Repay Holdings Corporation

Greetings and welcome to today's earnings conference call being hosted by Repay. With us today are John Morse, 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 are, as well as reconciliation of these non-GAAP measures to the newest GAAP financial measures can be found in our earnings release and earnings supplement, each of which are available on the company's IRR site. I would now like to turn the call over to Mr. Morris. Please go ahead.

Thank you, Operator, and good afternoon, everyone. On today's call, I wanted to open with an update on our business for the first quarter. followed by a review of how we're executing on our growth strategy, including discussing the acquisition of BillingTree, which we also announced today. I'll then turn it over to Tim to discuss our first quarter in more detail and thoughts on the remainder of 2021. We are pleased with our performance in the quarter, with card payment volume growth of 20%, total revenue growth of 20%, gross profit growth of 22%, and adjusted EBITDA growth of 18%. These strong results were experienced across all of our businesses. On the loan repayment side, auto sales continue to be strong. This coupled with the industry tailwind to digital payments and a large under-penetrated TAM positions auto as one of the fastest growing parts of our business. Our mortgage servicing business also performed very well due to increased home buying and refinancing activity. And while we are monitoring the mortgage origination market, we are focused on processing a fairly specific type of transaction within Portage. So we believe there will continue to be a need for our technology in any macro environment. During the quarter, we went live with two of the top 10 mortgage servicers and a top 10 credit union on our Lyft Payment IQ platform, our proprietary platform that streamlines and integrates payments and messaging for a seamless experience. We also added a top 10 mortgage servicer to the STX Advisory Board. As a reminder, the STX Advisory Board's goal is to improve and standardize payment flow, eliminate errors, reduce stealing fees, and create a better experience for borrowers. Finally, we also recently completed additional real-time integration activities with Ellie Mae. Continue to add customers through this partnership. On the personal loan side, buyers have been strong thus far in 2021. While we expected a seasonal slowdown in Q2 following tax refund and recent stimulus, we still see positive momentum through early May. Our instant funding product continues to experience significant adoption, with recent months showing record-long funding amounts. Our B2B business also showed strength during the quarter. We now have approximately 50 total B2B software integrations, and on the AP side, we've grown our supplier network to over 71,000. which is up 18% quarter over quarter. We recently announced that we became a participant in the CDK Global Partner Program. In connection with this partnership, we joined a marketplace of applications and integrations that CDK, a leading enabler of end-to-end automotive commerce, developed to help nationwide automotive dealers succeed. Through the integration, thousands of automotive dealers will have the ability to automate electronic AP payments to various vendors and suppliers based on specific invoice data within the CDK system. We recently signed an agreement to process electronic payables for the public school district's top 50 U.S. cities. Additionally, we are now processing payables for the largest in-room hospitality technology provider through global hospitality brands. Lastly, our tri-source processing business has been performing very nicely as restrictions lift throughout the country. We have several processing ISOs showing strong growth recently with additional customers in the contracting phase. We made solid progress against all our key growth strategies in the first quarter. Sales, technology, and product are the three areas of focus right now. On the sales side, we've had some great client wins in the quarter driven by our direct sales force, to which we continue to add talent. We recently hired three senior-level sales leaders with decades of combined payment experience. ISV integrations also continue to be a strong growth challenge for us. During the quarter, we added eight new integrations, bringing our total to 132 as of March 31st. We added 15 credit union customers in the quarter, which brings us to 58, representing approximately 635,000 collective members. We also continue to grow existing relationships and add new names to our buy now, pay later pipeline. We understand retail installment sales and believe our payment technology will be a great asset to many of the companies in this space. We've also made progress in the product and technology side. Last quarter, we announced that we recently opened a software development office in Ireland in partnership with a local firm called Prodigo. We've already hired over 20 software development-related staff, and they have hit the ground running. We have a lot of technology and product initiatives on our roadmap and many different verticals to attack, and we felt this partnership was a great way to quickly get additional resources and throughput. More recently, we have been finalizing a partnership with PayFace to enable merchants to accept electronic cash payments. This partnership will allow consumers to have access to approximately 60,000 retail locations to make cash payments to merchants on the repay platform with transactions supported in real time. it will add even greater convenience to payers and expands the capabilities of lenders and other merchant types to meet consumer payment preferences. Now let's move on to M&A, which continues to be an important incremental growth driver for our company. This evening, we announced the acquisition of BillingTree. This is a very exciting announcement as it's Repay's largest and most important transaction today. We have evaluated hundreds of attractive acquisition candidates over the years, and we believe that Billingtree has the best combination of technology, distribution, talent, and skill to complement our company. Billingtree is a leading provider of omnichannel, integrated payment solutions, and builder direct verticals. We posted a separate presentation to highlight the transaction on our investor relations site. Billingtree has two main products. CareVue, which is a healthcare payment and software platform, streamlines patient communication, promotes patient engagement, and allows customers to accept all forms of payments, including FSA, HSA, and Flex Cards. Next, PayRaiser, which offers an omnichannel platform that allows customers to accept and reconcile payments