Repay Holdings Corporation

Greetings. 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 the 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 In our most recent form, 10-K, filled with the SEC, actual results may differ materially from any forward-looking statements that we 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 a 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 first quarter results. During the quarter, we reported card payment volume growth of 39%, total revenue growth of 42%, and gross profit growth of 46%. We also now have 225 total software integration partners. In addition, Q1 new client implementations across our business was a record, setting us up well for 2022 and beyond. Moving on to our first quarter business highlights. First, our business payments vertical. which is going after a massive 3.4 trillion TAM, continued to perform well during the quarter. On our Q4 call, we talked about our initiative to focus on cross-selling our AR, AP unified capabilities in a more streamlined and formal way. One recent example of this was with Hotel Investor Apps, HIA, which is a hospitality management ERP provider who currently uses repay for payment processing and learned of our payables capability during Q4 2021. We signed a partnership to beginning adding our payable solution to HIA properties during the second quarter of this year. We now have 85 plus B2B software integrations representing approximately 15 vertical end markets and have over 3,700 clients. On the AP side, we've grown our supplier network to over 127,000. During the quarter, we signed Shepherd Center, an Atlanta-based private not-for-profit hospital. who will be using our AP automation and vendor payment solutions. By automating their accounts payable processes, our technology will allow Shepherd Center to improve operational efficiencies, create a better experience for internal AP teams and hospital vendors, as well as allow Shepherd to benefit from its cash rebates. We've also been looking at new ways to expand our TAM for B2B AP. For instance, we recently found that local governments are a big opportunity for us. Capstone, a full-service marketing research organization, predicts that state and local government spending will grow $900 billion between 2022 and 2027. This translates into significant investment opportunities at all levels of government. In fact, we recently signed a large municipality in metro Atlanta. B2B is a big part of our mix now and will continue to be a key growth driver as we expand our total pay solution and drive virtual card penetration. We had another strong quarter in the consumer payment side of our business. We saw strength on the personal loan side in Q1 as volumes from tax refund season were strong. This strength in personal loan repayment volume continued into April and early May. In addition, many of our clients have recently experienced above seasonal pre-pandemic levels of originations. The data suggests that the recovery in personal loans is now accelerating and will continue to do so for the remainder of the year. Experian recently noted that the industry originated $222 billion of personal loans last year, up 31% versus 2020 and 22% over 2019. The growth in personal loans tracks a broader increase in spending and borrowing. According to the Federal Reserve Bank of New York, non-mortgage consumer debt totaled $4.33 trillion at the end of last year, the highest level on record. Our auto loan business, which very much focused on used car payments, is growing rapidly. As used car demand and prices remain elevated, driven by the lack of new vehicles, we continue to see extended durations and higher loan amounts. We're having success expanding into the credit union space. We recently announced a technology integration with Flex, a leading provider of core system software for credit unions. The partnership further expands credit unions' abilities to offer digital payment options to members, enhancing the overall member experience and streamlining payment operations and reconciliation efforts for credit unions. This brings us to over 210 credit union clients. The PayX integration is going well. We recently entered into an exclusive partnership between PayX and Northridge Software, a leading software provider for lenders and loan servicing companies, to provide Northridge clients online cash payment acceptance, known as eCash. eCash streamlines payment acceptance by enabling borrowers to make payments on their loans using cash at thousands of participating retail locations, including major convenience stores, dollar stores, and pharmacies. Cash payments are then settled electronically through the system of records to simplify reconciliation and end-to-end payment management, all from one place. Turning to our mortgage servicing payment business, much of our growth is coming from existing customers as some of our largest clients are servicing more mortgage volume. Our SDX offering is fully live and processing transactions, and the feedback has been very positive thus far. An emerging mortgage servicer recently joined our SDX Board of Advisors, bringing the total advisory board members to nine leading servicers. We're continuing to add new members to the exchange, and this offering can really take off as new participants go live. Our instant funding volume for Q1 2022 was roughly 70% above Q1 2021. We're excited to be part of the Visa Direct Partner Program to help grow our instant funding solution. As a Visa direct partner, Repay will have access to Visa's tools and resources aimed to help launch and sell real-time payment solutions. Lastly, Repay clearing and settlement continues to perform nicely with a significant pipeline for future growth. We recently attended the Electronic Transactions Association ETA conference and came away with the sentiment that both the market and the networks believe that we are well-positioned to continue winning new business via competitive takeaways. as we provide superior technology and an enhanced onboarding experience. This presents an opportunity for Repay to take share with our proprietary platform, which offers ISOs and payment facilitators more autonomy and greater flexibility than traditional large acquired programs. In fact, we're excited to join the Visa Acceptance Fast Track program as a Visa preferred partner, providing us with direct access to Visa's capabilities and its global network of partners. Through the Acceptance Fast Track program, Visa will appoint pre-qualified fintechs and payfax to its preferred partners who are willing to provide key acquiring and processing services to develop a network of networks globally. So, we feel it was a solid first quarter that sets us a strong foundation for success in 2022. The secular trends towards frictionless digital payments will not go away, no matter the macro environment, and will continue to be a tailwind that will drive our business for years to come. As a reminder, we laid out a few specific initiatives on our last call, which will be guiding our focus and investments for the year. As discussed, we continue to increase card penetration across all our verticals with top clients. We expect the majority of our growth to be derived from our existing client base. We have been optimizing our processing infrastructure in order to reduce costs as we volume. This will help us drive automation from first touch and every interaction. We have formerly commercialized, marketed, and are cross-selling our AR, AP unified capabilities this year. As shown by the impressive growth this quarter, we continue to increase our AP supplier network as well as sign new B2B virtual card clients and expand virtual card adoption. We also will continue to focus on developing the best software and payment solutions for all verticals. Lastly, we are focused on thoughtful capital allocation. Strategic M&A remains a powerful value creation lever for us. and we're continuing to see attractive opportunities in the pipeline. We believe that private valuations are beginning to moderate, and we remain confident that M&A will continue to enhance our performance relative to peers. Before turning the call over to Tim, I want to thank our entire repay team for their hard work so far this year. With that, I'll turn it over to Tim to discuss the financials and guidance in greater detail. Tim?

