Good afternoon. I'd like to welcome everyone to REPAY's Fourth Quarter 2023 Earnings Conference Call. This call is being recorded today, February 29, 2024. I'd like to turn the session over to Stewart Grisante, Head of Investor Relations at REPAY. Stewart, you may proceed.

Good afternoon, and welcome to our fourth 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 SEC 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 intend 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. With that, I would now like to turn the call over to John.

Thanks, Stewart. Good afternoon, everyone. Thank you for joining us. I wanted to cover three main topics today. First, a review of the fourth quarter. Second, a recap of our accomplishments in 2023. And lastly, go over our strategic initiatives that will drive growth in 2024 and beyond. First on Q4. On a normalized organic basis, we reported revenue growth of 14% and gross profit growth of 13%, with both metrics performing ahead of our expectations. We closed out the year seeing continued demand from existing clients adopting more payment capabilities and new clients demonstrating the need for our powerful technology. REPAY has become a leading expert within the consumer payments and business payment verticals we serve. We have become a one-stop platform to optimize payment streams, and are constantly working to capture new payment flows while enhancing client relationships with many value-added services. In Q4, our consumer payments organic gross profit growth was 13%, primarily driven by the ongoing secular tailwinds within the consumer payments verticals we serve and the continued ramp of recent large client implementations. We added many new partners and clients to our network in Q4, including new software partners, bringing us to a total of 165 partners in the consumer payment segment. One example was our launch with AKUVO, a leading provider of cloud-based software that elevates how financial institutions collect and manage their portfolios. The integration with AKUVO’s collection management software will enable financial institutions to accept digital payments while utilizing secure real-time data in exchange for streamlined operations, robust reporting, and simpler reconciliation. We also recently announced an integration with Lexop, a self-service software for credit unions, financial institutions, and other financing companies that optimizes the repayment journey for past due consumers. The repayment integration with Lexop collections management software enables their clients to collect late payments more efficiently, receive real-time payment updates, and increase engagement while minimizing loan servicing costs. We added 10 new credit unions to REPAY, bringing our total credit union clients to 276. REPAY's vertical expertise and software integrations are a differentiated solution leading to a healthy sales pipeline. For example, a new credit union client was evaluating multiple processors to solve all their payment processing needs before selecting REPAY. We believe we are the only market participant that has a combination of integrations with our client's core platform on the banking platform and collection platform to fit their unique needs. In addition to credit unions, we're also addressing a similar client base in community banks, winning new clients through our existing software integrations. These new wins continue to give us the confidence that our investments toward creating software partnerships and further embedding our payment technology within existing integrations are leading to a strong sales pipeline with positive returns across REPAY. Additionally, in value-added services, our incident funding product continues to see significant growth, with transactions up approximately 45% year-over-year. We had a very productive quarter for our Business Payment Segment, which grew gross profit by 25% when excluding the impact of political media during 2022. Our normalized gross profit growth was driven by sales penetration within software partners and a strong implementation pipeline for enterprise and mid-market companies within our healthcare, property management, auto, and municipality verticals. Within AR, we remain focused on deepening our client bases within existing ERP systems and optimizing payment acceptance. On the AP side, we increased our supplier network to over 261,000 suppliers during the quarter. Our real-time vendor enablement continues to drive the number of suppliers within our network, which drives the monetization of digital payment flows and deeper virtual card penetration. We found many new clients across our verticals during the quarter and we also continue to grow with our existing clients. A great example of this is Baywood Hotels, whose management portfolio spans many well-known brands and is one of the fastest-growing hotel management and development companies in the United States. We signed and began implementing for Baywood Hotels earlier this year, and they have continued to expand on our AP platform by adding many new