Q4 2023 Priority Technology Holdings Inc Earnings Call

Participants

Chris Kettmann; Investor Relations; Priority Technology Holdings Inc

Tom Priore; Chairman of the Board, President, & CEO; Priority Technology Holdings Inc

Tim O Leary; Chief Financial Officer; Priority Technology Holdings Inc

Jacob Stephan; Analyst; Lake Street Capital Markets

Tim Switzer; Analyst; Keefe, Bruyette & Woods, Inc.

Brian Kinstlinger; Analyst; Alliance Global Partners

Hal Goetsch; Analyst; B. Riley Securities

Presentation

Operator

Good day and welcome to the Priority Technology Holdings Fourth Quarter and 2023 earnings conference call. (Operator Instructions) Please note, this event is being recorded.
I would now like to turn the conference over to Mr. Chris Kettmann. Please go ahead, sir.

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 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. 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, everyone, for joining us for our fourth quarter and full year 2023 earnings call. I'd like to start today by discussing the continued positive trends we're currently seeing in the business as well as several important developments at priority, including the successful integration process of our August acquisition of plastic as a result of these trends and developments, we're excited to report the strongest results in our history, and we are well positioned to perform even better in 2024 and beyond consistent with what we saw through the first nine months of the year.
During the fourth quarter, we delivered strong results in SMB, acquiring B2B payables and enterprise payments. We remain convinced in the potential of our unified commerce vision, combining payments and banking functionality on a single platform accelerated by the strength of our diverse business lines that we're positioned to benefit from higher interest rates and to perform in a variety of macroeconomic environment, including the one we're experiencing today. Total customer accounts operating on our commerce platform now exceed 860,000 as we processed approximately 120 billion in transaction volume during 2023, while administering $900 million in deposits at the end of 2023. Looking at our financials, we maintained our positive momentum with strong results in the fourth quarter.
Our Q4 revenue of $199.3 million increased over 12% from the prior year. This led to a 20% increase in adjusted gross profit, $72.9 million and a 12% improvement in adjusted EBITDA to $44.6 million. Adjusted gross profit margin of 36.6% increased 230 basis points from the prior year quarter, highlighting the strong operating leverage of our purpose-built platform. For the full year 2023, revenue increased 14% to $755.6 million, leading to a 21% gain in adjusted gross profit to $275.3 million, combined with a 220-basis-point increase in adjusted gross profit margin during 2023 to 36.4%.
We generated a 20% increase in adjusted EBITDA over the prior year. As you can see from our results and the strong guidance we put out this morning. Not only did we outperform expectations in 2023, while we also expect strong growth in margin trends in our business channels to continue in the year ahead we project to deliver full year revenue of $875 million to $890 million, an increase of approximately 16% to 18% over 2023 in addition, we expect to generate full year adjusted EBITDA of $193 million to 198 million, a 15% to 18% increase over 2023.
Our confidence reflects the value our customers see in our product and technology offerings, the strength of our diverse sales channel performance and the efficiency of our operating team to continue to deliver fueling our strong outlook. We expect the plastic B to B channel to be an important growth driver in the business, as demonstrated by the that's we're seeing so far since closing, on August first, our teams have focused on synergizing operations and embracing revenue growth initiatives, mitigating drag on EBITDA from the acquisition and demonstrating once again, that we are uniquely built to systemically absorb and operate software and payment assets quickly drive profits. For those of you who are new to the Company.
Slide 6 highlight the architecture of our proprietary unified commerce platform that is purpose-built to collect, store, lend and send money, combining robust payments and banking functionality, monetize the commerce networks we serve our customers and current market conditions continue to reinforce our belief that systems combining features of both payments and banking to distribute funds in multiparty environments will be critical as businesses put greater demands on software and payments solution providers to accelerate cash flow and optimize working capital.
We're committed to meeting our customers' expectations by refining the experience of our partners to make working with priority as seamless and simple as we can. Our performance illustrates that partners consistently choose the unified commerce applications in the SMB, B2B payables and enterprise segments that best fit their business adopt for Passport financial tools that meet their needs and move their money with priority. We are highly focused on the continued innovation of our SaaS payments suite of services and the path forward commerce engine and are eager to meet the evolving needs of our growing portfolio of customers.
At this point, I'd like to hand over to Tim, who will continue to provide further insights into our segment level performance during the quarter and the year, along with current trends in each that factored into our guidance for the full year 2024.

