All right, everyone, we're going to continue here at the Canaccord Growth Conference. I'm Joe Vafi, Equity Research Analyst here focused on fintech. We are pleased to have with us the management team from REPAY , and in particular, John Morris, CEO of the company. REPAY provides integrated payment processing solutions across a lot of what we would call some of the fast occurrence in electronic payments, both in consumer and B2B payments. The company just reported its Q2 results, showing some solid progress in re-accelerating the business. We'll talk a little bit about our Q2 results. With that, welcome, John.
Thank you, Joe. Great to be here.
Maybe we'll just start at a high level. For those that may not know your story, just introduce REPAY to us in your own words real quickly.
Sounds good. Great intro there on that a little bit as well. Good morning, everyone. Thank you for your time this morning. REPAY, we're an integrated payment technology company. We integrate into the various different software platforms that manage the workflows of our specific clients. We have about 286 of those different software integrations. We embed our technology in there that helps them move the money to pay or get paid. Specifically, about 80% of our company surrounds consumer bill pay, where we're allowing that particular vertical software provider and client to integrate that and get paid on a particular consumer invoice. Those invoices particularly could be around an automotive loan, they could be around a credit card receivable, they could be around a mortgage payment, they could be around a personal loan, even a buy now, pay later concept. A revenue stream that's tied to that. On the business payment side, it's about 20% of our business. We're integrated into various different accounting ERP systems that actually drive what we call bill pay for businesses. We have two sides of that business where it's the accounts payable, which is a very large go-get market there, where we're helping our clients execute on paying their payables. We have a TotalPay solution there. We allow them to pay and get paid. We pay all their invoices, either with a virtual card or with an ACH or even with a check. We allow them to execute on their payables, and we help them execute on that. We help them move the money. We own our own payment technology stack. We own our own gateways. We own our own clearing and settlement engines. We clear and settle with the various different networks. We have an omnichannel approach for the consumer payment side as well. On the business payment side, we actually have an omnimodality piece of that. We integrate and embed into these various platforms. That's really our value add and our moat. We fully embed into that solution. It's easy. It takes the friction out of the payment process. We help them reconcile it back into their core systems.
That's great. You know, there's been a lot that's gone on in payments over the last few years. People are adopting the technology, but it does feel like still some of that B2B payments volume is still not electronic, right? It's fair to say that, you know, I mean, B2B is still a smaller part of your business, but it's a faster growing part of your business.
It is, yes. Two sides of that. There's the AR side, and then there's the AP side. We mentioned just recently on our call where we're investing and putting even more attention to the AP side of that piece. We think that there's just a giant go-get part of that. We're vertically focused there, as you know: automotive, healthcare, hospitality, property management, even nonprofits, education, municipalities. We like that vertical focus because it allows us to really build our vendor network. We have about 440,000 vendors now in our network. As we add a net new, obviously our ability to gain synergies off that is great. The go-get there, we still, obviously we don't report total payment volume, TPV, but what we're seeing is a really growth in our TPV.
Okay.
Which you've heard us talk about, our ability to monetize that. We really think we're great at helping our clients execute on that. The TotalPay value proposition in itself has value, right? We're going to help automate, we're going to help execute on something that has to be paid. The fraud part of that, what we've seen is, and we mentioned this on our call, the fraud part of that, the ability with the cyber world really increasing the fraud piece of this, our ability to actually offer the fraud protection around making sure payables are properly executed, making sure it's secure. We see great value proposition in that piece as well. The go-get is, we think it's really there. If you think about it, we call it the second frontier of payables.
Yep.
The first frontier, we call it, if you think about that, I would call that payroll.
Okay, sure.
If you think about payroll today, it's almost always, it's all outsourced and automated in a lot of ways today. This is kind of the second frontier, and we still see tons of checks. Our net new clients are still, we're really bringing people into this piece of it. The business back office is going to automate. It has to.
Sure. Absolutely. It might be just interesting for people in the audience to know, you know, part of business payables is that vendor network, right? How does a company like REPAY get 440,000 vendors on your platform?
As you can see, we were in the, oh, this time last year, probably 330 or so. That's the growth on a net new basis. Kind of our secret sauce is what we do on vendor enablement. We don't just go and say, hey, we only want to process for your clients that'll take virtual cards. We say, give us your whole, give us all of your payables. We will help you execute on all of that. Fundamentally, we will pay every one of those, and you can track and trace every payable invoice through its payment lifecycle. Treasury management today in most companies cannot do that.
Yep.
It's just a pay. If you think about a check, a check is paid until it doesn't get cleared or it doesn't. We give them full visibility, and on that piece of it, that in itself is a great value proposition to that. As we push on that vendor network, we're adding net new every month. There is a great synergy to that.
