Priority Technology [PRTH] Conference call transcript for 2022 q4
2023-03-23 16:32:06
Fiscal: 2022 q4
Operator: Good morning and welcome to the Priority Technology Holdings Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Chris Kettmann. Please go ahead.
Chris Kettmann: 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 we give 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.
Tom Priore: Thank you, Chris and thanks to everyone for joining us for our fourth quarter and full year 2022 earnings call. Before going into our financial results, I would like to highlight a few key takeaways about the current business trends as you absorb the Q4 performance and projected into 2023. First and foremost, the business is performing the way we anticipated, consistently growing market share in SMB acquiring and producing strengthening results in B2B and Enterprise Payments. While other companies are paring back in response to uncertain macroeconomic conditions and the recent banking turmoil, we're driving forward on the strength of our countercyclical business lines that we're positioned to benefit from higher interest rates and the current economic environment. Second, not only are we outperforming our peers but the key metrics in our business have continued to improve. Our full year 2022 growth rates and margin expansion are representative of the first quarter trends we have seen to date in 2023. Last, our decision in 2022 to accelerate investment in Passport, our unified commerce API combining full featured payments and banking as a service is proving somewhat prescient. Given the recent struggle of the banking sector and the general prices of confidence in banks among businesses of all sizes. I'll speak in more detail on this topic toward the conclusion of our call but suffice to say that the current pace of new partners adoption of Passport to collect, store and send money will fuel results in the quarters and years ahead. With that as a backdrop, let's dig into the numbers. As you saw in our earnings release, we continued our positive momentum with an exceptionally strong fourth quarter to close out a strong 2022. Our fourth quarter revenue increased 23% from the prior year to a record $177.6 million which led to a 25% increase in gross profit to $61 million and a 21% improvement in adjusted EBITDA to $39.8 million. For the year, revenue increased 29% to $664 million, growing organically by 23% in the fourth quarter and 19.1% in 2022. Full year adjusted gross profit and EBITDA both grew 46%, with adjusted gross profit reaching $226.9 million and adjusted EBITDA coming in within our target at $140.3 million for the full year 2022. Adjusted gross margin of 34.2% increased 410 basis points from 2021, demonstrating the operating leverage of our purpose-built platform. As I earlier noted, we anticipate that our strong fourth quarter performance and established trends in our business channels will continue. As such, we are expecting to deliver consistent double-digit top line and bottom line growth projecting revenue of $740 million to $755 million and adjusted EBITDA of $160 million to $165 million for the full year 2023. For those of you who are new to the company, Slide 7 highlights the architecture of our proprietary unified commerce platform that is purpose-built to collect, store and send money. Combining robust payments and banking functionality to monetize the merchant networks we serve. Our customers and the current market conditions continue to reinforce our belief that systems combining features of both payments and banking to accelerate cash flow and distribute funds to multiparty environments will be critical as businesses put greater demands on software and payment solution providers. We are committed to meeting their growing demand by simplifying the customer experience for our partners and making working with priority as easy as 1, 2, 3. Partners simply choose the application that best fits their business, whether that is a small business operator choosing from MX merchant and the MX POS suite, an FI or a middle market customer adopting CPX for automated payables or an enterprise partner connecting to us via our API. They select the Passport financial tools that best fit their needs and begin to move money. At this point, I'd like to hand it over to Tim, who will provide further insights into our segment level performance during the fourth quarter and full year, along with current trends in each that inform our guidance for the upcoming year.