using the medium of their choice. Billingtree enhances our position in large and attractive growth markets, such as the healthcare, credit unions, accounts receivable management, and energy verticals. Billingtree's verticals provide them with access estimated card payment volume opportunity of $700 billion. Addressable card payment volume in BillingTree's core end markets has experienced favorable tailwinds as a result of the COVID-19 pandemic, accelerating the paper-to-digital payment shift within BillingTree's biller-direct verticals. BillingTree meaningfully expands our scale, contributing over $4.4 billion in card payment volume. $60 million in revenue, and $26 million in EBITDA before Synergy's pro forma for the full year, 2021. Billingtree serves over 1,650 clients, including over 120 credit unions. They have customers across multiple attractive end markets with industry-leading retention metrics. Pro forma for the full-year impact of the Billingtree acquisition, we expect to have over $22 billion in card payment volume, over $245 million in revenue, and over $105 billion in adjusted EBITDA, and over 175 ISVs. The BillingTree acquisition will also strengthen our existing product suite of deeply integrated, custom-tailored payment and software solutions for enterprise customers in healthcare, credit unions, and arm industry. Their solutions are tightly integrated with over 50 software platforms, and the acquisition is expected to expand our software partner integrations to 175. Additionally, BillingTree also has a highly recurring revenue model with 110% average net volume retention and strong margins. We expect the transaction to be accretive to adjusted EPS in 2021 before synergies and expect further shareholder migration from synergy opportunities as the combined company. The scale, capabilities, and infrastructure of the combined platform represent significant opportunities for cost savings and increased efficiencies. As a result of processing cost reductions, and operational expense rationalization, we expect to realize annualized synergies of approximately 5 million. We are incredibly excited about this highly strategic acquisition, having delivered on the promise we made to our shareholders earlier this year when we raised significant proceeds to pursue M&A. We will continue to evaluate attractive M&A prospects, maintain a very active pipeline of additional opportunities, and expect that there will continue to be mid-market consolidation across the payments industry. 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 Q1 financial results before I review our revised financial guidance for 2021. As John mentioned, in the first quarter, Repay delivered strong results across all of our key metrics. Card payment volume was $4.6 billion, an increase of 20% over the prior year's first quarter. Total revenue was $47.5 million, an increase of 20% over the prior year's first quarter. Funtanix, CPay Plus, and CPS contributed approximately $4.9 million of incremental revenue during the first quarter. Moving on to expenses in the quarter. Other cost of services were $12.5 million compared to $10.8 million in the first quarter of 2020. The incremental other cost of services from Funtanix, CPay Plus, and CPS were $1.7 million for Q1. Gross profit was $35 million, an increase of 22% over the prior year's first quarter. On an organic basis, we saw gross profit growth of 11% compared to the first quarter of 2020. This organic growth was primarily driven by strength across our loan repayment verticals, as well as better than expected performance in our tri-source backend processing business. SG&A was 23.4 million compared to 18.2 million in the first quarter of 2020. First quarter net loss was 18 million compared to a net loss of 13.2 million in the first quarter of 2020. First quarter adjusted net income was 15.1 million or 18 cents per share. Lastly, first quarter adjusted EBITDA was 20.5 million, an increase of 18% over the prior year first quarter. First quarter adjusted EBITDA as a percentage of total revenue is 43% compared to 44% in the prior year first quarter. This increase in adjusted EBITDA was a result of organic growth and contributions from acquired businesses, as well as continued focus on cost management. As John mentioned, today we announced the acquisition of BillingTree for $503 million, consisting of $275 million in cash, which will be financed with cash on hand, and $228 million in stock. This will be our largest acquisition to date. We also anticipate a tax benefit of approximately $20 million. This deal will be immediately accretive to earnings before synergies and is a great example of why we chose to access the capital markets in January. The transaction is expected to close by the end of the second quarter of 2021, subject to certain customary closing conditions. Combined net leverage is expected to be approximately 2.9 times on a post-transaction basis, a very comfortable level, which will allow us to continue to fund both organic and inorganic opportunities. As of April 30th, pro forma for billing tree, we will have $118 million of cash on the balance sheet and access to $125 million of undrawn revolver capacity for a total liquidity amount of $243 million. As of April 30th, pro forma for billing tree, We will have approximately 98.4 million shares outstanding on a fully delivered basis. Finally, moving on to our outlook for 2021. Due to the strong results we've experienced across all of our businesses year-to-date, coupled with our current momentum that will drive further acceleration in the second half of this year, we are updating our outlook for 2021, excluding billing. We are now expecting volume to be between $17.7 billion and $18.2 billion, total revenue to be between $180 million and $190 million. gross profit to $135 million and $141 million. And lastly, adjusted EBITDA to be between $76 million and $81 million. Now, including the impact of Billing 3, which we assume will close on July 1st, we expect the following for 2021. Volume to be between $19.9 billion and $20.4 billion. Total revenue to be between $210 million and $220 million. Gross profit to be between $159 million and $165 million. And lastly, adjusted EBITDA to be between $91 million and $96 million. Please note this includes approximately 2 million of expected pro forma synergies for the final six months in 2021. As with prior quarters, this rate assumes no further unforeseen COVID-related impacts, which could create substantial economic duress during the year. We are pleased to welcome Billingtree to the repay family and look forward to an exciting remainder of 2021, along with accelerated growth in the outer years. I'll now turn the call back over to the operator to take your questions. Operator?

