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 Filings 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 those non-GAAP financial measures are, 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. Morris. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today to review our third quarter, which was one of our best since becoming a public company over two years ago. During the quarter, we reported card payment volume growth of 48%, total revenue growth of 62%, and gross profit growth of 69%, which included 15% organic growth. We also reported adjusted EBITDA growth of 73% in the third quarter. Our highly integrated payment technology has been purpose-built to address the increasingly connected economy. The secular trends towards frictionless digital payments were a contributing factor to our growth in the quarter and continue to be a tailwind that will drive our business for years to come. In fact, approximately 95% of our volume is now comprised of a combination of card-not-present and recurring transactions. These trends were aided by an incredible effort from our direct sales team, as well as our sales through our ISV integrations. which continue to be a strong growth channel for us. We currently have 214 software integrations, which represents an increase of 127% year over year. We have built a really strong sales pipeline as demand grows for our digital payment solutions. The powerful trends driving our business and numerous valuable sales channels are also aided by the fact that the $5.3 trillion market we currently address has been and continues to be underserved from a payments perspective. These verticals still rely heavily on paper forms of payment. Our technology helps convert these paper payments to digital for both money in and money out transactions, meaning both acceptance and outbound supplier payments. We are growing adoption and taking share in these verticals due to our enhanced payment technology. The B2B space remains wide open and represents the largest opportunity to increase penetration with a focus on virtual cards. We're making significant progress in B2B due to the five acquisitions we've completed and integrated to create a powerful best-in-class offering in the market. This is supported by superior distribution through our 80-plus B2B software integrations representing approximately 15 vertical end markets. We now have over 3,500 clients in our B2B business, and on the AP side, we've grown our supplier network to over 105,000, an increase of approximately 14% from last quarter. Crossing 100,000 suppliers is a major milestone for our AP business. We have a full supplier enablement team that is working to grow that number every day, which will allow us to increase our virtual card adoption within our customer base. We're also increasing virtual card penetration through our TotalPay solution, which came through our acquisitions of CPayPlus and CPS last year. This solution allows us to automate 100% of our customers' outbound payments, no matter the payment modality. As a reminder, our AP business is focused on medium to enterprise size customers and is growing approximately 30% annually. These B2B verticals have a long runway for growth due to low card penetration rates, which we estimate to be in the low to mid teens. In addition to increasing virtual card adoption within our customer base, we also are seeing early success in cross-selling our combined AP and AR capabilities. We've been close partners with Sage and Acumatica within B2B merchant acquiring for some time. We now have the ability to do accounts payable within each of those integrations, which we think is pretty unique. We currently have several signed with an active and growing pipeline of clients for both sides of the transaction, meaning AR and AP, and expect that number to increase dramatically next year. In addition to cross-selling within our B2B customer base, we are seeing increasing interest from our lenders wanting to use our AP capabilities. They really value the idea of a one-stop shop for payments in general. In September, we announced our strategic partnership with Veeam, an AR and AP automation provider serving small and medium-sized businesses. This commercial partnership agreement allows us to further expand our B2B offering by giving us the ability to deliver cross-border payment options. This provides us another opportunity to expand our payment options and is an especially attractive partnership when it comes to our total pay offering that I mentioned a few moments ago. We're in the process of testing this technology with international vendors and expect to go to market with this offering in the first quarter of next year. The partnerships we signed earlier this year are starting to really bear fruit. In the spring, we announced our inclusion in the CDK Global Partner Program. We're now processing AP within several auto dealers as part of this program and also building a very healthy pipeline through that connection. As a reminder, CDK Global is the largest global provider of automotive dealership solutions, with 15,000 retail locations in North America. Another relationship we discussed was with Biltrust's BPN network. We have successfully added BPN as a new payment modality within our TotalPay solution, and now have live payments through that channel. As you can see, we continue to expand our TotalPay solution. as we add additional payment modalities, as well as expand our access to various networks, such as VPN, and grow our supplier network. We're seeing tremendous success and growth in our B2B business, but equally as important, our clients are seeing real value in the services we provide. For instance, when we signed up a large eight-hospital, 2,200-plus bed health system for our AP total pay solution, we were able to get the program up and running in less than two weeks. Their vendor participation increased over 16 times, and for a company that is currently processing about $9 million in vendor payments each month, they are generating approximately $1 million in additional earnings annually from the cash rebates and reduced check printing costs. That's real savings and tangible proof that repay is helping make a material impact to their businesses overall. Moving on to loan repayment side of our business, which is comprised of consumer-driven payments across auto loans, personal loans, mortgage, and credit units. One of the fastest-growing and exciting areas of this business continues to be the auto loan repayments due to the recent tailwinds such as elevated used car prices, increased demand, and digital engagement. These long-duration loans have greater repayment stats, and our sales activity has picked up recently as dealers and lenders map out their customer engagement strategies, which will include payments. Our high-quality, deeply connected payment technology has become part of this engagement strategy. We continue to see gradual rebound in personal loan volume as stimulus impacts wear off and consumers take on new loans for funding increasing consumption activities, particularly as we enter the holiday season. Our lending clients are continuing to find ways to engage more digitally with their customers, which fits very well with our payment technology. On that topic, we recently announced an expanded integration with GoPoint Systems, a loan management software company. Help lenders electronically send funds directly to borrowers' bank accounts in real time, driving digital transformation and providing consumers with instant access to funds. GoPoint users will be able to access instant funding in tandem with card and ACH processing for payment acceptance across all channels. Our