Priority Technology Holdings, Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, thank you for joining us.

With me today are Tom Priore, 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 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. 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 operating 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. Thanks to everyone for joining us this morning for our second quarter 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. 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 Solutions 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 adjusted EBITDA ranges, reflecting continued investment and mix-related margin pressure that Tim will detail. Turning our attention to aggregate Q2 results on slide four, 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% improvement in adjusted EBITDA to $117.5 million. For those of you who are new to Priority, slides six and seven 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 toolset 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 seven 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 that 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, 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, complemented 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 12-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 and DMS acquisitions completed in the second half of 2025. As a reminder, 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, Q4 will 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, 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 continued to see some softness in construction and restaurants, which improved from Q1 but were 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% are over 100 basis points higher than the comparable quarter last year due to the Boom and 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 Payables 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 $6.9 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. The 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 Payables segment contributed $3.1 million of adjusted EBITDA 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 Solutions segment, Q2 revenue of $60.5 million was an increase of $7.9 million or 14.9% over the prior year's second quarter.