PRTH被低估；尽管高利润率的经常性资金管理收入贡献了大部分价值，其交易价格仅为自由现金流的4-5倍。

I own the stock, so I always think that makes the stock a little more interesting for me. And the company we're talking about is Priority Tech. The ticker there is PRCH.

the chairman off the CEO offered to take them private in November. And Zach published a public letter. there's a lot of things that are just flashing red flags. Uh not red flags, flashing signs that say interesting, weird, strange and uh that always gets me jazzed up.

I'll disclose I have a position in the stock we're going to talk about today. So, Zach, the company we're going to talk about today is trades under PRTH. Uh it is Priority Technology Holdings. It's a really fascinating company.

What is PRT? Why are they so interesting right now? Uh last November we did publicly oppose a preliminary tech private proposal made by priorities chairman and CEO Tom Priori.

Over 90% of the company's business is either recurring or reoccurring providing a very high level of predictability.

60% of its business comes from the highquality treasury segment which is effectively an 80% plus EBITDA margin recurring revenue software business that has tripled EBITDA in the last four years.

Now despite all that priority today is trading between four and five times free cash flow for a business that's consistently growing free cash flow per share at 10% plus.

So I think there's multiple valuation analyses uh that suggest the true intrinsic value of PRH is significantly higher priority is not just one payments business. It consists of three businesses with very different economics. Uh merchant solutions, payables and treasury solutions.

And I think treasury is really the key to understanding why the consolidated company is significantly undervalued.

it's not priority does have a payment processing business within it similar to like shift for global payments but treasury is really the majority of the value today.

So Treasury basically generated $215 million of revenue and around $180 million of adjusted EVITA or roughly an 84% EVA margin.

So what Treasury does is uh the biggest component is CFT pay which came through their acquisition priorities acquisition of Finsera in 2021.

It's I think one of the most exciting things about that is the distribution because priority isn't going out and acquiring each individual c consumer or customer itself. It's integrating with enterprise partners that can then bring them tens or hundreds of thousands of underlying accounts onto their platform.

And so priority can establish one enterprise relationship and then monetize a very large number of end customers. Uh and that obviously has created extremely attractive unit economics.

So in terms of how they make money uh they make money with enrollment fees when an account is established. They make a recurring monthly subscription or servicing fee uh basically as the account remains active and then they make transaction fees when the money is sent through a check or wire.

And so it's a highly recurring again essentially software-l like revenue uh that obviously has uh has grown very fast over the last three or four years uh and also has an extremely high margin. So people think of priority as a payments business. I think of it more as a uh sort of conglomerate of various businesses but CTF pay is the most important business kind of which is why I'm starting with that.

Um, so going into Finser just a little bit more. So acquired in 2021, when they acquired it, it was a subscale business, but it still had a 93.5% gross margin and a 68% evida margin.

As they've basically more than tripled the business over the last four years, you know, it's grown to over an 80% adjusted EBIT margin. So it's just it's been an incredible business both from a growth standpoint as well as from a margin standpoint.

And that's I just want to harp on that because you know, today priority has been comped to shift for global payments, other payments businesses. And while that is a minority of what they do, it, you know, the majority of what they do truly is CFT pay.

And I think that's just an incredible business that deserves a much higher multiple than the payment segment.

Uh so if you kind of look at, you know, average build clients has grown very dramatically. Uh you know, money transmission revenue has compounded in the 20s. You know, there's just uh I would say really, really attractive growth over a multi-year time frame.

Um the other thing I would say so merchant solutions u you know I'm going to spend less time on that's you know processing card transactions for merchants uh its economics look much more sort of like the conventional acquiring industry like a shift for or global payments

uh there was a very uh reasonable comp that occurred in June of this year a business uh called paneer that was sold at about 8.3 times ITA and if you just use that valuation which I think undervalues priority you would still get $12 a share and priority trades around 550 today. So, you still get over 100% upside from here, but again, I think it's worth more than that.

