Good afternoon. I'd like to welcome everyone to Repay's First Quarter 2024 Earnings Conference Call. This call is being recorded today, May 9, 2024. I'd like to turn the session over to Stewart Grisante, Head of Investor Relations at Repay. Stewart, you may proceed.

Thank you. Good afternoon, and welcome to our first quarter 2024 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 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. With that, I will now like to turn the call over to John.

Thanks, Stewart. Good afternoon, everyone. Thank you for joining us today. Our Q1 results represent a strong start to the year as we aim to capture new payment flows while enhancing client relationships with many value-added services. In Q1, we achieved organic revenue growth of 10%, organic gross profit growth of 11%, reported adjusted EBITDA growth of approximately 15%, and reported free cash flow growth of more than 90% year-over-year, with each metric performing in line with our expectations. In Q1, we made progress on our three main strategic initiatives, which drive growth in 2024 and beyond. They include our go-to-market efficiency, client implementations, and a focus on product. This progress enhances our vast ecosystem of payment flows, which we have combined and developed over the past decade. We face clients that value our ability to move money efficiently and easily, as well as provide omnichannel services with our one-stop payment technology. Additionally, our vertical-specific software network allows us to embed payments directly within their workflow, making the process seamless and secure for our clients. Consistent with the card networks, we continue to see growth opportunities across emerging verticals for debit card payments such as loan repayments and commercial payments in our B2B segment, along with new flows such as instant funding by Visa Direct and MasterCard. As we continue to strengthen our technical and go-to-market relationships with our software partners, we're excited about the multiyear growth opportunities across our consumer and business payment verticals. In Q1, consumer payments organic gross profit growth was 11%. Our strong performance in Q1 was a continuation of our growth algorithm, which includes growth coming from existing clients and signing new clients over the past several quarters. Our growth is also aided by the ongoing secular tailwinds within our consumer payments verticals and the continued ramp of recent large client implementations. We added many new clients to our network in Q1, including 15 new credit unions, an acceleration from last quarter, bringing our total credit union clients to 291. We onboarded a larger credit union client during the quarter, which was one of the top 50 credit unions in the United States. This partnership exemplifies our clients' continuous focus on the customers' digital experience where enhanced payment capabilities can relate to strong operating performance and ongoing membership growth. Credit unions and community banks are great growth drivers for Repay. Our vertical expertise and software integrations lead to a healthy sales pipeline to address the thousands of financial institutions in the United States. During the quarter, we added another core software integration partner that specifically serves credit unions and banks further positioning us well for this opportunity. In addition, accounts receivable management continues to be an attractive vertical for Repay with multiple years of growth ahead. During the quarter, we signed one of the largest providers in the U.S. of outsourced accounts receivable management and loan servicing. We also expanded our software partnerships with Maxyfi, a provider of collections and accounts receivable management software for lenders and collections. Through this integration, Repay's payment technology enables businesses to optimize and streamline payment collections directly within Maxyfi software. We added three partners during the quarter in the Consumer Payments segment and remain focused on strengthening our software partnerships, developing our sales pipeline, and continuously improving our clients' experience. We remain on pace to go live and gain processing with the previously announced large auto-captive lender in late Q2 with a measured ramp throughout the second half of 2024. Lastly, in value-added services, our instant funding product continues to see significant growth with transactional volume up approximately 33% year-over-year. This product provides an incredible opportunity for our clients to differentiate themselves in the marketplace by delivering quick, convenient, and secure funding experiences to their customers. Over the medium term, we are evaluating new areas of expanding these capabilities. We also had a very productive quarter in the Business Payments segment, which grew gross profit by 17% year-over-year. Gross profit growth was driven by our implementation teams converting strong sales pipelines into live clients that began to ramp during the quarter. In AR, we remain focused on optimizing payment acceptance while strengthening our client base through our direct sales team and ERP partners. Within AP, we grew our supplier network to over 279,000 suppliers while adding and enhancing integrations with several software partners during the quarter. We were honored to receive WEX's 2023 Smart Partner of the Year for our best-in-class partnership facilitating virtual card business-to-business payments. During the quarter, we signed many new clients across our verticals within the hospitality space, and we are now live with Resorts World Las Vegas, a fully integrated premium resort on the Las Vegas Strip, and several new hospitality clients continue to onboard additional properties onto our AP automation and TotalPay solution. Our existing partnerships are driving new client wins within our healthcare vertical, including several regional healthcare systems located in Texas, Georgia, and Maryland. We're gaining increased traction in building a healthy sales pipeline from recent software integrations such as Sage Intacct, Microsoft Dynamics, Quadient, and Inflow. We're winning new clients as we continue to enhance our existing integrations with auto dealer software partners, and we're developing new partnerships, such as EnergyCAP, a leading provider of utility bill and energy management software. With our partnership, energy clients can now rely on Repay's embedded accounts payable automation within their software ecosystem. We're continuing to streamline the onboarding and implementation process while also focusing on increasing the digital payment volumes for our clients. A great example is Country Pure Foods, one of the largest manufacturers of multi-serve juices, plant-based beverages, and frozen novelties in the U.S. Since onboarding Country Pure Foods, Repay's TotalPay solution has transformed their payment volumes from 100% paper-based to over 60% digital, with a 30% virtual card adoption rate aiming for 80% digital payment volumes. As you can see from our results, we have been able to grow Repay by expanding our services, leveraging over 266 integrated software partners, guiding our clients through a seamless onboarding process, and constantly evolving our tech platform. As we look into the future, our platform continues to scale as we automate manual processes. The scaling of our platform and realizing the benefits from the investments we've made in sales, product, and technology over the past several years will enable us to accelerate free cash flow conversion throughout the year and beyond. Lastly, our capital allocation priorities remain focused on creating value for our shareholders by investing into organic growth opportunities while simultaneously being open to accretive strategic M&A. Repay is positioned with a strong balance sheet to continue to grow profitably and accelerate cash generation throughout the year. We exited Q1 with solid execution and consistent seasonal trends as we embark on the remainder of the year. With that, I'll turn it over to Tim to go over our financials and our outlook for 2024. Tim?

