Repay Holdings Corporation

Greetings and welcome to today's earnings conference call being hosted by Repay. With us today are John Morris, co-founder and chief executive officer, and Tim Murphy, chief financial officer. During this call, we will be making forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filing related to today's results and in our most recent form, 10-K, filed with the SEC. Actual results might differ materially from any forward-looking statements that we may make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them, except as required by law. In an effort to provide additional information to investors, today's discussion will also include references to certain non-GAAP financial measures. An explanation of these non-GAAP financial measures, as well as reconciliation of these non-GAAP measures to the nearest GAAP financial measures, can be found in our earnings release and earnings supplement, each of which are available on the company's IR site. I would now like to turn the call over to Mr. Morgans. Please go ahead.

Thank you, operator, and good afternoon, everyone. We hope everyone is doing well and staying healthy. On today's call, I wanted to first give an update on our business for the full year and fourth quarter, followed by a review of how we're executing on our growth strategy. I'll then turn it over to Tim to discuss our fourth quarter in more detail and provide guidance for 2021. When we first previewed our thoughts for 2020 in March of last year, we would have never predicted that the world would be like today. And while there was so much uncertainty throughout the year, there were two things that became even more certain, the value proposition of our business and the strength of our organization. The value proposition of our business was demonstrated through the growth we experienced this year, which included an increase in card payment volume of 42%, total revenue growth of 48%, gross profit growth of 44%, and adjusted EBITDA growth of 41%. As for the strength of our organization, I could not be more proud of how incredibly hard our team has worked this year, despite all the challenges in everyday life. In 2020, we were able to acquire and have been working to integrate three companies. Through those acquisitions, we further solidified our position in the B2B space, and they also allowed us to add new verticals to our platform, including mortgage services within loan repayments, along with field services, hospitals, and education in B2B, just to name a few. We launched service transfer exchange to automate loan transfer payments between mortgage servicers, increasing speed, accuracy, and transparency in mortgage service transfer for both servicers and borrowers. We also added 54 new software partners in 2020 across all verticals, further demonstrating that we are a key offering in many of these platforms. In addition to expanding our product suite and partnership roster, we take pride in integrating new teams from our acquired companies into the repay family of employees as we continue to rely on talent to grow. This employee-first focus has been rewarded with certification as a great place to work for the past five years, thanks to a dedicated company culture in which over 90% of our employees have validated the positive work environment. Now to move on to the fourth quarter, which was the strongest quarter we've ever had. For the three months we reported, card payment volume growth of 16%, total revenue growth of 23%, gross profit growth of 23%, and adjusted EBITDA growth of 29%. During the quarter, we also completed one of the acquisitions I've just mentioned, CPS Payment Services, an accounts payable automation business, which further enhances our existing healthcare B2B business and helps to accelerate expansion into new verticals. Our loan repayment business was strong in the quarter, especially in the auto loan side, where we expect to continue to see rapid growth. The COVID-19 pandemic is reshaping the auto marketplace. According to EY's 2020 Mobility Consumer Index published in November, nearly a third of the respondents who do not currently own a car say they plan to buy one in the next six months. As a reminder, we believe our TAM for auto is about $600 billion. It's one of the fastest growing parts of our business. Our mortgage servicing business also performed very well in the quarter due to increased home buying and refinancing activity, along with low interest rates. This increased demand and low mortgage rates has sparked a boom in originations and mortgage service transfers, positioning us well to benefit. We continue to guide development of our service transfer exchange solution through the SDX Advisory Board, which is composed of mortgage industry experts representing a variety of companies, including U.S. Bank and Loan Depot. Our goal is to improve and standardize payment flow, eliminate errors, reduce delinquencies, and create a better experience for borrowers and servicers. On the personal loan side, many of our customers have recently seen a return to sequential quarterly loan portfolio growth in Q4, and we are hearing positive trends into Q1 as well. Our instant funding product continues to experience significant adoption. We've nearly tripled the number of users of this product since the beginning of 2020 and continue to add to this each month as consumers move away from cash and going to physical locations to access their loan disbursements. The pandemic has proven that loan repayments are resilient. We've also seen significant shifts to electronic