Repay Holdings Corporation (RPAY) Earnings Call Transcript
December 1, 2021
Earnings Call Speaker Segments
All right. Great. We'll get started here. So thank you, everyone, for joining. My name is Tim Chiodo. I'm the payments processors and fintech analyst here at Credit Suisse. We're very happy to have with us today both Tim Murphy, the CFO; and Jake Moore, the EVP, Corp Dev and Strategy at Repay. So with that, I want -- first I just want to say thank you to both of you guys for making the trip to Arizona and being there.
Absolutely. Thank you.
All right. Excellent. So just to get started for the growth algorithm for Repay, maybe that's a good place to talk. You've guided a little bit for next year, but you also have sort of this just a medium-term outlook when you generally talked about sort of mid to high teens top line. Tim, maybe you could just put some added context around that.
Yes. So I mean we feel good about that because the majority of that organic growth is coming from existing customers. We're playing in some very large underpenetrated verticals like auto loans and mortgages and the B2B space, both in AR and AP. The penetration rates are just so low that when we get an existing customer, we have a lot of opportunity to add volume with them. And so the kind of growth algorithm that leaves builds up to that mid to high teens or even we think could be high teens to 20% is majority existing customer. We've added a lot to our sales force recently in terms of direct salespeople. We also have a direct sales model, which within payments is somewhat unique. A lot of people go to market through ISOs or agents. We've added to our direct sales, particularly within enterprise sales, and then we've added a lot of new ISV relationships, which all help with new customer acquisition, which is the balance of organic growth. So we think that's a really nice setup for kind of how we build there and visibility given that most of it is coming from existing.
Right. Perfect, Tim. So I think I want to hit on some of the -- two of those I want to quantify them a little bit. So I know we've talked about this in the past. But in terms of the number of direct salespeople that you have, that number's grown a lot, partially organically, partially some of the acquisitions you made. Maybe just give the investment community a sense of just how large that team is now and how far it's come over the last, call it, 12 to 18 months?
Yes, absolutely. So probably 12 months ago, that number was around 50. Now that number of direct sales folks is probably approaching 90. And I think even just as importantly, we've built out the overall sales organization. So we've put in a lot of sales support. We put in partner relationship management. We've put in some just sales management in general. And so I'd say the overall sales organization that's probably close to 120. So it's much more than doubled in the last, say, 12 to 18 months, which again helps us with new customer acquisition, which is a big part of our organic growth.
Great. So that be sort of quota-carrying salespeople that number is up meaningfully, but also they can be a little bit more productive given that things they can really put a support structure around them.
Absolutely. That's a big part of it is to help them focus on sales, not on any sort of administrative cash.
Perfect. Okay. Great. So let's go to the next one. You've also quantified quite well. So another number that's up a lot is your ISV integrations, right? So we're talking over 210 at this point. Maybe just give some context on how far that's come and what the organic run rate is for additions ahead?
Yes. And so that's more than doubled in the last 12 months as well. And we see that increasing probably organically by about 3% to 5% a quarter. And like I said, part of that is hiring partner relationship management folks for their sole job is to go out and build new relationships with ISVs and also further penetrate the existing ISV relationships. And so probably just as important to mention adding new ISVs as the penetration opportunity within existing ISVs where some of them, we think we're less than 10% penetrated. And we know because we're starting to get customer was what the opportunity looks like.
All right. Can you definitely storm a thunder a little bit there with the penetration question within those ISVs, but that's okay. I know this is a tough one, but when we look across all 210, I know that these numbers probably aren't even available but ballpark, even with the range. How far on average do you think you are penetrated within the existing 210?
10% to 20%.
Okay.
It's very low. And again, these are also growing software companies. So the opportunity itself is growing within the software, they're adding new users. And the reason why I say it's so low is, and I'll give you an example is Sage. Sage is on the B2B side within AR. So we're allowing Sage users to accept card payments from other businesses. There's tens and tens of thousands of users at Sage. And we, across our BD businesses have less like, 4,000 customers. So there alone is just the math. And that's just Sage, then you have added Acumatica, you add SAP. It's a very, very large opportunity. So very underpenetrated.
All right. Excellent. I think we should move a little bit to more of the -- the more near-term recent trends, your Q4 guide, you talked about gross profit accelerating into October, continuing to accelerate into the end of the year, and that's a great exit rate heading into 2022. You also provided an initial 2022 outlook, which I think was appreciated by investors and was above where Street numbers were at least where our estimates were. So maybe you could put a little more context around, again, the cadence of gross profit acceleration and also that initial guide for next year?