And at this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull four questions. Our first question is from Tim Giotto with Credit Suisse. Please proceed with your question.

Thanks a lot for taking the question. I wanted to dig into some of the client relationships that came over with BillingTree and also the ISVs. So I saw over 1,600 clients and 50 ISVs. Maybe you could just talk a little bit about how penetrated those are relative to maybe the existing repay base of ISVs and merchants. How much runway is there there? Was there any overlap? Is that 50 a net number? Is that a gross number? Any extra context there would be really helpful.

Sure, hey, this is Tim.

Yeah, so we are definitely excited about their software relationships. They have them across all of these verticals, healthcare, credit unions, ARM, and energy. The 50 number, there is probably a few overlap there. We noted in the earnings supplement I think it's maybe in the mid-40s if you include the overlap. And, you know, we're getting access to customers in some, you know, very high-quality items in these end markets, and we think there's still a lot of penetration left. We think they're pretty underpenetrated in the existing relationships, similar to our situation. And so, you know, just like we've put further penetrating those relationships, we'll be doing something similar with billing trace. that's a big opportunity for us. And we like the fact that they go to market in a very similar way to us in terms of, you know, an integrated omni-channel experience. So, you know, that was a big part of our thesis here is just that integrated approach and getting access to a lot of different merchants within these end markets.

Okay, great. Thanks a lot, Tim. A brief follow-up, somewhat related, also on the Synergy side, is a Is there an extent that you might be able to cross-bill some of the B2B accounts payable side, so CPS, C++, into this existing base of merchants and or ISVs? Yes.

Good afternoon. We do think there's a great opportunity there. Obviously, we see some opportunity with our existing B2B platform with our CPP and CPS platform. Our CPS platform already has several opportunities that it uses already for the healthcare world, specifically hospitals, et cetera. As you can see with Billingtree, it has healthcare in its current offering, and so we do think there's an opportunity to cross sell on both sides of that. We're still early on in evaluating some of our needs there, but we think that does give us a great opportunity. Even across all the other verticals, we think there's also an opportunity to do some things on the B2B side as we add that into some of our integrated offerings. Great.

Thanks a lot for taking the question, Tim and John.

And our next question is from Craig Mora with Autonomous Research. Please proceed with your question.

Yeah, hi. Thanks for taking the questions, guys. So one unrelated to the deal, which is you discussed auto sales continuing to be strong and it's the fastest growing piece of repay. So can you discuss how that's weighing on take rate? Second, regarding the deal, can you discuss if there are any lockups on the 10% that Parthenon Capital will own following the transaction? Thanks.

Hey, yeah, to the first question, yeah, auto continues to be really strong, Craig, growing, you know, 20%, 25% plus, as it has been. And I'd say that the take rate impact is not too material. As you can see, the take rate this quarter was similar to prior quarters, and we expect that to continue. So I don't think that's going to be a material impact. And we also get just a lot more volume in that end market. And so that flows through to gross profit. And so in terms of lockups, there'll be a six-month lockup with Parthenon. And so, you know, that's pretty straightforward.

