Repay Holdings Corporation

Good afternoon. I'd like to welcome everyone to REPAY's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. This call is being recorded today, November 9th, 2023. I'd like to turn the session over to Stuart Grisanti, the head of investor relations at Repay. Stuart, you may proceed.

Thank you.

Good afternoon and welcome to our third quarter 2023 earnings conference call. 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. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the FCC filings related to today's results and in our most recent Form 10-K. Actual results may differ materially from any forward-looking statements that we make today. 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. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR site. Those materials, including reconciliations and other explanations with respect to REPAY's organic and normalized organic growth. As described in our materials, Q3 2023 normalized organic growth is calculated by excluding contributions attributable to the divested BluePile software business and the contributions attributable to political media in the third quarter of 2022. With that, I would now like to turn the call over to John.

Thanks, Stuart. Good afternoon, everyone. Thank you for joining us today to review our third quarter results. On a normalized organic basis in Q3, we reported revenue growth of 11% and gross profit growth of 12% and 13% year-to-date. We continue to see stable and resilient trends from our clients throughout the quarter. Our Q3 results performed in line to our expectations. And we believe that these results, as well as the demand we are seeing from our clients, demonstrate the need for our powerful technology and one-stop platform to optimize their payment flows. Throughout this year, we remain focused on operating our business and executing on our strategy. Our efforts in developing our go-to-market and implementation teams, as well as continuously innovating our payment technology, remain our top priority at Repay as we strive to be a network to all networks. Our clients are very focused on reducing the complexities around receiving and making digital payments, while enhancing the overall experience for their consumers and businesses. On the go-to-market side, we continue to expand our services into now 257 integrated software partners, while finding ways to further penetrate the relationships. In addition, our internal sales teams remain focused on a multi-pronged approach to win clients of all sizes, including large enterprise accounts. as well as expanding our offerings into existing accounts. The customer journey also continues to be an area of focus for our sales and implementation teams. We're finding that in today's environment, many of our clients are doing more with less internal resources, so we're making sure we guide them through the onboarding process while providing ongoing and first-class support throughout the entire client experience. As for technology, we remain committed to improving the payment experience for our clients and their customers by delivering innovative solutions that support evolving payments preferences. We're continuously enhancing our product offerings and have been employing automation initiatives across our organization, benefiting both our consumer payments and business payment operations. As an example, we have implemented various automation processes for chargebacks, compliance, risk monitoring, and enabling our vendor-supplier network, leading to significant increases in productivity, which we are expected to scale over time. Our consumer payment segment grew organic gross profit by 14% in Q3. This was primarily driven by the ongoing secular tailwinds within the consumer payments verticals we serve and the continued ramp of recent large client implementations. We're now integrated with 161 software partners in the consumer payment segment. Our team is excited about the new partnerships that represent a variety of software platforms, including one with our previously announced auto captive winds that will ramp during 2024, by also positioning Repay to pursue enterprise clients across the lending universe. In addition, expanding partnerships for existing and potential new clients continues to be an area of focus. During the quarter, we deepened our integration with Solero, a global leader in vehicle lifecycle management. The expanded integration features Repay's suite of payment solutions directly within their platform, enabling Solero's clients to accept digital payments through our multiple channels, including online portal, tax pay, and IVR. During the quarter, we added nine new credit unions to repay, bringing our total credit union clients to 266. As a reminder, the credit union market opportunity represents over $185 billion in annual total payment volume. Similar to credit unions, community banks are also an important opportunity for us. For example, we signed a new community bank client that specializes in providing loans to consumers with operations in the vast majority of the United States. Repay will expand the payment tools available to their agents and customers by offering debit card and ACH processing via a newly designed agent portal and customer-facing payment modalities. Additionally, Repay's payment technology is integrated within the bank's loan management system, allowing our clients to further scale and streamline reconciliation and internal workflows. Credit card servicers, as well as accounts receivable management companies, continue to be attractive verticals and are a great growth opportunity for us. We've begun implementing some of the new wins in our growing sales pipeline while also expanding our software partners. As we look into the future, the mortgage servicing space continues to look promising. Banks have been pulling back on the servicing side of mortgage industry as they are faced with increasing regulation and capital requirements, allowing non-bank mortgage servicers who are focused on improving their technology and advancing their payment capabilities to gain market share. While we do process mortgage payments for several banks, These non-bank servicers represent our primary target market. In addition to this trend, Repay is partnering with Black Knight to bring debit acceptance capabilities to both existing and potential clients. We're progressing along to bring this capability towards the second half of 2024 and beyond. Our teams have identified a group of clients and are continuing to engage with Black Knight on product development, testing, and implementation. And lastly, our instant funding product continues to see significant growth, with transaction volume up approximately 50% year over year. Moving over to business payment segment, during the third quarter, our business payments gross profit grew 13% when excluding the impact of political media during 2022. Our normalized gross profit was driven by the continued momentum in our sales and implementation pipeline for enterprise and mid-market companies within our healthcare, property management, auto, and municipality verticals. Our AR portion of the segment continues to perform nicely as we focus on penetration of existing ERP systems and payment acceptance optimization. And on the AP side, we accelerated our supplier network to over 233,000 suppliers, which is the largest quarterly ads our vendor enablement team has onboarded. Last quarter, we highlighted strong traction across our business payment verticals with recent wins like Castle Management Group and Property Management. and we're continuing to execute on our robust sales pipeline in Q3. During the quarter, we signed many new clients across our verticals, like Sierra View Medical Center, a premier hospital and full-service healthcare center in California. We are now integrated with 96 software partners in the business payment segment. A few new partnerships to highlight include PDI Technologies, Omnia Partners, and BlackBot. PDI Technologies is a leading global provider of software solutions for the convenience retail and petroleum wholesale ecosystem. With our partnership, PDI Technologies clients can now rely on Repay's embedded accounts payable automation within their software ecosystem to reduce costs by experiencing greater control and transparency. We recently announced a partnership with Omnia Partners, the largest purchasing organization for public sector procurement. to add REPAY's automated accounts payable solutions to its portfolio of national supplier contracts. Digitizing outbound vendor payments will streamline and optimize the AP payment experience for government and education organizations. By automating accounts payable, public agencies can monetize how they make outbound payments, increasing efficiency and vendor satisfaction. And finally, we're excited to announce our partnership with Blackbaud, a leading software ecosystem designed specifically to meet the unique compliance needs of healthcare, education, and nonprofit organizations. Through our partnership, Repay is the exclusive AP-integrated solution for the Blackbaud platform. Blackbaud's broad network of clients will be able to perform vendor payment automation directly with Blackbaud's centralized platform, experiencing both time and cost savings. We are looking forward to implementing this partnership throughout the first half of 2024 and offering embedded solution with Blackbaud clients towards the second half of the year. To wrap up, you can see the investments we have made in sales and technology are really paying off. We are partnering with leading software providers, integrating clients of all sizes, and providing them with advanced products and services that enable seamless acceptance and outbound execution of digital payments. Our strong balance sheet and cash generation enable us to continue to innovate and grow organically, while also allowing us to keep our eye on the M&A market in the event an attractive strategic opportunity becomes available. With that, I'll turn it over to Tim to go over our financials and our outlook for the remainder of the year. Tim?

