Repay Holdings Corp (RPAY) 2025 Q3 法說會逐字稿

Good afternoon. I'd like to welcome everyone to Repay's third-quarter 2025 earnings conference call.

This call is being recorded today, November 10, 2025.

I'd like to turn this session over to Stewart Grisante, Head of Investor Relations at Repay. Stuart, you may begin.

Thank you. Good afternoon and welcome to Repay's third-quarter 2025 earnings conference call.

With us today are John Morris, Co-Founder and Chief Executive Officer; and Robert Houser, 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 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. 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 and in the 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, Stewart. Good afternoon and thank you for joining us today.

During the third quarter, Repay executed on our promise to sequentially improve growth in the second half of the year. Our core growth strategy is built on our drive to optimize digital payment flows across our Consumer and Business Payment verticals.

We embed our payment technology into software platforms for a seamless experience. During the second half of 2025, we remain focused on the path of returning to sustainable growth, as we exit the year.

In Q3, we achieved 5% revenue growth and 1% gross profit growth on a normalized year-over-year basis, which excludes the political media contributions during 2024. Our adjusted EBITDA margins remain robust at 40%. We continue to generate strong free cash flow conversion of 67%, while reinvesting into organic growth initiatives. These financial results demonstrate the strategic improvements that are underway.

Across Repay, we have been enhancing our go-to-market implementation pipelines and operations. We're automating processes, strengthening partnerships, enriching our capabilities, and fine-tuning our clients' experience.

We are testing and deploying AI tools across the company to build Repay for a scalable future. Repay is using real-time API observability for our gateway monitoring, which is leading to some of the highest authorization and uptime across the industry. We have been utilizing assisted AI functionality during the client onboarding process for faster API connectivity with software partners, reducing manual documentation, and improving implementations.

During the quarter, we developed Repay's Dynamic Wallet, allowing loan payments to be seamlessly integrated into iOS and Android's digital wallet. Dynamic Wallet provides instant access to loan details, reminders to make payments on time, and tap and pay directly within the consumer's digital wallet. Easier access leads to better customer experience for our clients and increased digital payments for faster and secure transactions.

Also, we have been adding new software partners during the quarter. We added five new software partners, bringing our partnership network to 291 across our Consumer Payments and Business Payments segments.

Our investments in enterprise sales and customer support teams have built a healthy sales pipeline across the verticals we serve. This is reflected in sustained year-to-date bookings growth. Additionally, operational initiatives are leading to improved productivity, increased automation, and quicker implementation workflows.

As these positive trends continue, our normalized growth is expected to sequentially improve further in the fourth quarter.

Now, moving on to our Q3 segment highlights, within Consumer Payments segment, reported gross profit increased 1% year over year. Our core growth algorithm is built on both the recurring and incremental contributions from existing clients and the ramp of recent client wins.

As a reminder: Q3 gross profit growth was partially impacted by approximately 3% from the previously mentioned clients rolling off our platform. Without these impacts, gross profit increased single digits year over year.

In Q3, we increased our consumer software partnerships to 188, while also enhancing many existing integrations to further improve client and customer experience.

During September, we announced a partnership with Alfa Systems, a leading provider of SaaS software within the auto and equipment financing industry. The partnership combines Alfa Systems's software with a complete solution of payment acceptance across modalities and channels. Financial institutions and lenders that use Alfa's loan management platform can utilize Repay's out-of-the-box, seamless payment experience, while also streamlining their internal accounting and reconciliation processes. This partnership is a great example that embodies Repay's overarching embedded payment strategy, while also presenting additional subvertical growth opportunities.

We also announced a new integration with Fuse, an AI-powered LOS platform that serves banks, credit unions, and financing institutions. Fuse's software embraces automation capabilities, while also now embedding Repay's secure payment processing technology directly into workflows to enhance financial institutions' operations.

By combining our extensive software partners that span across our consumer verticals with our direct go-to-market approach, our sales teams are building on strong sales and booking pipelines, while adding many new clients, including 11 new credit unions in our financial institutions vertical.

Year to date, core consumer bookings have continued to increase from this go-to-market strategy. Our teams are continuing to focus on client implementations and ramp processes.

The minimum we see in software partners, sales bookings, and improving implementation workflows instills our confidence in our sustainable growth profile, as we exit the year.

Now, turning to the Business Payments segment, in Q3, normalized gross profit increased 12% year over year, which excludes the political media contributions during 2024.

Please keep in mind that we also lapped approximately 10% impact from last year's client loss. Without these impacts, our gross profit growth was over 20% year over year.

Business Payments's growth was driven by our accounts payable platform and payment monetization issues of float income in expanding our enhanced ACH offering.