Yes. And so we felt good enough about visibility into next year to provide that initial outlook, it's not formal guidance, but initial. A lot of that has to do with growth coming from existing customers. A big part of our business is still personal loans. We know personal loan originations have picked up in the last few quarters. That will eventually flow through to all repayment volume. When you originate a personal loan, we don't automatically start getting payments. It depends on the duration of the loan, but we eventually will get that. Auto still continues to be a really strong part of our business. We don't see the macro dynamics within auto changing in terms of used car prices and demand for used cars. That's certainly strong. And then we continue to see strength within our [ PV ] businesses, and we think there's probably a pent-up recovery within health care. There's been a lot of elective procedures put on hold over the last 6 to 12 months that still need to happen. And we think that health care recovery is something we feel like could really benefit 2022. So I think we see -- you start to see organic growth pick up going into Q4 and for full year next year, accelerate for all those rates.
Okay. Great. And not to hit on it too much here, but in terms of the near-term intra-quarter commentary, still fair for everyone to think about that gross profit trajectory accelerating into year-end. And I think you said exiting the year, so maybe approaching 20% high teens.
Yes. We feel we have -- so far, it's been a good Q4. Personal loan originations flowing through our repayments like we anticipated. And so nothing that would change the outlook.
All right. Great. Okay. Well, let me step into what is one of the most exciting topics now roughly about 20% of your business and fast-growing is B2B. And that's commonly one of the questions we get from investors when we talk about the Repay story. So maybe you could give us some of the background and context and I don't know if this will be better for Jake or for Tim, but the business has been built up through some impressive acquisitions, and you also have both AP and AR capabilities, which is unique.
Yes, absolutely. So when we started this B2B journey, we knew that we wanted to ultimately go to market with a combined AR AP offering. The fact that our first acquisition within the B2B space was on the AR side just was a matter of happenchance. But APS was that acquisition. And then the second acquisition was a business called Ventanex, which does a lot of very technology first things within the mortgage space as well as AP automation and health care. And that business wasn't necessarily the go-forward best-in-class technology platform that we wanted on the AP automation side, so we look to the next acquisition, which was cPayPlus. And not only did it come with a best-in-class technology offering, but it also came with Darin Horrocks, who's currently our B2B business unit leader and pretty phenomenal growth. Acquisitions after the cPayPlus acquisition, all have been focused on AP automation, and they've all been about adding verticals and adding new markets and having new integrations to add to what we believe is the best-in-class technology offering within the AP automation space.
And to add to that, we have focused on businesses that really are strong at virtual card adoption and have a focus on selling virtual card. We'll process your total payment file. We talked on our call about TotalPay, which is our ability to take our vendor file and process all payments of virtual card enhanced ACH, ACH or check. But we have focused more on virtual card. And the reason is because the union economics in virtual card are just so much stronger than the other payment modalities. And Jake and his team has done a great job of going out and finding assets that are -- have just done a really good job of virtual card penetration. And a part of that is the supplier network. Maybe we can talk about that as well. Perfect. Yes, I think it's a great segue. So Tim mentioned the supplier network, there's 105,000 suppliers at Repay has gone on and essentially documented all their payment preferences, what they're willing to accept under what circumstances, and that's not something that can be done overnight. Maybe you could add to just how much labor is associated with doing that and how it is a moat in many ways.
Yes, absolutely. I mean it's a differentiator having that supplier network, and it's not something that is created overnight by any means. It's a difficult process that as you add new customers, you're in a real-time fashion, enabling and speaking with vendors and developing this database such that you understand the different payment modalities that a receiver of your payments will accept. And as you're doing that, when you're kind of in the early stages, you're having to call and decision every single receiver of your payments. But as you become larger and as you become bigger within particularly one vertical or a number of verticals, you find that every time you encounter a new vendor, you already have their decisioning within your database, and so there is kind of a real operating leverage concept and an efficiency concept that exists there.
And to add to that, it's like having an additional sales force, which makes the AP side of B2B unique. And so we have a team of people out there, we call vendor enablement, the supplier enablement that are calling vendors, like Jake said, enabling them to accept electronic payments in particularly virtual cards. It's a group of people that are out there calling suppliers, just like we have a group of salespeople out there calling customers. And that I think is unique and different. And so it's a key metric for us and something that we're very focused on growing.