Okay, thank you.

And our next question is from Sanjay Shahani with KBW. Please proceed with your question.

Thanks, and congrats on the deal. I guess first question just on the core trends. was wondering if you could just maybe call out anything specific that you saw during the quarter, leading you to be more optimistic for the back part of the year, and any specific impacts related to stimulus?

Yeah, so organic growth in the first quarter was stronger than we anticipated, 11%. You know, that's something that we're excited about. There was definitely a benefit from stimulus in late March, but as we expected, It was due to seasonality around tax refunds and that stimulus volume dropped off into April and early May, but it's actually been a little bit better than we expected. So both those things combined led us to be more optimistic about the rest of the year. We also have a lot of strength in our TriSource backend processing business. We have some ISOs as customers there that have continued to ramp and grow, and we're excited about that. We also have some pretty large new customers that we're contracting right now. So that gives us confidence as well. So, you know, those are things that I would call out. And, again, stimulus had a positive impact for us in Q1. And, you know, we're seeing the drop off in Q2 as expected, but not to the same extent that maybe we expected. So that's another positive.

Okay. Yeah, we've seen some nice wins on the B2B side as well.

Okay. That's great. That's great to hear. And then just a quick question on billing tree. I see in the slide sort of the financial profile, but can you speak to how you see the growth rates on revenues for that business and how much more improvement you might be able to see on that EBITDA margin in the low 40s?

Yeah, sure. So you can see the growth rates here in the deck, 18% for volume, 15% for gross profit, 15% for adjusted EBITDA. Revenues in a similar range, kind of in the low to mid-teens. And they have 80-plus percent gross profit margins, which is really strong. It's actually a little bit higher than us. So Billingtree has solid growth and strong gross profit margins. And then they're currently in the mid-40s from a adjusted EBITDA perspective. We think that could With synergy realization, you know, tick up into the high 40s, maybe even hit 50% as we realize some of these synergies. So, you know, very strong financial profile, both from a growth perspective and a margin perspective.

And just to clarify, you think that business can continue to grow in the high teens, past 21? Yes.

I think mid to high teens is where we think it can grow and have those kind of margins with some expansion with the synergy realization. Got it. All right, great. Thanks.

Our next question is from Andrew Smith with Citigroup. Please proceed with your question.

Hey, John, Tim, thanks for having me on the call, and congrats on the billing tree acquisition. I want to start with this question on the personal loan vertical. It sounds like, obviously, that's trending better than expected into the second quarter here. Have you sort of revised the expectation for that into the back half, especially as we come up against some of the easier comps? Or is it more of a normalization back to kind of, you know, run rate levels? Just more context in terms of what you're contemplating in the personal vertical back half would be great. Thanks.

Yeah, I mean, we do feel good about where we are so far in Q2. Like we talked about, it's a little bit better than expected. So our initial assumption around macro was Q3 recovery. in general, and then that would lead to stronger growth within loan repayments and specifically personal loans starting in Q3 and Q4, particularly given easier comps versus last year in those quarters, and then that leading to a very strong exit rate into 2022. So we still think that's the case. If the trend so far in Q2 holds up for the rest of the quarter, maybe some of that growth that we anticipated could even be accelerated more in Q3 and Q4 going into next year. So

know definitely encouraged by what we see so far got it thank you for that and uh with billing tree it sounds like you're picking up some good technology here is there an opportunity to leverage some of this technology across the other uh verticals that you're in um or is it is it just more sort of isolated to to the these new verticals that you're getting into any any benefits from just leveraging their tech platform from a direct perspective thanks you know

Yeah, so, yes, very good technology. The technology stack here fits really well with our technology stack. We both are omni-channel. Some of the ways that we've built our platforms are very similar. That's going to make the integration to our target operating technology model much easier as well. We have the opportunity. We used some of the same providers on the authorization engine side of it. Obviously, there's going to be some back-end opportunities since we own TriSource. But on the technology stack side, specifically if you think about the vertical that they're serving healthcare, they give us a more robust healthcare front-end bill of direct software technology. That's going to fit well for us. It's going to really enhance some things we want to do on that side of it. They have a few, some of their other verticals, especially energy. as well, but that's going to give us some additional abilities to do some things we don't currently do. But overall, it fits well. We still – obviously, our technology is built really well, our tech stack, so this will fit in well with it. But, yes, they do give us some additional abilities there. And the key integration is really critical as well as we continue to expand specifically in the healthcare and credit unions. That's great to hear.

Thank you very much, guys.