hotel properties each month. We are now integrated with 97 software partners in the business payment segment. A few new and expanded partnerships to highlight include Blackbaud, PDI Technologies, and Sage. REPAY’s enhanced integration with Sage Intacct will supplement our existing integrations across Sage’s product suite. Software providers are selecting REPAY to directly embed our payment technology into their software as they strive to enhance their user experience by providing value-added services to their customers. And now onto the next topic, a review of the full year 2023. From a financial perspective, we demonstrated normalized organic revenue growth of 12% and gross profit growth of 13% while improving our free cash flow generation throughout the year. From a commercial perspective, we made great progress as well, including the continued focus on our sales and distribution resources. We now have over 262 software partners, up from 240 at the end of 2022. In addition, we aligned our internal sales, implementation, and support teams to focus on specific verticals and software partners, as well as strengthening the customer experience. Throughout the year, we added talented team members in select areas of our organization while reducing overall net headcount and maintaining our margin profile. We increased our supplier network by 60% year-over-year to 261,000 vendors. On the product side, we rolled out additional payment modalities such as PayPal and Venmo, also enhancing our E-cash solution. We also made progress on our mortgage debit acceptance initiatives with Black Knight. In addition, we made key hires to ensure our product team can support the rollout of future products and services to meet our customer needs. From a capital allocation standpoint, we started the year streamlining the organization with a divestiture of Blue Cow Software, which helps us to remain focused on investments towards organic growth. During Q4, we utilized our share repurchase program to buy back shares in a disciplined way. The work we put in this past year positions us well to execute toward REPAY’s mission of helping businesses make and receive payments so they can focus on what matters most to them. This effort involves meshing together a vast ecosystem of payment flows with many moving pieces over the past decade plus. It involves the connectivity of all various networks that allow us to move money, including our card payment rails, RTP, or instant funding via Visa Direct and MasterCard Send. It means that we need to provide omni-modal and omni-channel experiences. It includes the software network of embedding payments directly within enterprise software workflows. These integrations open up large verticals with critical mass and allow us to create a network within our end markets. On the business payment side, we have developed a vertically rich supplier network to create a flywheel for the future and eventually expand capabilities to enhance our vendor enablement process. This means we're a full-service processor providing value-added services like instant funding and communication solutions while also working on various strategic initiatives and opportunities to expand over time. The value created is the digitalization of payment flows, while also optimizing transaction routing to deliver the best payment experiences to our clients and their customers. While we are already in this continuous mission, we are starting to see improved growth, which we believe will drive higher returns over time. As we return to 2024, we will align our strategic initiatives with this mission while driving growth this year and beyond. As we continue to take advantage of the secular trends toward frictionless digital payments, we will be squarely focused on first, go-to-market efficiency. We will continue to expand our services and leverage our now 262 integrated software partners, finding ways to further penetrate these relationships. We look to add new software partners to help fill our expanding sales pipelines, and we will selectively add enterprise sales team members to specific verticals within consumer payments and business payments. Second, client implementations. We remain focused on making sure we guide our clients through a seamless onboarding process while providing ongoing and first-class support throughout the entire client experience. Third, product. Our tech platform is constantly evolving, as we have developed a best-in-class clearing and settlement engine while expanding our payment modalities. As we look into the future, our platform continues to scale as we automate manual processes. Lastly, our capital allocation priorities remain focused on creating value for our shareholders by investing in organic growth opportunities while continuing to be open to creative strategic M&A, as well as buying back shares in a disciplined way. We exited 2023 with solid execution that has continued into January with consistent trends and strong growth. With that, I'll turn it over to Tim to go over our financials and our outlook for 2024.

