Repay Holdings Corporation

Good afternoon. I would like to welcome everyone to REPAY's first quarter 2025 earnings conference call. This call is being recorded today, May 12, 2025. I'd like to turn the session over to Stuart Grisanti, Head of Investor Relations at REPAY. Stuart, you may begin.

Thank you. Good afternoon and welcome to REPAY's first quarter 2025 earnings conference call. With us today are John Morris, co-founder and chief executive officer, Tim Murphy, chief financial officer, Thomas Sullivan, chief accounting officer and interim CFO, and Damian Warner, vice president of corporate development and strategic partnerships. 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 SEC filings related to today's results 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 reference certain non-GAAP financial measures, Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release in an earnings supplement, each of which are available on the company's IR site. With that, I will now turn the call over to John.

Thanks, Stuart, and good afternoon, everyone. Thank you for joining us today. On today's call, we'll address several topics, including an overview of REPAY's core performance and highlights for Q1 2025, the conclusion of our strategic review process, an update to our capital allocation strategy, an update on our 2025 financial outlook, and a farewell to Tim Murphy, Repay's CFO. First, let's turn to Q1. Throughout the quarter, Repay remained focused on executing on our core growth, which continues to reinforce the ongoing secular tailwinds and resiliency of our business model. Our reported growth was impacted from the previously communicated client losses during 2024. Repay showed steady gross profit growth when excluding these clients and maintained strong adjusted EBITDA margins of 43% during Q1. Reported gross profit and adjusted EBITDA declined approximately 5% and 7% year-over-year, respectively. Reported fee cash flow conversion was also impacted from the client losses and one-time networking capital impacts. When removing these impacts, Q1 2025 free cash flow conversion would have been similar to Q1 2024 free cash flow conversion rate of 38%. While we do not believe these reported Q1 growth rates represent the underlying business trends, the core growth strategy remains intact and underscores our ongoing commitment to executing towards profitable growth, optimizing payment flows, and enhancing operational efficiency, all while driving long-term value to our shareholders. We are starting to see positive impacts from our investments in our enterprise sales and customer support teams. We continue to be encouraged by the healthy sales pipeline with enterprise clients across segments while also working on implementation timelines. We do expect the positive trends to be reflected in our reported growth in the second half of 2025. Beginning with this consumer payment segment, our core growth algorithm benefited from contribution from existing clients and new client wins over recent quarters. During Q1, we continue to see the signs of core consumer bookings growth year-over-year, giving us confidence in executing on our go-to-market client implementations and product initiatives, as well as recent client wins accelerating growth later in the year. Economic unpredictability has increased since March due to several still-changing variables. While our value proposition and business model are providing a one-stop technology platform and digital experience across our diversified client base and verticals remains unchanged, These factors could lead to potential near-term impacts from consumer spending amid this ongoing uncertainty. Year-to-date, we have seen resiliency with non-discussionary consumer spending ahead of possible tariff-driven inflation. However, during these uncertain times, our clients increasingly seek robust payment capabilities. Repay serves as their comprehensive platform to streamline payment processes while providing value-added services that strengthen their market position. Within consumer payments, we signed two new software partnerships during the quarter, further enhancing our existing relationships and bringing our total software partners to 182. Our go-to-market and consumer support teams utilize these integrations to develop a robust sales pipeline and elevate the overall client experience. We onboarded several new clients to our platform in Q1, including 14 new credit unions, increasing our total credit union client base to 343 out of approximately 5,000 across the U.S., Our payment technology, which is seamlessly integrated into multiple core financial institutions and credit union software systems, continues to generate a strong sales pipeline targeting thousands of regional financial institutions nationwide. We're also working on ways to enhance existing integrations and partnerships with credit union and financial institutions leading to optimized loan operations by simplifying accounting and consumer payment processes, securing new payment flows, and fostering deeper client relationships. In addition, Repay clearing and settlement sales and implementation pipeline is expanding from the tech investments and product enhances we made on our back-end processing platform. During Q1, we signed a leading POS software platform that serves thousands of independent retailers across the U.S. and Canada. We're excited to provide this large enterprise client with our best-in-class clearing and settlement platform, allowing their retailers to seamlessly manage their operations in one complete retail software ecosystem. In value-added services, our instant funding product achieved healthy growth in Q1, with transaction volumes rising approximately 19% year-over-year. Clients in the personal lending vertical rely on this product to distinguish themselves by offering rapid and convenient secure funding options for their customers. Over the medium term, we view instant funding as a potential revenue enhancer as we assess opportunities to expand its capabilities in additional verticals, which we believe could further bolster our growth profile. Our consumer payments momentum saw similar trends in Q1 as it did in Q4, including the six points of full quarter impact of the previously