Thank you, John. Now let's go over our Q3 financial results before I review our financial guidance for 2023. As a reminder, Q3 normalized organic growth is calculated by excluding contributions attributable to divested blue-collar software business and the contributions attributable to political media in the third quarter of 2022. In the third quarter, Repay delivered solid results across our key metrics. Card payment volume was $6.4 billion. Revenue was $74.3 million, an increase of 11% on a normalized organic basis over the prior year third quarter. This represents a take rate of approximately 116 basis points. Take rates were higher due to continued strong performance in our non-card volume-based businesses within consumer payments, specifically in communications solutions, mints, and funding, along with higher yields in business payments. As a reminder, as we win larger clients, our mix will naturally bring down take rates over time. Revenue attributable to Blue Cow and political media in Q3 2022 was approximately $2.7 million and $1.9 million, respectively. Gross profit was $56.7 million, an increase of 12% on a normalized organic basis. This normalized organic gross profit growth removes approximately $2.7 million and $1.7 million of gross profit attributable to Blue Cow and political media in Q3 2022, respectively. Our consumer payments segment reported organic gross profit growth of 14% in Q3. Our business savings segment gross profit grew 13% when excluding the impact of political media during Q3 2022. Third quarter adjusted net income was 19.9 million or 21 cents per share. Lastly, third quarter adjusted EBITDA was 31.9 million. Third quarter adjusted EBITDA as a percentage of revenue is 43%. Adjusted EBITDA margins remain stable quarter over quarter, but have been partially impacted by inflationary pressures, which may continue to increase costs. As a company, we have always focused on profitable growth, refining processes across the business where we can scale through automation while also maintaining investments towards innovation. This has led to Repay surpassing the Rule of 40 on an organic basis for the 17th consecutive quarter. The combination of resilient, double-digit, normalized organic close profit growth and strong adjusted EBITDA margins separates us from many of our peers. Our net leverage is now approximately 2.5 times We expect net leverage to naturally decline throughout the year from our strong profitability and cash flow generation, excluding any potential M&A. As of September 30th, we had approximately $118 million of cash in the balance sheet with access to $185 million of undrawn revolver capacity for a total liquidity amount of $303 million. WePay's total outstanding debt of $440 million is comprised of a 0% coupon convertible note that does not mature until February of 2026. Moving on to our thoughts for the remainder of the year. Based on the year-to-date results, as well as current trends, we are raising our 2023 revenue outlook. We expect volume to remain between $26 billion and $27.2 billion, revenue to now be between $286 million and $292 million. We are reaffirming our gross profit outlook to remain between $218 million and $228 million, reflecting normalized organic gross profit growth of 9 to 14 percent. and our adjusted-event outlook to remain between $122 million and $130 million, which reflects gross profit margin and adjusted-event margin ranges in line to our year-to-date results. As a reminder, during the fourth quarter, we will be lapping strong overall results in the same prior-year period, as well as increased contributions from our business payments segment due to the political media cycle in 2022. Political media added approximately $6 million of gross profit in 2022, heavily weighted in Q3 and Q4. Our full year 2023 outlook range continues to plan for a potential slowdown in the overall macroeconomic environment during the remainder of the year. For additional details on 2023 normalized organic close profit growth, please refer to the 2023 outlook bridge on page 12 of our earnings supplement posted to the company's IR site. As you can see from our results, we have solid momentum heading into the fourth quarter of the year. We expect adjusted free cash flow conversion to accelerate into 2024, as we realize the benefits from investments we've made in sales, product, and technology over the past several years. I'm now trying to call back over to the operator to take your questions. Operator?