Tim O Leary

Thank you, Tom, and good morning, everyone. As I review the results, please refer to the supplemental slides for 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 provides a discussion of our comparative fourth quarter and full year results. A link to that filing can also be found on our website. As Tom mentioned, we had strong financial performance across the business in the fourth quarter and for the full year. I won't repeat the highlights already referenced, but before I go into segment-level results for the fourth quarter.
I do want to mention a few other key metrics as it relates to some of the discussion we had on our Q3 earnings call. For the full year adjusted gross profit from our B2B and enterprise segments represented over 50% of total, while for the fourth quarter, that same figure was 57% as we continued to experience higher growth in our higher-margin operating segments. Recall that Q3 was the first quarter where the combined profitability of B2B and enterprise exceeded SMB. In addition, the highly visible and recurring nature of our business model continues to gain momentum has over 58% of adjusted gross profit in Q4 came from monthly fees or revenues that are not dependent on transactions or bankcard volume.
Moving now to the segment results and starting with the SMB segment on Slide 8. SMB generated Q4 revenue of $139.9 million, which is $9.9 million or 7% lower than the prior year's fourth quarter. As discussed on prior calls, a large reseller partners started to diversify their activity and we expected that diversification strategy to continue throughout 2023. If you look at the year-over-year impact of that shift on the Q4 results, it was an almost $18 million headwind to revenue excluding that impact, the SMB business experienced over 5% revenue growth. Bankcard dollar volume in S&B was $14.6 billion for the quarter, which is down 2% from $14.9 billion in the prior year. However, adjusted for the aforementioned reseller bankcard dollar volume increased 7% in the quarter compared to the prior year.
From a merchant standpoint, we averaged over 205,000 accounts during the quarter, lower than the total 57,000 average in Q4 of 2022, and new merchant boards averaged 3,700 per month during the quarter compared to an average of 46 hundred per month in last year's fourth quarter. Adjusting for the impact of a large reseller, the average number of merchant accounts during the quarter improved by 43 hundred and the average number of new merchant boards increased by 300 per month as a last point on this topic, I would highlight that the diversification activity with the large reseller concluded in Q4. So while we expect a related year-over-year impact in Q1 and Q2 of 2024, as we anniversary that change sequential quarters should not see a comparative headwind.
Adjusted gross profit in SMB for the fourth quarter was $31.6 million, which is $4.4 million lower than last year's fourth quarter. The 12% decline was partially impacted by lower volumes and revenue from a large reseller, but given its lower margin that resulted in a modest $1 million reduction in gross profit for the quarter is also reflective of a shift in mix of volume revenue and related gross profit from our top reselling partners to operate with higher commission rates. Gross margins of 22.6% in the quarter, down from 24% last year for the same reason.
Lastly, for SMB, quarterly operating income of $11.1 million represents a $3.8 million decline from $14.9 million in the prior year's fourth quarter. Operating income was negatively impacted by the factors already discussed in gross profit.
Moving to B2B, revenue of $21.2 million was an increase of $18.4 million from the prior year. Plastic which joined priority on August first contributed $17.5 million of the increase during the quarter, while CPX grew by $1.4 million or 57% on a year-over-year basis. Those increases were partially offset by a $3,000 reduction in the balance of the B2B business.
Adjusted gross profit and EBIT increased to $5.3 million as a result of the plastic acquisition, combined with over 60% growth in gross profit for the CPX business for the quarter, gross margins were 24.9% compared to 62.1% last year. But as discussed in our third quarter earnings call, that decline is fully attributable to the plastic acquisition and the related impact of the GAAP reporting requirements for the plastic business compared to the balance of the B2B segment, which results in lower reported margins for unit volume, the B2B segment produced a $1.7 million operating loss during the quarter, which was the result of increased operating expenses from plastic, including certain nonrecurring compensation expense.