Okay. Excellent. I want to -- before we move on to an exciting partnership that you recently announced. I want to touch on the ISV integration specific to B2B. So we talked earlier about the 210, but a subset of that, call it, 80 or so, maybe a little bit more than that now are within the B2B segment of the business, if you will. Maybe you could talk about the strategy for adding to that number and how many more are really out there in your core verticals? So how much more runway is there to add more ISVs in B2B within the segments you're focusing on?
Sure, absolutely. So to take a step back just for a moment, I mean, the way that we go to market on the acquiring side as well as the B2B side is through integrated partners. I mean our goal is to provide the most frictionless payment experience for our customers and ensure that they never have to when they're operating in their ERP and want to process the payment or payments process [indiscernible] that they never have to leave that native ERP. And so that's true within the acquiring side as well as the B2B side. As far as market opportunity, and we have great presence within -- on the AR side, Sage, Acumatica, NetSuite, and our presence within SAP. And so as you recognize some of those names and understand that there's tremendous opportunity within those integrations as it is, and we're absolutely focused on further penetrating those. But there are certain integrations that that are out there in the B2B world that we don't have. And we're focused on getting those 2. And that will just, in a very step function way, open up our TAM when we get those. On the AP automation side, similar story, I mean, we're going to market through software partners. And we have a number of 80 integrations on the B2B side. Most of those -- of that 80 is on the AP automation side, but the interaction is the same.
And then in AP, it's really vertical specific. So for example, we added CDK for auto dealers. There's other auto dealer, dealer management systems that we would be targeting. And so within each of those sub verticals within AP, there are ERP or ISV opportunities to get. And like Jake said on the AR side, we're really strong in Sage, Acumatica. We'd like to be bigger in SAP. We'd like to be bigger in Oracle, particularly NetSuite. So -- and within SAP, there's multiple, multiple products that you can integrate with and each of those has a different user base. So that's how we go to market there, just getting those ERP content in AR side and then on the AP side is more vertical specific.
Yes. And vertical specific on the AP automation side, because AP automation is suitable in more of a vertical fashion versus on the AR side, everyone has to process payments electronically and through card whereas virtual cards play kind of within a narrower vertical subset on the AP automation side.
All right. I think we've covered that one quite well in B2B. Maybe we'll circle back if we have time at the end. But I want to make sure we move on to an exciting partnership that you recently announced with Veem. So we've gotten to know the team there a little bit over the last few years were decided to wake up that morning and see that you guys are working together. So tell us a little bit about what you're doing together and how this helps to expand your TAM in some ways?
Sure. It expands our TAM for sure, but really kind of just adds more products to what we're able to deliver to our existing customers. Veem brought us cross-border. And we have, in many ways, a product solution on the B2B side and particularly the AP automation side that we're very, very confident and we think it's best-in-class. But there are some products that as our clients get bigger, and as we move to a more enterprise customer base that we'll need to add, cross-border was one of them. So we actively went out and pursued a relationship that would deliver that cross-border capability. Another example of a product like that, that we might look to add could be supply chain finance as our customers look to find credit within our platform. And we'll explore that when and if those opportunities come around. But we're very excited about that partnership. Those guys have been great and their capabilities are best-in-class. And they've also asked us to help them deliver to their client base on the acquiring and issuance solutions that are very core to our offerings, and that's something that we're working on, but the most immediate product enhancement is cross-border.
Excellent. All right. Well, we're going to stay more in your wheelhouse there, Jake, around M&A. So you've made a lot of deals that have been successful. And I think one that I think is important to always start with, and we've gone through this a little bit in the past, but I think it's worth going over it again, which is TriSource, which effectively brings you almost a built-in cost synergy with the majority of all future acquisitions that you make. Can you just talk about how that was kind of the important first deal to start with.
Sure. So and what Tim was referring to, it was our first acquisition post going public. And the rationale there was on the organic side, owning our own back-end processing engine, which is what TriSource does, was critical to our ability to get to market quicker for product enhancements. So extremely important there. Within on the M&A side, it allows us to effectively remove the back-end processing costs when we're looking at an acquisition and to effect synergy realization quicker than the other ones would if we were relying on a third party.
It's a great place to start. Okay. Maybe, Jake, if you could just recap in terms of your current cash position, debt position, where you're willing to take leverage as you continue to look at further inorganic opportunities. Clearly, your organic growth is strong as we talked about at the onset of this discussion, but another part of the growth story for Repay is absolutely layering on top of that more acquisitions.
