Repay Holdings Corporation (RPAY) Earnings Call Transcript
May 16, 2022
Earnings Call Speaker Segments
Hi. Welcome back, everybody. Sorry for a little delay there. We are pleased to welcome John Morris, CEO; and Tim Murphy, CFO of Repay with us today. Gentlemen, thanks so much for being here. Really appreciate it.
Good morning.
Maybe we can start off with you guys giving us kind of an update on your business mix. You have made a lot of progress diversifying into B2B. There's a lot going on at Repay. And so maybe it would be helpful to just sort of level set by talking about how the business is composed today.
Sure. I'll start with that one. So at the highest level, the way we think about it is about 70% of our business is consumer-driven payments, 20% of our business is B2B, so business-driven payments. And the balance, 10%, we would just consider other, which is really Repay clearing and settlement. Within consumer, so of the 70%, about 50% is loan repayments and 10% health care and 10% ARM, so 50% plus 10% plus 10% to get to the 70%. B2B is pretty evenly mixed between AR and AP. And then we have specific verticals within AR, AP. And then like I said, the balance is Repay clearing and settlement. So that's kind of the current way we think about it at the highest level and then within each of those areas.
Okay.
Ramsey, do you have any color there. So if you think about from when we first met a few years ago, that was 100% loan repayment, right? And a few verticals, probably just a couple of those verticals, whether it be auto loans and consumer loans and some various others. But if you look at it now, from a diversification perspective, we completely 50% of our company is something different. But even inside of the consumer payments part of that world, even inside the 50%, there's mortgage, there's Buy Now, Pay Later, there's other types of retail installment loans. There's probably -- the flavors kind of keep changing there in some respects. Basically, if something is some type of installment payment, that's set up on some type of obligation, we have the ability to process that. So we think we're well diversified and the TAMs that we are addressing have gotten even bigger. So it's really exciting for us, some of the things we hope to do over the next 3 to 5 years.
Great. And your guidance calls for what I think is quite impressive, 20%-ish organic growth or gross profit -- organic gross profit growth. Can you tell us about -- just describe the algorithm that gets you to that 20%? How do you build up to it? And also then maybe just talk about the quarterly cadence of organic growth that you're expecting sort of for the remainder of the year.
Yes. So we feel good coming out of Q1. In April, we're seeing at least 10% organic growth starting off the second quarter. A lot of our growth, as we've talked about before, is coming from existing customers, just taking more and more of their payments using our solutions. We think the second quarter is going to be around 10% to 12%. And then the third quarter will be north of 20% and then the fourth quarter will be north of 25%. And the reason for the -- there's a few reasons for the acceleration in the back half of the year. One is, and probably the largest driver is that we have a business that does political media volume, it's AP. So we're sending payments to suppliers for political ads. So when you see political ads on TV, it could be our customer, that is the agency that is working on behalf of that candidate. And that is picking up right now leading into the midterm elections in November. So we'll get a lot of volume between here and November, which will benefit the second half of the year. We think there's a recovery happening in personal loans that is actually happening more so now than we think it has in the past few quarters, given some of the commentary from our customers in some of the large public lenders. We think there's a recovery in health care that hasn't fully happened yet. We have a couple of different parts of health care, both on the consumer side and the business and B2B side. And then we have a really -- as John mentioned on the earnings call, we had a really strong Q1 in terms of new customer implementations that have either gone live or will be going live throughout the second quarter and into the second half of the year. So there's a lot of different layers, I think will help for acceleration in Q3 and Q4.
That's great. And John, maybe give us an overview. I want to talk about B2B first in terms of your product set, give us an overview of the services you provide there? And just any color on how the segment breaks down and how you're thinking about that opportunity sort of over the longer term?