Tim O'Leary: Thank you, Tom and good morning, everyone. As I review the full year and fourth quarter financial results, including the segment level contribution to the consolidated results, please refer to the supplemental slides or the MD&A for further details. Our MD&A is included in the Form 10-K that was filed with the SEC this morning and provide a discussion of our comparative full year results. A link to that filing can also be found on our website. As Tom mentioned, we had strong financial performance across all business segments in both the fourth quarter and for the full year. I won't reiterate the financial highlights that Tom already spoke to for both of those time periods. But before I go into the segment level details, I do want to provide a few other key metrics as it relates to the full year consolidated results. For the full year, we had almost 15% growth in bankcard dollar volume across all segments to roughly $62 billion. We had 10.5% growth in bankcard transaction count to 640 million transactions and just under 4% growth in average ticket size to $96.50. If you include ACH, debit and other volumes, the total payment volume for the year was $112.8 billion. Again, those metrics are all for the consolidated business. I'll now go into more detail on each of the business segments results for the fourth quarter. Let's start with SMB payments on Slide 10. For the fourth quarter, that segment had revenue of approximately $150 million which was an increase of 23% over the prior year's fourth quarter. This strong growth was almost entirely organic and was driven by a combination of over 7% growth in bankcard dollar volume to roughly $14.9 billion which included 9% growth in bank card transaction count and was slightly offset by a decline in average ticket size to $92.61 from just over $94 in the fourth quarter of 2021. We finished the quarter with 259,000 merchants which represents an increase of 7% from the prior year. The average merchant count for the quarter was just over 257,000 which was also a 7% growth from Q4 of 2021. This growth in merchant count was driven by continued strong boarding trends where new monthly merchant boards averaged 4,600 per month throughout the quarter. That compares to an average of 3,600 per month in the fourth quarter of 2021 and an average of about 4,700 per month for all of 2022. Continuing with SMB on the next page but moving down the P&L to focus on profitability. We also saw a strong performance with adjusted gross profit increasing 18% to $36 million despite a 120 basis point decrease in adjusted gross profit margins. As discussed on prior calls, we've continued to see some margin compression across the acquiring portfolio as a result of our larger reseller partners, driving more of the growth but those partners also generally receive higher residual commissions. Lastly, for SMB, quarterly operating income increased by 42% to almost $15 million as a result of operating leverage within the business segment. Moving to B2B payments. We had revenue of $2.8 million in the fourth quarter of 2022 which was a decrease of 48% for the fourth quarter of 2021. This decrease was the result of the previously discussed reduction in revenue from Managed Services due to the final wind down of certain programs with a large customer. To help put that wind down in context, Managed Services generated on average over $2.7 million of quarterly revenue in the first half of 2022. That compares to just over $300,000 in the fourth quarter as the program completed its wind down in October. Going forward, we expect to see a nominal amount of Managed Services revenue that will be generated by some smaller legacy programs. Focusing on the CPX business within B2B, revenue for the quarter was relatively flat at $2.5 million but it was negatively impacted due to the timing of certain incentives. Normalizing for that, CPX would have grown almost 9% in the quarter. The growth in CPX was fueled by just under 8% growth in ACH volume from Q4 of 2021 to Q4 in 2022 and 11% growth in issuing volume. With respect to B2B's profitability on Slide 13, adjusted gross profit declined by 35% as a result of the Managed Services wind down but you can also see how the adjusted gross profit margin increased by over 12 percentage points during the quarter as the lower margin Managed Services business rolled off. For the quarter, the B2B segment had an operating loss of $1.1 million as certain costs related to the Managed Services program weren't able to be fully removed from the P&L in Q4 but has since been reduced. Moving to the Enterprise segment on the next page. Q4 revenue of $24.9 million was an increase of $7.7 million or 46% from $17.1 million in Q4 of 2021. As a reminder, CFTPay was acquired in September of 2021, so the strong year-over-year growth in Q4 is entirely organic and not the result of any grow-over from the acquisition timing. Favorable trends in new enrollments and increase in the number of build clients and the benefit of rising interest rates all contributed to the fourth quarter revenue growth. I would also highlight that the Q4 performance represents almost 15% sequential growth from the third quarter of 2022. As shown on the next page, adjusted gross profit for the Enterprise segment increased by 50% to $23.3 million and adjusted gross profit margins expanded by 300 basis points to 93.6%. Operating income for this segment also benefited from operating leverage as exemplified by its 121% growth compared to revenue growth of 46%. We remain excited by the revenue and earnings opportunities inherent in the enterprise segment going forward. Operating expenses are shown on Page 16 and totaled $42.8 million