Yahoo Finance

Timothy Murphy

Thank you, John, for the kind words. These past 11 years have been truly special for me. I'm thankful for being part of REPAY's journey as the company's first CFO, helping transform the business over the course of 11 acquisitions and also elevating the organization to being a public company. I look forward to watching REPAY continue to grow and expand its vital role in the payment ecosystem.
Now let's go over our financial results for Q1 2025. In the first quarter of 2025, revenue was $77.3 million, representing a decrease of 4% year over year. Reported gross profit declined by 5% year over year. Consumer Payments segment gross profit declined by 5% during Q1, while the Business Payments segment reported gross profit increased 77% year over year. When excluding the political media contributions in Q1 2024, Business Payments gross profit growth accelerated to approximately 12% during Q1 2025, demonstrating the ramp in our partnerships and sales pipeline.
As John mentioned, REPAY's reported gross profit growth was impacted by select client losses in the strategic technology migration of targeted business payment volumes to our total pay solution. Excluding these impacts, reported gross profit growth would have been low-single digits in Q1. Our core growth remains resilient, and we are starting to benefit from ongoing go-to-market and customer support investments and from additional modernization opportunities across our segments. In addition, our Q1 results benefited from the annual tax refund seasonality.
Q1 adjusted EBITDA it was $33.2 million, representing approximately 43% adjusted EBITDA margins. This demonstrates our disciplined approach to managing operating expenses while still being able to invest towards our sales, implementation, and client service teams across the company.
First quarter adjusted net income is $20.3 million or $0.22 per share. Reported Q1 free cash flow was negative $8 million. Reported Q1 free cash flow and free cash flow conversion were negatively impacted by approximately $16 million due to reversal in timing, networking capital by approximately $3 million to the previously mentioned client losses. In excluding these impacts, Q1 free cash flow conversion would have been similar to the free cash flow conversion metric of approximately 38% in Q1 2024.
As a reminder, our 2025 free cash flow conversion is expected to follow a similar quarterly cadence of 2024. It is expected to accelerate to above 60% by the end of 2025. As of March 31, we had approximately $165 million of cash on the balance sheet with access to $250 million of undrawn revolver capacity for a total liquidity amount of $415 million. During Q1, we made an approximate $16 million payment related to the tax receivable agreement or TRA. We're expecting to make annual TRA payments on a go-forward basis and REPAY a sufficient taxable income.
Exiting the quarter, REPAY now leverage is approximately 2.5 times. Total outstanding debt of $507.5 million is comprised of a $220 million convertible note due in February 2026 with a 0% coupon and a $287.5 million convertible note due in 2029 with a 2.875% coupon. Net leverage will naturally benefit as REPAY continues to execute towards profitable growth and cash flow generation during 2025, while also applying a balanced approach to capital allocation.
I'm not trying to call back over to the operator to take your questions. Operator.

Question and Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions)
Ramsey El-Assal, Barclays.

John Coffey

Hi, this is John Coffey on for Ramsey. Thanks for taking my questions. I was wondering just to begin with, can you provide some additional color on what you're seeing in the consumer spending environment? I know you talked about this a little bit in some of your prepared remarks, in particular, I was wondering what's the -- how would you view the top of the funnel from a credit perspective?

John Morris

Hi John, this is John. Good afternoon. Yeah, as I mentioned earlier, from an overall market perspective, at least is pertaining to our clients, year to date, we've seen resiliency in the non-discretionary consumer spending. So from a market perspective, our perspective, we're not seeing any major impact from overall payment processing as it relates to kind of the macro associated with the consumer.

John Coffey

Okay. Great, thank you. I just have one follow up. Given your increased buyback authorization of $25 million, do you plan to continue leaning into this rather than M&A?

John Morris

Yes, we, as I also mentioned earlier as well, when we believe that our share price is disconnected from our overall long term intrinsic value, we will opportunistically repurchase shares. So when we see that and we believe that it's happening, we have our convictions around that.

Timothy Murphy

And I'll add to that the capital allocation priorities we mentioned would be still focused on organic growth. And then we would look to execute on the buybacks, the reasons John just mentioned and then provide ourselves with enough liquidity to address the $220 million convertibles coming due in 2026, and then I would say that tuck and M&A would be after those other priorities.

John Coffey

Perfect, thank you very much.

Operator

Sanjay Sakhrani, KBW.

Sanjay Sakhrani

Thank you. Congratulations, Tim, and good luck.
John, you mentioned the evolving macro view as a reason for concluding the strategic review process. Maybe you could just share with us, how far you guys went down the process to actually see if you could extract more value.