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. Please limit your questions to one question and one follow-up question. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Bob Napoli from William Blair. Please proceed with your questions, Bob.

Good afternoon. And thank you for the question. Solid results. I guess my first question would be on just on pre-cash flow conversion, just your thoughts over the medium term. I mean, I think that's the number one question that we get. And I think, you know, some visibility on that would be really helpful to the valuation of your business and So I know you've made a lot of investments, including this quarter, but some color on what you're targeting, what you think the right level is over the long term would be really helpful.

Yeah, absolutely. Thanks for the question. So, yeah, as you mentioned, we have made a lot of investments in our product and technology. We've been enhancing our existing software integrations. We've been combining platforms and You know, a lot of that work is behind us. CapEx was up a little bit in Q3, but we expect that to come down again in Q4, similar to the Q2 level. So, over the medium term, as we grow the top line and bring down CapEx to be probably, call it in the 12 to 14 percent next year, range next year, 12 to 14 percent of revenue, and below that in the outer years, we'll see free cash flow conversion increase. We want to continue to invest in the business. We want to continue to innovate and build out our technology stack, build out our product suite. But I expect as a percentage of revenue, CapEx will come down. So as we grow and CapEx comes down, free cash flow conversion will increase.

Thank you. Just some take on your target would be helpful. But let's see, the next question I would have, nice results out of the consumer business, really, really strong. Just Any color you can give on where you're seeing the health and where, I mean, there's been some noise out there that credit unions have really pulled back on auto loans or just really tightened credit. And I know you're not tied to origination, but it does affect you eventually. But where are you seeing, where's that strength that you're seeing coming from? And what are your thoughts as we moved into next year? I think you called out tougher comps. as we move into 24.

Good afternoon, Bob. So we are pleased with our strong year-to-date performance of our normalized 13% organic growth. And then obviously we're seeing some positive trends similar to that in October, similar to Q3. On the consumer payment side, some parts of that is a continued enterprise wins that have been rolling out throughout the year. We expect some additional parts of that. And then on the credit union side, as I mentioned on our call, we had nine additional credit unions added to our total credit union. I think we have now we're up to about 266 or so of those. And we're still seeing the whole digital transformation is real. And that consumer experience of driving that interaction on the credit union side, we're providing that financial technology. So we're still seeing positive confirmations in the marketplace of the need for our technology. At least that's the part we see.