Yes, absolutely. So as we sit today, we're at about 2.9x net leverage. We're always cognizant of where that number is and don't want to drift too much higher than, call it, 3.5 to 4x number. So any acquisition that you're going to see in the near term is probably going to be more of a tuck-in variety. We obviously have access to an entirely different toolkit on the equity side to finance deals, but at these prices, I think, along with a lot of the other folks that are speaking today, you're not going to see them be incredibly excited about using that currency now to affect acquisitions.
Yes. We have about $240 million of liquidity, and that includes a fully undrawn revolver. And like Jake said, we're cognizant of net leverage. And so we have to be mindful of how to use our existing balance sheet, but we're looking at deals in existing loan repayment verticals where there's some small private companies look at deals in health care. And then we're looking at deals across B2B, both from an AR and AP side. So there's -- we have a -- Jake has a full team of folks that are out there and their job is to source and exclusive deals.
Okay. Excellent. I think we should move to another topic that is clearly topical across all payments in fintech, which is buy now pay later. And investors are often looking to understand what exposure various companies might have to that theme. And I believe Repay has some of that. And it largely relates to the repayment of some of those loans and essentially is serving as the acquirer. Could you talk about some of the -- maybe not by name, but some of the broad types of partners that you're working with and how you think about your exposure to the BNPL over the coming years?
Yes, it's a great question. So we've been processing for BNPL customers for years. And that business model has morphed from what used to be called point-of-sale financing or lease to own to more of an e-commerce-based transaction, which is now referred to as buy now pay later. And so we've been -- we have several of these customers that we're doing this for today. And effectively, it's an installment loan. Right now, it's been full payments of $25 for $100 e-commerce transaction. We're starting to see some data that says that delinquencies and credit issues are popping up in that space. That $100 transaction may turn into 6 or 8 payments. They may have to introduce fees and penalties, which will start to look a lot more like a true installment loan. And because we process for thousands of installment lenders, we know how to process the installment loans. And so I think the bigger names that most folks are aware of in that space are probably using more kind of e-commerce, traditional merchant acquirers for the transactions today. But as those transactions become more complicated and look more like loans, we can step in and help them solve that issue. And that's where we see a real opportunity. And again, we have existing customers today doing this. We just think there's more to go get.
Okay. I want to go back to something that was a big topic last year and still is a meaningful part of your business but maybe hasn't been receiving or at least a meaningful part of the upside associated with your business is the Mercedes-Benz partnership that you signed last year and it helped to expand in some ways, your TAM into new car dealerships and also some more prime type of auto loans. Maybe you can talk a little bit about, to the extent you can that specific partnerships, I know that might be sensitive or limited, but the broader opportunity with others that look like Mercedes-Benz.
Yes, it's a great question. And we -- so we primarily process for used car dealers, like I said earlier, Mercedes really got us more into the new car space. Mercedes put out an RFP, they were looking for better payment technology. They were looking to offer their consumers the ability to make payments via mobile and text and IVR, which they didn't have with their current provider. And we won that business, and it's been a great relationship. We've continued to grow volume, and they're very happy with that and the consumers and customers are very happy with that. We think it's a great case study for additional captives. And we, from some of our market intelligence know that they are also very limited in their ability to accept electronic payments and specifically card, don't have access to all those payment channels and are looking to have a more -- further digital engagement with their customers and payments is a big part of that. So we think there's a real opportunity. We've hired some enterprise salespeople to focus on that large auto space. And I'd say, in addition to captives, another big opportunity that we see is online auto dealers. And online auto dealers like a room or a shift or others that are kind of working off of the -- or drafting off of the Carvana model are opportunities for us, and they're starting to do a lot of their own financing as well. And if you're only online and effectively doing an e-commerce auto transaction, you really need a good payment experience. And so if we can provide them a very good payment, high-quality experience to engage again digitally with their consumer, that's an opportunity as well. And so we have a few enterprise sales level folks focus pretty much exclusively on that captive and large online auto dealer market.
Okay. Perfect. We have a few minutes left here. I want to make sure we hit on competition. But before we even touch on competition, I think maybe it makes sense just to recap again the mix. So we talked earlier about 20% of the business being B2B. We know a large portion is loan origination. And within that autos, which we've talked about here is a big piece of that. Maybe you can give us the full -- the pie chart, if you will, for the business mix.