Moving to the enterprise segment, Q4 revenue of $38.1 million was an increase of $13.3 million or 53% from $24.9 million in the prior year. Favorable trends for the past several quarters and new monthly enrollments and billed clients combined with an increase in the number of Passport program managers, growth in deposit balances and a higher interest rate environment. All contributed to strong revenue growth as a result of those factors.
Adjusted gross profit for the enterprise segment increased by 55% to $36 million, while adjusted gross profit margins improved to 94.5% in the quarter. Operating income was $23.9 million for the quarter in the enterprise segment.
Moving to consolidated operating expenses on Slide 11. Salaries and benefits of $21.7 million increased by $4.8 million or 29% from Q4 of last year, but that was only $1.6 million higher sequentially than Q. three as we continue to focus on maintaining our expense discipline compared to the Q3 levels. The $1.6 million sequential increase was partially attributable to the full quarter impact in Q4 of the acquisition of plastic, combined with higher bonus and benefit expenses in the quarter, we finished the quarter with approximately 980 employees, which as compared to approximately 870 at the end of 2020 to 990 at the end of Q3 2023.
SG&A of $14.1 million increased by $6.1 million from $7.9 million in Q4 2020 to the year-over-year increase was due primarily to the acquisition of plastic in Q3, combined with non-cash restructuring costs related to discontinued operations for a part of our healthcare payments business, legal fees for certain nonrecurring litigation matters and an increase in third-party software costs. Depreciation and amortization of $15.1 million for the quarter decreased by $2.9 million for the comparable quarter last year.
Moving to the next slide, adjusted EBITDA for the quarter was $44.6 million, which was an increase of 12% from $39.8 million in Q4 of 2022. Interest expense of $20.6 million for the quarter increased $4.4 million from Q4 2022 levels as a result of acquisition-related debt increases in the quarter combined with the impact of the higher interest rate environment.
Moving to the capital structure and liquidity of the on Page 13. Debt levels during the quarter increased to $654.4 million, which was driven by the issuance of $50 million of incremental term loan borrowings in the quarter. Proceeds from the issuance were used to repay revolver borrowings from the plastic acquisition and to put additional cash on the balance sheet for general corporate purposes, net debt of $614.8 million, it was higher by $300,000 compared to the balance at the end of Q3.
From a liquidity standpoint, we ended the quarter with all $65 million of borrowing capacity available under our revolving credit facility and $39.6 million of unrestricted cash on the balance sheet for the LTM period ended December 31. Adjusted EBITDA of $168.3 million represents $4.8 million of sequential quarterly growth from $163.5 million at the end of Q3 and $28 million or 20% growth since the end of 2022. Preferred stock on our balance sheet totaled $258.6 million at December 31st, and is net of $16.9 million of unaccreted discount and issuance costs. The fourth quarter preferred dividend of $12.5 million consist of $7 million paid in cash and $4.6 million of a pick component. This is supplemented on our income statement with the accretion of discounts and issuance costs of $850,000.
Before turning the call back over to Tom, I wanted to further address our financial guidance for the full year 2024, which can be found on slide 14 in the presentation, based on continued strong growth in trends in the business. We are forecasting 16% to 18% growth in revenue to a range of $875 million to $890 million for the year.
Adjusted EBITDA growth is forecast to be 15% to 18%, which would result in a range of $193 million to $198 million for the full year, given our prior comments on the margin variances in certain segments and even specific partnerships within the consolidated business this year, we're also providing a guidance for adjusted gross profit, which we view as an important metric for measuring overall performance of the business. Since not all revenue is created equal for the full year, we are forecasting 18% to 22% growth in adjusted gross profit, which will result in a range of $325 million to $335 million.
Provide some color on the guidance by segment, we're forecasting mid single digit growth in revenues from SMB as we anniversary the impact of the large resellers diversification. If you adjust for that impact, we are forecasting low double digit revenue growth in SMB B2B top line growth will be skewed by the full year effect of plastic, which only had five months of results in 2023 but we also expect CPMs to show continued growth over 20% on a year-over-year basis.
And lastly, enterprise is forecast to continue its momentum, although we have moderated growth expectations in 2024 to account for the strong growth already experienced in 2022 and 2023.
With that, I'll now turn the call back over to Tom for his closing comments.