There is a network effect.
There's a network effect.
Some of those vendors could then turn around and hire REPAY for their own payables.
Yes.
That cycle continues.
Every payable client is a potential client.
Right, exactly. Slightly switching gears, you went through a strategic review. Was it earlier this year or late last year?
Yes, early this year.
Early this year, came out of the strategic review with, I think, a sharpened pencil on your go-to-market strategy. I think that REPAY's got a great platform that could be bigger. I mean, you've got your own processing back end, got a, you know, a B2B business that's growing. You have a big consumer business, some of which is with large enterprises. I think your TAM is pretty big, but maybe share with people what kind of, what the, and I think you hired a strategic consulting firm to help you.
That's correct.
Kind of look from the outside in a little bit. What were some of the things that came out of that?
Yeah, great point. We used a very reputable third-party firm. I've been doing this, I've been in payments since 1997. I always think it's important to check yourself and see, I see the opportunity there, and it's really great, but I wanted to validate some of that with a fantastic firm that has those specific individuals who had some fantastic insight and knowledge.
Yeah.
Because of some other relationships and things they have done, we came out of that knowing that the opportunity actually is there. We pinpointed those additional incremental investments that we should be making that we could really do. Kind of our story right now is sequential re-acceleration. We want to return back to growth. In the history of REPAY , we've never had a negative growth, reported growth quarter in the history of REPAY. Unfortunate for that. We're making those, we're pinpointing on those, some of those specifically as around our go-to-market, as around optimizing our sales force, adding additional resources on the sales support side, adding some additional resources, what we call SDRs, engagement activities on our client side so we can do upsells. This overall investing in our, or some of our, some of our product and pipeline solutions, specifically as well, we're investing in how do we drive more out, faster through our implementation pipeline.
Got it. I always wanted to ask, and I've actually never asked how you're, since you have your own processor, you've got maybe a cost advantage versus others in the market. If you could maybe kind of drill down on that idea a little bit and comment.
Yeah. Most people may not realize that we own our own clearing and settlement engine. Very few people actually do. There is a handful of the bigger processors that do. Most everybody else uses one of them. We actually have that strength of ours. Where I say with that, Joe, is if we want to win, we can win.
Okay.
Now we like to be profitable winning.
Sure.
That gives us the ability to do that. Some of our direct competitors don't always have that full suite of solutions where we truly clear and settle with all the networks. We understand the cost side. We understand interchange. We understand all the banking costs that go into how you move money out there. We also think that drives a high-quality solution from a customer service perspective. You don't get lost in the never-never land. We understand that land.
Right.
Competitive advantage for us. I think what we, and we've touched on this before, is with all the consolidation happening, we're actually seeing opportunities arise because as consolidation happens, disruption happens to people who are processing with other people.
Sure, absolutely. Would you say that there's more of an advantage on the consumer or the B2B side given your kind of full stack?
The full stack piece of that, we actually have, I'd say, advantages on both. On the consumer side, they're a little bit different. We definitely, on the disruption side, the consumer side is definitely there. On the B2B side, because of our full stack piece, our ability to embed with the enterprise software partners is substantial. We're adding those enterprise plays, specifically on the payable side, and even on the enterprise software side, we can do the payables and receivables as fully an integrated play. We see our ability to really execute on that kind of a multi-year process. Those software partners, those enterprise software partners, they can see the volume of payables there.
Yeah.
Those are big numbers.
Right.
Now, our ability to help them execute and monetize that is our goal.
Sure, that's great. Maybe we switch gears a little bit and kind of talk about some of the numbers you just recently reported, your Q2.
Q2.
Right. Maybe kind of some of the key takeaways from the quarter just in terms of revenue, profitability, free cash flow.
Yes. Our revenue was up. Our thought pattern here is obviously sequential quarterly growth, re-accelerating back to our high single digit, low double digit growth. We were able to do that in the second quarter. We sequentially grew from the previous quarter. Gross profit is our metric for overall growth, and then specifically, we call it normalized gross profit because we have a political media piece that comes every other year. Last year was obviously a big political media year in a really good way for us, and so that was true. We returned, so our free cash flow was 71%. A little bit of working capital in that, so that's a little bit higher than normal. Ultimately, our goal is to return back to, you know, 60%+ as we exit the year as well. We're executing on that sequential growth piece that we talked about. Cash flow, we've been profitable. Obviously we've been profitable for a long time, way before we were public. Our margins in Q2 were 42%.
On a dividend basis.
42%.
Just a dividend basis.