I mean, the tightening that you're seeing in the credit unions that the market is seeing in credit union lending isn't affecting you because of the secular trend to digitization of loan repayments? Is that kind of?

Yeah, I mean, the loans are still growing in the credit union space, maybe not as fast as they were previously, but I think they still are showing some level of loan growth. But more importantly, it's the digitization of payments and credit unions overall, just like some other financial institutions looking to upgrade their tech stacks and part of their own digital transformation is increasing the payment experience for their borrowers. So as they upgrade their overall technology experience, they're upgrading their payments with it, and we're benefiting from that.

Thank you.

Thank you. The next question comes from Andrew Schmidt from Citi. Please proceed with your questions, Andrew.

Hey, John. Hey, Tim. Thanks for taking my questions, and good to see the consistent results. I guess I could put a put a finer point on the fourth quarter normalized organic risk profit outlook to, you know, still a pretty wide range for the year. John, you mentioned consistent trends and good trends that were consistent with the third quarter through October. Maybe you just talk about, you know, just some of the assumptions that you're making in the fourth quarter and the more specifically, you know, how you're expecting organic gross profit growth to trend relative to the third quarter. Thanks a lot, guys.

Hey, Andrew. It's Tim. As I said on the call, even on a normalized basis, it's a tough lapping quarter for us. When I was talking about the lapping, it was for Q4. If you look at Q4 of last year, even normalized, it was the strongest quarter we had. That lapping is just part of it. We did mention that we still feel good about trends in October, but we The planning assumption for the year is that there will be an overall macroeconomic slowdown, and probably the place that's most visible is in the auto market. And so we're planning for that. And that's kind of how we build up to it. So part of it is lapping. Part of it is just a planning assumption around potential slowdown and the continued challenge in auto.

Got it. Appreciate that. Just a quick follow-up to that. Are you seeing, totally, that planning assumption totally makes sense, and you mentioned recessionary trends in auto, but are you seeing anything right now in the repayment volume that might suggest that things are slowing at all, or is it more of a comp issue when we think about the fourth quarter? I guess what I'm getting at is, are you seeing anything that's changed, or is it more about just your starting point from a planning perspective? Thank you.

Yeah, it's really the comp issue and then the planning assumption. Auto, you know, in personal loans, we're seeing consistent trends with the prior quarter. And in fact, the large enterprise win that John referenced has been a really nice win for us and has contributed nicely. And then auto is, you know, still challenged, like we said, and then credit unions are growing nicely. So there's positive trends, but the lapping and then just the planning assumption around the slowdown of the main drivers.

Got it. Thank you, Tim. If I could just squeeze one more in. A question that's on a lot of people's minds is just the management of payment cost acceptance from enterprise suppliers. I was wondering if you've seen any pushback on just virtual card acceptance for large ticket items from enterprise suppliers or, generally speaking, what you're seeing in terms of just enterprise payment cost acceptance trends. Anything there will be helpful. Thanks a lot.

We're not seeing anything different. I mean, it may depend on the end market you're serving within AP. We, you know, have been serving auto dealerships, hospitals, municipalities, property management companies, and we're not seeing anything different with the supplier acceptance trends. We've grown our supplier network really nicely this quarter to over $233,000. We're offering a total pay solution, which allows us to pay them all different ways, virtual card, enhanced ACH, ACH, and CHECK. and we still see really nice virtual card adoption. So we don't see anything in our particular end markets that would cause us to think there's a dramatic shift in acceptance trends. So maybe it's just unique to, you know, different verticals.

Perfect. Well understood. Thank you very much, Tim.

Thank you. The next question comes from Ramzi Isal from Barclays. Please proceed with your questions, Ramzi.

Hi, this is Ryan Campbell on for Ramsey. Thanks for taking my question today. So your normalized business payments gross profit growth came in at 13% in the quarter. So all else being equal given next year's big political cycle, unlike this year, is this the normalized growth rate you should be expecting to see in business payments next year? Really any color there would be helpful.