for the quarter, an increase of 20% from the prior year. This change is primarily driven by increased expenses in the business resulting from investments made in both personnel and technology to support the strong growth experience in 2022. Salaries and benefits of $16.9 million increased 41% from Q4 2021 as a result of both an increase in headcount and wage increases which is consistent with industry and broader macro trends. The headcount increases supported growth across the company and were added in both the U.S. and in our development center in India. We finished Q4 with approximately 870 employees, including roughly 300 in India compared to just under 800 at the end of 2021. I do want to highlight that the $16.9 million of salaries and benefits in Q4 was only a modest increase from $16.4 million in Q3 as we remain focused on extracting operating leverage from the investments that have been made to date in both the team and technology. SG&A of $7.9 million increased 27% from $6.2 million in Q4 2021. Again, continued investment in the business expansion drove that level of growth. But consistent with my comments on salaries and benefits, we will continue to focus on our cost structure in order to drive operating efficiencies. I would highlight that the Q4 spend was almost $3 million lower than Q3 levels due to the roll-off of certain nonrecurring expenses, combined with lower marketing expenses following the Priority Power Conference that we hosted in September. Depreciation and amortization of $18 million for the quarter increased modestly from the last year. Moving to the next slide. Adjusted EBITDA for the quarter was $39.8 million which was an increase of 21% from $32.9 million in Q4 of 2021. Working down the EBITDA walk on this slide, I'll start with Q4 but also discuss the full year results. The largest items added back to consolidated net income are obviously interest expense and depreciation and amortization. Interest expense of $16.3 million for the quarter is an increase of $4.4 million from Q4 2021 levels given the impact of the rising interest rate environment and the floating rate nature of our existing debt. On that topic, I would reiterate from prior calls that we do have a natural hedge in place for almost 90% of the floating rate debt given the interest income we were able to generate on the deposits in the Enterprise segment. If you include the floating rate component of our preferred stock, the natural hedge from the deposits cover about 60% of our floating rate liabilities. The further adjustments to arrive at adjusted EBITDA for Q4 include noncash stock compensation of $2 million and approximately $1.3 million of other adjustments which consists of certain noncash or nonrecurring expenses. For the full year, adjusted EBITDA of $140.3 million includes an add back of $53.5 million for interest expense, $6.2 million of noncash stock compensation expense and $6.7 million of other noncash or nonrecurring expenses. Moving to the outstanding debt slide on Page 18. You'll note that our debt levels declined year-over-year and we finished the quarter with $623.2 million of gross debt and $604.7 million of net debt. This reduction is net of continued investments in the business and also after repurchasing 1.7 million of PRTH shares during the fourth quarter and $5.9 million during the full year. From a liquidity standpoint, we had $27.5 million of borrowing capacity under our revolving credit facility in addition to $18.5 million of unrestricted cash on the balance sheet at quarter end. I would also note that subsequent to Q4's quarter end, we have paid down another $6 million on the revolver. On Slide 19, the preferred stock on our balance sheet totaled $235.6 million at December 31 and is net of $21.1 million of unaccreted discounts and issuance costs. The fourth quarter preferred dividend of $10.5 million is comprised of $5.3 million paid in cash and $4.3 million of a PIK component. That is supplemented on our income statement with the accretion of discounts and issuance costs of just over $800,000. Before turning the call back over to Tom, I wanted to further address our revenue and adjusted EBITDA guidance for the full year 2023 which can be found on Slide 20 in the presentation. Based on continued strong growth and trends in the business, we are forecasting 12% to 14% growth in revenue to a range of $740 million to $755 million for the year. As I mentioned previously on the call, we are focused on leveraging the investments already made in the team and technology throughout 2022 which should lead to overall margin expansion during 2023. As a result, we are forecasting adjusted EBITDA growth of 14% to 18% which will result in a range of $160 million to $165 million for the full year. If you break that growth apart, we're forecasting continued double-digit growth in revenues from SMB but we also expect to continue to see some modest margin compression in the portfolio as our larger reseller partners continue to drive more of the growth in the business. B2B's top line growth will be skewed by having to anniversary the runoff from Managed Services but we expect CPX to show continued growth that should also result in margin expansion for the segment given the higher margin profile of CPX compared to Managed Services. Lastly, Enterprise is forecast to continue its strong growth, although we have tempered expectations a bit throughout 2023, to account for the growth already experienced in the second half of 2022. Further, we expect the margin profile in the Enterprise segment to remain consistent with its exit rate from 2022. With that, I'd now like to turn the call back over to Tom for his closing comments.
