wins we've gathered in areas like hospitality and healthcare reinforce our belief in the appeal of our connected payments and treasury capabilities to solve operational pain points and deliver new revenue opportunities to our customers. And needless to say, executing our vision for the future of commerce cannot be manifested without the focused execution of my colleagues at Priority, who continue to work incredibly hard to deliver results.

Your commitment and dedication to continuous improvement is providing our partners and customers with a consistent 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 Operator, we'd like to now open the call for questions.

Thank you. We'll now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Wasu Govel from KBW. Please go ahead.

Hi, thank you for taking my question. I guess I wanted to ask about the gross margin pressure that you talked about, particularly in the payables and treasury solutions where it seems to be a little bit more intense. If we just pull up and look out, you know, into the medium term, like how should we expect those gross margins to evolve as these businesses scale more? Sure.

Thanks for the question. So if you think about this quarter, the payables pressure we saw was really a combination of two factors. First and foremost was mixed shift as we continue to see much higher growth from the buyer-funded revenue stream, which, as I noted, comes in at lower gross margins. given the gross reporting requirement they have from a gap revenue standpoint. So that's going to automatically put some pressure on margins, you know, given that reporting. format. And then we also had a number of large enterprise customers where, as we've talked about historically the last several quarters, we're seeing success going upmarket into larger enterprise customers. Some of those are coming on at lower initial margins. We're looking at those as opportunities where those customers have a lot of other needs. So beyond just the payables components It's working with them on banking and treasury and adding other services into there and expanding the margins.

So that process is still ongoing. So we're optimistic we'll see some margin stabilization there as we continue to see higher growth in payables and buyer-funded revenues, pushing margins down. being offset by a combination of cross-sell opportunities into some of those similar customers. On the Treasury side, it's going to continue to see margin compression naturally as, you know, the CFTP platform has been very stable from a gross margin standpoint, particularly. It's really a growth factor with the other Treasury solutions expanding at triple-digit growth rates, and those are operating at meaningfully lower gross margins. Those margins are more in the 30 to 40 percent gross margin range, so as those businesses continue to trend on a very favorable growth note, we'll see natural margins. compression in the treasury business. So I think over time, you'll see that business get closer to 80% gross margins, but that's going to be on the success of what we're seeing in priority tech ventures and Fastport.

Great, that's super helpful. And then if I may ask one on just the merchant acquiring business as we think about the second I know you started to see some macro headwinds in the back part of last year. So as we begin to lap, those should be expect some acceleration and growth there. And then any way to quantify how much macro is still weighing on the growth, I guess, in that business today? Okay.

I think we saw certainly a macro slowdown last year in the back half where organic growth was down in the 3% range. This quarter we're 4.5% organic growth. So we continue to execute in that market. We'll see some natural organic pressure. our overall pressure in Q4, as we anniversary the acquisitions from last year, but we're our full year guide there. We had mentioned 6-9% overall growth, I'm sorry, 6-8% growth in merchants with 3-4% organic. We feel like we're running well on track for that on the organic side. And even if you just took the Q2 revenue numbers and repeated that in Q3 and Q4, we'll be well within the revenue guide for merchant solutions.

Thank you very much and I'll hop back in queue. Just one other point.

I just want to note that we didn't speak to is the I know you watch this very closely, but MasterPred and Visa did push through some price increases at the interchange level. Those just occurred last quarter. So, there's some reconciliation of those, how we may treat those from a pricing standpoint you know, that I think will factor into the second half of the year. but that was a source of pressure on margins. You know, cost of goods sold just went up because of interchange increases.

That makes sense. Thank you for the color. And the next question comes from Hal Goach from B. Reilly. Please go ahead.

Hey, guys. I just wanted to ask about the accounting change on the buyer-funded payables, supplier-funded payables. Is that a big driver? Is that a majority of the mix shift and margins in that segment?.

To be clear, it's not a change in accounting. Ever since we acquired the plastic business, we've had to account for their revenue on a gross basis since we're the merchant of record. So we account for gross and then our cost of sales there is interchange. So as that business becomes a more and more meaningful portion of payables on a revenue basis, it's is going to run at lower margins because of that accounting aspect. And if you think about the revenue mix, the buyer-funded piece grew 26% this quarter and is becoming a majority of the revenue stream within payables. From a gross profit basis, those two businesses, buyer-funded and supplier-funded, are a little more even with each other because of the accounting nature, but the buyer-funded revenue stream is the best.

majority on a revenue basis. Okay. If you think about it, it's a little... counterintuitive, we're kind of being punished, in a sense, margin-wise, for the growth of that business just because of the way the accounting works? So if you kind of drill it down, when we sell more buyer-funded, which I think this speaks to the agility of the solution, that customers, particularly upmarket customers, are looking... to use card strategies as a source of working capital in ways that they may not have considered in the past and normally would look to a revolving credit line. and this is more efficient. So we're seeing the success of that narrative. And then coupled with that increase in buyer-funded utilization, MESGARD and VISA both pushed through cost increases in interchange. So, you know, there's some squeeze in the cost of goods sold as that's being utilized. And because of the fact of, you know, the accounting treatment that Tim mentioned, it's a bit of a double whammy.

Yes. Interesting. Well, I'll tell you, on your merchant side, I mean, I think you're, you know, I don't know if you saw Global Payments, you know, it's breaking out by a segment, and I think your SMB performance is very good. comparable if not better I think that's a positive sign that you're you got a solid business there in the SMB which which you often forget about given the growth in payables and Treasury.