Thank you, John. Now let's go over our Q4 financial results before I review our financial guidance for 2024. As a reminder, Q4 normalized organic growth is calculated by excluding contributions attributable to the divested Blue Cow software business and the contribution attributable to political media in the fourth quarter of 2022. In the fourth quarter, REPAY delivered solid results across all of our key metrics. Card payment volume was $6.4 billion, and revenue was $76 million, an increase of 14% on a normalized organic basis over the prior year fourth quarter. Our business continues to benefit from strong performance in both card-based payment revenue and other value-added services such as communication solutions and instant funding, along with higher yields in business payments. Revenue attributable to Blue Cow and political media in Q4 2022 was approximately $3.3 million and $2.8 million respectively. In Q4, normalized organic gross profit grew by 13% year-over-year, removing approximately $3.2 million and $2.5 million of gross profit attributable to Blue Cow and political media in Q4 2022, respectively. Our consumer payments segment reported organic gross profit growth of 13% in Q4. Our business payment segment's gross profit grew 25% when excluding the impact of political media during Q4 2022. Fourth quarter adjusted EBITDA was $33.5 million, representing 44% margins. Importantly, Q4 adjusted EBITDA margins improved sequentially, as we have maintained relatively stable SG&A costs on a quarter-over-quarter basis, while simultaneously working to align our sales, implementation, and support teams throughout the year. Lastly, fourth quarter adjusted net income was $26.3 million or $0.27 per share. Pro forma net leverage is now approximately 2.6 times. We expect net leverage to naturally decline throughout this year from our strong profitability and cash flow generation, excluding any potential M&A. As of December 31, we had approximately $118 million of cash on the balance sheet with access to $185 million of undrawn revolver capacity, totaling a liquidity amount of $303 million. REPAY’s total outstanding debt of $440 million is comprised of a 0% coupon convertible note and does not mature until February 2026. During the fourth quarter, we used $13.5 million of cash for a software partner residual buyout and $2.5 million of cash for share repurchases. As of December 31, we have $37.5 million remaining available under our current share repurchase authorization. Moving on to our thoughts for 2024. Our full year 2024 outlook demonstrates our consistent growth algorithm of growth with existing clients, the full year contribution from clients that began ramping during the prior year, and growth from signed new clients. We expect revenue to be between $314 million and $320 million; we will no longer be providing guidance for CPV. Our company has evolved over the years to now have over 20% of revenue attributable to value-added services that are non-card volume tied revenue streams. We expect gross profit to be between $245 million and $250 million, and adjusted EBITDA to be between $139 million to $142 million. We expect roughly 44% adjusted EBITDA margins. As we expect adjusted EBITDA to grow faster than revenue and gross profit during the year, leading to an acceleration of cash conversion. We're introducing a free cash flow conversion target of approximately 60% for the full year 2024. Free cash flow conversion is calculated by dividing free cash flow by adjusted EBITDA. We plan to reduce overall CapEx spending, giving us the confidence to accelerate our free cash flow conversion throughout 2024, leading to free cash flow growth of approximately 60% year-over-year, and sustained mid to high teens growth thereafter. We continue to execute on our strategic priorities. While we have more work to do, we are seeing the sales pipeline develop, giving us confidence in our multi-year growth opportunity. Planning assumptions around the 2024 outlook involve our measured ramp of the previously announced auto captive win, while lapping strong growth from enterprise clients during 2023. Due to the uncertainty around volume timing, our 2024 outlook does not incorporate significant second-half contributions from the mortgage debit acceptance opportunity and the recently announced business payments enterprise software integration such as Blackbaud. Our quarterly cadence for 2024 is comprised of Q1 being positively impacted from the seasonality of tax refunds. Our Q3 and Q4 will benefit from the incremental contributions of our political media business in the business payments segment. Our tax refund season began later this year. Early data suggests the total refunds will be consistent with last year, while the average refund size may be slightly up compared to the prior year. Q1 free cash flow conversion is expected to be closer to the full year 2023 profile, due to quarterly timing around working capital, and it is expected to accelerate throughout the year. As you can see from our results and outlook, we expect free cash flow conversion to improve throughout 2024, as we reduce CapEx but also realize the benefits from investments we've made in sales, product, and technology over the past several years. We've always focused on profitable growth, refining processes across the business where we can scale through automation, while also maintaining investments toward innovation. I'll turn the call back over to the operator to take your questions.