And our next question is from Peter Heckman with DA Davidson. Please proceed with your question.

Hi, gentlemen. A lot of numbers came through. I'm just trying to reconcile some, but it looks like a great deal. When you're talking about your vertical presence post the billing tree acquisition, it looks like, I guess, You've segmented Billingtree into healthcare, accounts receivable, B2B, but if we were to include all of Billingtree in B2B, if you're looking at, what, almost $9 billion of combined volume primarily, well, I guess, how would that on a pro forma basis break down between AP and AR, and kind of what is your vision for kind of conforming to maybe one platform over time?

Yes, so the arm space is not actually what we would consider traditional B2B. And so we wouldn't include that in that part of the business. And that would be more on the sort of business process outsourcing for enterprise customers looking to help them get paid more quickly and efficiently. But the payments themselves are actually coming from consumers, so it's more on the acceptance side. And so But, yes, that's a very large market opportunity collectively across all these verticals. It's $700 billion of annual payment volume opportunity. So if you remove some kind of duplicate volume in credit unions, for example, it increases our total addressable market to $5.3 trillion of annual payment volume opportunity. So, you know, very, very additive to the total addressable market, and then, you know, a lot of benefits within each of these verticals from a software integration and technology perspective.

Yes, and also on a post-acquisition basis, if you're looking at business mix, and you'll see this in the investor presentation, loan repayment is about 50% of payment volume, B2B is about 20%, arms about 10%, healthcare is about 10%, and others about 10%.

Okay, got it. That's really helpful. And then just in terms of thinking about the close, any, you know, I would assume just regular customary approvals needed before close. It looks like you think you can get this closed in the next six weeks or so.

Yes, yeah, just standard customary closing conditions and the expectations would close by the end of Q2.

Okay, thanks much.

And our next question is from Ramsey L. Assal with Barclays. Please proceed with your question.

Hey, guys. This is Robert. I'm for Ramsey. Question on TriSource business. You had mentioned that this is kind of ramping back up and growing nicely now. As the business kind of starts to rebound, how do you see the revenue mix of that core portfolio ex-billion tree reshaping? I mean, TriSource was a $6 or $7 million investment. business pre-COVID, but how are you talking about that business in a post-COVID scenario?

Yeah, hey, it's substantially higher than that. And really the part of the business, the volume-based part of the business has recovered to kind of pre-COVID levels. But the business that's really doing well is the back-end processing business where we have customers that are ISOs and we help them with clearing and settlement. And so that's the part of the business that has really continued to perform nicely. And so it's much higher than that $6 to $7 million that you mentioned in terms of 2021. And if you look at the billing tree investor presentation, we still include that in other. And even when we strip ARM out of other now into its own bucket, the total other is still about 10%, and that mostly is tri-source. Got it.

Okay. That's helpful. And then second is a follow-up question on the energy vertical. Looks like you guys acquired or the billing tree portfolio at least had 10% related to energy. So kind of can you help us understand your go-forward strategy in energy? Are you guys looking to expand further into the vertical, or was that more so after you acquired as part of the deal?

It's an asset that the bill entry has had for a number of years. It's actually, in addition to payments, there's some software. And so, you know, we've talked in the past about potentially buying software companies. We traditionally only focus on buying payments companies, but this is a good example of one where there's a payment monetization opportunity within the software, within the energy space. So they're, you know, they're providing software and payments to, you know, fuel and propane dealers, and they're doing it in a bundled way. So we think there's a lot of volume to go get that's being processed on the software side, but the payments are not happening. So that's part of the strategy going forward is to try to monetize those payments further. Got it.

It's helpful. Thank you.

Our next question is from Joseph Baffey with Canaccord.

Please proceed with your question. Hey, guys. Good afternoon, and congrats on the billing-free ad. It sounds like a nice asset. Let me dig a little bit more into personal loans. What are some of your – I'm sorry, on auto loans, if we could focus a little bit on what your customers are saying about their loan books right now. And then the follow-up is, you know, obviously, billing tree is pretty big. Are you going to scale back M&A for a little bit? What are you thinking there on the strategic front? Thank you.