So, well done. Thank you. Thanks, Al. And the next question comes from Jacob Steffone from Lake Street Capital Markets. Please go ahead.

Yes, hey guys. Maybe just to start for me. On the treasury margin, you know, just 800 basis points of compression year over year. I guess how much of that is Passport versus, you know, tech ventures or just kind of lower yields on deposits? Maybe if you could help break that out for us.

It's not lower rates and deposits. We outgrew the lower rates this year compared to last year in Q2 with just deposit growth, And the CFT pay margins have remained very constant. So it's really a mix shift with Passport and Priority Tech Ventures. Broadly, they may move quarter to quarter based on some of the revenue mix within those businesses, whether it's transactional revenue or capital. you know, float revenue, but consider those as in the, you know, 30 to 40 percent, you know, gross margins. And, you know, Passport grew 125 percent year-over-year in the quarter, and Priority Tech Ventures revenue grew, you know, almost 400 percent. So as those businesses continue to become a more meaningful portion of the revenue in Treasury Solutions, you're going to see natural margin compression. But we actually view that as a positive thing over time because that just means we're having success with those other treasury solutions outside of just the core CFTPay platform.

Got it. Very helpful. Maybe just touching on CFTP then. Average monthly enrollments were down year over year, but your average billed clients grew pretty nicely. I guess, when does that kind of enrollment trend start to ultimately show up in the treasury segment?.

I think it's a macro environment component now as we think about our partners from a referral standpoint and how they see the environment and where they want to invest dollars from a marketing standpoint to capture new enrollments. So they're always going to look at their customer acquisition costs and whether they're getting a return on that marketing spend. In this macro environment, they've pulled back a little bit on the marketing spend, and they've seen a little bit slower enrollments. So it's a combination of that macro environment, and then we continue to look at adding new partners to the platform. We already have large market share in that arena, so it's a very sticky business, as we've talked about in the past. So it's tough to win new customers. It's also very difficult to lose customers.

We see a lot of shift from a partner standpoint, and it's really the macro environment that's controlling the new enrollment growth right now. But we continue to see strong performance there. Obviously, billed clients continues to grow, which is a larger driver of revenue for us than the new enrollments. And then we're also managing interest rates very effectively with our strategies around that. Okay, got it. I appreciate all the color.

Again, if you have a question, please press star, then 1. And our next question comes from Brian Bergen from Cowan. Please go ahead.

Hey, guys. Good morning. Thank you. On profitability, maybe I'll ask this a different way on the margin. So if you step back at a high level, are you able to bucket perhaps temporary costs versus costs that hang around in the structural run rate? I get the mixed dependent factors that are going to influence gross margin and payables and treasuries. But putting that aside, what would you say are temporary headwinds or temporary headwinds I heard things like tech, marketing, the network costs, that you're going to have to laugh for a bit. But if we try to simplify all this, is there a way to summarize how those short-term versus lasting factors in total will move forward as we think about EBITDA margin?.

Yes, I think the EBITDA margins are probably less impacted for what we've talked about. So most of what we've discussed with the mix, some of the incremental costs we've seen from the card network and interchange changes, that's all hitting at the gross margin level. So if you look at flow through from gross to adjusted EBITDA, it's been pretty consistent. We've managed expenses extremely well. So we do have some one-time items in the first half of the year, whether it's related to the special committee or some of the increased public cloud expenses. But that was less of a factor overall. It's really the gross margin item, which... Some of those are going to be recurring items as we continue to invest.

And where you're going to see a change over time is using the real estate that we've collected with some of these larger enterprise customers to ultimately drive margins with continuing to cross-sell and having those same clients be on banking and transportation. or if they're on banking and treasury or acquiring now, having payables be the cross-sell opportunity. So it's using the platform to its fullest extent with those large enterprise customers that's going to be the driver of margins.

Okay, understood. On merchant solutions, so I know that the 8% revenue growth in 2Q benefited from roughly 350 BIPs from acquisition. I know 3Q still has a partial contribution from Boom. Can you just maybe help quantify what that might be remaining? And as we think forward, is the current mid single digit organic growth rate or a reasonable run rate for merchants?.

We believe it is. We're continuing to see success there, so we do think that that mid-single-digit, I think we initially guided it at 3% to 4% organic growth. I think that's still the appropriate level to think about longer term for that business. And from a margin standpoint, we think we're going to be relatively consistent from where we sit today through the balance of the year as you think about the margin profile in Merchant.

All right. Brian, the other thing I would just call out, just, you know, We're pretty transparent about some of the partnerships that we're building out right there just um you know, they're larger in nature, right? Signing up... Pittsburgh Steelers, Texas Rangers, you're attaching to high-volume ticketing and no other activities in the stadium. So our goal is to continue – With that success, you'll... you're going to see it impact you know our revenue growth rate organically so I would keep a lookout for new logos, and you'll have a real good sense.

Okay, yes, that's a good point. You had some nice wins there. My last kind of question or maybe statement is, obviously, on the unresolved special committee assessment, I understand you can't say much, but this is clearly overhanging fundamental performance. And I guess the question or unknown is whether there's particular milestones the board is assessing or some timeframe by which this is meant to be completed by because obviously until something changes there, it seems to preclude share movement. And this is effectively one of the only things that current investors are keyed in on. So it's only a consideration for the board here. Thanks, guys.

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

On behalf of Tim and I, I just want to thank everyone for your participation in today's And hopefully the results continue to reflect sustained focus on execution. And we'll look forward to reporting back again in the near future.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

[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.