Our first question comes from Ramsey El-Assal from Barclays. Please go ahead with your question.

Hi, this is Ryan Campbell on for Ramsey. Thanks for taking my question today. Tim, what are the biggest levers when it comes to improving free cash flow conversion this year? Given the 60% rate you provided, is that how we should think about the longer-term normalized conversion rate for REPAY? Thank you.

Absolutely. So, we're very excited about that and can feel confident in rolling out that new metric. The biggest drivers would be, you know, adjusted EBITDA growing faster than gross profits. So increased profitability and reducing CapEx down to the levels we've said previously, which are around 13% to 14% of revenue. Those factors combined lead to the cash flow conversion outlook of 60%. And like we said on the call, we think that can grow sustainably in the mid to high teens going forward. So that should lead to an even higher free cash flow conversion percentage in future years.

Our next question comes from the line of Peter Heckmann with DA Davidson. Please proceed with your question.

Good afternoon, everyone. Thanks for taking the question. Can you comment a little bit about your expectations for the growth in revenue related to political media spend over 2022? And then a little bit about how you're thinking about the underlying growth business segment as we go into 2025, or growth in 2024, excluding political media spend?

Yes, we feel good about our setup for this year's presidential cycle. As we've said previously, the 2022 cycle, we had about $6 million of gross profit, and we think that'll grow about 20% this year. So we're expecting strong growth, and that's generally related to just the digital payment shift to digital payment trend and a lot of the industry research we've done. So that's how we're thinking about the contribution for this year. We think underlying business payments growth, excluding political media can still be mid to high teens. So we think it's a mid to high teen growth business in the near term.

That's great to hear. Can you talk a little bit about the expected margin benefit from the software partner residual buyout? Is that where we will see it show up in the gross margins?

Yes, you'll see it show up there. I'd say our outlook assumes that impact, so you can see a little bit of expansion in the outlook. And that's not solely related to that, but a decent chunk of it is. That's something we've done in the past; we have opportunities still to do that in the future. We think that's a good use of capital, given the multiples we pay for those portfolios. You do see that show up in both gross profit margin expansion and adjusted EBITDA margin expansion.

Our next question comes from the line of Andrew Schmidt with Citi. Please proceed with your question.

Hey, John. Hey, Tim. Good evening, thanks for taking my questions. I just want to dig into Slide 12, the existing client growth bucket. Maybe you could just drill down to that a little bit. I know historically, this has been driven by increased penetration of your existing clients. Wondering if that's still the case here? Are there other factors? And maybe just a definitional question, whether this includes clients signed in 2023 that are ramping in 2024? Maybe just a little bit around that existing client growth bucket would be helpful and your visibility there? Thanks a lot.

We do have a lot of visibility there. Our business is highly recurring; it's typically tied to longer-term payment streams. We see a lot of growth from existing clients just adopting more of our payment modalities, which typically drives higher debit acceptance and debit penetration, leading to much of the existing client growth. There’s also some embedded growth from clients that have been signed in prior periods that haven’t fully ramped, and usually the ramp involves additional adoption as well. It's a combination of those things, and just the underlying clients themselves growing helps support existing customer growth.

Yes, Andrew, good evening. We’ll also point you to our investor supplement, which includes a bridge on new client growth as well as existing client growth. Also, if you look at the 45% year-over-year growth in our value-added services, which include our instant funding, those are kind of leading indicators of existing client growth. The network effect we gain off our supplier network that saw 60% growth in our supplier network drives additional growth as well.

Yes, and it's a good point. I mean, in the business payment side, we have a total pay solution, so we do outsource the entire payables function. Oftentimes, we're taking payments from, say, check or ACH to virtual card and driving enhanced virtual card penetration through the way we do supplier and vendor enablement. Some of that could also lead to existing client growth on the business payment side.

Got it. That's very helpful. And yes, good point about the value-added services; I know that's been an increasing part of the story over the last couple of years. So that's well added. If I could just ask on the Convert. Obviously, it's out there and 2026. What's the philosophy around handling that? Are there opportunities to chip away at that in the interim? Or is it something to be addressed closer to maturity, as well? Anything around just the strategy there will be helpful? Thanks a lot.

Yes, I mean, we’re obviously very aware of the maturity on that; it's still not for another two years. But we’re thinking through different ways to manage that liability. There are a lot of options; it's very flexible capital. One of our capital allocation priorities could be to address the convert, and it likely would be in the form of chipping away at it, as you suggested. We haven't made any final decisions on that, but we have a lot of options.

