Yahoo Finance

Timothy Murphy

Thank you, John. Now let's go over our financial results for Q4 and full year 2024. In the fourth-quarter and full-year 2024, Repay delivered solid results across our key metrics. Revenue was $78.3 million in Q4, representing an increase of 3% year over year. Full-year revenue increased 6% year over year.
In Q4, gross profit grew by 2% year over year. Consumer Payments segment gross profit declined approximately 5% during Q4 and grew 3% in full year 2024, while our Business Payments segment gross profit grew 60% in Q4 and 40% for the full year.
As John mentioned, our gross profit growth was impacted by select client losses and the strategic technology migration of targeted business payment volumes to our total base solution. We believe these are isolated to specific situations, while our core growth remains healthy. Excluding these impacts, reported gross profit growth would have been approximately 10% in Q4.
Q4 adjusted EBITDA was $36.5 million, representing 9% growth in Q4 and 11% growth for the full year. Q4 and full-year adjusted EBITDA margins were approximately 47% and 45%, respectively, demonstrating our disciplined approach to managing operating expenses, while being able to support sales, implementation and client service teams across the company. Fourth-quarter adjusted net income was $22.4 million or $0.24 per share. Q4 reported free cash flow was $23.5 million representing 64% free cash flow conversion. Our full-year 2024 free cash flow conversion was 75%.
Throughout 2024, free cash flow benefited from our continued growth, while also seeing the flow through for managing both operating expenses and CapEx. During 2024, free cash flow was favorably impacted by over $20 million in positive net working capital changes that we expect to reverse in Q1 2025. As of December 31, we had approximately $190 million of cash in the balance sheet with access to $250 million of undrawn revolver capacity for a total liquidity amount of $440 million.
Repay's net leverage is approximately 2.3 times the total outstanding debt of $507.5 million comprised of a $220 million convertible note due in February 2026 with a 0% coupon and $287.5 million convertible note due in 2029 with a 2.875% coupon. Net leverage will continue to naturally benefit from our strong profitability and cash flow generation.
As John mentioned in his opening remarks, we have initiated a strategic review of our company, including exploring strategic alternatives with our Board support. As part of this dynamic, we are refraining from providing a 2025 outlook at this time. Before opening for questions, I want to reiterate that with respect to the company's strategic review, the Board and management team are committed to improving operations and driving shareholder value. Management remains focused on prudently running the business and executing on our capital allocation priorities during this time. The company cannot provide assurance that exploring strategic alternatives will result in any transaction or particular outcome.
As you understand, we will not be communicating anything additional about the strategic review process while it is ongoing. Again, we do remain focused on managing the business diligently and driving shareholder value during this time. We'll not be taking any questions on the review process or 2025 outlook.
Thank you. I'll now turn the call back over to the operator to take your questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Ramsey LSL, Barclays.

Ramsey El-Assal

Hi, gentlemen, thank you for taking my question this evening. I appreciate it. I wanted to ask about some of the client losses that you've called out across the business, the sort of attrition, I should characterize it as attrition. Are you seeing any changes in the drivers of attrition? I think you called out a couple of folks that were taking things in-house, maybe some customer consolidations. Is this sort of a tricky period where you're seeing more of that than usual, or is there anything changing in the end market of your customers basically that would make you think that this is a maybe you may see more attrition than you have in the past?

John Morris

Ramsey, this is John. No, we're not seeing any major changes. Any specific ones that I called out. Two of those were clients that actually got acquired. One of those was in the consumer side of the business and one of those is in the business payment side.
They were important clients to us, but they were acquired. Nothing we could have changed about that. And then the third one was the lending communication solutions they brought that in-house. We don't see any trend associated with that either.

Ramsey El-Assal

Okay, fair enough. And then a follow-up for me. On slide 7, as you're talking about your consumer payments performance in the quarter, you called out seeing pockets of consumer softness. I'm just curious if you could elaborate a little bit more on what those might be?

Timothy Murphy

Those are related to what we've talked about in the past with auto and ARM, just continuation of what we saw previously. So nothing incremental to that, but just the dynamics and the challenges within the auto space around used car sales, used car affordability and then the ARM recovery that we anticipate we have not seen. And so there's just a continuation of the depressed volumes in the ARM space that we talked about previously.

Ramsey El-Assal

Got it. Okay, so continuation of trends. All right, appreciate it, thank you.

Operator

Sanjay Sakhrani, KBW.