Break it down. So I think the simplest way to think about it is consumer payments is 70% of our business. Business payments, like Tim said, is 20% of our business. And then the remaining 10% of our business is Repay clearing settlement, effectively, which is TriSource, which is our back-end. Within consumer payments, about 50% of that is related to loans and the majority of that is [ going up]. Then we have a consumer-driven health care payments business, and we're also in a constitute management business. That's 70%. And then within the 20%, there's a pretty good balance between AR and AP. And then like I said, the other remaining 10% is Repay clearing settlements. So ideally, going forward, organically, we would want B2B to become a bigger part of the mix. Just naturally, I think it's growing the fastest, and it could do that. But that being said, auto has gone pretty close to B2B as well. So that's going to be strong. So -- but I think from a target mix perspective, we would look like to see B2B a bigger part of the mix.
Okay. Excellent. That's really helpful. So with that context, when we think about not so much the TriSource portion and not so much the B2B portion, but let's go to that 70% consumer portion. The competitors that you see there, so one, who are they today? And then maybe surprisingly, who are they not?.
So we see ACI, we see Speedpay. We see Paymentus little bit in auto and mortgage. We -- in health care, we see Cedar and Patientco, names like that, VisitPay. Those are the companies that we see within -- particularly within lending, where we think we're really taking share from ACI and Speedpay. And we know that because of the Mercedes win and some of the other conversations we're having with captives or online auto lenders. We're not seeing global -- we're not seeing Fiserv, we're not seeing Worldpay. So we've chosen these verticals in a very intentional way because we're not competing with the really big guys over price. We're really providing value. We're taking share. We're either maintaining or increasing take rates. We're in a position in these verticals to really win, and we're not, again, fighting over 5 basis points. That's not our model. And so we're very different in that regard. And that has been either through organic or M&A, an intentional strategy to target these large underserved verticals.
Excellent. Okay. We -- I just want to pause briefly to see if anyone from the audience would like to ask a question. We probably have time for just one more. If not, I'll pop in with the last one here. All right. So loan originations, so always a topic that we bring up on the earnings call or sometimes you bring it up proactively just to talk about what's happening in the environment in terms of originations, which are a good leading indicator for the loan repayment volumes that your business sees ahead. Maybe you can just give us a brief update on what you're seeing.
Absolutely. So stimulus is wearing off. We know that unemployment insurance benefits ended in early September and consumer demand is strong. Consumers have probably gotten used to with all the stimulus dollars delivering maybe a higher quality of life, and they want to continue to do that, which leads to more demand for personal loans, and these originations have been happening. We've seen them happening over the past few quarters. We think that will continue, particularly going into the holiday season. We think that, that origination activity is a very good sign for us of digital repayment volume. Another indicator that we see is we have a product called Instant Funding, where we can go out and actually fund the loan directly to a consumer's bank account electronically so the consumer doesn't have to receive a loan in cash. That activity really picked up during COVID, where a lot of these branches were closed and consumers didn't want to handle cash. They want to get the funds deposited instantly. We see instant funding volume picking up, instant funding line is origination activity. We're funding loans, either new loans or refinancing. So that's another good leading indicator. So we feel very good about where that's going.
Great, Tim. And a little bit of time we have left, just because investors are often asking to bring this to life, maybe you could just do this for the audience. So you mentioned branches. So when we think about where the consumers are going to get these personal loans, what they're using them for, what are the channels that they're going to get them from the types of customers effectively that you're working with within personal loans?
Yes. So it's installment lenders, probably largely based throughout the Southeast. The -- we have a pretty big presence there in Arizona, California, and they're getting personal loans to fund things like emergency medical procedures, auto repair, holiday purchases, travel and things that you would need to go and get a personal loan to fund. And so it's not probably your everyday purchases. And we see, again, some of this activity picking up more recently, and it's happening largely throughout the Southeast and as we said Arizona and California. Places that, by the way, have also been open and less restrictive from a COVID perspective, which has increased demand.
Excellent. Well, Tim and Jake, it's always a pleasure to host you guys. I really appreciate you making the trip out here to Arizona. It means a lot. Thank you for coming, and I hope you have a great day of meetings.
Absolutely. Thank you for having us.
Thanks for having us.
Read the full transcript via the API
You're viewing the first half of this call. Get the complete Repay Holdings Corporation transcript - plus 252,000+ transcripts from 12,000+ companies, speaker segments and full-text search - through the EarningsAPI REST API or hosted MCP server.
Get an API key View API docs →For developers and AI pipelines
Programmatic access to Repay Holdings Corporation earnings transcripts and 252,000+ others is available through the
EarningsAPI REST API and the hosted MCP server.
Quarterly plans from $105 - full transcripts, speaker segments, full-text search,
and the /api/v1/transcripts/recent polling endpoint for ETL pipelines.