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Edited Transcript of RPAY.OQ earnings conference call or presentation 14-Aug-19 9:00pm GMT

Q2 2019 Repay Holdings Corp Earnings Call

Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Repay Holdings Corp earnings conference call or presentation Wednesday, August 14, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Morris

Repay Holdings Corporation - Co-Founder and CEO

* Tim Murphy

Repay Holdings Corporation - CFO

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Conference Call Participants

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* Bob Napoli

William Blair & Company - Analyst

* Craig Maurer

AllianceBernstein - Analyst

* Mark Palmer

BTIG - Analyst

* Andrew Jeffrey

SunTrust Robinson Humphrey - Analyst

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Presentation

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Operator [1]

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Welcome to today's conference call being hosted by REPAY. 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 some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results. Actual results might differ materially from any forward-looking statement that we make today. The 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.

With respect to any non-GAAP financial measures mentioned during the call today, the Company -- reconciliation information relating to those measures can be found in the corresponding earnings release on the Company's IR site.

I would now like to turn the call over to Mr. Morris. Please go ahead.

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [2]

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Thank you, operator, and good afternoon, everyone. Thank you for joining us to discuss our second-quarter results. We are pleased with our results in the quarter, which included organic volume growth of 29% and gross profit growth of 33% and adjusted EBITDA growth of 24% compared to the second quarter of 2018. We are also pleased to announce the acquisition of TriSource Solutions, which I will discuss in more detail in a few moments.

Tim will go over our results later in the call, but since this is our first quarterly earnings call, I thought it would be helpful to briefly review our business model and growth strategies.

As most of you know, REPAY is a rapidly growing omni-channel payment technology provider. We are modernizing and enabling electronic payment acceptance. And today our focus is on three key markets: personal loans, automotive loans, and receivables management.

We project, by 2020, total payment volume in these markets will grow to $535 billion. These end markets have historically been underserved by payment technology and service providers, as merchants in these verticals predominantly utilize cash, check, and ACH payments. Our customers are typically the merchants that lend money, such as personal finance companies and auto lenders.

We currently serve over 11,000 merchant locations, and contracts with our customers often have a duration of three years with a three-year renewal. Volume retention was approximately 97% in the year to date as of June 30, 2019, and the average tenure for our top 10 clients is approximately 4 years.

Our customers use our technology solutions to process the payments they receive from their borrowers. Our platform provides an attractive value proposition to both the merchants and the borrowers, driving strong client growth and penetration. Merchants experience an accelerated payment cycle through debit card processing, allowing them to lend more, lend faster, and accept payments 24/7.

The merchants' customers also see real value as the can pay any time, anywhere. They can pay by debit card, credit card, or ACH 24/7 via web, mobile, IVR, and text. We solve an important pain point for these borrowers by providing them a real-time confirmation that a payment has been made, which limits the risk of ancillary fees like NSF. A debit card transaction provides a real-time authorization from the bank account.

We own our own gateway which we built with our own technology. Our software vendor partners in card association relationships help us drive volume in the attractive underpenetrated markets we serve. And our relationships with leading payment processors and our proprietary sponsor bank partnerships ensure quick and efficient back-end processing, which further differentiates the REPAY value proposition for our customers.

Additionally, the proprietary technology we have deployed as well as our compliance and regulatory expertise provide key functionality that makes us an attractive partner to software integrators, as evidenced by the host of new integrations since 2014.

Our robust technology solutions offers tokenization, reoccurring billing, account billing, customer reports, web hooks, PCI DSS compliance, card vault, and replay. These features are critical to creating differentiated products. REPAY's proprietary technology is built on a modern framework that allows for increased connectivity and creates a fully integrated platform.

Several distinct components of our technology include cloud-based architecture, a proprietary gateway, tokenization, application programming interfaces, agile software development, customized reporting, and a network of integrated third-party providers. We customize these technologies to seamlessly integrate with our clients' enterprise management systems and develop a proprietary payment solution to provide customers with a quick, convenient payment method that allows our clients to efficiently conduct transactions.