We continue to win and implement new clients in our healthcare and hospitality verticals, leading to double-digit growth in our core AP platform. Our strategic focus is on increasing total pay adoption, as we continue to prioritize our go-to-market and partnership resources towards AP opportunities.

Our supplier network increased to over 540,000 suppliers, growing approximately 60% year over year, as we see great traction in our hospitality vertical.

We are building on existing software relationships, such as Blackbaud, in our education and non-profit verticals.

We also recently announced a new integration with Yooz, a leading provider of AP automation software across multiple industries. Repay's directly embedded technology ensures timely vendor payments, while improving productivity by reducing the need for manual processes for organizations.

We are pleased with the Business Payments's momentum for our sales teams and expect to see sustained AP traction from our 103 strategic partnerships and embedded integrations.

In Q3, Repay took positive steps in the right direction through execution. We returned to profitable, normalized growth, while generating significant free cash flow and maintaining a strong balance sheet for financial flexibility.

We opportunistically deployed capital towards our organic growth initiatives; repurchased approximately 3% of our outstanding shares in August, bringing our total share repurchases to 38 million year to date; and reduced our debt outstanding by retiring 73.5 million of our 2026 convertible notes at a discount.

Looking forward, we expect the momentum to continue, giving us confidence across both Consumer Payments and Business Payments in the Q4 2025.

Lastly, I would like to welcome Rob Houser, Repay's Chief Financial Officer, who joined the company in September. Rob has already hit the ground running, bringing over a decade of payment experience and a proven operational track record. I look forward to working with Rob to build on Repay's success.

With that, I'll turn the call over to Rob to review our Q3 financials. Rob?

Thank you, John. Good afternoon, everyone.

First, I'm very excited to join Repay. My first couple of months have been incredible and busy. I've been learning about the company, culture, and technology, all of which have confirmed my belief in the opportunities ahead.

Repay has a tremendous payment platform across our consumer and B2B verticals that is positioned to benefit from the secular digital payment trends. I look forward to digging deeper and getting to work in helping drive the company forward.

Now, let's go over our financial results for Q3 2025.

Revenue was $77.7 million and gross profit was $57.8 million. Normalized revenue growth and gross profit growth increased 5% and 1%, respectively, which excludes the political media contributions during last year's presidential election cycle.

Our Q3 growth was impacted by approximately 4%, as we continue to lap the previously discussed client losses from 2024. When excluding these impacts, Q3 gross profit increased mid-single digit year over year.

During Q3, our gross profit margins compressed approximately 3.4% year over year. Our gross profit margins were impacted from lapping one-off client losses and contributions from political media; a larger mix of clients with volume discounts, as our client-based volumes continue to grow significantly and we continue to ramp enterprise clients with volume pricing; an increased mix of revenue from ACH and check volumes. As our clients adopt more of our modalities and undergo provider consolidation, we are processing more of our clients' overall volumes.

In addition, we have experienced an increase in average transaction value, as we continue to move upmarket towards larger enterprise clients. Higher overall transaction values caused higher-than-expected assessment fees on capped interchange volume. Going forward, we expect these impacts to continue.

Consumer Payments's growth profit increased 1% year over year. Our Consumer Payments's segment is starting to show sequential improvement towards the fundamental growth of this segment. When excluding the approximate 3% impact from one-off client losses, gross profit increased single digits during the quarter.

Business Payments's normalized growth profit increased approximately 12% in Q3 2025. In addition, Business Payments's growth was impacted by approximate 10% headwind related to the previously communicated client loss during 2024.

Q3 adjusted EBITDA was $31.2 million, representing approximately 40% adjusted EBITDA margins. Throughout 2025, Repay has been able to manage OpEx, while balancing resource allocation and making incremental investment towards the sales, implementation, and client service teams to support future growth.

Third-quarter adjusted net income was $18.2 million or $0.021 cents per share.

Free cash flow was $20.8 million during the quarter, resulting in 67% free cash flow conversion and demonstrating our solid cash generation, as we execute towards sustainable profitable growth. As of September 30, we had approximately $96 million of cash on the balance sheet, with access to $250 million of undrawn revolver capacity for a total liquidity amount of $346 million.

Repay's net leverage was approximately 2.5 times.

During the third quarter, we opportunistically reduced debt outstanding by retiring $74 million of our 2026 convertible notes at a discount principal value. Total outstanding debt of $434 million is comprised of $147 million convertible note due in February 2026, with a 0% coupon; and a $288 million convertible note due in 2029 with a 2.875% coupon.

In addition, as the company previously announced, Repay reduced outstanding shares by repurchasing approximately 3.1 million shares for $15.6 million in August. We repurchased a total of $38 million and 7.9 million shares year to date. reducing fully diluted shares outstanding by approximately 8%. As of September 30, we had approximately 92 million shares outstanding, with $23 million remaining under our existing share repurchase program.