Tom Priore: Thank you, Tim. Before wrapping up, I'd like to speak to one of the more significant points we made during our Q3 discussion. During it, we called out our decision to accelerate investment in our banking product initiatives in the back half of 2022, that would lead to slightly lower bottom line guidance, stating that, we believe accelerating feature development of our native Priority Passport offering to deliver a full suite of proprietary payment and banking solutions into the SMB and B2B markets as well as enterprise partners will result in outside benefit to our shareholders in the coming years. We also highlighted research from leading research firms, McKinsey and Bain about the trends in payments and banking commonly referred to as embedded finance. Their conclusions reflected that small businesses starting up today may never interact with a conventional bank. By logging into their e-commerce or accounting platform, they can open a deposit account, order a debit card and meet most of their financing needs to embed financial products into a single, seamless, convenient and easy-to-use customer experience. They predict that the winners will likely provide a full suite of services, including some regulatory oversight, compliance, origination and fulfillment, enablers that take the hassle out of embedded finance for platforms through easy integration and great servicing should hold the upper hand. They can choose high-volume self-service model or a higher touch operation across fewer bigger platforms. Well, the current crisis of confidence in the banking system will certainly drive more businesses to alternative solutions that offer greater transparency, speed of cash flow recognition, regulatory support and diversification of banking system risk that traditional platforms cannot deliver. Our systems are built for this future and are proving ready for the current test under fire. In addition to handling all forms of payments, credit, debit, ACH, checks, yes, even lockbox capabilities and wires and robust security and compliance, Passport's self-directed account opening process only needs an e-mail for customers to get started. Our FASB, KYC and AML process can set up an account in less than 30 minutes. In fact, during the weekend of the SVB and signature failures, new account setup time averaged 7 minutes. Once established, customers can set up their own virtual accounts near instantly. Importantly, as a licensed money transmitter regulated by in all states, the funds and Passport are syndicated to our partner banking institutions and maintain in fully ratable FDIC insured accounts. Albert Einstein famously said that in the midst of every crisis lies great opportunity. We're confident that we have prepared well for the present turmoil in the banking system and will emerge even stronger just as we did following the height of the COVID pandemic and the recent pressures from inflation and economic downturn. As many of our peers reduce investment in the wake of worrisome macroeconomic conditions and the igniting banking system fears. We remain confident in our investments into the convergence of payments and banking and even more keenly focused on our execution. We're positioned to benefit from opportunities emerging from the current uncertainty by providing transparent and secure unified commerce solutions that today's businesses need. In closing, I want to acknowledge my passionate colleagues at Priority who are fully committed to our mission and continue to deliver market-leading results. Thank you for your unwavering focus and the exceptional work you continue to deliver day in and day out. There is no power greater than human passion and your passion to deliver great products and customer experience is the power that's driving priority. We appreciate you all taking the time to participate in today's call and the ongoing support of our investors and analysts. Operator, we'd now like to open the call for questions.
Operator: The first question is from Brian Kinstlinger of Alliance Global Partners.
Brian Kinstlinger: Thanks for all the details on unified primers platform. I believe that's what I've been calling the banking-as-a-service platform. So assuming that's right, can we talk about as this product launched, you talked about it was imminent as of last quarter. How is early adoption going outside the initial beta customer? And then what's the customer acquisition process for this new platform offering?
