Earnings Call Transcript - PRTH Q4 2022

Operator, 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, Director of Communications

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, Chairman and CEO

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 decline in 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 partner 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, CFO

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 provides 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 bankcard 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 have 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 experienced 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 consist 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, Chairman and CEO

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 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 a 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, and robust security and compliance, Passport's self-directed account opening process only needs an email for customers to get started. Our 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 times averaged 7 minutes. Once established, customers can set up their own virtual accounts nearly instantly. Importantly, as a licensed money transmitter regulated in all states, the funds in Passport are syndicated to our partner banking institutions and maintained 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, Operator

The first question is from Brian Kinstlinger of Alliance Global Partners.

Brian Kinstlinger, Analyst

Thanks for all the details on unified payments 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, Chairman and CEO

Yes, Brian. So far, everything has gone smoothly. We are being very careful with the rollout, initially focusing on our enterprise and B2B customers before moving on to the SMB segment. We've already launched a beta program for SMBs to gather insights and plan for a more extensive launch later in May and June aimed at the broader SMB acquiring market. The testing has been positive, especially considering the recent issues in the banking sector. For example, we have seen many people needing to set up accounts and transfer funds away from SEB or Signature Bank. The average setup time for these customers, which includes completing all KYC and AML checks and obtaining credentials, was just seven minutes. It's impressive, and I'm not sure how many platforms can operate at that efficiency. Some customers opted to create accounts through our API instead of going through our portal. We had multibillion-dollar companies set up and begin testing transactions and moving funds within 48 hours. The system is ready for prime time, and we have a strong pipeline of enterprise partners that are either already integrated or in the process of integration, and it's a quick process.

Brian Kinstlinger, Analyst

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, Chairman and CEO

I mean they were relationships that were familiar to us, we're familiar with what we're doing, but they were not existing customers.

Brian Kinstlinger, Analyst

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, Chairman and CEO

We observed significant growth in wallet share. Over the past couple of years, existing customers increased their usage on our platform, which was anticipated. However, we've encountered slower sales cycles in cultivating some established relationships, such as with Premier Healthcare and their GPO, and among our contracted financial institutions as we transition their portfolios. The implementation and sales cycles have taken longer than we would like, not primarily due to technology but because we've needed to overcome some customer inertia. Additionally, we've expanded our sales team by hiring three new salespeople and introduced new technological components to enhance their effectiveness. This includes the banking-as-a-service feature, which streamlines the process for buyers and their supplier networks. For example, suppliers can now have their accounts set up instantly, with the ability to upload their information and perform AML and KYC checks within minutes, contrasting sharply with the traditional method of gathering information one supplier at a time. We sought to have this in place before expanding sales, and we've now accomplished that. We're very optimistic about the potential success of our sales efforts with this platform now available for broader B2B use.

Brian Kinstlinger, Analyst

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 O'Leary, CFO

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, Analyst

As you grow larger, you may need more merchants to support that growth. Are you investing in sales? What strategies do you have in place to increase the number of merchants you are acquiring?