Thank you, John. Now let's move on to our Q1 financial results before I review our financial guidance for 2022. As John mentioned, in the first quarter, Repay delivered strong results across all of our key metrics. Card payment volume was $6.4 billion, an increase of 39% over the prior year first quarter. Total revenue was $67.6 million, an increase of 42% over the prior year first quarter. This represents a take rate of approximately 106 basis points. We believe the primary reason for the sequential decline in take rates is that average individual tax refund dollar amounts were much higher in 2022 versus prior years. For certain pricing types, such as convenience fees where the consumer pays the fee, the higher refunds would lead to lower take rates. This happens because the payment volume is up, but the flat fee paid by the consumer stays the same. Please recall that approximately 15% of our business is priced on convenience fees, And these client types would correlate with those that would use tax refunds to repay loans, medical bills, or other outstanding debts. We do expect overall take rates to be higher in Q2 and future periods, back closer to the 110 basis points we experienced in Q4 2021. Billing tree control and pay contributed approximately 17.2 million of incremental revenue during the quarter. Moving on to expenses in the quarter. Other cost of services were 16.6 million compared to 12.5 million in the first quarter of 2021. The incremental other cost of services from billing, tree control, and payouts were $3 million per Q1. Gross profit was $51 million, an increase of 46% over the prior year first quarter. On an organic basis, we saw gross profit growth of 5% compared to the first quarter of 2021. Please recall that Q1 is a tough comp for us, since there were two rounds of stimulus sent out Q1 2021 in addition to the normal tax refund season. We expect organic growth to be higher in Q2 in future periods, In fact, our current estimate for April is at least 10%. SG&A was $32.2 million compared to $23.4 million in the first quarter of 2021. First quarter adjusted net income was $18.4 million or $0.19 per share. Lastly, first quarter adjusted EBITDA was $29.3 million, an increase of 43% over the prior year first quarter. First quarter adjusted EBITDA as a percentage of total revenue was 43%. We do still anticipate increased investment in sales, technology, and product to continue putting in place the proper infrastructure for accelerated organic growth throughout 2022 and beyond. We remain confident in staying above the rule of 60 for the foreseeable future. Combined pro forma net leverage is approximately 3.5 times. We expect this to be below 3 times by the end of 2022, a very comfortable level, which will allow us to continue to fund organic and inorganic opportunities. As of March 31st, we had 65 million of cash in the balance sheet and access to 165 million of undrawn revolver capacity for a total liquidity amount of 230 million. As of March 31st, we had approximately 100 million shares outstanding on a fully diluted basis. Finally, moving on to our thoughts for the remainder of the year. We are pleased with our results in Q1. We are reiterating our guidance for 2022, which includes volume to be between 27 and 28 billion, Total revenue to be between 296 million and 306 million. First profit to be between 224 million and 232 million. And adjusted EBITDA to be between 128 million and 134 million. We continue to expect approximately 45% of the P&L contribution to come in the first half of 2022. The strong growth in the second half of 2022 is anticipated to be driven by growth in our B2B business, which we expect to comprise a greater share of the overall mixed value in 2022, This B-degree growth includes exposure to the AP media vertical, which is expected to be positively impacted by the political cycle, also fast-growing assets such as PayEx, as well as the continued recovery in personal loans and healthcare. This 2022 outlook assumes organic gross profit growth of approximately 20%. We expect organic growth to gradually increase throughout the year, with much stronger growth in the second half of the year. We are already off to a strong start in 2022 and look forward to continuing this momentum throughout the remainder of the year. I'll now turn the call back over to the operator to take your questions. Operator?