Yeah, auto lenders feel really good about their books right now. You know, they're growing nicely and have been. I don't think credit quality is really an issue still, even with the growth. And I think that they're just finding ways to engage more digitally with their consumers, which fits really well with our payment technology. We allow them to have that digital engagement through payments. And so that's just continued to be a theme that we've seen, you know, as our auto lending customers, you know, try to build that more into their offering. And that really helps us in terms of, you know, penetration and growth within existing customers. So, you know, I'd say that that still continues to be very strong. And then in terms of additional M&A, we have an active pipeline. You know, we're sitting at 2.9 times net leverage, which is a pretty comfortable level for us. We have access to about $243 million of liquidity between 118 of cash in the balance sheet after the billing tree acquisition and access to $125 million under on revolver. So we think we have capacity for future M&A. We have an active pipeline. We're still looking at deals, you know, in B2B. We're looking at potential healthcare opportunities and other verticals that make sense and have a lot of the qualities that Billingtree has. So, still have an active M&A pipeline.

Great. Thanks, Tim.

And our next question is from Bob Napoli with William Blair. Please proceed with your question.

Thank you. It's a good transaction to Looks like just the stock, is there a locked-in share count? I mean, what are the exact number of shares that Parthenon is getting?

Yes, so it's just over 10 million shares.

Okay, that's a locked-in share number, right?

Yes, it was based on a 12-day VWAP leading up to signing. Great, okay.

Thank you. Now, I mean, I think there's, you know, knowing a little bit about billing tree and looking at your presentation, there's some decent overlap, I mean, I think, in parts of the business. And, I mean, you're not in energy, but, you know, the arm in a credit union is credit union primarily auto, and the arm is that primarily personal loans. And I know it's some, like, debt recovery.

Credit unions is... very much additive. You know, they have, we had about, end of the quarter, about 58 customers. They had over 120. They have some software relationships in credit unions that we don't have that we've been talking to. So that's, we really like that. That's a great vertical and they've done well there. And so that was a big part of the thesis. And then accounts receivable management, they're really a leader in that space and have done, you know, they have great technology. They have great relationships, both with merchants and with software providers. And, again, that's very additive to us, and we think that they have a ton of great relationships. And then what we're really excited about is healthcare. And so, as you may recall, we're in healthcare on the AP side where we're processing payments for third-party administrators from insurance companies to providers and also processing AP for hospital systems. This gets us more into the patient side with consumer-driven payments, whether it may be at a hospital or whether a doctor or dental practice. You know, this gets us into that part of healthcare. There's a lot of different parts of healthcare, but we think it's a $420 billion market opportunity, and it's obviously growing very quickly as consumers, you know, decide to take more control over their healthcare choices. So that's what we're really excited about, and that's where a lot of the growth will be focused, but they also have strength in these other verticals as well, Bob.

Okay. Thank you.

Sorry about that. The other thing I would add is the credit unions would lean towards the auto lending Okay.

Great. And then in healthcare, is that revenue cycle management? Is that competing with, like, Flywire, or who would be some of the competition in that healthcare space?

That revenue cycle management kind of overlaps between healthcare and ARM, but we'd be, you know, competing with, you know, maybe like Instamed in healthcare. That's a name that we also see in the Ventanix business. So, you know, that's one that we see from time to time, and there's some other private companies that would come across. But definitely, they're definitely in the RCM space, and like I said, it kind of straddles healthcare and receivables management.

Thanks. And then last question, just, I mean, from a cultural perspective, you know, how does this fit? I mean... It's a good-sized organization with obviously some good leadership, but how does that fit together? I mean, I guess the healthcare, the energy teams clearly – I mean, how did you feel about the culture and how this fit together? I mean, you don't have a huge amount of cost synergies in there, so it's more growth-oriented, I guess.

Yeah, sure. So we actually think our cultures fit well together. You know, if I'm trying to find an optimal opportunity that strategically and is very compelling as a combination, there's lots of one-for-ones we do that are just – this makes a lot of sense. It's very attractive from a financial perspective, but also very attractive from our ability to integrate a lot of the different – Verticals, they serve – we understand exactly what they're doing. The omni-channels they have fits well with our omni-channels. Our technology fits well. This makes a lot of sense for us, and obviously they've built a really nice company. Parthenon has put in a first-class team there who's done that. Yes, I mean, this is a scenario where we'll have to find some synergies, but – we think this is a really good opportunity for us to continue to expand in these verticals.

Thanks, John. Thanks, Tim.

Our next question is from Tim Willie with Wells Fargo. Please proceed with your question.

All right, thank you and good afternoon. I apologize if I missed this at the very beginning of the call. I dialed in a bit late, but could you talk about first with I guess the margin profile is obviously right now already very attractive at its revenue size. I'm just sort of curious, you know, versus yourself or others in the marketplace, is there something inherent about the monetization of the customer base, the way they're just running their back office that gives it such an attractive revenue profile? That sort of jumped out at me in terms of the revenue and margin dynamics there that looks so good at the size that they're at.