Yes, sure. So I watched that space for 10 years. And it just -- I was watching for it to mature, but more than anything watching for technology to really be advanced enough so we could accelerate things. So we're sort of acquiring in the B2B space way before this pandemic started, before COVID existed. And now we didn't think that would ever happen, but it did. And when it did, it really pulled forward the concept of automation. It pulled forward the -- people are not in offices to make -- to write checks, et cetera. So where I'm ultimately going with that is that opportunity is enormous, and we've seen just the whole world look and say, okay, wow, should we be automating our payables. Should we be automating what we do with our receivables. And obviously, every payable is ultimately [ someone else's ] receivable and everybody's receivables is ultimately [ someone else's ] payables. So if I look at that market, so there's both an AR side of that market, and there's an AP side of that market. So on one side of that on the AR side, we're allowing our customers who send out invoices to be able to get paid back with any type of card, whether it be a credit card or debit card or even an ACH. And that's integrated into their accounting ERP systems that they drive that they potentially even send out their invoice from, and this is on the receivables side, that's the AR side. And we're integrated with some really key integrations there, and that's a really positive thing to work. And so we're adding and what we said is we're adding the AR and the AP together with our -- through our cPayPlus acquisition, that's our target operating system in a really strong technology set for us, what we call our TotalPay solution on the AP side. And that allows us to pay all of your payables as a one-stop shop. So in that world, it typically is someone may be using -- we still run in some areas where there is completely writing checks for all their payables. And then we help automate that and turn that for everything we can put into our vendor network and -- or either enable, we turn those into virtual cards and send the funds through that method or we send it as an ACH credit or we send it actually as a check as well. So we are a total turnkey solution there. Now what we are looking to add is the ability, and we have added to some of our key accounting ERP integrations is the ability to do both sides the coming and the going of the transaction. What I think makes us unique is our ability and industry expertise around the overall technology offering and having a complete comprehensive solution one-stop shop. We actually have the ability to expand that even further by being omnichannel, and we'll continue to build that out with various different customers. But we also have sub verticals inside of that and a couple of sub verticals inside of that would be on the health care side, would be, as we just mentioned, we're seeing opportunity in the government side of that on the payable side of that. And then we're also seeing opportunity -- we've seen opportunities over the year on the auto side, where we are integrated in some key systems that we can help with the automation of payables in the automotive space, kind of the back office part of that world, not necessarily the front office part of that world. Those exist all across the board. And I think what makes us really good is not only do we have superior technology and a superior offering and key integrations. But we also have, I think, some of the best industry veterans at what we're doing, where we go directly to market in many cases. But we also have industry expertise around payments. We understand the ability to clear and settle funds. We understand that world. We control our own clearing and settlement engines, both on the AR side as well as the ACH side, and that gives us a great strength as we build that out. Now I think we're going to get even better at that as we build out and add additional opportunities in the digital wallet as well as different payment modalities as people want to pay a different way other than typical current ways that people pay. What we have found is existing modalities haven't really gone away. Amazingly, the world still uses a check, right? It's been around for years and years and years. It's not necessarily going to go to zero. It still exists out there. So we're going to continue to add how people want to pay and want to get paid. And I think if you look at -- if you're a business, you need someone like us to enter the financial system. If you're a financial institution nonbank, you need someone like us to enter the financial system. And we bring a one-stop shop solution, and I think we do it really well. And we couple great technology with great customer service, along with industry knowledge as well. We think we have a superior solution there.
I want to ask about the competitive environment of B2B. When you think about the competition, is it thinking about other fintechs who are out there kind of competing for the same customer? Or is it really more competing with legacy processes or a little of both? Where are you guys situated in terms of the competitive landscape in B2B specifically?
Specifically on B2B, we still think it's really white space currently. We're converting customers who are just doing it kind of the old way or occasionally, we'll run into customers that maybe have used a purchasing card, but they were just saying -- they were just issued a purchasing card by their bank and saying, hey, give them this card. Well, the payables department -- we know this because we can convert some of those customers occasionally and get their total solution. And all of a sudden, we can go from a 10% virtual card participation to like a 40%. And it varies by industry and by company. So don't take those as absolutes. But that -- our ability to automate, our ability to actually vendor enable, our ability to add them to our network, a significant value add from an automation perspective, just a complete automation reconciliation perspective, but also really in that world, it really is effective for the actual client because our client gets a higher rebate, the more we -- the better we do it, what we do.