Just a dividend basis, 42%. Cash flow generation is there. We ended the quarter about $160 million + in cash on the balance sheet. We bought back, year to date, $38 million in stock.
Okay.
Seven to eight percent of the company in the last, since the last quarter, since May.
Right. That's great. Yeah, kind of rule of 40 with, you know, just on the margin side alone almost. What about, I know there's a convertible note that is coming due in 2026. I mean, you've got a lot of cash, good cash flow. You know, refinance that or pay it down or what's the idea?
Yeah, great question. We talked about this list on our investor call. Specifically, we have $220 million in convert coming due in February of 2026. That's at 0%, so we kind of like the rate on that, considering we're also making money on our cash today.
Sure.
We would look to ride that out unless we can opportunistically buy some of that.
Yeah.
That would, you know, cost benefit there. Specifically, we have cash. We'd like to retire some portion of that with as much cash as we wanted to use that on our balance sheet at that time. Then the remainder, we have a $220 million revolver. We could just pay it off with our revolver today if we wanted to. We would look to retire a good slug of that with cash and then the remainder with our revolver.
Got it. Once we get, that's next year, right?
February next year.
Right. After we get to that point, do you think capital allocation changes? I know you've historically done M&A, and in some of our recent discussions, pricing in the private market wasn't super rational, at least for your taste. You did a lot of inorganic growth and built a big business, so you kind of know how to do that. Would you think about capital allocation back to M&A a little bit more?
We have the ability and the horsepower to do it now.
Platform. Yeah.
Because we own most parts of that, we've proven our ability to get synergies out of that. I think the biggest reason for it is if you want to look at, we don't buy things for the sake of buying them. As my shareholder, our discipline of capital allocation there, we've seen a lot of things. We look at a lot of things. We get invited to see a lot of things. I do believe there's some really great assets out there. We desire, we think it could be multiple times bigger than we are.
Yeah.
Inorganically, it's going to be part of that formula, but you can see we've been disciplined with that. I do think there's some unique assets strategically that are going to come to market that could be very interesting for us, that would be in our swim lanes, allow us to drive scale. We will be paying attention to that piece of it. Net net, capital allocation, as I just told investors, is we're obviously organic growth is the top of the list.
Yeah.
We think incrementally we're making those investments. They're not large numbers in general.
Right.
We're going to continue to execute well on those, adding enterprise sales, driving that additional piece. The second one is the convert. It's right in front of us. We will absolutely address that. The third one would be we're managing our CapEx as part of cash flow. The third one would be opportunistically, if the market continues to decouple us from our intrinsic value, we think we're, yeah, we think we're imported from that perspective. We do think there's some tuck-in M&A opportunities out there that would be very attractive to us.
Would that be, give us a hint, would that be B2B or consumer?
It could be either side, but we do see some opportunities coming in the B2B world.
Yeah.
Not specifically to us, just potentially coming in tomorrow.
Right. Fair enough. It sounds like you may have your eye on a few particular assets that might be nice fits for you. Good, that's great. I know you announced the new CFO recently.
Yes.
Maybe we kind of talk about Mr. Rob Houser a little bit.
Yes.
Yeah.
Rob will be joining us on September 8, Rob Houser. You can see his press release. He's got a tremendous amount of history in the payment space overall. I'm really excited to have him on board as a partner for us and what we can partner together. We think that his knowledge in the overall bill payment space, we think there's a fantastic opportunity for us to join hands together. He's excited to join us as well, and we're looking forward to introducing him to you.
That's great. I want to circle back around to the Q2 results. I think you talked about some sequential acceleration in the business. Maybe we drill down on that sequential acceleration and define where it came from, new logos, higher volumes with existing seasonality, what those things might have been.
Yeah. It's kind of step back a little. We were coming out of the first quarter. We had negative growth. Specifically, for those of you who may not know this, we had a couple of large client losses, and that's a large part of that. Specifically, in the first quarter, it was about 8 points of growth that cost us. We got to lap that. Some portion of this is obviously the lapping of those things, just to be upfront about that part. That was about 5 points in the second quarter, and then the political media piece of that, if you normalize these particular things, normal political media is about 1 point.
Yeah.
That gets us back to positive sequential growth. We want to continue to add to that in the third quarter, which we think we will, and then the fourth quarter we'll have lapped most of those client losses.
Right.
On a normalized basis, that's where we think we'll get back to the high single digit, low double digit.
Right. I think for everyone's benefit, wasn't there some M&A or something? Was there some of the client losses? Was that?
Yeah, we had two large clients for us. I've been with us a long time. Two were purchased. Many times we benefit from that, but in this particular case, we had a client that was purchased that actually did their own processing.