We think about our growth in five categories with two buckets. The first growth bucket includes three categories focused on executing and expanding our existing business. The first growth category in this bucket is expanding usage and increasing adoption within our current client base. This is our primary growth driver, as we expect a majority of our growth to come from existing customers.

The second growth category in this bucket is to acquire clients in existing verticals by leveraging our sales and marketing efforts to convert our near-term pipeline. We leverage a direct salesforce and a vertically tiered sales strategy to drive our new client acquisition. Our sales model is structured by vertical and by production tier. And the more significant the client in terms of the opportunity, the more high touch the sales approach.

We're also successfully integrated into many top software providers. We have grown our software vendor integrations over time and have a pipeline that we're currently in discussions to integrate.

In Q2, we added two new software providers for a total of 56. Software integrations are invaluable to our business; they enable our direct salesforce to more easily access new client opportunities and respond to inbound leads. These integrations allow us for a seamless onboarding ramp for our new customers, giving us a significant advantage in customer acquisition.

The third growth category is to continue to find operational efficiencies. As the business continues to scale, we expect to become increasingly efficient with higher gross margins.

The second growth bucket is broadening our addressable market through both expansion into new verticals and geographies, as well as strategic M&A.

The fourth growth category is to leverage our platform and capabilities to expand into new market verticals. Areas we are pursuing include healthcare, B2B, and credit unions. In addition, we are pursuing geographical expansion, and in the second quarter we entered into Canada. We have several existing clients with a presence in the US and Canada, so it was a natural and strategic step.

I should mention that we are excited about our announcement this week that we have partnered with Visa in Canada to accelerate debit acceptance in that market, as we have been doing in the US for many years. In addition, after a successful launch in the US, we announced the launch of our instant funding product in Canada, which is enabled by Visa Direct.

The fifth growth category is to identify attractive M&A opportunities, executing and then effectively integrating these businesses and solutions onto our platform. We expect to consider additional acquisitions as we grow with a dedicated internal team managing a robust M&A pipeline of payment and software companies.

Speaking of M&A, today we also announced the acquisition of TriSource Solutions, our first acquisition as a public company. TriSource was founded in 2007 and it provides back-end transaction processing services to independent sales organizations and operates as a direct ISO on behalf of its own portfolios and external sales agents. The company is headquartered in Bettendorf, Iowa, with an additional office in East Moline, Illinois.

Tim will go over the transaction details in a few minutes, but first I wanted to spend some time discussing the strategic rationale.

Currently we use TriSource for back-end settlement solutions when we facilitate transactions as a merchant [acquirer]. Acquiring TriSource will enable us to build more intelligent payment solutions and bring these solutions to our customers faster. Additionally, we see strong organic growth in TriSource's back-end settlement business as our long partnership with TriSource, which dates back to 2012, has convinced us of the company's inherent value proposition. We're looking forward to leveraging TriSource's capabilities to drive continued growth.

Further, this acquisition enhances our M&A strategy, as having our own back-end transaction processing capabilities will allow us to reduce future targets' transaction processing cost and expedite our synergy [at] realization efforts. The TriSource acquisition will be immediately and meaningfully accretive to earnings. We are thrilled to welcome the TriSource team to the REPAY family.

Finally, I wanted to talk about our recent business combination with Thunder Bridge. On July 11, we completed the combination; and our common stock began trading on the NASDAQ stock market under the ticker symbol RPAY on July 12, 2019.

We believe that operating as a public company will enhance REPAY's visibility and profile; and, ultimately, our ability to grow and scale our business. Because as a public company, we will have the ability to access the public markets' capital and a currency for future strategic acquisitions like TriSource.

While the transaction provides partial liquidity to REPAY's existing shareholders, it results in significant continued ownership as we continue to execute on our long-term growth strategy.