The payables business I'm really not going to focus on. It's just too small to be meaningful. I think the two main segments to really talk about our treasury and merchant. So, um while there is a third segment, I just don't think it's worth harping on because it's relatively immaterial at this point.

anyone who's been following the markets knows that there's the SAS apocalypse and there's the payments apocalypse that's happened over the past year, right? And and you mentioned several of the comps. You know, Shift 4 is the one that comes to my mind. I understand the businesses aren't completely comparable, but I I think Shift 4 just because so many value investors are in it. They've got uh the guy who's over at NASA now that huge share buybacks re pretty controversial stock cheap huge share buybacks that's the one that pops to mind but there's certainly others all of these guys have been slaughtered for the most part over the past year to 18 months

so I I guess I would just start off just very high level you've kind of laid out why you think this business is a little bit different than some of those but what gives you confidence when you're buying this that you know you're not kind of buying a terminal zero or you look at the rest of the payment space and say hey this isn't exposed to some the brutal competition or the you know the metamuse or all these things that are going to displace these things like what what gives you the confidence here?

Yeah, I guess the first thing I would point to is that just paying your transaction that I mentioned you know that literally happened in June. So that incorporates the payments apocalypse incorporates the SAS apocalypse you know and it still was 8.3 times ITA and and that would be about a $12 stock for priority.

Now again that is for the payments component. So if we want to just simplistically uh just for the audience try and say roughly 60% of the business is more of a software recurring revenue business roughly 40% is payments. That's an oversimplification but I think it's close enough.

The you know SAS businesses that are growing at the level that treasury solutions is growing you know still command doubledigit evid multiples. So those businesses are still, you know, if you look at Toast, if you look at PAR, if you look at various businesses that are relatively similar in the payment space, you're still looking at double digit multiples.

So that's the first thing I would say. And you also have a private transaction that literally just occurred, you know, in the sort of 8.3 times range. So I think you have enough from that perspective on the multiple basis.

And then just from a business quality standpoint, I mean, Treasury Solutions isn't going anywhere. Like AI is not displacing that. There's really no way that AI would have anything to do with that because it's integrated financial infrastructure. So AI is not going to set up bank accounts for customers. It's not going to set up, you know, those transactions. Those things are all things that I think are are sort of not at risk at all from AI.

I do hear you on they're probably not going to launch um they're probably not going to set up bank accounts, but literally what Instinct does is take your social security number and set up bank accounts and stuff. So, it's moving I I do 99% agree with you, but there's the 1% of me that's like, "Oh, man. It it is moving really fast up there."

Let me just ask one more question on the business. You know, I I I been reading the earnings calls obviously as I've been involved in following this process and there there's one really interesting thing just at a high level that jumps out. Now, they kind of blame the accounting and they blame different things, but you read the Q2 call, right? And they say, "Hey, we're raising our revenue guide or we're going to come in at the high end of our revenue guide, but we're going to come in at the low end of our EBITDA guide." And then as you keep reading it, they're talking about, hey, we've got all these businesses that are growing quicker than our overall business, but a lot of a lot of the businesses are lower margins or they've got some things. Now, this is partly influencing the revenue and margin. They've got some things where they're the payment of record versus a merchant. So, they're booking it at a much lower gross margin. So, I just want to ask you like how do you look at this business with there's a lot of different moving parts and there's lot a little bit of comp accounting complexity. Like how do you think the business is just performing in the here and now?

>> I mean, I think the business is performing completely fine. You know, I think you still have Treasury growing very nicely on a year-over-year basis, which obviously I think is important. Again, I think treasury is the business I'm the most focused on and you know that continues to grow. Um, and so I I guess generally speaking, I'm I'm happy with how things are going.

Um, you know, I think again everything's relative, right? When you're paying four to five times free cash flow and you're talking about out of business that's still growing free cash flow per share at 10% plus, you know, I it's it's priced for a business that's going out of business when in reality it's actually generating a ton of cash.

you know, net debt even does come down actually quite a bit. So, they're paying down debt every single quarter. Um, so yeah, I I think the business is doing quite well, especially given um sort of the overall environment and valuation today.

You mentioned net debt and I think that's the one other place people might get hung up on. Now, you also gave the valuation on the payer multiple and the stock would be like more than a double on the payer multiple. So that kind of solves for this. But I think the other people think people might get hung up on is you look at this balance sheet and there is a lot of debt, right? And people might say, "Hey, Zach's doing uh a free cash flow number and that's great, but there's a lot of debt in front of that." So do you just want to talk about how you think about the leverage and kind of the financial profile of the company? >> Yeah, I mean I would say their financial profile is very similar to other peers.