Tom Priore, Chairman and CEO

There are several factors that will impact that segment and its revenue. Let's begin by discussing our merchant base. We are set to introduce embedded finance and banking into this segment without the need for additional investment. Everything is already developed and ready to go. Every merchant using our platform will have a Passport account established within the next month to six weeks, which will facilitate revenue generation. Activation is all that’s needed at this point. Once activated, we will provide the option for merchants to access their funds instantly, which we call fund in 5. For those processing through our gateway, as soon as you authorize transactions and choose instant funding, you will receive your funds within five minutes of authorization. For those who are not gateway customers but utilize our MX merchant suite, funds will be available the same day after batch closure. If you keep your money in your Passport account and spend from it using a debit card, there are no costs. However, transferring it to an external account will incur a fee. These features address the specific needs businesses have, especially in the current environment where there’s a demand for cash acceleration and transparency. Given the state of banking, having modern, clear, and transparent reporting—as we do—will be a significant value add, particularly since the funds are held in an FDIC insured account. This is just one example. We will continue to expand our offerings, such as allowing borrowing from approved lenders and other enhancements that will add to our margins without requiring significant additional effort. The future of small and medium business acquisitions hinges on providing these services in a single platform. Our investments have already been made and have proven to be profitable, as reflected in our overall performance. We now have the chance, alongside our distribution partners, to offer more services that should increase wallet share and profitability per merchant in that segment. This represents Phase 1. Additionally, we are experiencing success in another area, as is evident from the trends in our merchant boards, where we consistently onboard over 5,000 new merchants each month. This success stems from a robust network of new boarding partners who realize the enhanced value of their merchant portfolios with us. These partners understand that their merchants benefit from our superior tools and software designed for specific verticals, including healthcare, real estate, hospitality, salons, and retail. We have specialized software tailored for these industries, leading to longer retention of merchants. When we add options for them to enhance their portfolio value through banking services, it makes their merchant portfolios more valuable with us, prompting more reseller partners to join our network.

Brian Kinstlinger, Analyst

Okay. 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 O'Leary, CFO

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 flow 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, Analyst

On the interest expense?

Tim O'Leary, CFO

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. 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. 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, Operator

The next question comes from Matthew Howlett with B. Riley.

Matthew Howlett, Analyst

Could you clarify the margin guidance? I believe you mentioned that it expects the Enterprise Payment to be around 90% in the fourth quarter. If that's the case, I'm not trying to ask for guidance for 2024, but why wouldn't that margin, as it starts to kick in, continue to accelerate? Is 2023 a transitional year for the company? Are you possibly holding back some potential upside with the rollout? I would appreciate more details on the margin guidance and the enterprise portion of the segment.

Tim O'Leary, CFO

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, Analyst

I appreciate that. Perhaps I can ask another question: where do you envision the long-term margins of the company once the banking-as-a-service product is fully ramped up and more enterprise merchants adopt it? How should investors perceive this? It seems that the margins in the high 30 percent range may be somewhat constrained due to the SMB sector. However, looking ahead, is there any reason to believe that margins could reach 40% or even 50%?

Tom Priore, Chairman and CEO

We are being careful in our approach, and we will gain better insight into the impact as we observe adoption in those two segments. As you mentioned, this will ultimately affect our profitability. If we earn an additional $10 to $15 per month per merchant through banking services that enhance the flow of funds to their accounts and increase spending on debit cards, which allows us to collect interchange fees, it will transform our profitability per merchant. We see significant operating leverage in our business, and we have the necessary products in place. However, we need to focus on driving adoption. As this progresses, we will have more precise, data-driven answers to your questions, moving beyond a theoretical analysis. This is why we are being cautious about what we represent at this moment.

Matthew Howlett, Analyst

I appreciate that. It seems that margins could significantly increase when the Enterprise Payment starts to take effect. It sounds like you're being somewhat cautious with the guidance for '23, and perhaps investors should focus on '24 instead, but the potential is certainly impressive. Additionally, is there an update on CFTPay? I'm sorry if I missed it, but how is adoption going, and are you considering signing up new card companies? Any update on the progress of CFTPay would be helpful.

Tom Priore, Chairman and CEO

Sure. So, to put it in relative terms, if you look at trends in consumer wellness at the onset of COVID, the number of consumers engaging in wellness programs to help consolidate and negotiate debt has doubled compared to a year ago. I’m not sure it will double again this year, but there’s definitely some growth potential. It's growing at a healthy rate. To be candid about the segment, we are selective about who joins our platform because we are a licensed money transmitter, which is advantageous. However, we want to ensure that the participants align well with our model. Some entities in this space are not viable customers for us due to their distribution methods. Thus, you can expect modest growth in our partner logos, but we've noticed that partnering with the right companies that use our banking-as-a-service technology tends to lead to success over time. We see growth coming from those partners.

Operator, 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, Chairman and CEO

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, Operator

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