I would add that the Convert market appears to be opening back up, which will give us those additional options if we choose as well.

Our next question comes from the line of Sanjay Sakhrani with KBW. Please proceed with your question.

Hi, this is actually Steven Kwok, filling in for Sanjay. Thanks for taking my question. The first one I had was just around if you could talk about the macro outlook that assume within the guide and anything around how we should think about the gross profit and EBITDA from a quarterly cadence perspective? Thanks.

Our guidance philosophy is generally based on looking at current run rate trends in our business and utilizing what we know about the business from existing client growth, as I said, we have a lot of visibility into that, and then new signed clients. A lot of it is just based on those recent run rate trends in our own business, and then what's going on from a macro perspective. So those are our planning assumptions based on what’s currently happening. Our quarterly cadence is that Q1 will benefit from tax refunds, and I mentioned it's still early days in this tax refund season, but overall returns will be generally consistent with last year, while the average refund size seems to be a bit higher. That would be good for us. We see an uptick in Q3 and Q4 related to political media volumes and political media spend because this year is a presidential cycle. Q1 free cash flow conversion is expected to look closer to the full year 2023 profile and is projected to accelerate throughout the year.

Got it. That’s very helpful. Following up around the prior comment on the convertible. How should we think about the cash that you have? If you could talk also about the potential M&A market because we’ve been hearing some signs that valuations might be coming down. I want to see what you're seeing out there, and if the right deal comes along, do these convertibles on the horizon prohibit you from doing anything?

On the convert, we're aware of it and it's really flexible; we have a lot of options. We're growing cash nicely, and our free cash flow conversion profile should see us over $200 million at the end of 2024. We are looking to maintain flexibility for various capital allocation priorities, the first and foremost being organic growth. Then we have the share repurchase authorization, which we've reacted on toward the end of last year. The convert is something we're monitoring at 0% interest, so we're just trying to be thoughtful about maintaining flexibility to reduce net leverage.

From an M&A perspective, we see the pipeline building; we're seeing more activity picking up coming into this year. I think sellers probably have become more rational on valuation, so the spread between private and public markets is probably compressing. We haven't done any acquisition in over two years. We've been very disciplined and will continue to be disciplined on valuation.

Our next question comes from the line of Joseph Vafi with Canaccord. Please proceed with your question.

Guys, good afternoon, nice results. Could you just go through the reduced CapEx outlook for 2024 reminding us what were some of those investments that led to higher run rates? Are those projects just completed? Or how should we think about CapEx reduction relative to forward investment and the opportunities coming from? Then I have a follow-up.

Yes, we have invested heavily in the business; we've invested in growth. A lot of that was focused on our backend, RCS, where we're just trying that to be as robust and modern as it can be. That's a big investment that we don’t think is recurring. From a growth investment standpoint, there's a lot of work to be done on large client implementations and also large software partner implementations. And then upgrades. We've been doing a lot to put ourselves in a position to further penetrate existing software relationships, in addition to implementing new relationships. We’ve also done a lot of work, we haven’t done an acquisition in two years. In addition to doing work on RCS, we’ve integrated prior acquisitions onto a single platform, and there’s integration costs associated with that, which can show up in CapEx. There was some of that work behind us. CapEx was elevated in '23, and we expect that to fall to 13% to 14% of revenue in '24 and even further beyond.

Yes, Joe, let me add just a little color there. Obviously, that continues our investments in technology that go with our embedded payment solutions inside our software partners. Our ability to drive product features throughout our solutions—many of those have been added this year. We think we're set up well and have made those investments, enabling us to drive those processing features.

Sure, fair enough. Thanks for those comments, guys. Then, looking at areas like instant funding and your other value services growing rapidly, trying to get a feel for how penetrated in the market you might be with some of these services. Clearly, it's a small base, but just kind of wondering how you're thinking about the growth in some of these fast-growing areas.