Right.
We really can't do processing for free.
Sure.
We would have done the same thing if we were on the opposite side. We had a client that got purchased and had a 10- to 15-year relationship with the larger relationship piece of that. It's difficult for us to win that. We do win many times.
Right.
Because we're vertically focused, we generally have some of the larger clients and we're generally a winner in that.
Right. That's right. Maybe we talk about a couple of the emerging areas. I know, I mean, auto is having its ups and downs, but you have signed some big logos in auto, and I think you just closed Mercedes.
Mercedes, yes.
How does that pipeline look? Maybe we'll touch on some other markets.
Yeah. From a year-to-date perspective, we've had very positive bookings. That's just the health of your pipeline coming into that. Our pipeline is as healthy as we've seen them.
Right.
which is very positive. Bookings are as good as we've seen.
Okay.
Those are all obviously very positive indicators for, if I'm talking about what.
Sure.
Accelerating growth.
Yeah.
Ultimately, those will have to flow, bookings will have to flow through implementations, which is why we're investing in implementations to drive that through.
Wow.
From a logo perspective, we're seeing it on both sides of the business. The payable side is the B2B side of our world. We've had some really nice hospital wins.
Okay.
The back office is automating.
Right.
Things that you probably don't think about, the back office of automotive dealerships is automating.
Yeah.
That's a really positive part for us. On the consumer side, large, we've invested, started investing more last year in enterprise sales. Those wins are starting to come through. We're investing even more in enterprise sales. Some of the investments we're making right now are 26, outcomes.
Sure.
All the indicators look positive for where we're headed into 2026. We do think we're setting up ourselves for, you know, a positive growth story for 2026.
Right. Yeah, I mean, it sounds like it. I mean, you're going to lapse some clients' loss. It wasn't your fault. Political media spend comes and goes every two years. The rest of the business is doing pretty well, and you're also investing in growth.
We're investing in growth.
Right.
We have a strong balance sheet.
Yeah.
We have cash. We've been profitable, so we think we're in a really good spot. Obviously, desire to grow faster, and we think we're making the right investments to do that.
Right. I was asking this question, John, but you know, one of the areas of broader electronic payments that's not super electronic today or isn't card friendly is mortgage payments, right? I mean, it makes sense, right? Because, you know, the lenders don't want to pay 2% on a mortgage that's 3.5%, right? I mean, they can't make money. I believe some of the large card networks are waking up and smelling the coffee and thinking about different interchange rates to open that market up, right? I know you've been involved in that. Maybe at a high level, it'd be interesting to see where progress is being made there and how you might participate over the medium term.
Yeah.
Right.
I think that's a great question. We've talked about this before. On our consumer bill pay side, that's predominantly all debit or ACH types of payments. There's really no credit.
Yeah.
Occasionally you have some credit and a couple of things, but it's predominantly a debit transaction. When it's in itself, it's the cheapest card payment. We are in what we consider to be emerging markets. When you look, you talk to the card brands, if you go look at Visa and MasterCard's investor relations information, you'll see what they call new payment flows. If you ask them where organic growth is going to come from in the U.S., it's where we, if you look at our business, it's where a lot of those things are coming from. It's going to come from the consumer, debt repayment type transactions like mortgage, where they realize that they're not touching that world. They don't really, it's a very broad, large volume world that very little is done from that perspective. We're partnering with them to do a lot of different things in these emerging markets, both on the consumer and the business payment side. We're going to use that to drive, to the extent possible. We have to make it cost-effective to be able to get people to use those different modalities, and they're partnering with us to help drive that acceptance. We're excited about some things we're going to be able to do there. It's a slow-moving market, but the one thing we know is the consumer actually wants to be able to pay the way they want to pay.
Yeah.
It's got to be cost-effective. We think we're going to address that.
Yeah, that's a big, it's a lot of payment volume that's still greenfield, like a little bit.
Yes.
Yeah.
If you think about it, and people talk about maybe RTP or FedNow.
Yeah.
As a real-time transaction, or many of you may use, you know, Zelle or some type of, you know, Venmo or something that may be more real-time for you. A debit card is instant, real-time, 24/7, and it's been around a long time. It's very effective. Probably the only thing the business side of it doesn't like is maybe the cost. The consumer side loves it. Most of them have that number memorized. Most of the time, it's driven, all the other wallets are driven off of that. We think there's an opportunity for us to address this large go-get on the consumer side of that specifically.
Very good. I think we're out of time, John, but thanks for being with us. Look for REPAY, some nice acceleration coming, hopefully, at an attractive valuation.