Finally, in connection with the business combination, we expanded our Board of Directors to include several new independent directors with decades worth of experience, and has already proven to be very valuable to us.

We're incredibly grateful for all the hard work our team members did throughout this process and would like to take this time to welcome our new shareholders and thank them for their support.

I will now turn the call over to Tim to discuss Q2 results and guidance. Tim?

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Tim Murphy, Repay Holdings Corporation - CFO [3]

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Thanks, John. REPAY has a strong financial profile with highly visible and recurring volume growth, strong margins, and a high free cash flow conversion, which gives us the flexibility to strategically deploy capital to drive shareholder value. Our growth during the quarter compared to the comparable prior-year quarter was organic, and driven by expanding usage and increasing adoption within our current client base.

You'll notice Q2 results were down sequentially when compared to Q1, which is the result of seasonal fluctuations in consumer spending patterns. Volumes and revenues during the first quarter of the calendar year tend to increase in comparison to the remaining three quarters of the calendar year on a same-store basis. This increase is due to consumers' receipt of tax refunds and the increases in repayment activity levels that follow.

Now, onto Q2 results. Card payment volume was $2.2 billion, an increase of 27% over the prior year's second quarter. Total revenue was $36.2 million, an increase of 17% over the prior year's second quarter. Processing and service fees were $22.6 million, an increase of 16% over the prior year's second quarter.

Moving on to expense. Interchange and network fees were $13.6 million compared to $11.5 million in the second quarter of 2018. The increase was primarily due to increased card payment volume, which leads to higher interchange and network fees. Other cost of services were $5.6 million compared to $6.8 million in the second quarter of 2018. The decrease was due to ongoing dialogue with our vendors on securing more favorable terms as we continue to grow volume together.

Gross profit was $17.1 million, an increase of 33% over the prior year's second quarter. As mentioned previously, this is a key metric for us, as this is how we price new customer deals; and our sales team incentive structure is based on gross profit. We continue to experience expanding gross profit margins versus prior years.

SG&A was $8.4 million compared to $5.3 million in the second quarter of 2018. The increase was primarily due to increased headcount focused on technology and sales. The second quarter of 2019 also includes increased transaction costs related to the business combination with Thunder Bridge.

Second-quarter net income was $4.2 million compared to $4.5 million in the second quarter of 2018. Second-quarter adjusted net income was $7.8 million compared to $6.1 million in the second quarter of 2018.

Lastly, second-quarter adjusted EBITDA was $10.4 million, an increase of 24% over the prior year's second quarter. Second-quarter adjusted EBITDA as a percentage of processing and service fees was 46% compared to 43% in the prior year's second-quarter.

As you all know, on July 11, we completed our business combination with Thunder Bridge. In addition, we raised a new $230 million senior secured credit facility which consists of a five-year $170 million term loan facility, a five-year $40 million delayed draw term loan facility, and a five-year $20 million revolving credit facility.

And as John mentioned, today we announced the acquisition of TriSource for up to $65 million. $60 million will be paid at closing and up to $5 million is structured as a performance-based earnout. The acquisition will be financed with a combination of cash on hand and committed borrowing capacity under REPAY's existing credit facility. Combined net leverage is expected to be approximately 3.5 times on a post-transaction basis.

Now moving on to our 2019 guidance. For the remainder of 2019, TriSource is expected to contribute between $8 million and $10 million in revenue, adjusted for intercompany revenues between REPAY and TriSource; and between $2.25 million and $2.75 million in adjusted EBITDA.

We now expect the following for full-year 2019, which includes expected contributions from TriSource.

Card payment volume is anticipated to be between $9.6 billion and $9.75 billion. The expected increase is due to the addition of TriSource as well as strong [dealer day] trends. Total revenue is anticipated to be between $157 million and $162 million. The increase is due to the addition of TriSource, which is expected to offset the lower take rates we have been experiencing in our auto vertical, which is growing. The auto market generally has slightly lower take rates, but is a very large volume opportunity.