And you've done a great job assembling a compelling technology solution as your growth rates would show. How should we think about that as we move forward? I guess, specifically around sort of M&A and on the B2B side of the business. Is it now about more maybe using M&A, is it more of a horizontal expansion opportunity? Or are there other either verticals or gaps or pieces of the puzzle that you still need to assemble to feel like you've got the platform that you need to kind of attack the market?
Yes. So technology-wise, we've got a superior platform, but there's always going to be sub verticals where maybe there are some key integrations that we could accelerate years of opportunity faster. If you can get tomorrow today and is set -- and what we've had a history of doing, Ramsey, is taking some of those opportunities and really accelerating growth organically there, where it may be just understaffed, underserved or just undercapitalized. We think some opportunities like that will come up. We think there's some very attractive people in the market that we think there could be some things later on. But we would definitely want to add to existing verticals, say, health care, government or auto as we expand some things. And we always want to get stronger where we are. We'd like to be #1 in our sub verticals we're in. And it's still a land grab for the most part still. So regardless, it's a go-get. But we would love to continue to make ourselves better. And let me also mention, we're really only in the U.S. and Canada, right? So no secret, if we ever want to go beyond or broader than that, then we would have -- we would most -- I would say most likely that would have to be in some form of M&A.
That makes a lot of sense. I wanted to move on to the -- some of the parts of the business, the personal inside of the business, it's potentially less macro sensitive -- one of the more macro sensitive parts of the business. What's your broader view seeing what you're seeing in terms of the general health of the consumer in the markets that you're operating on that side of things? I guess sort of concern to you about the sustainability of the consumer trends you're seeing? I know you already just mentioned in the context of guidance that, in fact, there's still somewhat of a recovery kind of occurring. And I'd say at this conference, all day today, we've heard everybody sort of say, I understand the headlines, I hear the macro, there's an expectation of macro pressure, but today in the business, it's not necessarily super palpable. So not to put words in your mouth, but how should we think about the macro impacting your business? What are you seeing in your numbers today?
Yes, sure. So obviously, markets may be looking way out in the future and what's that time span, right? I'm unaware of that. But from -- we're not seeing that on a current basis from a standpoint of -- so 2 things I'll step back for a second. These are my opinions. The consumer in my opinion, and you can read some data around this is in the best financial shape I've ever seen in my professional career. So this is not like consumer is out of money headed into a recession. This is a financially strong consumer. This is the best job market I've ever seen in my financial career, which means people have the ability to pay, people have the ability to pay and spend. Now we tend to gravitate to our whatever we may we spend, I guess, in the great big world we're in. So what we saw in the first quarter, at least from a loan repayment side and what we're hearing and reading about is there is an uptick in demand on the credit side. We have -- what I've seen over the market run that I've been in is credit really never goes away. We actually saw some of that dip for the first time because the government gave people funds in some respects or the funds requirements just weren't there. So we think the return of need for credit is a good thing for our business. We think that it winds up with a consumer that is well positioned and in much better financial health for some type of outer years, wherever that may be, we think that's ultimately a good thing for our business on a return. On the business side, we see positive things on that side of it and that we're continuing to see the automation drive growth. We think there's some positive things there as well. So in the near term, we see positives. Long term, if I'm looking 24 to 36 months out and who knows what that will be. What we have typically found is in those times of pressure, we find that our one-stop shop solution, people really care and will focus on how to get paid and get repaid and to also on the need for the efficient flow of funds in and out, and we deliver those solutions, and we have had a history of actually being a positive impact there, at least historically. Tim, you want to add something to that?
Yes. I think, like John said, we see demand for credit coming back stronger than it has been probably pre-pandemic levels. And if there were a situation where the consumer became less healthy financially and delinquencies were to potentially tick up to John's last point, we think that actually puts us in a potentially better position with our customers because the lenders will be really, really focused on collections or account receivable management folks will be focused on how do they get paid more quickly and efficiently. And the most quick and efficient way to be paid is via card, you know right away whether the funds were approved or decline and you have the funds you don't, you can start the collection process if the card was declined. So we think actually, in that environment, if it's more difficult or challenging to collect, our solutions become even more valuable.
And Tim, very tactically speaking, the consumer demand and the environment seems to be supportive. What about on your customer side in terms of loan originations, are you seeing any changes in terms of patterns or loan originations that have been downstream impact your payment levels?