Thank you, John. Now let's go over our Q1 financial results before I review our financial guidance for 2024. As a reminder, Q1 organic growth is calculated by excluding contributions attributable to the divested Blue Cow software business during 2023. In the first quarter, Repay delivered solid results across our key metrics. Revenue was $80.7 million, an increase of 10% on an organic basis over the prior year's first quarter. Our business continues to benefit from strong performance in both card-based payment revenue as well as other value-added services such as Communication Solutions and Instant Funding, along with higher yields and business payments. Our Q1 results benefited from the typical seasonality of tax refunds. A reminder, revenue attributable to Blue Cow in Q1 2023 was approximately $1.2 million. In Q1, organic gross profit grew by 11% year-over-year. Our Consumer Payments segment reported organic gross profit growth of 11% in Q1, and our Business Payments segment gross profit grew by 17%. Blue Cow contributed approximately $1.2 million to gross profit in Q1 2023. First quarter adjusted EBITDA was $35.5 million, growing 15% year-over-year with 44% margins. Q1 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. First quarter adjusted net income was $22.4 million or $0.23 per share. Lastly, Q1 free cash flow was $13.7 million, representing over 90% year-over-year free cash flow growth. Free cash flow conversion was in line with our internal expectations due to timing around net working capital and remains on track to accelerate throughout the year. Repay's net leverage at the end of Q1 was approximately 2.4x. We expect net leverage to naturally decline throughout this year from our strong profitability and cash flow generation, including any potential M&A. As of March 31, we had approximately $128 million of cash on the balance sheet with access to $185 million of undrawn revolver capacity, for a total liquidity amount of $313 million. We paid total outstanding debt of $440 million, comprised of a 0% coupon convertible note, which we are aware matures in February 2026. Moving on to our thoughts for 2024. Our year-to-date results are driven by our 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 are reiterating our 2024 outlook that we provided in late February. We continue to expect revenue to be between $314 million and $320 million, gross profit to be between $245 million and $250 million, and adjusted EBITDA to be between $139 million and $142 million. We expect roughly 44% adjusted EBITDA margins and anticipate adjusted EBITDA to grow faster than revenue and gross profit during the year. We expect our free cash flow conversion to accelerate throughout the year, with Q2 free cash flow conversion being closer to our full-year free cash flow conversion target of approximately 60%. As a reminder, free cash flow conversion is calculated by dividing free cash flow by adjusted EBITDA. As we demonstrated in Q1, 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-teen growth thereafter. Across the business, we are seeing the sales pipeline develop from our software integrations and partnerships, giving us confidence in a multiyear growth opportunity. The planning assumptions around our 2024 outlook remain consistent with the measured ramp of the previously announced auto-captive win starting in late Q2 and lapping the strong contribution from enterprise clients during 2023. Our quarterly cadence is comprised of Q1 being positively impacted by the seasonality of tax refunds, which roll off in Q2 similar to prior years. Q3 and Q4 will benefit from the incremental contribution of our political media business in the Business Payments segment. Q2 free cash flow conversion is expected to progress towards our full-year free cash flow conversion target of approximately 60%, and free cash flow conversion is expected to accelerate throughout the year, similar to the quarterly cadence we saw in 2023. As you can see from our strong Q1 results and the full-year 2024 outlook, we continue to realize the benefits from our investments in sales, product, and technology over the past several years leading to an acceleration in free cash flow conversion during 2024. Our focus remains on profitable growth, refining processes across the business where we can scale through automation while also maintaining investments toward generation. I'll now turn the call back over to the operator to take your questions.