payments during this time as many lenders have been focused on increasing digital engagement, which fits well with our enhanced payment technology offering. We believe this shift is permanent and will increasingly grow over time. Our B2B business was also strong during the quarter. We were particularly pleased with the performance of CPS payments and can already see the growing value of electronic payables with enterprise customers, such as large healthcare networks and education systems. We now have approximately 45 total B2B software integrations, and on the AP side, we've grown our supplier network to 60,000 plus. We made progress against all our growth strategies in the fourth quarter. We've had some great client wins in the quarter driven by our direct sales force. We've ended the year with 43 total credit union customers, which represents approximately 350,000 collective members. We expanded processes and services and integrated partnerships in the Canadian marketplace. WePay was also recognized as an approved vendor and a FinTech Innovator of the Year by the Canadian Lenders Association. Credit unions in Canada will be a big focus area for growth in 2021. We're also now actively processing in the buy now, pay later space. This is a natural move for us given our long history and expertise in installment lending. All of these efforts were also aided by software integrations of which we added 30 new partners during the quarter, mostly by acquisitions. This brought our total ISV integrations to 124 at the end of December. I want to spend a few minutes discussing several of these integrations. In December, we announced our partnership with the Strategic Regional Healthcare Organization, the National Association. This partnership expands our reach within the healthcare sector by providing health system members accounts payable with disbursement automation and revenue generating rebates. Also in December, we announced a technology integration with LiveVox, a next generation contact center platform. The partnership further enhances the LiveVox customer experience by providing additional digital payment options and processing capabilities in either self-service or agent-assisted transactions. And more recently, in January, we announced a technology integration with Billtrust, a B2B accounts receivable automation and integrated B2B payments leader. Through our participation in Billtrust's Business Payments Network, or BPN as they call it, our corporate customers will instantly gain the ability to automate electronic payments to Billtrust's vast network of suppliers, distributors, and vendors, both accelerating and simplifying the payment process but also further scaling adoption of virtual credit cards. In addition, last month, we announced a technology integration with PN3 Solutions, a paperless B2B AP authorization automation software provider. Through the partnership, PN3's business customers will gain the ability to automate outbound payments through the use of virtual card or ACH to their vendors, adding seamless, fully integrated payment capabilities to its procurement and AP workstreams. The partnership will also allow us to realize synergies with our B2B receivables offering, as ReefBase Footprint now overlaps payables and receivables across key integrations, including Acumatica and Sage. And just last week, we announced an integration with BBA, a leading-edge software design company revolutionizing the insurance industry through employee benefit administration solutions. The two-way integration between the platforms will enable insurance companies to pay healthcare providers, including licensed healthcare facilities, programs, agencies, and doctors, or services directly from the VBA system. On the international front, we're also implementing one of the largest non-bank lenders in Canada, and we should be live in early March. Moving on to M&A, which continues to be a key growth driver for our company. In January, we completed a concurrent common stock and convertible notes offering to and in February closed a revolver, providing us with ample liquidity to pursue deals. Our pipeline remains very active, and we believe this capital raise positions us even better in the marketplace. Having completed five acquisitions since going public less than two years ago, we expect that there will continue to be mid-market industry consolidation across the payments industry on both the receivables and payables side. There are many players out there that are great acquisition candidates for us, Ideal targets are high-growth businesses and large verticals that are underserved from a payment perspective, are integrated with software, have attractive margins, and have a need for our technology. Lastly, to continue to position us well for the tailwinds we are seeing in digital payments and the growth we expect to continue to see for our business, we have recently opened a software development office in Ireland in partnership with a local firm called Protigo. We are excited about this partnership and believe it to be a great asset as we expand. To wrap up, I continue to be incredibly proud of our team for their hard work and dedication in growing this company and providing excellent service to our customers. I'm very encouraged by the trends we see and the verticals we serve and also impressed with the businesses we have been able to integrate today. REAPI has proven resilient during these times and is positioned even better moving forward into 2021. With that, I'll turn it over to Tim to discuss the financials in greater detail. Tim?