John Morris

Yeah, Sanjay, so we looked at the overall as this is a collective Board decision and we in the strategic review. As you are aware, I've seen markets have changed and the microenvironment has changed since we announced in March. But ultimately, as we looked at everything, we looked at -- we believe that the additional investment in organic growth, which will yield the best result for REPAY, at this time for the shareholders, we think that generates above what we think it would be possible with these other alternative outcomes.
And as you heard me mention as well, we did conclude our in-depth dive into our additional organic investments with an outside reputable firm and we're actually, we're in the process of adding those additional investments which we think is a multi-year investment and also a multi-year opportunity to continue to accelerate growth.

Timothy Murphy

And I would add to that the investments John's mentioning are not incremental to any of the forecasts we provided. They're included in the forecasts we provided on free cash flow. So while we're executing on those, there's no incremental spend relative to what we've laid out for the outlook in terms of the outlook.

Sanjay Sakhrani

Okay, got it. And then appreciate sort of the forward view for 2025 on gross profit.
Can you help us think about like EBITDA growth trajectory over the course of 2025. And then just maybe as we think about 2024, maybe you could just give us, Tim, like what the normalized gross profit dollars were, excluding some of the political and media stuff. Thanks.

Timothy Murphy

So I would say again there's no incremental spend, so I would think the adjusted EBITDA growth would be similar, follow a similar path as the gross profit growth we described. Just because we're expecting similar margins and there's nothing incremental to what you've already described.
And then just in terms of the 2024 political contribution, I would say that to think about that is about 4 or 5 points of growth impact to the full-year '25, which is normalized out in the growth rates we've mentioned.

Sanjay Sakhrani

Okay. Wonderful, thank you.

Operator

Joseph Vafi, Canaccord Genuity.

Joseph Vafi

Hey guys, good afternoon and congratulations and best of luck on from me as well, Tim.
Just wanted to kind of drill down on the comments on ending the strategic review a little bit more and some of the additional investments for growth. Just kind of wondering, was there kind of some aha moments there or was you know the consultants providing, a certain kind of insight that perhaps you hadn't made those similar investments yourselves previously just want to kind of drill down on that because I mean it sounds like you've got a lot of confidence in accelerating growth with some of these additional investments and just wondering why again why you might not have done it before now. Thanks a lot.

John Morris

Yeah, Joe, great question. Obviously this is something that I've been doing this for a while and so I wanted a really outside third-party view to help me look at certain markets and potentials were there. What it did confirm to us is the absolute market potential was there with for additional investments, and we have the opportunity to make those and those will deliver a really great shareholder value. And so that's just this opportunity just sitting right in front of us to just commit more dollars to investing there.

Joseph Vafi

Got it. And is there any other insight you can provide as to kind of what those markets are, or that's kind of I guess a competitive aspect and maybe we should wait for more from you on that once it's in place. Is that what you're thinking about?

John Morris

Yeah, Joe. Say in the immediate term that's specifically related to our existing verticals and markets, specifically in the consumer side and also there's opportunity in the B2B side. But then, you look a few years out, there's other opportunities for us, but specifically for the immediate term here near term it's on existing verticals.

Timothy Murphy

And that's that one of the one of the items we were looking to confirm was just we've talked about going more enterprise sales and consumer just really confirming the largest logos across each of the sub-verticals and finding ways to address those logos and being more efficient with our go-to-market efforts and just generally having more success in terms of winning those logos and then also implementing them faster.
There's just a different implementation cycle with enterprise accounts. We've been doing that for a while now, but we wanted to hone that skill and that focus to get not only win them but get them live faster.

Joseph Vafi

Sure. Great. Thanks for those comments. Best of luck, Tim.

Timothy Murphy

Thank you.

Operator

James Faucette, Morgan Stanley.

Shefali Tamaskar

Hi, this is Shefali Tamaskar on for James.
Thank you for taking my question. Thanks for all the color on the quarter. I just wanted to see if you could speak to how the recent macro environment has potentially impacted some of your exposures, which you've talked about on past calls around auto affordability, personal lending trends. Want to hear about both what you were seeing in 1Q and also trends through April and May if you could.

Timothy Murphy

Yeah, so like we said, our various end markets were resilient. Spending was resilient. These are largely non-discretionary payments, and so they held up nicely through Q1, and I'd say the trends are similar to Q2, which again gave us confidence to discuss the free cash flow conversion acceleration in Q2 specifically and so trends have held up nicely.
Nothing I don't think materially different from what we talked about on prior calls, but it is certainly, we're paying close attention to it, particularly in the auto space as we have been in trying to get out there and speak to our clients and understand what they're seeing to try to gain visibility, but you know nothing we've seen through Q1, nothing we've seen in the early part of Q2 yet in terms of different dynamics.

Shefali Tamaskar

Okay, thank you.

Operator

Alex Newman, Stephens.