Your first question comes from Ramsey El-Assal with Barclays.

And forgive me if you commented on this, I was hopping back on a couple of calls. Adjusted EBITDA margins came in nicely ahead of expectations. What drove the beat there? And also just help us think through cadence through the remainder of the year?

Yes, we feel really good about that as well. As I mentioned, we had similar gross profit margins as prior periods, but we were able to manage SG&A and OpEx while continuing to focus on investing in growth. That management of costs led to expanding adjusted EBITDA margins. We would expect that to continue in terms of the gross profit margin profile being steady, slightly expanding OpEx, only slightly expanding less in gross profit, which would lead to similar adjusted EBITDA margins for the rest of the year.

And then a follow-up for me. Back in March, there were some media reports about you guys potentially looking for private equity sponsor. Can you give us your updated thoughts on exploring strategic alternatives? Is that something that's in the playbook here?

This is John. Listen, we take our fiduciary responsibility very seriously. We always have. I think you can see that with our ability to continue to drive our organic growth and execution; we think that's really great for shareholder value. We're going to continue to do that. We actually exited '23 with solid execution for that year and then exited our first quarter as we continue to guide for this free cash flow conversion, and we think that at least our conversations with investors resonate with them. We're on our mission to help drive that throughout our 2024 year, and we believe those measures are great for us regarding shareholder value, and that should be a positive thing.

Next question on Sanjay Sakhrani with KBW.

This is actually Steven Kwok filling in for Sanjay. The first one I have was just around now that you guys don't provide the volume growth anymore. Perhaps if we could just drill down a little bit on your expectations for each of the segments, like how should we think about the growth rates for the consumer versus the business payments as we progress through the year?

Yes. As we mentioned in the last call, we're no longer providing CPV guidance or CPV as a metric just because the business has become more diversified into non-card-based revenue streams like Instant Funding and Communication Solutions. We did have a strong quarter in terms of CPV, and the take rate was healthy. It's just business, like I said, has diversified into different revenue streams and more value-added services. In terms of segment growth rates, consumer payments are expected to grow at a high single-digit to low double-digit type range, while business payments are projected to see mid- to high-teen growth this year with similar margins to what we saw this quarter. One thing to note is that we are signing more enterprise accounts, and that sometimes those come with slightly lower take rates, but we're able to manage our costs and maintain similar gross profit margins. Additionally, there's potentially a mix towards B2B and Business Payments, which has slightly lower take rates than the overall, but there's no pressure other than those dynamics.

And then my follow-up was just around you had a nice quarter, kept guidance the same. Just as we think about where you stand relative to your prior guidance, should we think about with better-than-expected results, perhaps you could be at the upper end of the range? Maybe what are the different factors that are incorporated into your guidance?

Yes. We feel good about Q1 results, and the trends into Q2 are similar to what we would have expected coming out of Q1. There were seasonal impacts from tax refunds in Q1, and typically, Q2 is slightly down from that. We are lapping a large enterprise win from the prior year and several enterprise wins, so we’re considering that in our outlook. Given the timing of where we are in the year, we are trying to maintain conservatism and be thoughtful about it. That's how we're looking at the rest of the year.

