Repay Holdings Corporation (RPAY) Earnings Call Transcript

Good day. I'm Jake Moore, REPAY's Executive Vice President of Corporate Development and Strategy. We recently announced our fifth B2B payments acquisition with the addition of Kontrol Payables. We wanted to take this opportunity to provide a more comprehensive overview of our B2B business and its points of differentiation. Further, we would like to highlight the size of the market that our B2B payments business is designed to penetrate. First, we would like to dive into the massive market opportunity in the B2B space. The B2B payments market is 4 to 5x the size of the B2C market and is expected to reach approximately $200 trillion in the next decade. It's worth pausing here to emphasize the sheer size and growth of this market. It's rare to find a largely unpenetrated $120 trillion market that is expected to expand 5% to 10% per year. While we are currently focused on the $25 trillion U.S. market, our B2B platform has been built to address the global $120 trillion opportunity going forward. But the story does not end with the size and growth of the market. The B2B payment space significantly lags other markets in migrating to card payments. As the charts on the right side of the slide indicate, card penetration in all industries approximates 60% to 70%. While we estimate that card penetration rates in the larger B2B space approximate 10%, we see 8% in B2B merchant acquiring and 13% in B2B AP automation. For several years now, card acceptance has been increasing quickly. Going forward, we expect this trend to continue and even accelerate as the pandemic and myriad of other drivers push enterprises to the digital and real-time payment experience that card transactions provide. This is all to say that the runway for card payments in the B2B space is quite long. As I mentioned previously, Kontrol is our fifth acquisition in the B2B space in less than 2 years. Our first B2B acquisition, APS Payments, was completed in October of 2019. APS provides integrated acquiring solutions for our customers' accounts receivable or incoming transactions. APS supports all payment types and focuses on the manufacturing, distribution, hospitality and e-commerce end markets. With B2B accounts receivable capabilities on the REPAY platform, our focus turned to the B2B accounts payable or AP automation space, which refers to the digitization and execution of an enterprise customer's outgoing transactions. Here, think of all the payments that a business makes to its various suppliers and vendors. In February 2020, we acquired Ventanex, an AP automation business serving the health care payer vertical. In July of 2020, we completed the acquisition of cPayPlus, an AP automation business that focuses on the automotive dealer, property management and field services end markets. We added yet another AP automation business to our platform with the November 2020 acquisition of CPS, an AP automation provider to enterprise customers in the health care, education, government, media and hospitality sectors. Examples of CPS clients include large hospital networks and education systems. Finally, our latest acquisition of Kontrol Payables further expands our B2B business, adding AP automation capabilities in a variety of industries, including construction, food production, software, manufacturing and education. In sum, these acquisitions cover approximately 15 key vertical end markets and enable us to provide leading payment and software solutions on both sides of the transaction. By both sides of the transaction, we mean that we can address all in enterprise client payment challenges, whether these challenges are focused more on quickening the flow of revenue via our AR solutions, focused more on efficiently paying suppliers via our AP automation products, or in many cases, both. Now to competition and our points of differentiation. We run into other B2B payment players from time to time. On the B2B merchant acquiring side, we do compete against companies such as HighRadius, Boost Payments, Paya and Paymetric, which is a division of Worldpay. On the B2B AP automation side, we see players such as AvidXchange, Bill.com, MineralTree, CSI which is a division of Edenred, and Nvoicepay which is a division of FLEETCOR. However, these companies are largely focused on either AP payments or AR payments. Our capabilities are differentiated and that we have brought AR and AP payments together to create 1 seamless experience for enterprise clients. As I just mentioned, we focus on both sides of the B2B payments equation, B2B merchant acquiring or AR as well as B2B AP automation or AP. Given the complexities and nuances inherent to the B2B payments ecosystem, we thought it might be helpful to dive deeper into each offering as well as address the total addressable markets and customer value propositions. First, let's discuss the merchant acquiring side. We are targeting the medium to small business segment which includes 1.3 million businesses with a combined annual payment volume of $1.2 trillion. Our omnichannel platform allows merchants to accelerate cash flow as well as automate accounting and reconciliation through seamless integrations with core ERP systems. Additionally, our solutions reduce labor-intensive and manual payment processes and the errors associated therewith, as well as reduce the cost of payment acceptance through interchange optimization and Level 3 data capture. Just as we do in our other business lines, we go to market through a combination of our direct sales force and ISV integration partners, including Sage, Acumatica and SAP. Further, it is worth noting that many of our customers that started with AR-only solutions have since become users of our AP automation product suite. We've been pleased with the uptake of this cross-sell dynamic. On the AP automation side, we estimate that the total addressable market within our key verticals is approximately $2.2 trillion, up from approximately $200 billion when we first entered the market in 2020 via the Ventanex acquisition. This expansion is the result of additional markets that have been opened through the 3 subsequent AP automation acquisitions. Now to the AP automation value proposition. Users of our AP automation products experienced increased payables processing efficiencies, reductions in human error through digital automation, increased simplicity related to supplier relationships and enhanced profitability due to AP staff rationalization and rebates. From a customer and user experience perspective, our solutions are deeply embedded within our customers' primary ERP system, enabling us to deliver seamless single sign-on payment interactions between the ERP and the payment environment. Our solutions are integrated with ERPs such as Microsoft Dynamics, Oracle and SAP to name a few. As you may know, a big part of growing the payables business is building a wide-reaching supplier network. And it's not only adding suppliers, it's also enabling suppliers to accept virtual cards and other forward-leaning payment types. Both CPS and cPayPlus do a great job of virtual card enablement. This is one of the reasons that we believe we have higher-than-average virtual card acceptance rates in these subvertical as the supplier enablement functions are differentiated. Another way we've increased our supplier network is that we've recently integrated with Billtrust's Business Payments Network, or BPN, as they call it. Our corporate customers have instantly gained the ability to automate electronic payments through Billtrust's vast network of suppliers, distributors and vendors, both accelerating and simplifying the payment process while also further scaling adoption of virtual credit cards. To wrap up, our B2B business continues to grow organically and through M&A. With the addition of Kontrol, we now have approximately 80 B2B software integrations. And on the AP side, we've grown our supplier network to over 84,000. We now service approximately 15 key vertical end markets and expect to process approximately $4.4 billion in total payment volume this year. We could not be more excited about the addition of the Kontrol acquisition as well as our overall positioning within the B2B payments market. Please see the appendix for detailed AR and AP workflow diagrams. We hope this overview has been helpful. Thanks for your time, and have a great day.