Alex Newman

Hi, thanks for taking my question here. Just going on top of that, could you discuss any underwriting trends that you're seeing within the consumer end market that you've observed recently and what kind of impact do you expect those trends to have on the overall volume and penetration rates?

John Morris

Yeah, I would obviously reiterate Tim's comments, we're not seeing specific trends that would change specifically from first quarter to second quarter what we're seeing. We are monitoring, as Tim mentioned.
But overall, I mean, you can also you look at what we're saying for our outlook though we do see it obviously we see our growth accelerating that has a lot to do with new wins, implementations, lapping of some of those client losses. But as we round out the year and we push through the rest of this year, especially the second half of the year, we see very positive things.

Alex Newman

Great, thank you.

Operator

Peter Heckmann, DA Davidson.

Peter Heckmann

Hey, good afternoon. I joined the call a little bit late, and I'm just trying to fill in some holes, but the client losses, can you remind us, is that three primary client losses and with two in consumer and one in business, is that how we should be thinking about it. And if so, you said about a 600-basis-point drag on consumer, but what would be the drag on overall revenue growth?

Timothy Murphy

Yeah, so we mentioned the 600 basis points on Consumer and then 12 points in Business Payments and then what we said is if you excluded the client losses, our growth would have been low-single digits.

Peter Heckmann

Okay great and then in terms of the level of confidence looking at your guidance of sequential re-acceleration of normalized gross profit growth. So starting from a base of negative four in the first quarter, you're thinking you can get to high-single digit to low-double digit normalized gross profit growth in the fourth quarter.
There's a lot of math there. Is there a way to kind of maybe narrow that range down a little bit and you know make sure that we're getting to the right spot and does that you know is it ratedly increase through the year or is the second quarter going to be relatively weaker and then we see a pick up in the third quarter a little bit more so we can kind of triangulate it on a little closer to where we should be from a quarterly standpoint.

Timothy Murphy

Yeah, so as I said, if you stripped out the losses, it would be low-single digits in Q1, so going from negative four to low-single digits, I would think that would be a good estimate for Q2, somewhere in that range, slightly faster in Q3, and then ending the year exiting a high-single digit to low-double digit. You could, I guess, use the midpoint of that range is probably a good way to think about it. So it's not going further down in Q2 and then picking up a lot more in Q3 and even more in Q4. It's getting to a similar number as the low-single digits for Q2 and a little bit higher than that in Q3 and the midpoint of low-single digit, high-single digit for Q4.

Peter Heckmann

Okay, and then the timing of those customer losses, do I remember correctly, it was 2 and 2.5 in the third quarter and what happened in the fourth quarter in terms of anniversary then.

Timothy Murphy

I meant to say, excuse me, on the previous comment, I meant to say midpoint of high-single digit to low-double digit for Q4. And then, yes, there was one loss in Q3 and two in Q4 of last year.

Peter Heckmann

Okay, thank you.

Operator

(Operator Instructions)
Andrew Schmidt, Citi.

Andrew Schmidt

Hey guys, thanks for taking the question. Sorry I hopped on a little bit late here. Maybe, and I apologize if I missed any remarks on the strategic review, but if you could just, we've obviously seen some modernization of B2B assets this quarter. If you just talk about kind of your inclination to kind of continue to expand and scale the B2B versus monetizing it. Anything you share in terms of prerogative there would be helpful. Thanks so much.

John Morris

Hi, Andrew, yes. As you're aware, I have watched the B2B space for many years. I think this has many years of growth opportunity for us, just a lot of white space. Our ability to profitably make investments there and grow that and what I see in our pipeline and what I see coming in the future, we think, there's some really great days ahead of us there as we drive and scale that business.
And as we continue to invest as we said in these additional partnership channels, we see a really winning formula around some things there. We think that will drive great shareholder value for us on the long term, at least as we look out in the immediate, medium term here on how we drive investments there. We really like that that part of our business.

Timothy Murphy

I would add to that that you know. Business payments performed nicely as we said in Q1, it was 12% growth normalized, so we feel good about that and there are a lot of investments we have been making, particularly on the partnership side, enterprise software platforms were embedding payables. That's something we have been doing for a while now. We've increased our speed of implementation. And then we're also winning some large individual clients and I've had a lot of success in the hospital space and you're starting to see that flow through the results here in Q1. So there is positive momentum there.

John Morris

If you add what we also said and Tim mentioned earlier that there are growth in that business segment despite the client loss in that space, the growth rates actually on a normalized space actually even better, so we think as we you know clear some of those things. Hopefully the world will see the quality of the investment.

Andrew Schmidt

That's helpful. And then, again, sorry if I missed this, but I know last quarter you mentioned transition of the total pay, solution some impacts there any impacts this quarter is that stabilized just curious where we are from that standpoint. Thanks so much.