Yeah, similar to our verticals, these are just relatively underpenetrated from an electronic payment perspective. And it's also highly integrated with the key software providers. So just like Repay, Billingtree adds a lot of value to their merchants, and they're able to hold margin because of that. And they just have chosen very attractive verticals that, like I said, you know, moving away from legacy payment methods more to electronic, specifically card, not a lot of, you know, competition, not a heavy competitive environment like maybe a retail transaction would be. And so there's just stronger margins. And I think they've done a good job of building relationships with their vendors and putting in place solid contracts with their vendors from a processing cost perspective to keep those gross margins high and then have run the business in a relatively lean way to allow for strong adjusted EBITDA margins. So very similar to the question that was asked earlier about culture. They've kind of built their business in a similar way we have. both from a processing perspective, OPEX perspective, and also from a technology perspective in terms of omni-channels focused on these specific verticals in a highly integrated way. So a lot of overlap and very positive.

Yeah, great. I appreciate that. And one quick follow-up, and again, I apologize if you touched on it in some of your prepared comments, but just any updates around the initiative around the mortgage industry and just Anything to call out there partnership-wise, momentum-wise, that just sort of wanted to get an update about that end market opportunity?

Yeah, a lot of momentum there. We've signed some very large mortgage servicers recently. We've added a large credit union to do their mortgage payments recently, all of them looking for a highly customized, you know, processing platform that handles complex exception-based processing. So a lot of momentum there, gaining a lot of momentum with the Ellie Mae relationship where, you know, the technology piece of that is coming together nicely and we're, you know, furthering that technology integration to onboard customers more quickly. We're adding customers with Ellie Mae. So a lot of positive trends within mortgage.

Great. Thank you very much for your time.

Yep. Our next question is from James Falsetti with Morgan Stanley. Please proceed with your question.

Hi, this is Priscilla on for James. Two quick questions for me. The first is just on the payment volume side, is there any seasonality that we should be aware of versus some of the ongoing strength that you called out in the April-May trends that you've been seeing? Just we want to make sure we're capturing the cadence of what the business should look like and then obviously any incrementals from the recovery that you're seeing. And then just a quick other follow-up on the payment volume side, could you give us a sense as to what the the organic growth has been trending at? Thanks.

Yeah, so the seasonality is in Q1. Typically within loan repayments, we get a lot of additional volume from tax refunds. When consumers receive those refunds, they often make larger than normal payments on their loans or might even pay off their loans. And then that usually has a seasonal dip into Q2. when our lenders are more focused on lending and originating than they are in collecting due to refunds. And then we start to see accelerated growth in Q3 and Q4. So that trend is continuing to play out, and we would expect that, again, seasonally Q2 would be down from Q1 for that reason, but then we'd experience accelerated growth in Q3 and Q4. So we're seeing that continue. And then from an organic perspective, we had a really strong quarter. Organic gross profit growth was 11%. So that was very strong for us, and, you know, we're excited about that. We had really large volumes from a lot of our larger personal and auto lenders, and that was, you know, a good signal.

Thanks.

Our next question is from Mike Rondell with Northland Securities. Please proceed with your question.

Yeah, thanks, guys. Did you say that the three senior salespeople you hired, will they be focusing on a specific vertical or more generalist? And then did you say how many salespeople you picked up with billing tree?

The new sales hire, one of them specifically will be focused on selling ISOs for our TriSource backend processing business. And so looking to add additional customers there. Like I said, that business has performed very nicely. It's really high margin, and we're looking to add customers, and this particular salesperson has a lot of experience there within payments in that part of the payment business. The others will be focused on enterprise-level customers and loan repayments, looking to add, you know, very large customers across the different sub-verticals of their loan repayment. So that's where they'll be focused. Then the billing tree team is, you know, Really, largely have relied on distribution from software partners, so they haven't had to have a huge direct sales force. They've gotten a lot of referrals from those software partners. They do have a strong sales team. That will be very additive to us, and we'll be trying to find ways to help further penetrate those ISV relationships just like we do at Repay.

Got it. Okay, thanks.

Our next question is from Tom Blakey with SunTrust. Please proceed with your question.