The value-added services are certainly a nice growth area for us. There are several revenue streams there, particularly instant funding and communication solutions. Instant funding today primarily serves personal loans, funding loans directly onto the consumer's debit card, which we believe leads to higher debit acceptance. We're probably only using that instant funding product with a few hundred lenders, and we have several thousand personal lenders; the penetration is fairly low. The primary use case for communication solutions is in mortgage servicing, where there's a lot of communication and notifications required around payment due dates and how payments can be made. We often charge for that, and we're also trying to make more of those communications digital, leading to more digital payment interactions. That segment is experiencing significant growth, and there’s a large opportunity to continue to expand those services.

Let me add that the real flywheel effect on the business payment side is that we’re seeing tremendous opportunities there, specifically on the payable side. For every payable, there's a corresponding receivable; our ability to accelerate that process is present. We expect continued growth with the embedded payments into large enterprise platforms, like our example with Blackbaud, which presents significant opportunities for payment monetization.

Great, thanks for that extra color, John. Nice quarter again, John and Tim.

Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.

Thank you very much. Just a quick question. Obviously, you answered the question around acquisitions and valuations. You guys haven't done anything in a couple of years, but maybe that’s starting to open up a bit. How should we think about what kind of appetite you would have? What are you looking for, either from a capability or size perspective? And then, in reference to your CapEx comments, I think your comments about why that was elevated now makes sense. But if you were to pursue some incremental acquisitions, should we expect CapEx to rise again, or is it hard to say ahead of time?

Yes, in terms of M&A priorities, we look at deals across both consumer payments and business payments. We typically focus on integrated payments, as these lead to better retention statistics and typically higher margins. We want to scale business payments, and we see targets in both AR and AP, with probably more targets in AP. We also might look to acquire capabilities in cross-border payments, where we are not currently active. Our focus is primarily on medium to enterprise, but there's opportunities in the SMB market as well. We'd like to enhance our supplier networks through these acquisitions as well. That's how we think about M&A across the board; we want to grow the B2B business and scale it.

We've shown our ability to embed payments into various software platforms. We want to add scale across our core competencies, and we see great shareholder value with the right opportunities.

Our next question comes from the line of Timothy Chiodo with UBS. Please proceed with your question.

Great, thank you for taking the question. Of the 262 software partners, if we look at the consumer payments side, just want to get a rough update on how would you describe the need for you to sell into those partners? I know that for many of them, the sales folks at REPAY would contact the underlying merchant working with the software platform. Some of them, you're kind of the only payment provider. Can you help break down the mix?

Sure, I'll start. Good evening, Tim. We are a direct salesforce, and most all of our software providers are referral partners, as you're aware, referring new clients to us. We're actually going directly into capturing the clients we don’t already have, which are several of those inside every one of those 262 partners. We engage through our associations and conferences where we meet these new clients, so it's a direct approach where we own the customer relationship. Some of that is reflected in our margins, but we do partner with them. It's probably about a 50-50 relationship of referrals, but ultimately because of the needed expertise in payment technology for onboarding, we provide significant value.

Yes, and I'll add that on the consumer side, we have 165 of the 262, and we're often their preferred provider. These software partners typically don't need more than two or three payment providers on their platform. Our integration is deeply embedded into the platform, and we receive more referrals, which leads to existing penetration opportunities.

John, Tim, thank you for your responses; they were very helpful. I wanted to refer to RCS. While we often talk about RCS as an acquisition that helped with your gross margins, can you provide insight on RCS as a standalone business? How much focus exists on gaining processing share and signing up new partners on its own?

We do have an effort to bring on new processing clients onto RCS. We have a dedicated sales team with expertise in the industry and relationships with various processing client prospects. We bring on several of those each year, often coming from larger shops looking for a more customized solution and better service. While it’s not our primary focus, we do have an effort to onboard new clients each year.

There are no further questions in the queue. At this time, I'd like to hand it back to John Morris for closing remarks.

Thank you again for joining us today. We capped off 2023 with strong results that we have continued to see in the first part of this year. We feel confident in executing on our 2024 plan, as we outlined today, focused on profitable growth and accelerating free cash flow conversion. Thanks for joining us.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.