Tom Priore

Thank you, Tim. Before wrapping up, I'd like to take a minute to discuss where our priority is in our journey. Everything we've done over the past several years from the significant early investment in our technology infrastructure through our focus on diversifying our offering with countercyclical assets through our acquisition of plastic was done with intention and purpose to provide our customers with an elegant, unified commerce experience, combining our pillars in acquiring payables and banking on a single platform. Our results are demonstrating we're achieving that goal. Priority has made the turn to delivering tech-enabled services that accelerate cash flow and optimize working capital through a powerful e-commerce platform to collect, store, lend and send money, allowing us to approach the marketplace in acquiring payables and banking solutions in a very unique way. Success of our offering is evident not only in our growth numbers and margins, but also when talking to our customers and partners while we are outperforming our peers in today's market. Most importantly, the clear advantage we've created through our unique capabilities and style of engagement provides a long-term runway with enormous upside.
Let me share one of the ways we've separated ourselves on slide 6, we've included a link to a video highlighting priorities, Passport product for the SMB and ISV. acquiring channel. I highly encourage you to watch the two-minute video when you have a chance as it showcases how our commerce API can embed cutting edge finance applications that optimize our customers' cash flow, streamline transaction reconciliation and optimize working capital through passports linked to our MX merchant acquiring tools, customers can have access to their funds in minutes of their batch closures, even on weekends and holidays. They can access bill payment tools that earn them cashback as they pay their bills, utilize embedded lines of credit as they need them. And even investor surplus cash in money market treasury, Bill and core bond funds. While the short video primarily highlights the S and the use case is just one monetization opportunity. Our technology is transferable across our current payable business lines and our growing list of enterprise verticals like construction, investment management, lending, healthcare, sports and entertainment and insurance, among others.
Our decision in late 2022 to accelerate investment in Passport is paying significant dividends, especially given the continued struggle of the banking sector and the general frustration and banks among businesses of all size, our systems are built for the future and are proving ready for the current tests under five. We're confident our future results will demonstrate how we've taken unified commerce to the next level by meeting the demands of modern business and empowering our customers to thrive in a real-time economy through unmatched speed and transparency to their cash flow. We're delivering this message as we broaden the unified commerce conversation and it resonates with our current customers and prospective customers alike.
In closing, I want to thank all of my colleagues at priority who not only delivered an excellent year of growth and success in 2023, we enter 2024 more committed than ever to our mission. Thank you for your continued dedication and the exceptional work you do every day. And lastly, we appreciate you all taking the time to participate in today's call and the ongoing support of our investors and analysts. Operator, we now like to open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Jacob Stephan, Lake Street Capital Markets.

Jacob Stephan

Hey, guys. Thanks for taking my questions. I know you kind of touched on the reseller diversification concluding here in Q4, but maybe you could just kind of walk us through how you're thinking about verticals within SMB and that you're primarily targeting here.