instant funding business is still going strong, and we are seeing increased adoption. Recently, we announced our extended integration with Inovatec, which will streamline the funding process for lenders on the Inovatec system in the US and Canada. The integration will enable lenders to instantly fund loans from the same interface they use today without having to switch systems or platforms. In addition, beginning next year, we will enable Inovatec lenders to offer remote cash acceptance. which will further increase the convenient options for borrowers to make payments. We expect this partnership to help accelerate growth in Canada. We've also recently signed an exciting new partnership with Finicity, a MasterCard company, to offer consumer permission lending data insights to merchants so they can make predictive lending decisions and verifications. On the mortgage side, MSR values and trading continues to pick up momentum, which increases the value and need for our STX network. Our focus on first-time payments for originators through our LMA partnership fills a gap in the marketplace, and we see good momentum and receptivity from mortgage customers. We believe that our emphasis on creating efficiencies for our mortgage servicers continues to create organic growth opportunities both within our existing customer base and with new customers. Our tri-source processing business, which we've renamed Repay Clearing and Settlement, or RCS, continues to perform nicely. It's strategically valuable to own our backend processing platform, which gives us unique capabilities to control the customer experience in areas such as billing and reporting. We see very strong sales momentum with processing customer prospects and expect to experience additional new wins going into 2022. So a lot of progress on both our existing B2B and consumer payments businesses. We also continue to look to further expand our end markets through M&A as well as organically. M&A continues to be an important growth driver for our business. Our pipeline remains very active across key areas such as B2B and healthcare. We're also seeing some interesting opportunities in existing loan repayment verticals. We're very pleased with our ability to integrate a majority of the seven acquisitions we've made since going public a little over two years ago. Our integration of billing tree is going well. Towards the end of this year into early 22, we've been converting the backend processing to our platform. In which case, we'll start to realize those processing cost synergies. We've already made solid progress in realizing the OPEX cost savings. And we're very much on track to hit the total $5 million synergies target that we estimated previously by the end of next year. In addition to adding many talented team members and ISV integrations, this acquisition has allowed us to further expand our position into healthcare, credit unions, and accounts receivable management. We now have over 190 credit union customers combined with billing tree, representing approximately 2.2 million collective members. This continues to be an exciting growth area for our business. To wrap up, I'm incredibly pleased with our performance this quarter and even more excited about the future for our company. Our focus on both B2B and consumer payments verticals has positioned us well in the market. We continue to feel great about the long runway ahead for organic and inorganic growth. And the strong recent additions to our team will help us address these large and growing verticals. 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 Q3 financial results before I review our financial guidance for 2021. As John mentioned, in the third quarter, Repay delivered strong results across all of our key metrics. Card payment volume was $5.6 billion, an increase of 48% over the prior year third quarter. Total revenue was $61.1 million, an increase of 62% over the prior year third quarter. This represents a take rate of approximately 110 basis points, mainly reflecting the benefits of increased virtual card adoption and the strong financial profile of Billingtree. CPay Plus, CPS, Billingtree, and Control contributed approximately $17.8 million of incremental revenue during the quarter. Moving on to expenses in the quarter. Other cost of services were $15.3 million compared to $10.5 million in the third quarter of 2020. The incremental other cost of services from CPAY Plus, CPS, Billing Tree, and Control were $3.2 million for Q3. Gross profit was $45.8 million, an increase of 69% over the prior year third quarter. As John mentioned, on an organic basis, we saw gross profit growth of 15% compared to the third quarter of 2020, as shown on slide five of the Q3 supplement posted to our IR site. We remain very encouraged by accelerating organic growth. with an exit rate in September of 16% and continued positive momentum into early Q4. This organic growth was primarily driven by strength across our loan repayment verticals, as well as continued solid performance in our TriSource backend process and business. We're also seeing a recent pickup in growth at Bintanix due to increased mortgage activity and what appears to be the start of a rebound in elective health procedures. SG&A was $33.7 million compared to $28.6 million in the third quarter of 2020. Third quarter adjusted net income was $19 million, or $0.21 per share. Lastly, third quarter adjusted EBITDA was $27 million, an increase of 73% over the prior year third quarter. Third quarter adjusted EBITDA as a percentage of total revenue was 44% compared to 41% in the prior year third quarter. This increase in margin is mainly a result of stronger-than-expected margins of billing tree, primarily due to solid execution on OPEC synergy realizations. We do still anticipate increased investment in sales technology and product to continue putting in place the proper infrastructure for accelerated organic growth into 2022. Combined net leverage is approximately 2.9 times, a very comfortable level, which will allow us to continue to fund organic and inorganic opportunities. As of September 30th, we had $116 million of cash in the balance sheet and access to $125 million of undrawn revolving capacity for a total liquidity amount of $241 million. During the quarter, we funded approximately 13 million of non-recurring investments, such as the CPAY plus earn out and V minority investment. As of September 30th, we had approximately 99 million shares outstanding on a fully diluted basis. Finally, moving on to our outlook for 2021. We are pleased with our results here to date, particularly the organic growth, and expect the momentum to continue throughout the remainder of this year and into 2022 as the economy recovers. Therefore, we are adjusting certain expectations for the year. We expect volume to be between $20.3 and $20.8 billion, total revenue to be between $216 million and $222 million, gross profit to be between $161 million and $166 million, and adjusted EBITDA to be between $93 million and $96 million. While we don't intend to provide formal 2022 guidance until our Q4 earnings call, given the positive trends we've seen more recently, we would like to provide additional detail on our current outlook for next year. We expect total top-line growth to be approximately 30%, And underlying this, we expect organic growth to be high teens to 20% for full year 2022. Expect total adjusted EBITDA growth to comfortably exceed 30% in 2022. Again, we feel very good about our performance thus far in 2021 and look forward to finishing the year strong with accelerated growth into 2022. I'll now turn the call back over to the operator to take your questions. Operator?