Overview of Company’s Financial Performance

The company, Priority Technology Holdings, provides payment processing services to merchants and businesses. In the first three months of 2024, the company’s total revenue increased by 11% compared to the same period in 2023, driven by growth in its Enterprise Payments and B2B Payments segments.

However, net income declined from a small loss of $0.5 million in the first quarter of 2023 to net income of $5.2 million in the first quarter of 2024. This was primarily due to higher interest expenses related to debt used to finance an acquisition.

Revenue Trends

The company generates revenue from four main sources:

• Merchant card fees - fees charged to merchants for payment processing services. This makes up the majority of total revenue.
• Money transmission services - fees for transferring money.
• Outsourced services - includes interest income and other services.
• Equipment - revenue from sale of point-of-sale equipment.

In the first quarter of 2024, merchant card fees increased by 6% and money transmission services grew 36% compared to the same period in 2023. These increases were partially offset by a 7% decline in revenue from the company’s SMB Payments segment due to decreased transaction volumes.

Profitability

Despite the growth in revenue, overall profitability declined in the first quarter of 2024 compared to 2023, with net income decreasing from a loss of $0.5 million to income of $5.2 million. This decline was driven by:

• An 18% increase in interest expenses due to higher debt levels. This reduced net income by $3.2 million.
• Higher personnel costs, increasing 16% due to headcount expansion and bonuses. This reduced net income by $3.1 million.

These negative factors outweighed the positive impact of the 11% growth in total revenue.

Segment Analysis

The company operates three main business segments:

• SMB Payments: Provides payment processing services to small and medium-sized merchants. This segment saw a 7% revenue decline in the first quarter of 2024 due to decreased transaction volumes. However, strong cost control helped maintain profit margins.

• B2B Payments: Focuses on accounts payable automation and working capital solutions for businesses. Revenue grew significantly from the acquisition of Plastiq, a business payments platform. But higher costs related to the acquisition led this segment to report a small operating loss.

• Enterprise Payments: Offers embedded payment solutions for enterprise software platforms. The segment delivered strong growth with a 50% increase in revenue from higher interest income and growth in the client base. Operating margins expanded from 46% to 63%.

Outlook

The company is continuing to pursue its acquisition strategy to drive growth. However, rising interest rates have increased borrowing costs, weighing on profitability.

Tight management of expenses enabled the SMB Payments segment to maintain profits despite revenue headwinds. Meanwhile, the Enterprise Payments segment demonstrated robust growth.

The company has adequate liquidity and credit availability to fund operations and future investments. But its high debt load makes financial performance sensitive to interest rates.

Maintaining strong cost controls and maximizing synergies from acquisitions will be key to improving margins. However, the challenging economic climate has introduced uncertainty around transaction volumes and revenue growth.