Tom Priore: Yes, sure, Brian. I mean, look, so far, it's been all smooth. We're being very judicious about how we're rolling it out. It's been more focused on our enterprise and B2B customers initially and we'll be hitting the SMB segment. We've already launched beta into SMB, gathering more intel and focused on having that launched more fully on the latter part of May and June into just a broad base into the SMB acquiring segment. The -- it's been a really good test quite honestly, because of the recent turmoil in the banking sector. So -- just to give you a couple of examples, kind of stated there, we -- we had a lot of folks who were just needed to get account set up and move funds out of SEB or signature. And they were average setup time for them to get established, do all KYC, AML checks, get them permission with credentials with 7 minutes. So it's pretty -- I don't know how many platforms are equipped to operate at that level. We had folks that chose instead of, let's say, setting up physical accounts through our portal would do it through the API. And we're integrating to our API for all of their payment operations. And these were multibillion-dollar players in 48 hours. They were set up and testing transactions and moving volume. So it's ready for prime time. It is -- got a robust pipeline of enterprise partners either integrated or already -- or in the process of integrating and it's a fast process.
Brian Kinstlinger: As it relates to those banks signature and SBB that had challenges and you had companies that were able to set up in 7 minutes. Were those customers that were already familiar and working in your backlog? Or how do they become familiar with to move so quickly?
Tom Priore: I mean they -- they were relationships that were familiar to us, we're familiar with what we're doing but they were not existing customers.
Brian Kinstlinger: Got it. And then switching gears to CPX. I think you were clear that you expect growth this year and you could have had 9% growth. But at least from how I personally expected, I thought it would be growing faster over the years. Maybe talk about what's going on there in terms of onboarding business payments volume, what, if any, is the bottleneck? And how should investors think about this and when it might become a much larger scale?
Tom Priore: Sure. Look, the -- we saw a very good wallet share growth or if you think of like growth in existing logos during the last couple of years. So sales that had been made, folks had been on the platform, did more volume which was great and anticipated where we've seen slower sales cycle is harvesting some of the relationships that we've already set up, Premier Healthcare, for instance and their GPO. The -- some of our FIs that we have contracted and are converting portfolios. Those implementation and sales cycles have been longer than certainly, we're satisfied with. And that's not -- it's not due to technology so much is due to -- we've got to break through some of the inertia at the customer level. And then, look, the other thing we've done is we just brought in 3 new salespeople. So we've been expanding sales and we felt we needed to put some -- a few more technological components in place so that salespeople could be highly effective. We did that, as I think we noted, not the least of which is the banking-as-a-service component, right? I mean think about the experience of a buyer and your supplier network and you can permission supplier wallets or I'll call it, supplier accounts on Passport instantly, right? Take all your supplier information, upload them into our system, take all the information they have on their W9 and run AML and KYC checks in minutes, right? That's a vastly different experience going out to sell than I'll call it, the old school way of gathering that information supplier by supplier. So we waited to have that complete to expand sales. We've now done that and we're very optimistic about the success of those selling efforts with this platform being available broadly and B2B.
Brian Kinstlinger: Great. Just quickly on merchant acquiring, I think I heard the comment but just to be clear, to date, in the first quarter, the trends you have seen in the last 2 to 3 years or even longer of merchant acquiring are generally unchanged. Is that right?
Tim OâLeary: That's correct. Now we've seen strong volumes through the first 2 full months of the quarter and expect that to continue through the balance here.
Brian Kinstlinger: And as you become much larger, it might take more merchants to sustain the growth. Are you making investments on the sales side? What do you do to eventually have to accelerate the number of merchant acquirers -- merchants you're acquiring?