As we move into the fourth quarter, we're refining our financial outlook. In Q4, we now expect 6% to 8% normalized gross profit growth and free cash flow conversion to be greater than 50%. Our updated outlook reflects the normalized growth that Repay can sustainably achieve, as we benefit from secular digital payment tailwinds, growth from existing clients, and the ramp of new clients onto our platform.

Our go-to-market and sales pipeline remains robust, which will continue to lead to solid volume and revenue growth opportunities. However, normalized growth profit growth is expected to be towards high-single digits, which is at the low end of the previously issued growth outlook due to ongoing margin pressures we saw during Q3. Going forward, we expect gross profit growth to be impacted from an increasing mix of larger clients with volume discounts and pricing, an increased mix of ACH and check volumes, and higher overall transaction values.

Additionally, the Q4 growth outlook naturally benefits from fully lapping the one-off client losses from 2024. The Q4 normalized growth would be closer to the lower end of the updated range, if we didn't experience this benefit during Q4.

As a reminder: Our reported financials will be lapping strong political media contributions, causing an approximate 10% impact to Repay Q4 reported growth.

The updated Q4 free cash flow conversion outlook is expected to be above 50% compared to prior outlook of 60% due to the timing of net working capital.

For the remainder of 2025, our capital allocation priorities remain focused on: organic growth investments, managing CapEx as a percentage of revenue, maintaining a strong balance sheet with liquidity and incremental cash generation to address the remaining February 2026 convertible notes at maturity.

We plan to use cash on hand to further reduce a portion of our outstanding debt, while also using our revolving credit facility for the remaining balance at maturity.

Under our current share buyback authorization, we are able to opportunistically repurchase shares.

In addition, we continue to be open to M&A to further accelerate Repay's position and growth potential.

Over the next few months, I look forward to building my first 100 days, as we begin the budget process for next year. We plan to provide details related to our 2026 outlook and capital allocation strategy on our next earnings call in early 2026.

Until then, I'm eager to meet with all of our shareholders and analysts, while I continue to execute towards our updated Q4 outlook.

Thank you. I'll now turn the call over to the operator to take your questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Peter Heckman, D.A. Davidson.

Hey. Good afternoon. Thanks for taking the question.

In terms of the free cash flow outlook, how do you see that trending into 2026? We've seen fairly strong or fairly high free cash flow conversion in some years and off in some years. But I think your updated guidance is now greater than 50% for 2025. Best guesses for 2026, how are you positioning that?

Hi, Pete. It's Rob. Thanks for the question.

Yeah. I can lay out how we're thinking about it for Q4. We're going to give 2026 guidance in the next earnings call.

But we're rolling. We'd expect to be in the upper 50%s in Q4. It's really due to, just, working capital timing. We had a 67% free cash flow conversion in Q3, which was pretty strong. But as we talk about working capital and some of the margin compression that we laid out on this call, we're holding around the upper 50%. I would model it that as our exit rate going into '26.

Okay. That's helpful. And then, just, can you remind us, it may be in the appendix of the slide deck but just the specific political media spend headwind from the fourth quarter of last year?

Yeah. The headwind we had in fourth quarter last year was $4.6 million of gross profit for fourth quarter of last year. On an annual basis, the political media was around $11.75 million for fall '24.

Okay. On a gross profit basis. Got it. All right. I'll get back in the queue. Appreciate it.

Yeah. No problem.

(Operator Instructions)

Tim Chiodo, UBS.

Great. Thank you for taking the question.

I was hoping you could expand a little bit upon -- within the B2B business, the Visa Commercial Enhanced Data Program, the CEVT, that's been rolling out this year. Talk a little bit about the various data requirements; maybe how they differ from the prior Level 2, Level 3 requirements; what you think this might mean for overall B2B interchange for some of the puts-and-takes there; and, of course, there's a slightly higher network fee associated with it, as well.

We would appreciate any of the context on your business; and for the industry, overall.

Hi, Tim. Good evening. How are you? This is John.

Specifically, was your question on the B2B side? Was it associated with the AP side or the AR side? You may have not been specific. I'll talk a little bit about that. It's a very detailed question, as well, so I would not go so deep.

On the AR side, it might be slightly lower interchange. On the AP side, might be slightly lower, as well.

So I was just wondering -- both is the short answer. But, really, I was hoping you could talk about what the requirement changes are; if there's anything you need to do differently on the AR side; and then, what it might mean, in terms of the interchange rates that you might earn on the AP side; and then, also, there's that little extra network fee, I believe, as well.