Sanjay Sakhrani

Thank you. Good afternoon. I guess maybe starting with how we think about 2025. I know you guys are refraining from providing specific guidance. But just as we think about the trend lines of growth, ex any strategic actions, could you just talk about sort of direction relative to 2024 you're expecting the segments to operate?

Timothy Murphy

Yeah. I'd say overall, if we think about Q4, I mentioned that if you strip out the client losses and the strategic migration that reported gross profit growth would have been approximately 10%. And then there's the some of the softness that we just talked about in the consumer verticals around auto and ARM. And so when you take all those things together, I think the growth rate looks similar to how it on a normalized basis how it looked earlier in 2024. In the first half of '24, the growth rate was, call it, mid- to high-single digits.
And so I think all those pieces together build back up to that. So again, we're not providing a 2025 outlook but that's the way I would think about it when you strip out the losses and some of the consumer macro impacts.

Sanjay Sakhrani

And then like Business Payments should continue to grow at the clip that it is? Or do we expect that to slow? I mean, how should we think about that segment?

Timothy Murphy

We talked about the elements of that. There's a client loss. There's the lack -- we're not as focused on the AR portion of that business. We're still trying to upgrade and maintain the existing integrations, but really more focused on core AP and core AP is growing call low- to mid-teens. And so that's how I think about that business is growing at that pace if you strip out the loss and then like I said, we're not as focused on the AR portion. AR portion is important to us and we have a lot of strong integrations there, but we're really investing going forward in the what we would call core AP.

Sanjay Sakhrani

Okay, great. And then John, maybe you could just talk about sort of what led to the decision-making process of getting to the strategic review. And I know there's no deadline or specific time line, but like maybe you could just tell us how we should look at it from the outside in terms of like thinking about progress being made? Maybe you could give us a little bit more color on that. Thank you.

John Morris

Yeah, sure. So if you recall back in the November earnings call, I really am committed to evaluating all aspects of the company to really drive and realize shareholder value. So with the Board's support, I -- we commenced this comprehensive strategic review, which is comprehensive with the assistance of outside advisors. We're going to look at the full range of alternatives that in order to capture overall shareholder value. We're committed to that.
And we think we will -- that will end in a very positive outcome for our shareholders. And those aspects could be from a outlook -- reviewing our go-to-market strategies, our overall capital allocation strategy and our strategic alternatives including M&A.

Sanjay Sakhrani

Okay, great. May I ask just one question for Tim? Just on the free cash flow conversion, obviously, you had that one-time benefit that sort of gets reversed in the first quarter. As we think about free cash flow conversion, should we think about it on an adjusted basis to be comparable in 2025? Or does that -- is that affected by other stuff this year? Thanks.

Timothy Murphy

No, I would think of it that way. I mean, if you look at the earnings supplement, we did show us some detail on that on slide 6. And so I think if you strip out the impacts from this year and then also strip them out from what we expect to reverse in Q1 of next year, you would see a comparable conversion. Overall, we are showing, as we talked about previously, faster adjusted EBITDA growth than top-line and a continued reduction of CapEx as a percentage of revenue. So it should lead to continued strong free cash flow conversion when you strip out the working capital impacts in both periods.

Sanjay Sakhrani

Okay, great. Thank you.

Operator

Joseph Vafi, Canaccord Genuity.

Joseph Vafi

Hey guys, good afternoon. Thanks for the questions. Anything going on in -- on the competitive landscape that we should be aware of? And then secondly, any update on your focus on the mortgage vertical? I know there was a lot going on with some of the card networks.

John Morris

Yeah. Joe, so from a competitive perspective, as you know, last year, we continued to invest in our enterprise sales, our product, and our technology. So we're well-positioned there. Obviously, we're seeing strength in our sales pipelines. That obviously drives the overall our ability to compete in both sides of the business.
So we find ourselves well-positioned there. But we'll -- as part of this strategic review, we'll obviously make sure that those all things are true. The overall end markets, we still are very positive on as well. And I think you mentioned mortgage. On the mortgage side, as we mentioned last year and really in our November call, that's kind of a multiyear organic opportunity for us. That's still progressing, as we indicated then, where clients are rolling that out as we move throughout this year.

Timothy Murphy

I'd add in B2B within AP, we've been calling out wins within the healthcare and hospital vertical recently. We're having a lot of success there. And so this speaks to the approach of being vertical specific within AP. And you can see our solution is now winning in those verticals. We're not trying to compete in every vertical.
We're in areas such as healthcare, hospitals, auto dealerships, property management, and we're seeing positive traction there in those particular end markets.

Joseph Vafi

Great. Thanks, guys.

Operator

Andrew Schmidt, Citi.