Next question, Peter Heckmann with D.A. Davidson.

I just wanted to check in on the B2B AP automation. When you're winning there, are those typically competitive takeaways or are those kind of first efforts to move away from paper-based payment methods?

Peter, this is John. Those are all net new opportunities. Most of it is green space, white space. For example, as I mentioned on the call, Country Pure Foods is an example where we are driving digital transformation. Therefore, we see many of those opportunities. There are occasional takeaways, but many of our verticals focus on net new growth.

Yes, Country Pure Foods is the example that John is referencing. They went from 100% paper-based when we started with them to over 60% digital today with a 30% virtual card adoption rate. We believe they can grow to an 80% digital rate because they adopted our unique TotalPay solution. That's a great case study of just educating a client on the benefits of AP automation, payment execution, and you can see those results.

What was the time frame for them to achieve that?

It just took a few months. I mean, it happened very quickly. They adopted the solution quickly. They really embraced outsourcing their payables function. They outsourced the TotalPay solution so we could handle all their forms of payment. Due to our supplier network and our unique approach to vendor enablement, we were able to achieve these types of digital payment and virtual card adoption rates.

And then just a quick follow-up. Have you seen any change in, or I guess any perception of an upcoming change in terms of auto loan originations, either on the new or used side? New is tracking a little bit higher, and used might still be a little bit sluggish?

Yes, that's right. No real change. I mean, we keep an eye on the used car prices and how those are trending; that should be a good indicator of affordability and what that means for used car financing, but there's really not any significant change from the last time we spoke.

Next question, Joseph Vafi with Canaccord Genuity.

Maybe if we could get a little bit of an update on a couple of the verticals? Perhaps the latest update on your auto OEM integration and what the pipeline there may look like. We haven't heard, I think, a ton recently on mortgage; could we get an update there as well? And I have a quick follow-up.

On the auto captive, as I mentioned, we're in the process of going live with that, and we expect it to be processing in late Q2 and ramping throughout the second half of this year. That will be a multiyear growth opportunity, Joe. We're very excited about it, and we've done a lot of work on that. We are building a pipeline of additional captives and have intentionally gone upmarket with some of our sales hires to address the enterprise space across our consumer verticals, not just auto, but auto is a good example. That's a second-half contributor and a multiyear growth opportunity as the business continues to ramp. In terms of mortgage, we see a lot of positive signs there. It's not in our forecast, nor in our outlook, but we are continuing to progress, and we have certain clients identified that we think will adopt the debit solution, and that's progressing nicely.

Yes, and I also mentioned on our call about a larger credit union we just brought on board, which is one of the top 50 credit unions. They do a good bit of auto lending as well. Our ability to continually enhance that overall consumer digital experience is seeing real positive traction in the credit union space.

It's been an area of strength for us, Joe. We added 15 this quarter, and we are now up to about 290 credit unions out of just under 5,000 across the U.S. We're signing large credit unions. We have the right software integrations in that space, and we have all the different payment capabilities that give us the ability to win.

And then, I mean, you've got a lot of software partners now, which is great. I imagine that some are better producers than others in driving revenue. Can you share how you look at that large portfolio of software partners now in terms of how much penetration you have with their end customers? Of the 266, is it like half of them are bigger producers? I'm just trying to understand how those numbers work with a large partner network now.

Yes, it's different by vertical in reality. We are vertically specific even in consumer payments and in business payments. On the business payment side, some of those partnerships with ERP systems are very broad and very large, and even within that world, we hone in on the verticals inside those ERP systems. We really think there are tremendous growth opportunities in the outer years for these large enterprise software ERP platforms, such as Blackbaud. Monetizing payments has many long-term opportunities associated with that. We assign our individual vertical leads to these areas. Our approach allows us to be vertical experts as well as payment and software experts in the channels we're working with. They vary in size; as you indicated, some deal with very large enterprises, while others have medium-sized clients. We typically focus on medium to enterprise levels. Some of our partners are more sophisticated than others, but we have individual team members assigned to drive that with marketing campaigns associated with that. We appreciate the way some of the areas that we're focusing on as we refresh integrations and open up more payment modalities, allowing for the flexibility that clients may want.