Well, yeah, so Q4 we actually think could be a little bit above Q3. You know, Q2 was 15%. Q3 came in at 13%. We did experience some implementation delays. We have started to see those flow through the pipeline. John talked about focusing on the customer journey and the implementation experience. So that's a key area for us to try to find ways to be more proactive and move deals through the pipeline more quickly. And, you know, toward the end of Q3 and into early Q4, we're seeing some success with that. So I think that number will be a little bit higher in Q4, and that's probably a good way to think about it going into next year.

Great. Thank you. Thank you.

The next question comes from Sanjay Sukrani from KDW. Please proceed with your question, Sanjay.

Hi. This is actually Stephen Kwok filling in for Sanjay. Thanks for taking my question. The first one I have is around the take rate. How should we think about it moving forward? It seems like the year thus far, the take rate has been stronger than expected. Just if you could provide some color around that, thanks.

Yeah, absolutely. So as we mentioned, we raised our revenue outlook for the year. We're seeing a lot of strength in our revenue, as you said, year to date. And so we felt good raising that. And it's a similar trend as previous quarters where some of our non-card volume-based products performed really well. Those would be the communication solutions and instant funding on the consumer side. And then overall, our yields and business payments were higher and have been increasing. So we increased the revenue guidance, which, you know, implies a little bit higher take rate than previously in Q4. You know, the other thing I'd say is over time, as we ramp more enterprise wins, you know, that take rate could come down a little bit. but we'll likely have higher GP dollars, which will lead to faster GP growth as a result of the enterprise win. So it's been really strong, gave us comfort in increasing the revenue guidance, but the mixed shift to enterprise could bring that down a little bit in future periods.

Got it. And just following up around the guidance, because the gross profits didn't really change, so just wondering, see if you give a little bit more color around the cost of services and how we should think about that for next quarter and then into 2024.

Yeah, I mean, those products that I just mentioned are lower margin products in general, so they don't flow through from revenue to GP the same way. They have higher COGS. So, you know, if those were, those are more prevalent, that could be one explanation for that. But in general, you know, like I said, the lower margin would imply that, you know, it's just a little bit higher cost of service related to those types of products where they're not card volume based.

Got it. Thanks for taking my question.

Thank you. The next question comes from Tim Chiodo from UBS. Please proceed with your questions, Tim.

Great. Thank you. Also, a quick one on the take rate. So the 1.16 that you mentioned, Tim, Can you give us any kind of a rough sense of how much that non-card revenue is that's contributing? I understand the take rate has – there's a little bit of an interchange there from the B2B AP. There's a little bit of a take rate. There's a little bit of a convenience fee, and there's a little bit of the non-card revenue. If you could give any context on the relative sizing of those or most specifically the non-card-related revenue that basically adds to the numerator but not the denominator when we look at take rates.

Yeah, appreciate the question. It's about 20% to 25%. All right, perfect.

20% to 25% of revenue is coming from the non-card. Okay, so if we back that out, the underlying take rate would look lower, which makes total sense.

Yeah, it would, but it's still, you know, in the 90s, call it. So we still feel really good about the card take rate, but, yeah, optically it would be lower if you back that out.

Yeah, totally. I'm with you. Okay. Very nice. Okay.

Tim, our GP, I mean, our EBITDA margins would look similar to what we previously reported this year if you... Adjust for the revenue. Adjust for the revenue piece.

Okay. Well said. Thank you. All right. Uh, really helpful. Tim, thank you for that answer. The follow up briefly. I know that Andrew mentioned this earlier. I'm sorry to come back to it, but the, the guidance range for gross profit, I know that, you know, when you gave it last time, it was kind of wide, but there was still a half of the year left. And now that there's only two months left, it just seems like kind of a wide range. Was there any reason that you decided to anything, anything that you saw that maybe just led you to keep it at that pretty wide range?

I think it's just a combination of year-to-date performance and how that has looked on the GP level, and then the dynamic where the drivers of the increased revenue don't have the same margin profile as the overall business. So if those are lower margin, they're just not flowing through the same way to GP. So year-to-date performance and product mix are the two main reasons.

Okay. All right. Thank you so much, Tim and John.

Thank you. The next question comes from Joel Reaches from Tourist Securities. Please proceed with your questions, Joel.