Tom Priore

And yes, I'll just I don't think it's going to be really a a departure from what we're what we've done historically from. We've got a very diverse firm group of resellers that are some of whom are, I'll call them horizontal sales networks, others more of or vertically based. So on some in professional services or in wholesale trade or on those and I'll call recurring billing. So some of them have like unique areas of expertise and they really blend together in a framework that come in you see across our portfolio that we don't expect that mix to meaningfully change from, let's say, if are some areas where we're adding renewed dedication on that, we think will will increase proportionately over time.
They really mesh with our with some of our ISV. investments on VM, our construction space most most. Certainly, we built some unique tools that will be rolling out across our distribution and none in the second quarter. Healthcare is another that will proportionately seek to increase, say if there's a dynamic in particular, really driving the future of acquiring is it's it will be less so segment driven on it more. So the implementation of you could think of it as adjacent or bundled services and to get a chance to, for instance, just watch that video. It's picking up all of the other areas of expense that small businesses have that they're frustrated with. They're frustrated with their bank here, they're frustrated with the way they pay bills and the way cash flow moves from their business. So we think providing tailored or curated point of sale on the front end and banking and payables products that work seamlessly with that experience. That's that's the focal point at this point and where we have very high expectations of that strategy and the beautiful thing I think is the way we've built it. It's up our ability to deploy it does not come at any incremental cost on. So it's it's it's very high margin to our performance.

Jacob Stephan

Okay. Got it. That's helpful. And then maybe just last one for me here that the restructuring charges of the healthcare payments business that you referenced, do you expect any kind of lingering impacts in Q1, any kind of elevated noncash charges?

Tim O Leary

As we look at our models, no, we don't expect any lingering charges there. We went ahead and took the restructuring charge in the fourth quarter and it won't have much of an impact on the the numbers either going forward. It's already been baked into our guidance.

Jacob Stephan

Okay, got it. Thanks. I'll turn it over.

Operator

Tim Switzer, KBW.

Tim Switzer

Please go ahead and good morning. Thanks for taking my questions. I appreciate all the color on the guide and you guys touched on it real quick, but on the expense outlook, could you guys talk about now where do you expect expenses to trend over the course of 2024 and then particularly the cost of revenue trends and how you guys would like to direct your investments going forward next year?

Tim O Leary

Sure. Yes. I think from a overall guide standpoint on the expenses, as you can tell sequentially going from Q3 to Q4, we continue to maintain good discipline on the salary and benefits side and really trying to gain efficiencies across the business as we think about the grow over from what we had in 22, where we did invest a lot in the business from a personnel and technology standpoint, so I think you'll continue to see that discipline deployed throughout the balance of 2024 within the various segments. I think our faster growing parts of SMB are the larger resellers. So I think we'll continue to see some compression there in the core gross margins. But as Tom was mentioning a second ago, a lot of the ancillary products we can sell into that SMB customer base are going to be margin enhancing events. So I think we're optimistic that we'll be able to hold and expand margins in SMB overall, despite some of the natural headwinds you have there as the larger resellers grow faster. And then in enterprise and B2B, we'll continue to see margin expansion or at least consistency. I think you'll see some from some potential flattening and enterprises, given where it's already operating at 94% plus gross margins. And then within B2B, as we continue to see plastic expands from that was that we only had five months of revenue in 2023 from plastic. Has we get a full-year effect in 24 that may put some overall pressure on gross margins and B to B R. But that's really just because of the accounting treatments. That business is performing well ahead of expectations from the original how we made the acquisition we're optimistic that that will continue in 24.

Tim Switzer

Great. Yes, that's helpful. And for that for the rest of the guidance that you guys gave, could you talk about the different factors, whether it's macro or customer trends that could maybe drive upside or downside from the high end and low end of the guidance?