Thank you, John. Now let's move on to our Q4 financial results before I review our financial guidance for 2021. In the fourth quarter, Repay delivered strong results across all of our key metrics. Card payment volume was $4 billion, an increase of 16% over the prior year's fourth quarter. Total revenue was $41.4 million, an increase of 23% over the prior year fourth quarter. TriSource, APS, Fantanix, CPay Plus, and CPS contributed approximately $6.5 million of incremental revenue during the fourth quarter. Moving on to expenses in the quarter. Other cost of services were $11.5 million compared to $9.3 million in the fourth quarter of 2019. The incremental other cost of services from TriSource, APS, Funtanix, CPayPlus, and CPS were $1.8 million for Q4. Gross profit was $30 million, an increase of 23% over the prior year's fourth quarter. On an organic basis, we saw gross profit growth in the mid-single digits compared to the fourth quarter of 2019. Organic growth was solid in October and December. But November was down due to the lapping of a very strong November 2019 for personal loan repayments. That said, our December organic growth profit growth was in the low teens, and volume trends in early Q1 2021 were strong, which provides us continued confidence in our mid- to high-teens organic growth outlook. As John mentioned, we've seen many of our larger personal loan customers return to loan growth in recent months, and we've benefited from the second round of stimulus payments. We typically see an uptick in Q1 in our loan repayment verticals as a result of tax refunds and a lower sequential Q2. SG&A was $21.5 million compared to $24.8 million in the fourth quarter of 2019. Fourth quarter pro forma net loss was $0.8 million compared to pro forma net loss of $7.5 million in the fourth quarter of 2019. Fourth quarter adjusted net income was $13.5 million or 17 cents per share. compared to adjusted net income of 12.3 million or 20 cents per share in the fourth quarter of 2019. The decrease in adjusted net income per share was primarily driven by a pro forma tax adjustment in the current period, which we did not include in the prior year period, as well as a higher outstanding share count. Lastly, fourth quarter adjusted EBITDA was 19 million, an increase of 29% over the prior year fourth quarter. Fourth quarter adjusted EBITDA as a percentage of total revenue was 46% compared to 44% in the prior year fourth quarter. This increase in adjusted EBITDA and adjusted EBITDA margin is a result of organic growth and contributions from acquired businesses, as well as rigorous cost management, delays in hiring several positions, and residual payout plans for certain third-party sales partners. On January 19, 2021, we completed a public offering for approximately 6.2 million shares of our Class A common stock at a public offering price of $24 per share. On the same date, we also completed the offering of $440 million of convertible notes with a 0% coupon. We also announced the closing of a new undrawn $125 million senior secured revolving credit facility on February 3rd. Therefore, our cash and liquidity positions remain very strong. As of January 31st, pro forma for the concurrent offerings and the payoff for the previous term loan facility, we had $394 million of cash on the balance sheet and access to $125 million undrawn revolver for a total liquidity amount of $519 million. Our pro forma net leverage is now only 0.6 times, which is the lowest we've been since becoming a public company. As of January 31st, pro forma for the common stock offering, we had approximately 86 million shares outstanding on an as-converted basis. Our fully alluded share count, including unvested shares, equaled approximately 88.4 million shares. Regarding the convertible notes, we are still considering treatment on this, but will likely elect net share settlement, principal and cash in the money value in shares, which allows us to benefit from Treasury stock method for accounting purposes. In this case, the convertible will only result in dilution once the stock price increases above the conversion price of $33.60. Finally, moving on to our outlook for 2021. We are still in a period of uncertainty around the economy and pandemic. Depending on the pace of recovery, we currently expect much stronger growth in the second half of 2021 versus the first half. Also, the second half of the year generally has easier comps. And to position us well for the significant shifts we are experiencing in electronic payments, we are planning to invest in sales, technology, and product this year to further accelerate growth as we move into 2022. With all these factors in mind, we expect the following for 2021. Card payment volume to be between $17.5 billion and $18 billion. Total revenue to be between $178 million and $188 million. We expect gross profit to be between $134 million and $140 million. which includes organic gross profit growth of 15% at the high end. We have a slide in our investor supplement on our IR site which provides a detailed explanation of our gross profit expectations for the year. And lastly, we expect adjusted EBITDA to be between 75 million and 80 million. Just to note that we expect approximately 55% of our P&L contribution to come in the back half of the year due to the reasons mentioned a moment ago. As with prior quarters, this range assumes no further unforeseen COVID-related impacts which could create substantial economic duress during the year. We are already experiencing strong momentum in early 2021 and look forward to an exciting year ahead. I'll now turn the call back over to the operator to take your questions. Operator?