Andrew Schmidt

Hey, John. Hey Tim. Thanks for taking the questions this evening. So I wanted to ask just another macro question, but perhaps more specifically on the personal lending vertical. Maybe talk about your expectations there versus the prior year and then anything you're seeing in terms of demand or supply side trends to be aware of in the coming year.

Timothy Murphy

I'd say trends are pretty similar to what we've talked about previously. Personal loans, there is some positive momentum and positive developments around origination activity. Based on our conversations with clients and some of the names we track publicly, there do seem to be indications that they're loosening their underwriting standards and opening up to originations. I do think there's demand for that, and so they're looking to meet that demand. So I would say generally that's what we're seeing in personal. Not that different from what we said from prior periods, but a little bit of positive momentum there.

Andrew Schmidt

Got it. Thank you, Tim, that's great to hear. And then the TotalPay volume migration, the strategic shift you called out, can you just walk through the mechanics of that in terms of -- it sounded like that was driver of the B2B payments results this quarter in terms of coming in a little bit lower, but just trying to understand what the mechanics look like and what's going on under the hood. Thanks so much.

Timothy Murphy

So we've identified certain clients that were really focused on virtual cards, and we want to be able to monetize the total payment volume. And so where there were instances where there were effectively virtual card-only clients, we were looking to migrate them to our TotalPay solution, and as part of that, there was some volume lost. But we were -- that was a strategic shift.
We were aware of those potential losses and that we were aware of those impacts could happen. But the idea that once that volume has been converted, there's a greater monetization opportunity to not only monetize virtual cards, but also paid ACH.
And so we think that we were aware that there could be impacts, but we were willing to make that strategic move for the future monetization benefits of having all of that total payment volume on our platform.

Andrew Schmidt

That makes a lot of sense, Tim. Are you seeing -- I understand the strategic shift. It makes sense to offer a broad range of payment modalities, but are you seeing a broader shift from virtual card to ACH within the broader supplier base? Just kind of the common question in terms of payment acceptance costs and trends and things like that. Thanks a lot.

Timothy Murphy

We still see healthy adoption trends within virtual card, but we are promoting the paid ACH option more regularly, and we are only able to do that when we have the total payment volume and they're on the TotalPay solution. So that is, again, a strategic move to be able to capture more of that spend versus just the virtual card. And we are seeing that happen, and, again, we're promoting it. We want that to happen. We think it's nice to have the balance between virtual card and paid ACH.
And if we have to, we can default to sending regular ACH or check. But, again, we think being able to capture the TPV and monetize similar rates on virtual card but then incrementally add paid ACH wins for us in the future.

John Morris

Yeah, Andrew, let me add some additional color there. Our net new wins are all green space in a lot of times. So that shift itself, we're actually bringing them to the virtual card piece sometimes for the first time. So we're -- those net new wins we talk about a lot of times, those are just never have outsourced payables before.

Timothy Murphy

Right. And to the extent we can get -- again, we're seeing really nice growth in TPV. We don't disclose that separately, but we're seeing that trend, and we just need to be able to capture more of it and monetize it.

Andrew Schmidt

Got it. Thank you, John. Thank you, Tim. Appreciate the comments.

Operator

Peter Heckmann, D.A. Davidson.

Peter Heckmann

Hey, good afternoon. I just wanted to confirm, but in terms of these client losses that you've -- the three client losses that you've explained, were those fully reflected in the fourth quarter, or would you expect a little bit of additional revenue to run off next quarter?

Timothy Murphy

One of them was -- we mentioned last quarter, but this quarter was the full-quarter impact. And then the other is, yes, we've experienced the full runoff this quarter. So there will be a lapping effect in the back half of next year, but we'll see the impacts of those in the first half of 2025, the back half of this year.

Peter Heckmann

Got it. And then in terms of some of the attrition on related to the total pay migration, I guess is that -- was that fully reflected in the fourth quarter, or was there a little bit more to go?

Timothy Murphy

Yes, that's been reflected in the fourth quarter.

Peter Heckmann

All right, that's all I have. Thank you.

Operator

Rufus Hone, BMO Capital Markets.

Rufus Hone

Hey guys, thanks. So maybe sticking with the organic gross profit growth, ex-political. I know you touched on it from a high level, but could you sort of put a finer point on the deceleration you saw from the third quarter into the fourth quarter, so sort of bridging from that plus 1% organic growth last quarter to the minus 9 this quarter?