Tom Priore

Yes. So I take but first off on the macro environment will always have some influence on what we've I think we would submit that we've been very thoughtful in the way we've constructed the diversification of our business lines where there will be instances in a downward economic environment where you'll see the consumer slowdown, which is a natural headwind to come to payment processing and acquiring. Historically, we have offsets to that on the enterprise side. And they do very, very well on when consumers need them assistance with debt resolution or I'll call it consumer wellness strategies that benefit on many of the areas that we operate.
The other thing, of course, is B to B tends to do well when interest rates are higher and there is a focus on new sources of revenue in business as economy slow because it does provide a unique source of revenue for more efficient supply chain management and working capital optimization. So having tools that bring those to bear with customers as they're ready to adopt on has accrued to our benefit. So so we feel really good about them. The I'll call it the cyclicality that could present some look, the biggest opportunity we have in and we've been very, very modest in our assumptions is is really the adoption of banking and payables as a adjacency to come to our customers who are using us for acquiring and and other peer really other other kind of I'll call it vertical solutions, right? They're being now exposed to a toolset that gives them simplicity to do things that they want to do every day in their business, but they're current solutions, don't provide them.
A good example is let's take two two quick examples. And that's why we sent that video. So you could see it as they say, a picture's worth 1,000 words the from an SMB right here. I want to get my money fast well, when you're using our banking as a service product alongside MX merchant, that money shows up within minutes of your badge closure even on a holiday or a weekend that doesn't happen with any other provider in our space from a restaurant that's gold to me. I'm getting my money on a Saturday or Friday night or Saturday or Sunday or a holiday. And I can then utilize that cash flow too. Pay vendors using my debit card that's attached to that account or perhaps a virtual card that allows me to receive cash back because my vendor will accept virtual card or perhaps they they won't.
And I want to extend my receivable. I can use plastic used my own credit card to pay my vendor, they'll get an ACH that next day and perhaps I get an early pay discount, I paid a fee to plastic, which of course, is a priority entity. And I don't want to pay my credit card bill for on average 55 to 60 days is the typical delay between making a purchase and when your credit card bills do so these are very elegant tools that all work in harmony and it's really just educating use case in our existing customer base. We need to sell more customers. We just need to have them adopt tools that are good for their business. That's one such use case.
Another that we're very focused on is we have lots of consumers who come in on to our partners to help them resolve their debt issues, particularly in this current environment. Well, adding to that a bank account that will help them start to go on a consumer wellness journey with that same partner that's helping them a lot of issues with their with their debt that that really helps harmonize their financial well-being and their experience in one place. And these are all things that we can offer without any incremental expense at priority. It's all built, it's just deployment. So we think that's the most powerful advantage we have. And it I can tell you, it's winning in the marketplace with a host of of ISVs and enterprise customers who are saying, yes, I want to embed those types of solutions in my in my product experience in my customer relationship, and we're an easy or an easy place to help them do that. It's also really appreciate all the detail.

Tim Switzer

Thank you, guys. Thank you for the question.

Operator

Brian Kinstlinger, Alliance Global Partners.

Brian Kinstlinger

Good morning. Thanks for taking my questions. Already stretched the balance sheet and start there. And despite the cash flow, the net debt increased, can you talk about capital deployment plans in 2024? And related to this in the past, you made some strategic divestitures where it made sense that would create shareholder value. You see any of these opportunities and really turning out there. It's probably not it, but CPX, it's about 1% revenue contribution, although it fits well in your flywheel of money movement and there's been some great valuations and M&A kind of curious, high level, but similar things advised.

Tim O Leary

Thanks for the questio. Looking at the balance sheet. Obviously, the debt from a growth standpoint did increase from Q3 to Q4. That was largely driven by the plastic acquisition. We had financed that acquisition under the revolver. And then as the broader debt markets improved, we went to the term loan market upsized our existing term loan and paid off the revolver given some of the demand, we actually upsized the term loan and put a little cash on the balance sheet. So from a from a net debt standpoint, it was neutral. So it was a yes, leverage-neutral transaction, if you think about it that way. So the net debt at $614 million, we continue to de-lever from a multiple standpoint as EBITDA grows. So we finished the quarter with 3.6 times net leverage on the senior debt, if you include the preferred equity, would be at 5.2.
But those numbers continue to come down. And if you think about the balance of the year, even if you don't assume a debt paydown, which obviously is not our assumption, but even if you don't assume a debt paydown. You just look at the EBITDA guidance we have out there. You'll have another half turn deleveraging throughout the year, just from growth in cash flow in the business at the EBITDA level. So I think we're optimistic about the balance sheet and our ability to manage that. We're constantly thinking about capital deployment and whether it's acquisitions versus debt paydown versus other investments we can make to drive further revenue growth and margin enhancements and overall increase shareholder value. So that's a constant conversation we have as well as looking at the portfolio of assets we have right. You've seen us do that in the past. I'm not going to yes.
What I think that we may or may not have in the works. But we've always looked at the portfolio and thought about value creation and thinking about how can we best monetize assets in them, drive shareholder value. And that won't stop.