Hi, guys. Thanks for taking our questions. First question is on B2B volume. What is the, you know, qualitative or actual catch rate of acquiring the kind of total volume opportunity of your B2B customers? And relatedly, in your thinking about growth going forward in this B2B segment, How much is coming from, you know, new ERP integrations and what percentage would be coming from a further penetration rate of existing customer base? And then the second question on billing tree is, you know, very interesting here. A big part of their business is related to AR management. I was wondering how complementary this acquisition is to your existing bill trust relationship. That would be helpful. Thank you.

In terms of B2B volume, the opportunity is huge. I mean, in B2B AP automation, we estimate our addressable market opportunity of $2.2 trillion, and in B2B merchant acquiring, it's $1.2 trillion, so about $3.5 trillion of payment volume opportunity in B2B across AP and AR. And we think that our customers have probably a higher than average virtual card volume penetration rate, and so we're trying to increase that and have them you know, send more and more of their payments via virtual card and have, you know, the suppliers enabled to accept virtual cards, which is a higher margin business for us than, say, traditional ACH. So that's what we're trying to do is just kind of just go out. Most of the customer conversations are greenfield, and there's not a competitive takeaway. It's just trying to, you know, move them away from check to electronic payables and specifically enhanced ACH or virtual card. That's on the payable side, and then on the merchant acquiring side within B2B, yes, it's going to market through ERPs, whether it be Sage or Acumatica, and trying to tap their customer base to utilize card payments and accept cards in a business-to-business transaction, and, again, trying to increase penetration of card acceptance in B2B merchant acquiring. In billing tree, the AR management business there is really more about business process outsourcing and acceptance of payments and maybe on something that's past due in a healthcare payment, for example, and that's just helping their customers get paid more quickly and efficiently. It's not really related to the BPN integration. It's more about, you know, again, acceptance of those third-party, you know, maybe late payments and those various sub-verticals. It could also be revenue cycle management. talked about before where a hospital has outsourced their billing and collections and a hospital is looking for a to be able to take payments via card from their patients. That revenue cycle management is also part of it.

Thank you very much.

Our next question is from Bob Napoleon with William Blair. Please proceed with your question.

Thank you for the follow-up. Just on billing tree that looks like the net take rate is a little bit higher than it is for repay, you know, brings the blended rate up close to 110 basis points. Does that sound right? Like 108 basis points, something like that?

That sounds right, yes. Yeah, they do have a higher take rate.

Yeah. Is that sustainable that – And I guess, I mean, you do compete head-to-head in some regards, in some pieces, so that could maybe make it a little bit less competitive in some areas?

Yeah, I think it's sustainable.

Based on the data we've seen and the conversations we've had with, you know, customers and software partners and the salespeople within the organization, we do think it's sustainable. And so that's, again, it's a very attractive financial profile, as you're pointing out, in addition strong gross profit and adjust the unit margin has a very high take rate. We think that can persist going forward.

Thanks. And just a question on feed. Sure, John.

Bob, there's going to be, because of the health care and because of the energy space and some of the other things, there can be a little bit more credit in that take rate. Credit itself has a higher take rate.

Okay. Okay. Great. Thank you. And then, Just on the B2B payments business with the four acquisitions you've made, you know, what's working better than others or anything that's really standing out? And what is the growth rate of that B2B payments business combined? So what's standing out? What's the overall growth?

CPS has done really well. They're the business that does payables for large hospital systems or education systems. They really are going after an enterprise client, and they're really good at that type of sale. And we've seen them now win some large customers, like we talked about on the call, a top 50 U.S. city. We're now doing all of their payables for their public school system. As you can imagine, there will be a lot of vendors there and a lot of payables. And we're just seeing a lot of those types of large enterprise wins, and they just do a really nice job with that. We hope that will continue across those various verticals in that business. It's growing probably 20%, 25% on a combined basis. A big part of it is adding to the supplier network. As you know, that's a big piece of the payables business, and not only adding suppliers, enabling them to accept virtual cards. Both CPAY Plus and CPS do a great job of virtual card enablement, so that's why we think we have higher than average virtual card acceptance rates in these particular subverticals because the supplier enablement is very strong.

Thank you. The VPN, are you actually using the VPN at this point, or are you still working on integrating?

The technology integration is close to complete, but we've identified some customers within sub-verticals, particularly field services, that we think will benefit from that, you know, really near future here, near term.

And is that going to, you know, the VPN, does that materially move the virtual card acceptance rate? Is that... Is that a benefit?

It should, yeah. Kind of get access to the supplier directory to understand who already accepts cards and what their rates are, and that's part of the value proposition there.

Thank you.

And we have reached the end of the question and answer session, and this also concludes today's conference, and you may disconnect your lines at this time. Thank you for