Yes. I mean we're hearing just consistent with, again, what the public consumer lender said, we're hearing the origination activity has really picked up, and we see that, too. One of our indicators is our instant funding product where we've directly fund the loan into a debit card. So it's electronic funding, and it happens literally in seconds. We see that volume picking up. And that's a good indicator to us of origination activities because that's the funding of the loan versus the repayment of the loan. Our interest and funding volume is growing very nicely. And again, that's a good indicator to us in originations picking up.
Yes. Let me -- there's some subcategories on the consumer side, Ramsey, obviously no secret that with mortgage rates going up, those originations are down. But remember, we -- just to remind folks, we do business with a lot of the large servicers, right? So we have less impact in that world. There's a 30-year or plus -- 30-year amortizing loans, who knows exactly which year they are. But what we find is we're getting more and more -- as they get more efficient on the servicing side, they need more and more of our solutions around some of the unique things we do in the mortgage world. So that world is really growing for us, even though you would perceive, okay, people are making less mortgages, they're actually needing more -- the servicer side of the world needs more of our services and how we help solve the friction in that world. It's a very regulated transaction that's reset itself with a lot of refinancings. So when there's fewer refinancings, it's a stickier solution as well, right? I mean you have lower burn off. So that's a positive thing in that world. And then the auto space, we still see strong demand out there, although rates could affect that world a little bit. But our space on that side of it, again, those are anywhere from 48 to 60 to 72 plus month loans. And so we still see really strong demand from a loan repayment perspective in that world. But I just kind of want to give a little bit of a double click on color there. We realize that it can be perception there.
Yes. That's terrific. And I think what it sounded to me like you communicated was that there's a secular tailwind underpinning a lot of the cyclicality of the markets that you're in. There are -- there's a tailwind for some of the services that you're offering that really operate separately from the underlying cycle basically, which I think is a very, very powerful thing. Talking about captive auto. That's something that you guys kind of got into somewhat recently with Mercedes partnership. What should we expect from that going forward? Is that -- is there still a pipeline there? How would you characterize it?
Yes. That's a good kind of transition from actually the prior question in that. One of the evidence of what we see in the marketplace is what as evidence of what we ultimately get to see in our pipelines, right, of the future go get, the future opportunities. And we see those. We see the demand for that. In general, people don't buy what they don't want or don't need, right? So especially in the world where everybody has plenty to do. So we find that our overall business development, sales pipelines, our integration partnerships, the demand is still really strong there. And with that comes the enterprise level deals, which could include some of the OEMs and some of the larger financing type businesses. We find that to be healthy. We find the opportunity to be there. Some of the bigger they get, sometimes the longer the sales cycle associated with contractual time periods, we see opportunities coming through. We're going to continue to invest in our enterprise level sales teams as well. We've been doing that this year. We would hope to start seeing fruits of that as we move into the latter part of this year or next year. So overall, the Mercedes piece of the world is a great opportunity for us, that's going well, continues to be positive and develop good fruits there for both parties. The demand for our solutions and the automation around that, the automation of the digitization, we see that continue to drive things, and we have a pipeline that is attractive from a standpoint of the things -- the financial solutions we deliver are in heavy demand in the marketplace.
Okay. John, describe to us in a little bit more detail what you're doing in the health care industry? I think that touches obviously the consumer side, it touches the B2B part of your business. Help us better understand kind of dig a little deeper into what you're doing on the health care side.