Tom Priore

And Brian, if I can add a thought on that just and I appreciate Tornio kind of perspective on it, the you don't in some regard. In fact, I would I would submit to you given the stock that's clearly undervalued or a little bit relative to our peers, our growth rate is substantially higher multiples. Is it much lower reconciling utilizing equity for some of these acquisitions. It is hard to justify that that's actually going to create shareholder value on particularly when you look at how quickly we get assets performing, we take plastic as a good example is a business when we acquired it, there was it was losing, you know, conservatively, it was burning $20 million of cash.
That business in our hands is cash flow positive is it is on a phenomenal trajectory. So at the appropriate time, you know, when we feel like we've, you know, maximize its value within our platform or even other things we have will we find other partnerships? Will we consider other ways to monetize our portfolio of assets? Certainly knowing that, hey, in doing in the way, we have we will have created outsized returns for shareholders, but it is going to take the work of getting assets that were nonperforming performing, which we've proven we're very good at.
And then on optimizing those that at the right time when one is going to benefit the long-term shareholder value and up.
And also, just to kind of reiterate, that is a that is a focal point on and in some of the current circumstances, you know, well, it increases the quantum of debt. We're doing it responsibly where we're actually deleveraging in the process. So the value creation is is pretty is pretty obvious.

Brian Kinstlinger

You know, look, I mean, my answer to that would only be creating good returns on acquisitions and growing EBITDA hasn't generated value because of the balance sheet overhang. And so I would just submit that, you know that that has to do with the cheaper valuations, if anything more. But anyways, the EBITDA conversion to free cash flow in the last two years has been about 36%. Is there opportunity to grow that or is that a good thing, a good proxy for how we should think about cash flow compared to EBITDA.

Tim O Leary

And yes, I think we will always look at ways to expand that, right? Whether it's being more efficient with the balance sheet and thinking about opportunities to lower our cost of capital as markets improve around us. And I think we have seen the capital markets improve. So we're evaluating those opportunities from a cost of capital standpoint, we also think about the acquisitions that we look at in the pipeline and the ability to deploy capital more efficiently on potentially off our own balance sheet or other partnerships. So I think we're always looking at ways to enhance the free cash flow conversion in the business.

Brian Kinstlinger

Okay. Lastly, on the growth rate year over year growth rate for accounts build on the enterprise business has accelerated in the last two quarters to about 50%. Is there a large law of large numbers we should think about I guess I'm trying to understand, can you sustain that growth rate for the next couple of quarters and then which industries are enjoying the best business development trends as it relates to that business.

Tom Priore

Sure. Let me just talk about the sort of the industry sectors on the I think we've really successfully taken a simple approach, Brian, like we follow the money guy, you know at the at its heart, we're in we're in payments, right? So you can appreciate the logic of that. We've tried to build tools that are particularly work well in where they're large pools and there's complexity and a couple that have caught our eye where we're active and we are winning logos are construction well, that is a that's a bit of a quagmire right company that it's a sector that needs cash flow acceleration and it is has a broad spectrum of participants. It's a multi-trillion dollar industry in the United States. That's largely lacks automation. So we've got tools that I'll say are suited for the enterprise segment that we are deploying in our winning. We have those that are for the middle to small market segment that I alluded to in acquiring that we've already we've already are in beta testing, and we'll be going out to the broader community some.
So that's an area where linking that AR. So I take in money, but then I also have to make payments out is a natural. There's a natural solution elegance to that. So that's what we're bringing to market across enterprise and mid-market enterprises, more IOC focused mid-market to small market is more with our own proprietary technology. It's called and that's bill. So that would be one example or another is the investment management space. Again, very archaic, terrible banking experience. I think if you talk to go talk to are our debt holders, you know, they're raising money from LPs will tell you it takes six weeks to set up an account even for an existing LP, terrible experience.
We can do that in six minutes because we virtualize all the banking and have already prequalified participants or AMLKYCMLQSEKYBO fact intent, right. These are these are modern banking automations that apply very well in industries like that. And so those are two of the more substantial that we already have customers on platform. We are learning more and more and we see tremendous opportunity. And then I'll mentioned another that's been a mainstay for us is in real estate that that all segment in a way transactions occur through real estate, everything from escrow and how come how closings and broker fees occur to the renter experience and you know, and how that's transforming through the property management and its idea of being able to manage cash flow at a property level through a R. and AP. solutions that persist at a property level. All of that requires a meshing of payments and banking and those are the segments where they're large flows of money, large pools, they take some sophistication, you know, too to address. So not everyone is going to get there and we're seeing it. We have a lot of opportunities to win and are deploying resources in those verticals.