mentioned clients rolling off our platform. Nevertheless, we remain focused on building our enterprise sales teams, enhancing client experiences, a priority that strengthens retention and creates opportunity for additional value-added services with existing clients. This disciplined approach continues to fortify the core consumer payments growth algorithm at Repay as we progress through 2025. Now turning to business payment segment. A reported gross profit increased approximately 7% year over year. When excluding the impact of the political media during Q1 2024, gross profit would have increased by approximately 12% year over year. This also includes approximately 12 points of client loss headwinds during the quarter. A solid growth acceleration in Q1 was driven by strength in our core accounts payable business. A ramp of new enterprise clients signed in recent quarters and payment monetization issues like expanding enhanced ACH and float income. Our sales teams are capitalizing on our 101 plus software partnerships and integrations by building enterprise relationships and thus expanding our client pipeline. By aligning these partnerships with our go-to-market strategy, we're improving normalized bookings growth while increasing our supplier network 40% year-over-year to approximately 390,000 suppliers. Looking ahead for business payments, we maintain strong confidence in our overall sales pipeline. Our go-to-market approach continues to expand our software partnerships and enterprise client base, while additional monetization efforts within TotalPay position us for accelerated growth in the second half of 2025 and into 2026. Now moving on to the next set of topics related to the conclusion of the strategic review process. On our previous earnings call, the company and the board announced the commencement of a comprehensive strategic review to assess a full range of strategic alternatives aimed at capturing shareholder value. We have been committed to our core values of profitable growth and improving cash flow generation while also being disciplined on M&A and capital allocation. The company has a strong balance sheet, solid cash flow generation, and ample liquidity providing financial flexibility to pursue a range of strategic and capital allocation priorities. However, Since making this announcement in March, the market and macro environment have drastically changed. In light of the prevailing macro uncertainty, the Board has decided to conclude the strategic review process at this time. We believe that additional investment in our organic growth will yield the best possible result for REPAY and its shareholders, generating returns above what would be possible in other alternative outcomes. As part of the conclusion of the review, we wanted to share some of the operational priorities that we have solidified resulting from an in-depth market and go-to-market assessment we conducted with a highly reputable strategic consulting firm. One, we will be enhancing our direct sales model, which practically means allocating more resources to our sales teams and targeting a list of specific logos in our core growth verticals. Two, we will be capitalizing on more monetization opportunities, including targeting nine-card payment volumes. And three, we'll be building more indirect partnership channels in both consumer and business payment segments. While the past few quarters have been challenging, we believe with additional investments towards organic growth, combined with prior initiatives, the second half of 2025 will begin to display growth acceleration, leading to strong momentum in our Q4 2025 gross profit exit rate. Next, I'd like to address our 2025 financial outlook. As I just discussed, we have confidence in our ability to invest organically in the business and produce results that generate value to our shareholders. We believe that the initiatives that resulted from our strategic review, combined with our ongoing growth efforts, will deliver sequential quarterly normalized gross profit growth resulting in a fourth quarter growth rate of high single digit to low double digit growth, as well as free cash flow conversion exceeding 50% in the second quarter and accelerating above 60% by year end when excluding one-time networking capital impacts. We have conviction in our path back to profitable growth and our team's capability to do so. As we progress through 2025, Repay is strongly positioned to lever the secular shift to digital payments, utilizing our scalable platform and 283 plus software partnerships to drive profitable growth and free cash flow generation. Our commitment remains focused on creating value for our shareholders, both through operational excellence and future capital allocation initiatives. As we move forward, our capital allocation priorities include continued and incremental organic growth investments to continue managing CapEx as a percent of revenue while maintaining prudent investments towards technology and products. Repurchase shares when we believe our share price is disconnected from our long-term intrinsic value. Today, we announced that our board of directors increased the authorization of share repurchase programs to $75 million. Maintain a strong balance sheet with ample liquidity and cash generation through 2025 to address the 2026 convertible notes. And additionally, we continue to be open to a creative, strategic tuck-in M&A to further accelerate Repay's position and growth potential. And before turning the call over to Tim, I want to be the first to express Repay's heartfelt gratitude to Tim Murphy, our Chief Financial Officer, as he will be stepping down from his role in a few days. I was incredibly grateful to have Tim by my side for the past 11 years as he was Repay's first CFO and helped guide Repay through many important milestones and successes during his tenure. From all of us at Repay, we wish Tim all the best in this next chapter. Since making the announcement, Tim has helped facilitate a smooth transition to Thomas Sullivan, who has been appointed as an interim chief financial officer as we undergo the process of finding a permanent replacement to lead our financial organization. With that, I'll turn it over to Tim to review our Q1 financials. Tim?