Timothy Murphy

Again, that was the -- largely related to the client losses we mentioned and then the strategic migration of the AP volume. There was a little bit, I guess, I'd say of additional softness in the AR part of B2B. That's why we've emphasized AP.
But as I mentioned, when you strip out those impacts and then you take into account some of the ongoing ARM and auto macro impacts, it should get us back to a level that we saw earlier in 2024. So if you look at the normalized growth rates in Q1 and Q2 of 2024, I would think that's more indicative of who we'd be.

John Morris

And obviously, in order to get to that number, you're already normalizing for the political, which was in the fourth quarter, which political for us will not be in '25.

Rufus Hone

Got it. And maybe just a follow-up, but was there any offsetting benefit from the ramp in the auto captive customer you called out last quarter and the mortgage debit acceptance customer?

Timothy Murphy

That is -- that client is still ramping, but I wouldn't say it materially offset any of the other impacts.

Rufus Hone

Okay, got it. Thanks.

Operator

Charles Nabhan, Stephens.

Charles Nabhan

I had a quick one on the consumer segment. On slide 7, you indicated that the headwind from the client losses in Q4 was roughly 5%. So if I add that back to the gross profit decline this quarter, we're roughly flat. My question is, as we -- assuming some normalization over the course of the year, could you maybe help us understand how much of that is going to be coming from macro improvement versus new bookings? I know you have a number of go-live scheduled for this year.

Timothy Murphy

Yes, so again, the client losses don't take into account the macro impacts from ARM and auto that I mentioned earlier. So the client losses gets you to flat, and those macro impacts gets you to, call it, low single digits. And then you have the ramp of the captive auto win. You have the ramp of the previously signed accounts. You have the really strong bookings that John mentioned, all of which would get you higher. So again, we're not providing a '25 outlook here, but that's how I would frame it up.

Charles Nabhan

Got it. Appreciate the color. And as a follow-up, you had indicated in the strategic review that M&A was also an option. So just to drill into that as well as your product roadmap, could you maybe talk a little about what would be on your wish list if you were to go the M&A route? And I guess any comments around what's on your product roadmap organically would be helpful as well.

Timothy Murphy

So from an M&A perspective, we really like consumer bill pay. We're in some large consumer bill pay verticals today in terms of auto and mortgage and personal. There are others we're not in such as insurance or government and utilities. So those could be interesting, and we see some targets in those spaces. There's some consumer end markets we're not in that are more related to general commerce, I would say.
And then I would say in B2B we'd be focused on AP. So there are a lot of sort of tuck-in opportunities within AP that could get us into additional verticals and grow our supplier network. So I'd say, either existing or new consumer bill pay verticals, broader consumer commerce, and then B2B AP.

John Morris

Yes, I'll add a couple things to that. Always anything that you could add to our software partners that would embed payments that we fit well into, those could potentially increase our verticals or complement our existing verticals or adjacent verticals, as I mentioned in our strategic review. And then something that we would always be -- I find would be very attractive, something that could drive overall scale, something that could drive our overall distributions. Those could be software partners or just ways that we could really drive a flywheel effect of driving overall distribution.

Charles Nabhan

Got it, appreciate the call. Thank you.

Operator

Timothy Chiodo, UBS.

Timothy Chiodo

Hey, thank you for taking the question. Tim, you mentioned earlier paid ACH, and I just wanted to drill into that more from an industry perspective. When we think about paid ACH, typically it's paid because you're able to attach information and add value to a typical ACH payment. So the question would be, number one is, is there anything different about the data that you can or cannot attach to an ACH payment in your enhanced ACH offering relative to what you could attach to a card?
And then second is, within the various other bank-based payment rails, is there any difference that you would call out or reason why you would or would not, whether it's cost or timing, et cetera, associated with either something like an RTP or FedNow or something along those lines relative to the traditional ACH?

Timothy Murphy

Yeah. I mean, again, the supplier is willing to pay a fee because they're getting enhanced data relative to a regular ACH. So it may not be as robust and seamless as a card transaction, but it is more so than a regular ACH, and they're willing to pay for that. I think the difference is just the fee to them is lower. So it's higher than regular ACH but lower than card. And then, like we've said, our economics are better because our cost of processing ACH is lower.
So for us, we kind of net out in the same place, even though it's -- but it's better for the supplier because they pay less and get more data. So it's pretty nuanced in terms of what that data is, but there's really a win-win for both of us. They're paying less and getting rich data, and we're ending up with a similar net economic situation.

John Morris

So enriched data, which obviously makes reconciliation a lot easier, the bulk payment of things, as well as the overall embedded part of that, which makes reconciliation as well and the tie-down back to the original invoice is a whole lot easier to reconcile.