Hi, guys. This is Joel on for Andrew Jeffrey. Thanks for taking my questions. I had a question around the domestic healthcare space, and we know it's pretty complex. And from what we've heard from some competitors, they talked about some delayed implementations there. Can you speak to the healthcare pipeline and visibility in general? And tell us if you're seeing anything like delays that could impact the timing of RCS revenue in that vertical.

Yeah, so from our perspective, the healthcare vertical predominantly for us, we have a small part of that on the consumer payment side. A large part of that is for us is going to be healthcare vertical on the business payment side and predominantly more on the payable side of that, which is the back office side of the hospital world. For a very large enterprise, they have their own sequencing of implementation rollouts. And, you know, we've actually, it could have been some reasons for delay earlier in the year, but actually we've experienced some very positive momentum with some of our healthcare wins here in the third and fourth quarter. You would almost have to say it's client-specific and and the size of clients and their technical abilities sometimes.

Okay. And then with the 2024 political season in mind, can you tell us just if the competitive landscape has changed at all in the last year? And if you could give us some color on what line the site looks like for media spend, just given the tough comps that you've referenced in B2B?

Yeah, so it's very similar competitive dynamics there. There's really us and one other large player that participate in the AP side, you know, for political media spend. And 2022 is a non-presidential cycle. And like we said on the call, we, you know, produced about $6 million of gross profit. 24 is a presidential cycle. And based on the market data we've seen, we think that could grow our gross profit by about 25%. So just based on overall market growth, the presidential cycle being bigger than a non-presidential cycle, and what we see in our pipeline, that's how we think about growth in 24 over 22, particularly specifically for political media.

Fantastic. Thank you.

Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, please press star and then 1. If you'd like to ask a question, please press star and then 1. The next question comes from James Fawcett from Morgan Stanley. Please proceed with your questions, James.

It's Michael Infante on for James. Thanks for taking our question. Tim, I just wanted to ask how you're thinking about the implied card payment volume in 4Q. Obviously, take your comments on macro broadly, but seems to be well ahead of sequential 4Q norms. I was curious about how you're thinking about the drivers there and sort of how you're thinking about exit rates into next year. Thanks.

Yeah. So we didn't change our guidance for CPV. And we do have this large personal lending customer that has been ramping throughout the year. That's one driver of it. We do have the business payments growth that I mentioned. we think is going to be higher in Q4 than Q3. That's another driver of it. So those are a couple of factors where we think that it could potentially lead to a higher number. But again, we didn't change our CPV volume range specifically.

Got it. And then maybe just a quick update just in terms of where you are in terms of getting some of the AR functionality onboarded and how you're thinking about the near to medium term impact of that. Thanks.

AR and B2B, we have the functionality in place generally. We've been optimizing payment acceptance within B2B, which is one of the reasons for the higher take rates and margins. We have refreshed some of our integrations, so we now have more capabilities within those integrations, like Sage, for example. We added Microsoft Dynamics on the AP side, and we're enabling that on the AR side. So we have good momentum in AR. And that has been a driver of some of the growth and take rate and margin improvement this quarter.

Appreciate it.

Thank you. The next question comes from Joseph Leffy from Kenna Call Genuity. Please proceed with your questions, Joseph.

Hey, guys. Good afternoon. Nice to see that double-digit adjusted organic growth. Maybe we kind of talk on software integrations. You know, you're doing really well, good performance, always adding to those portfolios. How does the competitive environment look there versus the last few quarters? And, you know, obviously, Paya has been acquired, and, you know, I kind of consider them a competitor and how that may be affecting the competitive landscape on the software integrations, and then I'll follow up.

Hi, Josh, John. Yeah, so we have 257 of those software partners, as mentioned, 161 of those on the consumer payment side, which we wouldn't really compete with Payo on that side of it, and 96 on the business payment side. And we actually are very focused on the ones that we can truly help monetize payments. And as we're really streamlining how we partner with them to go to market, we actually expect a really good runway and looking into 24 on that. Obviously, some things take time, but the way some of those unique relationships are stacking up for us, as I mentioned a couple on our call, we mentioned PDI doing some things on the business payment side. We mentioned Blackbaud on how we're going to integrate an embedded payable solution for them to roll that out on behalf of their clients. and then some existing large relationships that we have on the AR and AP side, we would look to continue to really streamline that as we have been working on that whole customer journey client success model.