Tom Priore: Well, a couple of things that are going to influence that segment and the revenue in that segment, right? So let's just, first of all, talk about the merchant base we have. We'll start rolling out embedded finance/banking into this segment, right? We don't need to invest any money to roll that out. These are all things that are built. They're set to go. Every single merchant that's on our platform will have a Passport account, call it within the next month to 6 weeks. So our revenue account will be there. Now it just needs to be activated, okay? As it gets activated, we'll offer them the ability to receive funds instantly, what we call fund in 5. If you're processing on our gateway, as soon as you authorize transactions and you elect to have instant funding, you get your money in 5 minutes of authorization through the gateway. If you're not a gateway customer but you're on our MX merchant suite, you'll get money same day when you close your batch. And if you leave that money in your Passport account and you spend from there using a debit card, there's no costs. If you sweep it to an external account, there'll be a fee, right? So these are things that they're -- look, they're what businesses need. And in this -- particularly in this environment, they want cash acceleration. They want transparency. And I would submit to you, given the current banking environment, having modern reporting that's clear and transparent which we have is going to be, we think, a pretty high value add, particularly sense that money is in an FDIC insured ratable account. So that's just one example. And of course, we'll keep building on from there, the ability to borrow funds from approved lenders through that account. And host of other things that, again, just become additive to margin without us having to do a whole lot. So I think that's the future of SMB acquiring is these things need to happen in one place. We're positioned to make that happen. The investments have already been made. They've been made very profitably as you can see from our overall performance. And now we have an opportunity to both ourselves and with our distribution partners provide more services which should lead to wallet share growth, profitability per merchant growth in that segment. So I would say that's really Phase 1. The other area where we're just winning. And you can see this in the trends of our merchant boards, right? We're consistently at or above 5,000 new merchant boards a month. It's because we have a lot of new boarding partners. Because what they're realizing is, hey, my merchants are just -- my merchant portfolio is worth more at Priority. They have better tools. They have more software-based tools that are specific to the verticals that I'm serving, whether that's health care, real estate, hospitality, salons, retail trade. We have very tailored vertical software for these business lines, so merchants stick around longer. And now you start adding the ability to inject ways for them to enrich their portfolio value with fees from banking services. Their merchant portfolio is just worth more at Priority; so they see that and we drive more reseller partners.
Brian Kinstlinger: Okay.
Tom Priore: I mean that is what's happening right now, Brian.
Brian Kinstlinger: Right. Two numbers questions. You highlighted salary and benefits up 41%, obviously, faster than revenue growth. Do I assume from the adjusted EBITDA guidance that, that trend will change and your salary and benefits expenses will grow slower than revenue growth? And then unrelated with the rising interest rates, can you help us with kind of what you expect interest expense to be for 2023?
Tim OâLeary: Sure. Yes. So Brian, on the salary and benefit side. So as I mentioned on the call, we're going to continue to monitor and really manage the investments we've already made to date, right? So no different than the sequential growth you saw from Q4 over Q3, right? That was pretty modest, only about $500,000 of an increase. We're going to continue to really keep those salary and benefit levels where they finished out the year. So I think you'll see growth there at a much lower rate than the top line as we want more and more of that growth to slow down to the bottom line. So I think your view is accurate. Obviously, we didn't provide detailed projections on that as part of the guidance but you can see the margin expansion that's happening between EBITDA growth.
Brian Kinstlinger: On the interest expense?
Tim OâLeary: Yes. So on the interest expense, obviously, our debt today is all floating rates. So we've got the natural hedge as I mentioned. But from an interest expense on the debt itself, depending on where the Fed tops out this year and where LIBOR or SOFR finishes off. I think we're estimating somewhere in the low to mid-$60 million of interest expense for the year. Obviously, some of that is offset in large part by the deposit balance, right? So with the rising rates, we've gotten the benefit of interest income off of the float, right? We've got roughly $530 million or so of deposits that sit out there at the end of the year. That number has grown since then. But that offsets a lot of that interest expense from a hedge standpoint and if you think about each 0.25 point of increase in rates, that's about $350,000 per quarter of additional interest income, right? So obviously, we saw a big bump late in the year last year and given where rates are today, we should see a meaningful increase year-over-year in interest income.
Operator: The next question comes from Matthew Howlett with B. Riley.
Matthew Howlett: Just what the margin guidance, I mean, did you say it contemplates the Enterprise Payment was in the fourth quarter, about 90%. If so, I mean, what -- I know I'm not trying to get '24 guidance out of you. But why wouldn't that margin as that kicks in, continue to just accelerate. It's just sort of what -- company-wise, something where you can give us sort of what's -- is '23 sort of a transitional year. Are you holding back some upside with some rollout. Just get in to more of that margin guidance and the enterprise part of the segment.