Brian Kinstlinger

Thank you.

Operator

Hal Goetsch, B. Riley.

Hal Goetsch

Hey, good morning, guys. A quick question. You guys gave some great detail on gross profit. You said 50% of Q4 gross profit was from monthly fees and was wondering if you'd give us some color on components of that, how much of that gross profit of seed is dispersed amongst the three different segments? Is it mostly and enterprise or B2B or is there still like a pretty good amount of gross profit in monthly subscriptions for even in the SMB? Can you can you give some color on that?

Tim O Leary

Sure. I would jump in there. So the various components that we have fixed monthly fees or even in the SMB business, it's not all transaction volume dependent. There are fixed monthly fees or per account so that that figure, if I think about gross profit per home, that's going to be 15 plus percent or so of gross profit in the quarter. And then you have the monthly fees within the enterprise business, along with the the income we make on our permissible investments, those all drive out of the balance of the recurring gross profit. That's not transactional volume dependent, right? So a lot of it does sit in enterprise, but SMB has a very consistent level of recurring gross profit as well.

Tom Priore

Would it be like, you know, monthly monthly fee like for the like 20 bucks a month. But it would depend on the client and how much volume they do or the hardware software they use that kind of where it comes from?
Yes, it depends on the on the nature I'll describe it this way is the nature of the subscription. So some play pay platform. And then we manage accounts on their behalf and then others think of it like pay by the drink where each account has a subscription. And the reason that is different on how is are certain expenses, they may be passing along to their end market and others. They are not so good. It's that those are the driving factors and it's very subscription or I should say, subscriber slash integrated partner oriented. It'll It will depend on their business model. It wasn't really detailed question, but of the of this kind of recurring business of it's not depend on bankcard volume kind of can you give us a feel for like what that grew versus the previous year?
So we know this is like really high value business that I'm getting at is like this is a growing part of your business. This is a very high multiple types of things, and we're not ahead of Amazon right now. I have to call it like it's a great question and that's kind of what we're saying is everything every dollar is not created equal, right. You know, I know Tim's got substantial preparatory. Okay.

Tim O Leary

Yes. So without getting into specific dollars, maybe think about just the percentage, obviously, we mentioned 58% of gross profit was recurring in Q4 of this year. That number was 43% last year.
In Q4 or full year 23, it was 51%. So we're continuing to see that percentage grow on the higher value in the business right, that is repeatable, highly visible, recurring gross profit that we see. And that's why we're starting to report that and give you a better sense of the consistency in the profitability All right.

Hal Goetsch

Terrific. Thanks, guys, and a great quarter.

Operator

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

Tom Priore

Well, we'll just like to thank everyone once again for taking the time to come to learn more about priority and certainly listen to our perspective on the potential for our business from the industry at large and where we see the opportunity set and up. We are hopefully, as you can see and from the quality of performance and what we're projecting for the upcoming year. We are we are laser focused on them, Jan, on delivering results. So thank you very, very much. I hope everyone has a great remainder of the week, and we'll look forward to the next opportunity to connect on and measure how we did. Thank you.

Operator

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