Yeah. I'll start on the – ultimately, it's Level 2, 3. Level 2, itself, is going to be going away. That's really talking about the enriched data coming out of the invoices; coming, really, from the – mostly from the accounting ERP systems.

There's several different requirements there to go through that. Those have to be passed through with the transaction to qualify for the Level 3 rates.

The Level 3 rates, themselves, are a little bit better. But with the Level 2 rates, you have to now add some additional incremental pieces of data to that to qualify for the Level 3 rates.

We obviously are very aware of that. This is really associated with Visa. Those requirements -- or, actually, Visa is fine-tuning some of those things uniquely. This will come out, ultimately, in the next spring. But they're doing testing with many of those things today.

And so we're working through that. Our ability to pull data, our embedded solutions, is a positive thing for us; meaning, like, we have the ability to be able to go and work with our ERP systems to achieve that.

But it's a working process for most, everybody, in the industry, as those are a few changes that have come about.

On the AP side, obviously, we have virtual cards that can be Visa or MasterCard. We would look to optimize what's best in our favor on the AP side for it. In that case, we're receiving interchange on the AP side. So we would optimize what's the best rate for us there.

Understood. All right. Thank you so much.

(Operator Instructions)

James Fawcett, Morgan Stanley.

Hi. This is Shefali Tamaskar, on for James. Thanks for taking my question.

Just on Consumer Payments, in the presentation, you called out some pockets of consumer softness. Could you speak to what subverticals you're seeing this in most; and what trends have looked like through early November, if possible?

Sure. Good evening, Shefali.

From an overall perspective, on the Consumer side, we would consider a stable consumer on the marketplace. Obviously, we're not the actual -- those are not actually our end customers. Our customers are businesses. But we consider a stable consumer.

And then, softness-wise, we've talked about previously that we saw some softness in the automotive, the used car piece of that. We think that's still relatively in the same position there. That would be consistent with what we've seen previously. We see that consistently the same now.

Great. That's helpful. And then, you mentioned, also, being open to M&A as you look ahead to 2026. So I just wanted to hear about what potential targets look most interesting to you, in terms of where you're seeing most subvertical momentum across Business Payments and Consumer Payments.

I know you've previously called out B2B being the more focused point for M&A. But curious how the pipeline looks today.

Sure. A couple of things. As we mentioned earlier on the call, we actually bought back up to 8% of the stock in the July-August timeframes. And then, we actually, as you heard as well, retired $73.5 million of our February convertible debt. That's still a priority for us, from a capital allocation perspective, addressing our February maturity, which we expect to do.

But, from an M&A pipeline perspective, we do see a healthy pipeline of some activity in the marketplace. We are going to obviously always pay attention to opportunistically where that is.

We see that both in consumer and B2B.

Just for clarification: We bought 3% in August; 8% year to date. Just wanted to give that clarification when we bought back stock.

Got it. Thank you.

Alex Neumann, Stehens Inc..

Hi. Thanks for taking the question.

I just wanted to double click on the nature of the network and capital. It's leading to the lower of the free cash flow conversion. Thank you.

Yeah. Hi. How you doing, Alex? This is Rob.

It's really just when we snap the line on working capital. Like I said, we've been generating pretty good free cash flow conversion at 67% in the quarter. The guide, slightly down from what we had in Q4 previously at 60% to above 50%, is literally just timing of when we snapped the chalk line on working capital for the year, as well as the compression that we talked about for going upmarket.

Some of the pay modality mix that we saw that fell through on the [GP] is probably the biggest driver to where the guide now is, above 50%.

But we continue to (multiple speakers).

No. Go ahead. Go ahead.

No. Sorry.

No. I was just going to finish that. We continue to generate free cash flow, really good free cash flow conversion.

Again, it was just really snapping the chalk line on when the working capital falls through.

Got it. And then, I know a couple quarters ago, you announced a partnership, the gateway in Canada. I was just wondering if you could update us on that partnership and how that's ramping?

We're still working through our implementation integrations there. So no major real update associated with that, currently.

Got it. Thank you.

(Operator Instructions)

As there are no further questions, I will now hand the conference over to the Co-Founder and Chief Executive Officer, John Morris, for his closing comments.

Thank you, everyone.

I do have a slight correction on our supplier count that we mentioned earlier on the call. We're exiting Q3 with 524,000 suppliers, a very good number for us. We're excited about our growth rate there.

But as I close this out, thank you for your time today. We continue to make great progress in our strategic initiatives, remaining focused on our returning to profitable, normalized growth; generating strong free cash flow; and maintaining a strong balance sheet for financial flexibility.

Thanks, again, for joining us.

Thank you. Ladies and gentlemen, the conference of Repay Holdings Corporation has now concluded. Thank you for your participation. You may now disconnect your lines