We continue to expect to see strong gross profit and adjusted EBITDA growth due to the ongoing reduction of other processing costs, as well as the added benefit from the TriSource acquisition. Gross profit is expected to be between $74 million and $76 million. And adjusted EBITDA is expected to be between $45.3 million and $46.8 million in 2019.

I also wanted to briefly give you an update on our share count. We have a total of approximately 61.1 million shares outstanding. At the time of the closing of the business combination, approximately 5.2 million shares was subject to vesting criteria or held in escrow, which resulted in approximately 55.5 million shares that were not subject to such criteria at closing.

Since closing, escrow release criteria has been satisfied with respect to 1,482,500 shares due to the stock price being at or over $11.50 on any 20 trading days during any 30-day period. In addition, an aggregate amount of approximately 460,000 restricted shares have been granted to certain employees. Therefore, as a result of these updates, we now have approximately 57 million shares that are not subject to vesting criteria for held in escrow.

We posted an updated investor presentation to our IR site, which has a slide that lays out our share count.

I will now turn the call back over to the operator to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions). Bob Napoli, William Blair.

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Bob Napoli, William Blair & Company - Analyst [2]

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Welcome to your first call as a public company. Congratulations on getting your deal done. The TriSource deal, just a -- is that deal closed today?

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Tim Murphy, Repay Holdings Corporation - CFO [3]

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It is announced today, Bob.

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Bob Napoli, William Blair & Company - Analyst [4]

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Okay. And when do you expect it to close?

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Tim Murphy, Repay Holdings Corporation - CFO [5]

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It closed yesterday and was announced today.

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Bob Napoli, William Blair & Company - Analyst [6]

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Oh, okay. Okay, very good. And what are the full-year numbers for TriSource? What would be a run rate?

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Tim Murphy, Repay Holdings Corporation - CFO [7]

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What we've published is a run rate adjusted EBITDA of $7 million.

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Bob Napoli, William Blair & Company - Analyst [8]

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Okay. That's an annualized run rate of $7 million. And then what is the growth rate of that company? And what kind of synergies? How accretive is this? I guess it reduces your processing costs.

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Tim Murphy, Repay Holdings Corporation - CFO [9]

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Yes, it's -- the growth rate is actually similar to our top-line growth rate, so probably mid to high teens. And we've -- we're in the process of starting to identify synergies. As you said, we think that a natural synergy would be for our go-forward growth in volume -- we would not have any processing costs, but we're continuing to evaluate that.

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Bob Napoli, William Blair & Company - Analyst [10]

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Okay. And what are your processing -- can you quantify that a little bit?

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [11]

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Well, we're still evaluating, Bob. Good afternoon, this is John.

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Bob Napoli, William Blair & Company - Analyst [12]

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Okay.

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [13]

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We're still evaluating where we think we -- I think, as I said earlier, the target -- as we target new acquisitions, we think that's going to be a great opportunity for us to gain some synergies for -- these are just back-end costs. So we don't break our processing costs out between back-end/front-end, which is why we're not give -- able to disclose that today.

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Bob Napoli, William Blair & Company - Analyst [14]

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Right, okay.

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [15]

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And then we think as well -- we think there's opportunity, as we continue to organically grow our volume, which we've been able to do, we think there's some synergy associated with new organic volume growth.

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Bob Napoli, William Blair & Company - Analyst [16]

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Great. And then just the business, the trends -- are the organic trends in line with your expectations? And what is -- excluding TriSource, what is the right organic top-line and EBITDA growth rate for this Company, do you feel, over the next -- say, over the next 3 to 5 years?