Tim OâLeary: Yes. No, happy to, Matt. I appreciate you joining the call. So I think there's a couple factors there that work against each other, right? So obviously, enterprise will continue to grow. We expect those margins to stay pretty consistent with where they finished out the year, I think that business had a lot of growth in the second half of last year compared to the first half of the year as a lot of the government stimulus monies were depleted from consumers' accounts and they had to go into debt settlement processes that really expanded part of that effort. So, I think the growth there really accelerated in the second half of the year. So I think you'll see some of that growth continue into 2023 but not maybe at the same rate you saw from first half to second half of last year. And then offsetting that is some of the margin compression, we continue to expect within the SMB portfolio, right? So as the larger reseller partners continue to grow faster than the balance of the portfolio, you'll see some of that compression there given they extract higher residuals. So those 2 offset. And then obviously, B2B Managed Services rolling off is a gross profit dollar impact but should help the margins in that business, albeit on a smaller dollar amount in that segment in '23.
Matthew Howlett: I appreciate that. Maybe I'll ask other one, where do you see the long-term margins of the company when you get really ramped with the banking-as-a-service product, the enterprise more merchants adopt it. What's -- how do investors look at it? It sounds like the 30 -- high 30-plus percent is going to be held back a bit because of the SMB side of it. But looking longer term, is there any reason not to think that margin could be 40%, 50%?
Tom Priore: Yes. Look, we're taking a judicious approach and your -- kind of from your mouth to God's ears, if you will, because we'll have better clarity on the impact as we see the adoption within those 2 segments. But to your observation, right, that all just flows to the bottom line. So if we're making, call it, an extra $10, $15 per month, per merchant because they're using banking services where funds are making it to their Passport account and their spending on a debit card that generates interchange that we're collecting as the issuer, right? That's going to change the dynamic of the profitability per merchant. So we think there's a lot of inherent operating leverage in the business. We've got the products to deliver on it. Now, we have to drive adoption. And as that occurs, we'll have a better, very analytically driven answer to your question because it will -- we'll have metrics. It will move beyond, I'll say, a theoretical evaluation at this point. So that's why we're trying to be a bit judicious about representing what it is at this time.
Matthew Howlett: I appreciate that. Just -- you sort of confirm that margins look like they just explode at some point when the Enterprise Payment really kicks in. And it sounds like you're holding back a little bit with the guidance here in '23 and maybe investors should be looking at '24 instead but certainly impressive potential there. And then -- is there an update on CFTPay? I'm sorry if I missed it, in terms of how people are on and would you look at signing up new card companies . I'm just any update on the CFTPay and where that's going?
Tom Priore: Sure. So look, it's -- I'll put it in relative terms. If you were to look at trends within, I'll call it, consumer wellness prior -- or let's say, at the outset of COVID. The boarding trends of consumers electing to move into a consumer wellness program basically help them consolidate that, help them negotiate resolutions to debt. It's doubled, since call it, a year ago. I don't know that -- and that's to Tim's comment, like, do we think it doubles again this year? Probably not. There's incremental upside for sure. But it's a pretty healthy rate. And look, just being very candid about the segment, we are very considerate of who sits on our platform because, unlike others that operate in the space, we are a licensed money transmitter which is a benefit but we want to be considerate of who we have on the platform. And there are certain participants in the space that they're just not -- they're not potential customers for us because of their distribution models. So, I think you'll see modest but some kind of logo growth but what we have seen is by picking the right integrated partners in that segment who are leveraging our banking-as-a-service technology. They tend to be the winners over time. So we see the growth from those partners.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tom Priore for closing remarks.
Tom Priore: All right. Well, wanted to say thank you to everyone for taking the time to join the call, your ongoing support to Priority. And just to reinforce that we are built for these times and we're very excited about what the future holds, particularly given some of the dislocation that we're seeing in not just aspects of the economy that we think we can be a better solution provider to businesses in need but also the growing opportunity that the transitional nature of the banking industry that we're going to see probably in the next year that we can capitalize on. It's why we built a platform we did and now we want to put it to work. So thank you to everyone and thanks to all the Priority colleagues listening. Let's go get the job done. Take care, everybody.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