Yes, sure. So obviously, this came through a few of our acquisitions but very complementary across the board. And I would tell you, overall, I'm not hitting on all cylinders yet from a standpoint of our ability to cross-sell from the standpoint of our ability to really expand especially enormous health care in itself is an enormous total addressable market in general. So 2 different sides of the house almost like we were seeing in B2B, you got the consumer payment build pace out of the house and that we acquired through our BillingTree acquisition. And that can be anywhere from day 1 of a consumer bill, if you owe a hospital or a hospital bill or a doctor bill, that can be included in a revenue cycle management part of that world. We're interacting and providing software to interact on behalf of the hospital or even a private label scenario. And then we've got the -- we've got 2 sides on the B2B side of the world, and one of that is claims payments. So we're actually paying claims with virtual cards and/or kind of like AP automation. We're paying that to providers of, say, our third-party administrators. So on behalf of an insurance company to all the different providers that they would need to reimburse. We are facilitating that entire financial experience. And that is just a significant opportunity that we look to grow and we have some partnerships we're working on that can really help us expand that. And then there's the hospital side of the AP automation world, where we actually -- the hospital is our actual customer where we're paying all of their vendors. And inside of just a single hospital system, you would be amazed at the number of vendors that a single hospital has. I mean it's an institution in itself, which we're able to take all of that, simplify that, automate all that, feed it back out of their system and back into their system in a very automated reconciliation form, but yet also help them drive efficiencies out of that, including some rebates associated with the virtual card experience of that. Those are just the different pieces of that. We think our ability to actually cross-sell among those is a great opportunity that we don't have -- we're not where I want us to be yet on that world. And we already integrated in some of the key ERP systems there on both sides of that. But we'll continue to automate some of our solutions there, continue to enhance some of our solutions, and we'll get better at that. Even without that, it's growing really nicely. And just has long runways to it because of the health care itself will get more efficient. If you look out in the -- again, I have a long view. If you look out in the next 2 to 5 years, there's a great opportunity there. I mean it's just -- you just have to look up and see why did someone do it that way? It's so inefficient. It surely shouldn't take 30 days to pay a bill.
Yes. That was a great segue to my next question which was actually around cross-sell. And hearing you talk today, there just seems to be so many kind of points of connectivity on the B2B side, on the merchant processing side, how do you kind of taking a step back in terms of technology organization, strategy? How do you go about building out that connectivity to really get what you can out of the cross-sell opportunity?
Yes. So from a technology perspective, we're getting really close there. You ultimately want to build out a seamless solution and straight out of the ERP systems is the most efficient way. So reduce the number of touch points, reduce the number of, what I would call, Skips or Hops in the system. So it's -- just think about it a click to send, click-to-pay and everything happened. Think about it from 1 digital ledger to the other digital ledger, wow, it happened that simple, right? So if you think about it, a virtual card in itself is a digital payment. It is literally basically taking it out of the ledger of saying, this is worth x and you're transferring it 1 spot to the other. We have the ability to do that in many different ways. Our -- as we drive automation there and drive that concept of just click it and send it, click it and pay it, we think we can drive better efficiencies there as we continue to automate some things. Ultimately, those integrations are going to be critical and the simplification of that is going to be critical. And we'll continue to invest there as we -- we have 225 different internet software providers that we integrate into, all those are not B2B, but we want to continue to enhance those over time. It's something that will -- as you can imagine, they have new versions and they have new iterations that they serve. We think the opportunity to drive that will really create this seamless solution. And if you start looking at -- will click, you can click on how you want to get paid, not just 1 way. We think there's an opportunity there. The ability to -- and we're not close to where I want to get to on the ability that every payable customer is a potential receivable customer, that's when you start really getting the exponential effect. We're not where I want us to be on that side of it. We're doing well with what we're doing, but not just where it's just really -- we have -- and again, you can only go as fast as the clients themselves will let you go. You can only go as fast as their technology experience will let them go. So we're continuing to enhance that offering and that experience to drive that automation there.
Just to quickly add on that. The first step was to get our B2B sales team trained on the cross-sell. So selling both AR and AP within B2B. That's now happening. We have examples of that, and we're integrated with Acumatica and Sage to do that. So we're getting good traction there. And now, like John said, to broaden that to our entire sales force to be able to treat any prospect as a potential AP prospect is pretty exciting. I mean even auto lenders or personal lenders, they have AP. So they're largely writing checks today. So it really opens up -- being on the AP side really opens up a lot from a sales perspective and the training has been done. And I think a lot of work has been done on B2B, and now we would potentially be able to broaden that across other verticals.
Got it. I'm afraid we're out of time unfortunately. Thank you so much for your time today John. I really appreciate it. Have a terrific afternoon. Thanks for being here.
Absolutely. Great to see you.
See you soon at the conferences. Have a great day. Bye.
Thanks.
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.