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Tim Murphy, Repay Holdings Corporation - CFO [17]

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Yes, I'd say for top line, it's probably mid to high teens. We've been experiencing growth in the high teens, and we expect that -- we can continue with strong growth for top line. And then for adjusted EBITDA, I would say the high teens. We've been at around 20%. As you've seen, in the quarter and the first half of the year we were above 20% growth for adjusted EBITDA; but I'd say, longer term, it's probably high teens.

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Bob Napoli, William Blair & Company - Analyst [18]

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Great. And just last question and I'll turn it over, is that -- the opportunity in Canada. Are you doing -- you're doing some business in Canada today? And how do you size that market opportunity?

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [19]

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Sure. Yes, we currently just entered Canada this year, so it's a brand-new market. And we have -- we entered there because we have some existing customers who have a large presence there, so it made a lot of sense for us to do that. We see a similar opportunity, as I mentioned earlier, that we see in the States, where we can be -- build an entire -- our technology around the loan repayment space. That's new into the card-not-present space in Canada. So it will take us a little while to organically grow that. And we may see some opportunities, on a non-organic perspective, as we enter into Canada.

But it'll be -- as we grow organically, it will be slow for us, but we have some good opportunities there. We're excited about that. We think our new instant funding product will also enhance the offering as well. We see positive demand there, and we're live in Canada today.

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Bob Napoli, William Blair & Company - Analyst [20]

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Great. Thank you, appreciate it.

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Operator [21]

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Craig Maurer, AllianceBernstein.

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Craig Maurer, AllianceBernstein - Analyst [22]

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Wanted to ask about potential impacts from RTP on your business. Whether the stand-up of new RTP networks could take the place of debit rails, lowering profitability; and whether or not Mastercard's deal -- the previous deal with Transactis and enhancing that with the acquisition of Nets and their omni-billing platform is a threat to your business. Thanks.

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [23]

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Yes, thanks for the question. So first, the new Fed network, most likely it will be 3 to 5 years out, and we don't view this as a threat. We think this confirms what we've been saying about our secular shift from cash, check, and ACH and that we're experiencing.

We currently deliver payment technology that pushes funds in a real-time way by the Visa Direct and the Mastercard money send networks. This particular network will be a push credit transaction. So we are currently also -- we pull funds via the debit networks in a real-time basis, which is a large part of our volume is. Our software is heavily integrated to the payment flows of our customers and their LMSes. And most of our transactions are set up for automatic reoccurring debits, so those are pull transactions.

And we find that the consumer likes to set things up and automatically have them happen; most do not like to think about paying their car payment every month. So we find that to be a positive part of our technology experience for our customers' customers.

The new real-time system, as I say, is a push transaction. I personally think that this new network will be attractive to the B2B space. And I think there's some positive opportunities there, as that vertical begins to expand and adopt new technology.

And, finally, we will always provide the best payment technology solutions to our clients. And if this becomes a great network, then obviously we will always make great technology available to our merchants.

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Craig Maurer, AllianceBernstein - Analyst [24]

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Thank you.

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Operator [25]

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Mark Palmer, BTIG.

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Mark Palmer, BTIG - Analyst [26]

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Congratulations on your first quarterly earnings report. With regard to M&A, wanted to get a sense of what the pipeline looks like for additional M&A, particularly in the areas that you'd identified previously, particularly healthcare, recreational vehicle finance, and credit unions.

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [27]

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Yes, sure. So we have our own in-house M&A team who has built an organic pipeline of deals -- deal flow that we've been looking at. We think that that is an active pipeline. We think that is an actionable pipeline. If we choose to find specifically deals that are strategic to us, the opportunities you're talking about, there are some in that area. I would add B2B to that as a vertical, as well, that we think is attractive out there.

We don't forecast acquisitions. We are growing organically and don't necessarily have the requirement to do acquisitions, necessarily. But we do think there's a great opportunity in the marketplace for the right opportunities with some great technology that we can add our technology to that we think could be growing. We're putting the pieces in place to be able to establish a good platform to continue to scale to that. So we do see some opportunities out there.

If we were to be looking at the rest of the year, if we did something, it may be something on a smaller scale. But again, we will only look at deals that are actively enclosed deals that we think are -- create great shareholder value. Our history shows that we typically look at things in the single-digit figures from a multiple perspective. So we will continue to try to be disciplined in our approach and very balanced.

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Tim Murphy, Repay Holdings Corporation - CFO [28]

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And I'd add to that, too, that as we -- as John touched on earlier, this TriSource acquisition really helps enhance our M&A strategy. We think that having our own back-end platform can really make some of these acquisition opportunities more attractive and provide synergy opportunities and realization that we didn't have previously.

So we think TriSource, in addition to just allowing us to control our back end, and allowing us to enhance our technology, provides real value for our M&A strategy.

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Operator [29]

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Andrew Jeffrey, SunTrust.

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Andrew Jeffrey, SunTrust Robinson Humphrey - Analyst [30]

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John, I wonder if you can elaborate a little bit more on TriSource. Can you talk about other verticals or other processors for which it processes? And what's the mix of the business -- is today?

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [31]

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So from a TriSource perspective, it is predominantly a back-end processor. They have their own direct business; but it's predominantly processing business, which we like and we want to continue to grow and enhance the technology around that and expand that as that grows. But it is -- of a majority, I guess maybe 70%-plus processing business.

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Andrew Jeffrey, SunTrust Robinson Humphrey - Analyst [32]

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Right. Is it (multiple speakers)?

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [33]

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When I say processing, it would be processing like just like they process for us, our back-end settlement.

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Andrew Jeffrey, SunTrust Robinson Humphrey - Analyst [34]

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Right. I guess I'm just wondering, how big a customer REPAY is of TriSource, and for what other front-end platforms it might be processing.

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [35]

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Yes, so we are at least 25% from a customer size for them. And then from a front-end perspective, they have two or three different front ends that they take files from. They are not a front-end processor themselves.

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Andrew Jeffrey, SunTrust Robinson Humphrey - Analyst [36]

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Right, okay. Right, so [about] 25%. And then I wonder, so much value like with REPAY -- in REPAY's case is being created at the front end. Could you elaborate a little bit on the types of -- if not specific products, the kinds of benefits or value add (technical difficulty) bring to market by virtue of now being more vertically integrated or integrated front-to-back?

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [37]

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Sure. So, remember, our customers are financial institutions that are non-banks. So they need a third-party processor to actually take payments. They are not banks themselves. So the need for to just the movement and the taking of payments. We -- in addition to that, we're delivering the whole financial technology experience there from a PCI perspective.

But we also -- if they are using our bill presentment engine, they would just be white labeling our bill presentment engine to take a Web payment. They would be using our IVR system to take a payment over an IVR. They would also be using maybe our mobile app or -- and they were integrated into their entire loan management system from an overall cashless perspective, settling of their funds.

So we see the whole, total integration being a huge value add for them. Our technology adds a lot of value there; it's kind of the moat around our business.

And as you can imagine, the more channels they begin to use, the more they enhance the consumer experiences to them. We're bringing them the kind of cutting-edge technology to enhance their overall payment experience for their end customer, which was the borrower in many cases.

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Andrew Jeffrey, SunTrust Robinson Humphrey - Analyst [38]

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Okay. I look forward to learning more. And just one last one if I could squeeze it in here, is you mentioned maybe a little mix affecting yield. And auto's obviously a huge market opportunity. Is there the potential that's not captured by your guidance for a big customer, like a captive, to come on from an absolute dollar volume perspective? Or did you -- does your guidance reflect all the significant onboarding that you are going to do this year?

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Tim Murphy, Repay Holdings Corporation - CFO [39]

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I think there is an opportunity. We are in discussions with some of those. Those tend to take a little bit longer because they're typically RFP processes, but we are in discussions with some of the captives. I wouldn't say is fully baked into the numbers, but -- just because of the timing and how long that can take to complete and roll out. But that is part of our -- those are part of our discussion. It is part of our pipeline, but it could be -- lead to a little bit of upside.

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Andrew Jeffrey, SunTrust Robinson Humphrey - Analyst [40]

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Thanks. Much appreciated.

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Operator [41]

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Mike Grondahl, Northland Securities.

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Unidentified Analyst [42]

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This is Owen in for Mike. I'm just wondering how the trends were in the personal loans and auto loans segments.

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Tim Murphy, Repay Holdings Corporation - CFO [43]

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Yes. Personal loans continues to be our -- we've been in that space the longest, so it continues to be the largest part of our mix, and it's still strong. We still have a lot of our organic growth and same-store sales growth with existing customers. But as we've been discussing, we are focusing our sales efforts on auto, and we have seen more of our volume growth coming from the auto space.

We still think it's an enormous opportunity. We have a very large market to address, and it's where we're focusing our efforts. So trends are still very strong in both personal loans and auto, but we are still focused on growing the auto space.

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Unidentified Analyst [44]

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Great. And a follow up: what is the outlook for signing up integrated partners?

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Tim Murphy, Repay Holdings Corporation - CFO [45]

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Well, we added two this quarter, as John mentioned, so we're at 56 now. We probably want to do 1 to 3 a quarter, I would say is a good estimate. And so we've been in that range now for the first half of 2019.

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Unidentified Analyst [46]

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All right, great. Thank you.

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Operator [47]

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Bob Napoli, William Blair.

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Bob Napoli, William Blair & Company - Analyst [48]

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Just wanted to follow up on the balance sheet. With the M&A pipeline that you have, and your leverage at 3.5, what are you willing to take the leverage up to? And how quickly do you deleverage? How much dry powder do you have? I mean, this looks like -- in the TriSource looks like a perfect fit for you guys, but just a little more color on the balance sheet would be helpful.

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Tim Murphy, Repay Holdings Corporation - CFO [49]

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Yes, absolutely. So, we agree; it was very strategic for us. And as I mentioned, we expect a combined net leverage to be about 3.5 times. We have about $60 million of capacity between cash and our credit facilities. And so, as John said, if we were to do another acquisition this year, it may not need to be on the smaller side. If we were going to do a larger acquisition, we'd probably need to access public currency. So we really want to try and stay in that 3.5 times range and not stretch too far beyond that.

But we're buying businesses with EBITDA, and we're buying businesses that are growing very quickly. And we, ourselves, organically, are growing very quickly. So we feel like we would delever down probably below 3.25 times to 3 times quickly within call it 6 to 12 months, which is what we've historically done. And so that would give us additional capacity for acquisitions.

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Bob Napoli, William Blair & Company - Analyst [50]

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Thanks. And then on TriSource, their customer base, is there any risk of losing customers? Do you have any -- are there any significant customers that are competitors of yours?

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [51]

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No, there's not any significant customers that are competitors. Obviously we are their largest customer, so we feel good about that.

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Bob Napoli, William Blair & Company - Analyst [52]

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And then you had talked about the healthcare market as a potential sector. Are you making any progress on the healthcare space?

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John Morris, Repay Holdings Corporation - Co-Founder and CEO [53]

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Yes, we're organically growing there. And healthcare, to us (technical difficulty) to us is -- we look at that as the revenue cycle management part of that. So for example, the outsourcing of, say, receivables for like a hospital or --.

So that's something we're still getting some traction in. We're just organically going there. Some of it takes some time with some integrations. We see some positive signs there. That will take a little while. It's usually a bit longer sales cycle, but we still see a very viable vertical for us and will continue to invest there.

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Bob Napoli, William Blair & Company - Analyst [54]

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Thank you. Appreciate it.

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Operator [55]

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Ladies and gentlemen, we have reached the end of the question-and-answer session, and this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.