Repay Holdings Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Q3 achieved 5% revenue growth and 1% gross profit growth on a normalized y/y basis (excluding political media contributions in 2024). Adjusted EBITDA margins remain robust at 40%, and free cash flow conversion is 67%.
• Enhanced go-to-market implementation pipelines and operations, automating processes, strengthening partnerships, and fine-tuning client experience. Tested and deployed AI tools, including real-time API observability for gateway monitoring and assisted AI during client onboarding.
• Launched Repay's Dynamic Wallet, allowing loan payments to be integrated into iOS and Android digital wallets. Added 5 new software partners, bringing partnership network to 291 across segments.
• Investments in enterprise sales and customer support teams built a healthy sales pipeline, with sustained year-to-date bookings growth. Operational initiatives improved productivity, automation, and implementation workflows.

Segment Performance

• Consumer Payments: Reported gross profit increased 1% year over year. Q3 gross profit growth was partially impacted by ~3% from clients rolling off the platform; without this, gross profit increased single digits year over year. In Q3, consumer software partnerships increased to 188, and a partnership with Alpha Systems and integration with Fuze were announced. Year-to-date core consumer bookings continued to increase.
• Business Payments: Normalized gross profit increased 12% year over year, with ~10% impact from last year's client loss; without this, gross profit growth was over 20% year over year. Driven by accounts payable platform and payment monetization initiatives. Supplier network increased to over 540,000, growing approximately 60% year over year. A new integration with Youse was announced.

Guidance

• Q4 expected 6%-8% normalized gross profit growth and free cash flow conversion greater than 50%.
• Gross profit growth impacted by increasing mix of larger clients with volume discounts and pricing, increased mix of ACH and check volumes, and higher overall transaction values.
• Q4 benefits from fully lapping one-off client losses from 2024 but is impacted by political media contributions. Updated free cash flow conversion outlook is above 50% compared to prior outlook of 60% due to net working capital timing.
• Capital allocation priorities focus on organic growth investments, managing CapEx as a percentage of revenue, maintaining strong balance sheet with liquidity, and incremental cash generation to address remaining February 2026 convertible notes at maturity.

Risks

• Margin pressures from increasing mix of larger clients with volume discounts and pricing, increased mix of ACH and check volumes, and higher overall transaction values.
• Impact of client losses and political media contributions on reported growth.

Q: Peter Heckmann asked about the free cash flow outlook and political media spend headwind.

A: Robert Hauser responded that Q4 free cash flow conversion is expected to be in the upper fifties due to working capital timing, and the political media spend headwind in Q4 2024 was $4.6 million on a gross profit basis with an annual impact of ~$11.75 million.

Q: Tim Chiodo asked about Visa's CEDT program and its impact on B2B interchange.

A: John Andrew Morris discussed that level two rates are going away and level three rates require additional data, with Visa testing requirements and Repay working through the changes.

Q: Shefali Tamaskar asked about consumer softness and M&A potential.

A: John Andrew Morris mentioned stable consumer market with softness in automotive used car segment and a healthy M&A pipeline in both consumer and B2B, with 8% of shares bought back year to date.

Q: Alex Newman asked about net working capital and Canada partnership.

A: Robert Hauser explained free cash flow conversion is affected by net working capital timing, and John Andrew Morris stated there's no major update on the Canada partnership as integrations are still in process.