Timothy Murphy

It's largely stabilized. I mean what happened previously resulted in a few client losses that will flow through, but there haven't been any -- there have been incremental impacts related to that, and so the impact be called out on the previously was related to the loss of the client versus the migration. And so like John said, the 12% normalized we tell was pretty strong and then you include the loss of that individual client and that led to very nice growth.

Andrew Schmidt

Got it. And then so I think I'm last up here. If I could just ask, about just the auto vertical, obviously a lot of puts and takes there in terms of consumer health origination, obviously, auto prices potentially. What are you seeing there in terms of just repayment volume health? What are you forecasting? Would love to get under the hood there. Thanks again, guys.

John Morris

And we, as we mentioned earlier, we still see it as non-discretionary spending, and there's still strength there, so we're not specifically seeing it on the client side, on our client side specifically. There is no overall macro uncertainty of what may be happening with tariffs, etc. But we don't see anything specifically right now. And couldn't tell you that there would be something specifically as we're looking out.

Andrew Schmidt

Got it. Thanks, John. Thanks for reiterating that and Tim, best of luck with the transition. Good work we do.

Timothy Murphy

I appreciate it.

Operator

Timothy Chiodo, UBS.

Timothy Chiodo

Great, thank you. And also just started off, Tim, thank you for everything over the years. Wish you the best, definitely.

Timothy Murphy

Yeah

Timothy Chiodo

All right, great. Well, I want to hit it with an industry question if that's okay. So this topic of both merchants and platforms, meaning ISVs, software companies, etc. Going to more of a, let's call it multi-processor type of environment. I just want to see if you're picking up in your, I don't know what you're seeing with your ISVs that you work with.
Is that something that they're looking to do more of to the extent they were already doing that my understanding is many were already integrated with more than one payments provider. But maybe you could talk a little bit about the number of payments processors that ISVs are looking to work with and whether or not that's changed much at all over the last call it 3, 5, 10 years.

John Morris

Yeah, hi, Tim. So great question. If we look out at the market at the consolidation happening at the large processor level, I would tell you our opportunity there as you're aware we do REPAY clearing and settlement. We see and have seen opportunities coming to us that historically probably would maybe would not have, so we see maybe what you're thinking and what you're saying there are a multiprocessor potentially, but we also see with some of that disruption in the marketplace that should be a really good opportunity for us.
We will be very selective, but yet we are partnered with some really strong strategic processors or ISOs in the marketplace as we continue to build our pipeline there as I mentioned earlier in the call as well. We just won a large ISV this past quarter and so we think there's a great opportunity for us as we are selective on how we want to build out with our partners there. We have about 30 of those today, and then we see more opportunities out there, especially if you look at the whole ISV-embedded partnership, lots of lots of niche opportunities for those specific partners that we would use -- that we would process for.

Timothy Murphy

In terms of ISVs and utilizing payment processors, I don't think there's really been much of a change in our particular verticals. They typically have two or maybe three payment providers, and we're often the preferred provider. So it's not necessarily exclusivity, but we're typically in the preferred position because we've had the relationship for the longest we have more domain expertise in that and market.
So I don't think that's really changed much. These aren't shopping-cart environments or marketplace environments where there's 6 or 10 payment providers you can choose from. It's usually a small group.

John Morris

Yes, Tim, what I was referring to is really the overall processing, clearing and settlement world. My comments, Tim made a great point for our 283 partners out there. We're not seeing a huge op any kind of disruption associated with that on our side, actually we're seeing more enterprise software coming to us because of our ability to fully do the whole AR and the AP side of the world. So we think we're in a pretty good position when it comes to that. Our overall payment expertise as well as our embedded software expertise, is a great value added for those who are coming to possibly partner with us on some things there.
And then I'll remind you as well, specifically in our core Consumer verticals, we do a total payment on modality solutions. So it's not just a card-based total solution. It's all the way from our instant funding of funding the transactions potentially to the debit side of the world, whether it be an ACH or a debit card or even some of the other features of functionalities on an omnichannel perspective. So a lot of technology fintech embedded capabilities there.

Timothy Chiodo

Excellent. John, Tim. And Tim, thank you again.

Timothy Murphy

Absolutely. Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to pass the call over to John for any closing remarks.

John Morris

Thank you, everyone, and thank you for your time today. Tim, thank you again for a great 11 years.
We discussed many topics today on our call, the key areas of accelerating organic growth and our focus on creating value for our shareholders through our capital allocation initiatives. We will continue to execute towards profitable growth and stronger cash flow generation along the way, and we look forward to demonstrating the growth acceleration in the second half of the year and beyond.
Thank you again for your time.

Operator

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