Next question, Mike Grondahl with Northland Securities.

Two questions. First, was the contribution from tax season this year outsized compared to the last couple of years? Can you quantify that at all? And then secondly, I know we're still a ways from the election. But do you have any sense or feel if the revenue related to that is looking a little better or a little worse? Any color there would be helpful, too.

On tax refunds, we track those closely with IRS data, and it was very similar to prior years. So it was in line with our expectations and not necessarily a greater contribution than prior periods of what we expected. Regarding the political segment, we're still expecting to grow about 20% this year, given it's a presidential election cycle. We had a little over $6 million of gross profit in 2022, and we think that business can grow about 20% this year. We’ll have more visibility leading up to the election just a few months before as to how that 20% growth looks. But right now, we're anticipating a 20% growth in that sector.

And lastly, any updated thoughts on the macro, whether that's consumer-driven or rates? Are you seeing anything there to call out?

As we mentioned, everything is very similar to what we talked about during the last call. For the auto segment, as I said, we’re still seeing similar trends across other end markets. We try to factor in our most recent run rate trends into our planning for the rest of the year. Nothing is materially different than what we saw before.

Stable, healthy consumer with a stable, healthy job market.

Next question, James Faucette with Morgan Stanley.

This is asking a question on behalf of James. So given the strong free cash flow, could you provide an update around capital allocation? Maybe what you're seeing in terms of M&A pipeline currently, how valuations are trending? And maybe what verticals might be most interesting to you?

Yes, I'll start. Specifically, we think that for all the reasons we discussed on the call, organic growth with the total addressable market we're sitting in front of is paramount. We're going to continue to drive our organic opportunities, which we're executing on. In Consumer Payments, we're going to drive more investments in our enterprise sales as we seek to enhance our integrations. In Business Payments, there’s significant opportunity for investment, especially within our ERP integrations. We think there's great value in our 279,000-plus suppliers today, and we see significant opportunities as we continue to add clients by vertical. We like to approach it by vertical as well. We desire to see our business grow and scale, and we aim to leverage automation and AI to drive efficiencies throughout our operations, client services, and implementation.

To add to that, like John mentioned, our top priority from a capital allocation perspective is organic growth and funding additional organic initiatives for all the reasons John described. We like to balance our net leverage against managing our convertible note liability. From an M&A perspective, we have an in-house team that sources and evaluates deals. We haven’t done an acquisition in close to 2.5 years, and we have remained disciplined in that regard. However, we do have a very healthy pipeline building and are in various stages of discussions with targets across both Consumer and Business Payments end markets. We are particularly focused on the AP vertical within Business Payments and eyeing potential targets to build out our number of verticals, supplier network, ERP integrations, and just generally add scale to our Business Payments segment.

There are some potential attractive tuck-ins.

Next question comes from Pat Ennis with UBS.

So, I mean, you've talked about competition and coming across the traditional scaled payments companies such as Global Payments, Worldpay, Fiserv and not really coming across those guys as much. It's been some time since you've talked about these competitors in your core consumer finance markets. Could you touch on how that market has evolved if those comments still hold for the most part?

Those comments still hold. Those specific ones you named, I don't recall seeing them in any particular bake-offs or competitions. We have unique integrations that make these offerings distinct. Our vertical focus go-to-market is unique with our specialized products. We just don't bump into those specific companies. It doesn't mean it couldn't happen in the future. We have a healthy pipeline, and we're winning.

I'll add to that; primarily focused on consumer, like John said, we don't typically see those names. One reason we've chosen these end markets is not only their size but their underserved nature from a payment perspective and under-penetration regarding card payments. We like our position in those markets within Consumer and, in the Business Payments side, as noted earlier, it's not about competitive takeaways but moving clients off of paper-based payments to digital payments, specifically virtual cards.

I would like to turn the floor over to John Morris for closing remarks.

Thank you, everyone, for your time today. We had a solid start to our year with double-digit organic growth. We continue to make progress on our strategic initiatives as we talked about on our call. We are excited about the multiyear growth opportunities that we've also discussed, which we believe can give us fantastic opportunities even in the outer years. Our execution of our 2024 outlook remains strong as we continue to accelerate free cash flow achieving our goals for 2024. Thank you for joining us today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.