Got it. That's great. And then I know you called out the instant payments growth again being really high. Could you just kind of remind us how big that TAM might be and how the economics look on that payment volume versus some of your others. Thanks.

Yeah, thanks, Joe. So Instant Funding is a product we utilize Visa Direct and MasterCard Send, and we're funding loans directly. So that's the primary use case for us to fund personal loans. And that's a great growth driver for us. It's been growing really nicely as our customers adopt more digital payments, they also want to digitize the entire funding part of the process. And so this helps them do that. And then if you recall, if we fund directly onto a debit card, they're more likely to set up the repayment of the loan on that debit card as a default mechanism. So it also gives us the opportunity to increase acceptance on debit cards within personal loans by funding the loans directly. And so it's a pretty big opportunity. We, of our thousands of lenders, we probably only have a few hundred using it today, so there's still a long runway to go. And it's, you know, you're funding the loan, so the ticket size is much larger versus the repayment streams, which ticket sizes are lower. But the economics are more like an ACH where it's a per transaction fee. It's not based on, it's not basis points on the funding volume. It's per transaction. So the ticket size isn't as relevant in terms of the actual economics to us but there is a lot of volume flowing through through there and then there's you know we pay the typical you know card brand fees and bank fees but overall it is a lower margin business like that's why i mentioned one of the reasons we didn't increase gross profit uh guidance because this is a driver of revenue growth but it's a little bit lower margin got it but you can make it up on the and the funding of the loan could be lower margin but if uh

If the consumer repays off that same card, then it's got some nice benefits over time.

That's a perfect example of when we talk about monetizing payments through the whole ecosystem with embedded payments, both outflows, that would be an outflow, and then an inflow back. and a multi-modality. That's a different modality, although it may be card-based, it's going down a different rail in some respects. Then debit, you're funding, you're sending credits versus pulling debits. And so that's kind of key to our overall long-term core strategy of a network to all networks that move funds to and from. Great. Thanks a lot for that color.

Thanks, John.

Thank you. The next question comes from Bob Napoli from William Blair. Please proceed with your questions, Bob.

Thank you for the follow-up. John, the Debit Interchange bill, how would that affect, Tim, your business if Debit Interchange gets cut significantly? John, I don't know if when the Durbin Amendment came through, I can't remember if you were running this business or not.

We were, yes, and we benefited. In the past, we've benefited. If you look at some of our pricing models, the way it's priced, if you think about a convenience fee or you think about some type of fixed rates in pricing, if it were to go down, we would benefit in some form there.

So you benefit, I mean, could your revenue come down, but your cost comes down more, or what?

No, I mean, if you're charging them a fixed fee and our costs come down, we're still charging them that percentage of volume. We just have lower costs, which would increase margins.

Right. Do you think there would be pressure on your gross take rate over time or not immediately, but over time?

I don't think so. On that particular pricing model, we would be still charging, if it's called 1.5%, it would still be 1.5%. So I don't think that would change the actual revenue. It would just be that we would have lower cost and better flow through the P&L.

Thank you. All right. Appreciate it. You mentioned buy and I'll pay later in your press release. Just wondered if there's anything significant going on there or if you think there could be.

I mean, it's definitely an addressable market opportunity. We have a handful of those names now, and we're talking to others because, as we've said before, those installment plans, when everybody pays on time and it's four or six installments and it's simple, then there's no need to have a processor like us. You could use WorldPay or any other e-commerce provider. But when those installment plans start to look more complex and look like loans where there's delinquencies and interest and fees and penalties, it starts to feel a lot more like an installment loan. And we think we could provide a lot of value to them for those types of situations. So it's not, I wouldn't say it's a really large, significant growth driver for us, but it's certainly a market we can address.

Thank you.

Thank you. Ladies and gentlemen, just one final reminder. If you'd like to ask a question, please press start and then 1. If you'd like to ask a question, please press star and then one. We will pause to see if there are any further questions before we conclude. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the call back to John Morris for closing remarks. Thank you, sir.

Thank you, everyone, for joining us today. As we've mentioned, we are very pleased with our third quarter performance. We continue to invest in our business and our sales and our technology as we partner with our software partners to drive embedded payment solutions, really help drive this digital transformation that we think is very real. We remain focused on profitable growth while maintaining our investments towards innovation, which we think will continue to pay off for us. So with that said, we want to, again, thank you for your time today. Have a good evening.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you very much for your participation.