Timothy Chiodo

Thanks, Tim and John. A minor follow-up, though, but is it safe to say, then, that more of the suppliers are set up to receive that information with a virtual card relative to the number that are set up to receive that information with an ACH payment, or is that something that you solve for?

Timothy Murphy

Yeah. We intend to solve for that through our supplier enablement. And so, again, we like owning the 360,000-plus supplier network. We do our own proprietary form of supplier enablement where we have a really hands-on, real-time approach, and that allows us to determine the optimal way to pay and how they want to be paid. And so we like owning that network. We like owning the enablement process, and that gives us visibility into the best way to pay.

John Morris

Tim, long-term -- bigger picture long-term, if you think about the world of automation, the world of overall cyber and fraud, we think the world -- we think what we add in the value around cybersecurity, around the making and sending of payments is going to be even more important if I look out over the next three years or so. We have great value just in that piece alone. As you can imagine, the mailing of checks, a check in itself has your routing and account number on it, right? And so our ability to drive value around security of that transaction, we think, is something we'll see more and more of as the era of fraud continues to elevate itself with automation.

Timothy Chiodo

Thank you, Tim and John.

Operator

(Operator Instructions) Mike Grondahl, Northland Securities.

Mike Grondahl

Hey, guys, thanks. Kind of a high-level question, but double-digit top-line growth has been really elusive, tough to get back to. What have been the biggest hurdles to get back to that? Is it sales? Is it the end markets? Is it this client retention? Could you just kind of walk us through why that's been so hard?

Timothy Murphy

I think the client -- the timing of the client losses is a big factor, as we said earlier. They're hitting us in Q3 and really, to a larger extent, in Q4. So I think the timing of that, you have the continued macro impacts in auto and ARM, which layer onto that. And then we've mentioned some impacts in the AR part of B2B. And so those are all factors that I was describing, where I bridged from the normalized growth back to what we showed in early 2024.
Now, we did mention that we've had really strong bookings across both consumer and business payments, we've been selling enterprise accounts in consumer and then embedding payments into enterprise software in B2B. We are ramping some accounts that signed last year that will have more of an impact this year. So there is momentum within go-to-market. There are strong signs within bookings and ramping. But there have been some impacts that have really hit a lot in Q3 and, to a greater extent, in Q4.

John Morris

Let me add into that, as part of this comprehensive strategic review, as you heard me mention earlier, our goal is to find ways to accelerate growth. And so that's one of the many things we'll be reviewing. And we're confident we will find opportunities there.

Mike Grondahl

Hey, that's helpful, guys. Thanks.

Operator

James Faucette, Morgan Stanley Investment Management.

Shefali Tamaskar

Hi. This is Shefali Tamaskar on for James. So you mentioned wanting to drive further distribution and I wanted to understand how you're thinking about the current opportunity set in the partner network. Are you more focused on penetration of existing partners or expanding the partner base? And if so, what segments or verticals are you interested in expanding based off of where you're seeing the most demand right now?

John Morris

Yeah, sure. So we're now up to 280 of those partners, about 180 on the Consumer side, about 100 on the Business Payment side. You can see we also added to that during the quarter. So both -- the answer to that question is both. We want to continue to obviously drive our overall penetration into our existing partners.
And we think there's a lot of opportunity there. We're continuing to add that as we go to market and find additional strategic relationships. We want to do that. And we've talked about overall enterprise software platforms. We think there's a significant opportunity as we look out the next two to five years on driving, helping them drive the monetization as we embed our software into their core platforms.
Our ability to do that both on the AP and the AR side, we think there's a significant opportunity out there for us. So we'll continue to invest in both of those, and those should produce really positive outcomes for us as we look out over the years.

Timothy Murphy

I'll add to that that, like, John said, we're investing in both, and we do add new software relationships each quarter. But there is a pretty significant opportunity within the existing base to increase penetration, to your point. And there's some software relationships where we may be 10% or less penetrated. And so we think there's an opportunity to find ways to jointly market and jointly promote the solution to increase the penetration of existing in addition to adding new.

John Morris

And we've said in the past as well, on the enterprise software platforms on the B2B payable side, we've said that's a multiyear organic growth opportunity for us.

Operator

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

John Morris

Thank you, operator. Thank you, everyone, and thank you for your time today. Our 2024 results demonstrated our solid execution towards profitable growth and accelerating free cash flow. We remain focused on our strategic initiatives to drive overall shareholder value.
Thank you for joining us today.

Operator

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