Repay Holdings Corporation (NASDAQ:RPAY) is a leading provider of vertically-integrated payment processing solutions, catering to a diverse array of industries and verticals. With a relentless focus on innovation and a deep understanding of its clients' needs, Repay has emerged as a trailblazer in the dynamic payments landscape.
Company Background and Formation
Repay Holdings Corporation was formed in 2019 through a merger between Hawk Parent Holdings LLC and a subsidiary of Thunder Bridge Acquisition Ltd., a special purpose acquisition company. This merger marked a significant milestone for the company, as it began trading on the NASDAQ stock exchange under its new name. Prior to the merger, Hawk Parent had established itself as a provider of integrated payment processing solutions, focusing on specific vertical markets with specialized needs.
Growth Strategy and Acquisitions
The company's growth strategy has been driven by both organic expansion and strategic acquisitions. In the years leading up to the 2019 merger, Hawk Parent made several key acquisitions, including TriSource, Ventanex, and cPayPlus, which strengthened its position in key verticals and expanded its capabilities. However, the integration of these acquired businesses presented some operational challenges that the company had to navigate.
Business Segments
Repay operates through two primary segments: Consumer Payments and Business Payments.
The Consumer Payments segment, which represented approximately 86% and 87% of Repay's total revenue after intersegment eliminations for the three and six months ended June 30, 2024, respectively, provides a comprehensive suite of solutions. These include debit and credit card processing, ACH processing, and loan disbursement products, catering to industries such as personal loans, automotive loans, receivables management, credit unions, mortgage servicing, consumer healthcare, and diversified retail. This segment also includes Repay's RCS (Repay Clearing and Settlement) offering, a proprietary clearing and settlement platform through which the company markets customizable payment processing programs to other Independent Sales Organizations (ISOs) and payment facilitators.
The Business Payments segment, accounting for approximately 14% and 13% of Repay's total revenue after intersegment eliminations for the three and six months ended June 30, 2024, respectively, offers accounts payable automation, virtual credit card processing, and various electronic payment acceptance solutions. This segment serves verticals like retail automotive, education, field services, governments and municipalities, healthcare, HOA management, and hospitality.
Financials
Repay's financial performance has shown resilience and growth. For the fiscal year ending December 31, 2023, the company reported revenue of $296.63 million and a net loss of $110.49 million. While the net loss is notable, it is largely attributable to one-time charges and non-cash expenses, such as amortization of intangible assets and changes in the fair value of the company's tax receivable agreement liability. