Welcome to today's Earnings 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 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 statements that we make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them except as required by law. In an effort to provide additional information to investors, today's discussion will also include references to certain non-GAAP financial measures. An explanation of these non-GAAP financial measures, as well as a reconciliation of these non-GAAP measures to the nearest GAAP financial measures can be found in our earnings release available in the company's IR site. I would now like to turn the call over to Mr. Morris. Please go ahead.

Thank you, operator, and good afternoon everyone. We know that COVID-19 is top of mind right now, so we wanted to begin with a few preliminary thoughts on the virus and how it may impact our business. First, the health and wellbeing of our employees, customers, partners, investors and analysts, is always on our minds. We hope everyone is staying healthy and safe during these difficult and challenging times. Second, as we all know, recent world events are unprecedented. While we don't have complete visibility into future developments, we are monitoring the situation closely. We believe that our diverse merchant base and the resilience of the verticals we serve, as well as the secular shift to the more innovative and integrated payment solutions in which we specialize, provide us with unique characteristics that should help insulate us in any type of macro environment. Just a few thoughts regarding our loan repayment business. A large majority of the payments we facilitate are non-discretionary financial obligations that are recurring in nature, such as auto loan payments. These types of payments are usually set up to be automatically paid and are still very necessary even in an economic downturn. Payment volumes could be adversely impacted in the recession if consumer credit were to tighten. However, this would likely be somewhat offset by additional lending to higher [FICO] score consumers drifting into the non-prime segment. Additionally, we think debit card penetration would accelerate in this type of environment. And then with respect to our B2B business, these types of payments were also not discretionary. These are businesses that need to pay each other for services and goods rendered. This world continues to remain right for digitalization in real time and we have the full suite of payment solutions to enable that experience. Today, we…

Thank you, John. Before I dive into our financial results, I wanted to highlight that the company has adopted a new revenue recognition standard ASC Topic 606 via the modified retrospective method of adoption. The adoption of ASC 606 resulted in presentation changes in our statements of income with revenues and expenses presented net of interchange network and other fees in accordance with Topic 606. Under this method, 2018 results are not restated. To further clarify, in addition to now showing revenue after interchange and network fees, another change resulting from the adoption of 606 was to reduce revenue by certain other processing related fees of $3.6 million for full year '19. While there was no impact to gross profit or earnings due to the adoption of 606, this change to other processing related fees resulted in full year '19 gross margins increasing by approximately 250 basis points. Please refer to Slide 6 of the Q4 earnings supplement for additional details. Now let's move on to our solid Q4 and full year financial results before I review our outlook for 2020. Repay delivered another strong quarter across all of our key metrics, leading us to exceed or hit the high end of our targets initially laid out in 2019. For the full year as compared to 2018, card payment volume increased 44%, total revenue on a combined basis, excluding the impact of 606, increased 28%, gross profit grew 43% and adjusted EBITDA increased 32%. Organically, we also had a very productive year, reporting 29% organic gross profit growth compared to 2018. For the fourth quarter, card payment volume was $3.4 billion, an increase of 72% over the prior year's fourth quarter. Total revenue excluding the impact of 606 on a combined basis was $49.3 million, an increase of 45% over…

Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Andrew Jeffrey of Suntrust. Please proceed with your questions.

Certainly, appreciate you taking the question. Good results in a tough environment for sure. Couple of things, I guess I'm thinking about B2B for starters. I know it's a relatively small business for Repay, but a big market. Could you maybe comment a little bit on what you think about the potential for what we're currently seeing as far as disruption its being a real catalyst for electronic B2B payments? It seems like that would be a pretty important lever for a lot of companies, especially in a downturn to increase efficiency of their accounts payable and receivable functions. Is that something you're sort of looking forward to? Or do you think that's more of a '21 event? But I'd love to hear high level thoughts on that.

We agree with you. We think that there's been a shift to more real time payments and electronic payments within B2B and certainly, this type of environment could accelerate that as people want to move away from checks and you know want to move to electronic payments and as you said, automated payments that are efficiently reconciled through their ERP systems. So, you know it's probably too early to say exactly how long that will take, but we think that it could certainly be accelerate to electronic, as you mentioned.

I also would mention, as we all aware of the COVID-19 situations, the fact that you really can't cut checks from home, could increase the thought process around this.

Yes, I think that's a very good point. And then good to see the roster of ISVs continue to grow at a healthy pace, which sounds like you added what maybe eight to 10 in the quarter. Are those generally along your existing verticals? Are they concentrated in one vertical market and other, you know auto versus personal. Just a sense of how we might expect ISV partnerships, how they've grown and how we expect them to grow going forward?

So we added 11 in the quarter, four were organic and seven came from the APS acquisition. So we ended with 70. And so of the four, I believe fewer in credit unions, one was in personal loans and I believe one was in auto and then the other seven would be in B2B.

Our next question comes from the line of Bob Napoli of William Blair. Please proceed with your question.

I'm sorry I’m juggling two calls, so I apologize if this was brought up in the initial comments. Just in your guidance, I mean, how are you as far as we progress through the year, what are you seeing like minute-to-minute from the effects of the virus on the business and what are you hearing from your customers?

So we have been reaching out to our customers regularly. And so far what we're hearing is that they have a real need for remote payments. They're looking for more ways to accept payments that are not coming through the store and not coming through cash. And so they're asking us about how they can adopt to our different payment methods and channels. We've also recently seen a slight uptake in demand for our instant funding product, so we can instantly fund a loan to the debit card versus having to hand someone cash in our physical branch location. So we're hearing that our tools seem to have meet the needs of our merchants in this environment, but obviously it's rapidly evolving and so it's just something like you mentioned that we're monitoring throughout each day. And in terms of how we think about our outlook, we've taken into account all the inputs and information we have available to us and factor that in. So that's what we hear from our customers.

I mean, I would imagine that some of your customers are looking at getting deferrals to come to, have you had discussions? I mean, I'm not sure if you see that right away. But are you seeing and maybe it's too early, every day seems like a month these days. But are you seeing -- so you haven't seen any change in trend? You feel like your penetration rate is going up, offsetting any -- some potential decline in payments?

Like you said, it's fast moving but we're seeing just additional need for our products and additional demand. We have not seen any specific incidents of referrals or deferrals, excuse me. We're just really seeing customers trying to figure out how they can give more options for repayment to their bars.

And then just last question on the healthcare business. What is the growth rate of that business and what is the game plan to really ramp that up?

And so that's one aspect of the Ventantex acquisition. They did mortgage servicing as well as well as B2B health care, that business was growing nicely, probably above our legacy business in the low 20% range and we think that it's a dynamic situation right now, obviously around healthcare. But the early read is that you could see increased claims, which could potentially lead to increased payment volume activity.

Our next question comes from the line of Craig Maurer of Autonomous Research. Please proceed with your question.

A quick question on auto, we're seeing commentary from certain banks suggesting that there's been a titanic shift in activity recently from new car purchases to used car purchases, considering that you guys are 100% used cars. Have you been seeing this in your business? And does this, how do you think about that for the rest of the year? Thanks.

Yes, we are seeing that. So these are financial institutions that are non-banks, so non-bank lenders and I just said we're focused on used car sales. And so, what we've been seeing is more lending activity as used car sales pickup and lot of positive commentary around that trend, so we feel good about that. As you know and as we've discussed our big focus right now is growing our auto business and then growing our B2B business and that's fits in nicely with that.

Our next question has come from the line of Mike Grondahl of Northland Capital Markets. Please proceed with your question.

Just at a high level, what are you seeing in the kind of the personal loan space and also with your credit union customers?

Personal loans, we feel good about. We feel like there's been additional adoption, like I said, as our personal lenders use more and more of the payment channels and methods, we see the use of debit cards increase where debit card penetration has gone up. That's where I was mentioned, we've seen a slight uptake in demand for the funding product given recent developments. And so we feel good about that. And then, the Jack Henry Symitar Integration is starting to show some benefits. We've gotten a couple of fairly large credit unions now through that network. And as we mentioned on the call, we've recently signed up another partner, called Correlation, which touches over 75 of the top credit unions across the country, so now starting to get some good leads from that relationship as well, and then that kind of dovetails nicely with the commentary around auto loans and potential increase in auto loan activity given the focus on used car sales.

Just to follow up, with the APS acquisition that B2B vertical that’s very large. Any update there kind of, obviously, you got the seven integrated partners you called out? But what else should we be watching there?

I would say that particular acquisition is on track. We're working through our integration work streams and that's going well. We think there's significant opportunity there. Specifically, we're on the AR side, I think we will look as we move through the spring in this particular environment and we think that there's additional opportunities for us to add some unique channel partners, as well as some integrations there. If I look longer term, our ability to possibly, as I mentioned in our release, to cross sell some of our AP automation features, as well as to build some of that out over time. So we see significant opportunity in the whole B2B vertical that we will continue to invest in over time organically and if there's an opportunity to add to that inorganically, we would look to do that.

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

Hope you guys are safe and healthy. I guess quick question, Tim, on the outlook. Could you help disaggregate, as we think about the growth rates? How much is coming from organic versus acquired? Just for clarity purposes. And then secondly, are there any qualitative sort of backdrop type of data points you could provide that informed you to come up with that guidance?

I'll point you to the earnings supplements. We actually put a bridge in the earnings supplement Slide 11, and we wanted to show you for gross profit. If we look at the midpoint of our range, you can see that's an increase of $39 million. $15 million of that is coming from organic growth and $24 is coming from growth from acquired entities. So it's total growth of 50% but it implies organic growth of about 20%. So we still feel really good about organic growth. Obviously, we're seeing a big benefit of the full year of the acquired entities, but organic is still strong and it's driven by a lot of the same factors we've been talking about, which is increasing our penetration with existing customers, increasing our software relationships which provide us access to new customers in existing verticals and then just focusing on expanding our sales force. As John mentioned, we've significantly increased our sales force, both from an direct sales rep perspective, as well as the sales organization and infrastructure perspective. And we think all that helps facilitate organic growth.

And I guess just in terms of the qualitative factors that might be informing your guidance, as you mentioned you're incorporating what you're seeing today?

Yes, we're surveying our top customers and talking to our sales people. We have looked in some of the data around tax refund. As you know, like I mentioned on the call, our business is somewhat tied to tax refunds and you know consumers taking those refunds and making larger than typical payments are actually paying off loans. We think the data on that has been strong. Volume return -- tax return volume data has been strong. We see that some of it may slip a little bit into Q2 if there are delays in refund processing. But in terms of the overall outlook, we think the volume is strong year-over-year. So that's something that we've looked at recently as well.

And I guess just following up on that, if we look at past examples of stuff like this where there might be an epidemic or a natural event, like a hurricane that probably has impacted some of your merchants. I'm curious, is there anything that you can disaggregate from that, that sort of was a fallout as a result? Was there a slow down and then a sharp pickup? I mean maybe anything that you can qualitatively give us in terms of that would be helpful?

Yes, I mean, I think that they may experience short term decrease in repayment activity just because of the immediate disruption. But what they do is they then shift to trying to figure out the most efficient way to get repaid and we help solve that problem for them, which is why we're seeing some of them reach out to us now, trying to figure out how to get access to more efficient remote non-cash payment methods. And we think that that will help accelerate debit penetration. And so we've seen the past where that may be a short lived phenomena where they are declining repayments just because of the immediate disruptive nature of whatever that event may be. But then as they offer more payment options for their customers, which we help them facilitate we see that pickup fairly quickly.

And I guess a final question on capital management, obviously, the stock's been hit a little bit hard and looks like it's up quite a bit in the aftermarket. So may not be that bad. But if we think about sort of capital priorities, I assume it's still sort of slanted towards acquisition and organic growth to the extent that there are opportunities; when we look at, is that true number one, part one; and number two is, if we look at sort of the M&A pipeline, have the valuations actually gotten more attractive and might lead you down a path to be more aggressive here, or is it still pretty stable to where things were a couple of weeks ago? Thank you.

Yes, so on the first point, we are so focused on growth. And so from a capital deployment perspective, we would want to focus on M&A opportunities and just facilitating organic growth through hiring sales and technology people. I think that the pipeline is active, it remains full. We've seen probably some short term decrease in valuations just as everyone has, but we're not sure how long that will last. And that's not really driving us being particularly aggressive around any of these situations. It's more about finding the right target and making sure it's a great strategic fit, and that's an attractive valuation. So that's how we generally look at it.

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

I thought maybe just follow up on the M&A side of things. It looks like you've recently done some, a lot of touch points on the M&A side, moving into a lot of new markets. And just wondering when you think about M&A from here. Are you thinking about bolstering presences in existing markets where you are in or have recently entered in, or are there new markets that still makes sense? Just thinking that Repay sits more of a middle market situation where M&A moves the needle more than perhaps for a bunch of big acquirers?

We think both. We look at existing verticals. We've got some targets in mind that it could make sense for us, as John said, in the B2B space. I mean, we've recognized some competitors within the ERPs. And so it would be a combination of looking at players in the existing space and also just looking at the attributes of new verticals. So we look at large verticals that are growing quickly at an underserved from a payment perspective that are highly focused on integrative payments that have attractive margins, and that could use our technology to enhance their product offering. And so when we think about new verticals, that's how we think about it from an attribute perspective. And if it were to check all the attributes and we would be interested in it and it wouldn't have to be in existing vertical.

And then I know you mentioned in some of your prepared comments about perhaps certain groups of consumers and borrowers might drift into more of a subprime category. I was wondering if you could perhaps explain the mechanism how that may kind of accrue to you over time, and how that might work with your customer base?

And so what we're referencing there was in an period of tightening where banks maybe cutting credits and certain [FICO] score borrowers, those borrowers still need loans. And so for example, an auto loan they could no longer get a bank auto loan. They may come to our customers to get an auto loan. And so if there were any decrease in repayment activity in that type of environment, we think that actually could be a slight offset by having new originations and those originations would be to hire credit borrowers that would be more likely to repay. And so that's really the trend that we were mentioning and that's something that we saw and heard from our customers in the last downturn.

And then maybe just one quick final one, I don't know if I heard organic payment volume number for Q4. I might've missed it, there were a couple of calls going on. Thanks a lot and good quarter guys.

Thank you. We mentioned organic gross profit growth in Q4 about 27% and organic volume growth was in the low 20s.

Our next question comes from the line of Mark Palmer of BTIG. Please proceed with your questions.

Just a housekeeping and first of all, what was the company's leverage ratio and cash balance at quarter end?

Yes, so it was about 3.7 times net, it’s about $25 million of cash and includes, that's pro-forma for the acquisition of Ventanex.

And as you're thinking about M&A, what are you comfortable with, with regard to that leverage ratio? Where it could go to that you'd still feel like you're in good stead.

Yes, I mean we’re cognizant of the 4 times level. I really wouldn't want to push much beyond that. I’d have to be a really, really strategic deal for us that we saw a path to de-levering down closer to 3 times within call it 12 to 18 months. But we're probably comfortable right around 4 times net leverage and so we would just have to consider that as part of funding any potential acquisition.

Our next question is coming from the line of Joseph Foresi of Cantor Fitzgerald. Please proceed with your questions.

This is Daniel Reagan on on behalf of Joe Foresi. So I was just wondering how we should think about the impact of the APS and Ventanex integrations as it pertains to some margins in 2020 and the levers involved in hitting the adjusted EBITDA range?

And so if you'll notice, the margins in 2020 based on the outlook are in the 72% to 73% range and that compares to up 75% in 2019. And so as we've mentioned for gross margin perspective, TriSource and Ventanex, are a little bit below our legacy business. And so there that is contributing to the gross profit margin declining slightly. On organic perspective in our legacy loan repayment business, we don't see any urgent compression. This is really due to the mixed shift related to the acquisitions. And those integrations are going nicely. As we mentioned, we're starting to convert, just starting to convert merchants from APS’s back-end and gateway to our back-end and gateway. And we see that and really ramping up in the second half of the year, and that should help with slight margin pickup going into 2021. But that total dollar amount of the synergies on the APS side, it was not too large overall relative to the rest of the business but it should allow for us to place...

And then it sounds like Repay is mostly shielded from COVID-19 due to recurring nature of the business. But potentially could see negative impacts coming from a weaker consumer if it were to come to that. I'm just curious what your expectations are for the next few months and then also as it relates to the full year. Thank you.

Yes, I mean based on the information we have today available to us and as mentioned after surveying our customers and looking at some industry data around trends in tax refunds and other data sources, you know we feel comfortable with what we put out today. We really aren't able to forecast or project how quickly this will spread. It's a very fast moving situation as we've mentioned and it's evolving each and every day. But based on the information we have available to us now, this is where we feel comfortable.

[Operator Instructions] Our next question is come from the line of Timothy Chiodo of Credit Suisse. Please proceed with your question.

A question on the ISV add, so we've talked about 11 of them, four of them organic, just focusing on the four organic and along with let's call Symitar in there from previously, when you look at the other payment platforms that might be working with those ISVs. Are there any, are you the only partner that's working with them and it's just a matter of penetrating debit, or is there someone in there that perhaps you could gain share from? Maybe just give us a little bit of that landscape in terms of who else is in there, if anyone.

So very seldom are we exclusive. We may be the preferred provider in many situations, specifically say like Symitar, we would not be the only one there. But how we're using our integration specifically for adding to the additional payment channels to enhance the consumer experience for the repayment of auto loans for credit unions is quite unique in itself probably. So that integration is where, as well as the correlation integration we mentioned, those have both added to our pipeline opportunities significantly by having those integrations. So we're seeing more opportunity there. And then just from a competitive perspective, it does just open up opportunities for us as a way to enhance that. To give you a little bit of, as we were soliciting some of our customers as well and because of the virus, it's actually specifically, I remember a credit union indicating they didn't have the ability to take a remote transaction. So it's opened up some opportunities for us there to help them, and have their ability to be able to have remote and a virtual payment from that perspective. So we see positive things on all those integrations. They've become referral partners as well. And obviously, that’s their core ERP systems, so overall very positive. We, as you saw in our guidance, we still would just guide to one to three a quarter and we still want to stay on pace with that. You don't, you can't exactly control timing. There will be times when we are better, are at the top end of that range possibly or maybe sometimes at the bottom of that range. But overall we have a good pipeline of those and our integrations to those. So, so far so good there.

And just a quick follow up, I know you mentioned the organic growth and gross profit for the guide implies around 20% level. What is that number on net revenue growth? Do you have that? And also I believe the gross profit growth was 29% on a like-for-like basis organically in 2019. And that seems like 900 basis points of deceleration. Just maybe you could comment a little bit on that.

Yes, it was 27% in the fourth quarter. As mentioned, the 29% was the full year. We feel good. And also note that 20% is at the midpoint. And so the high-end implied higher gross profit growth. And so we still feel really good about that, there's some level of conservatism there. And so we think 20% is strong, it's blended.

Okay. All right, right on, yes. And absolutely aligned with what you guys have laid out in terms of a medium term guide in terms of the high to mid teens revenue growth with maybe slightly faster in gross profit. And as long as that's still the case, I think, and it could all make sense. Thanks a lot.

Thank you so much. This concludes our conference for today. You may disconnect your lines at this time. Thank you for your participation.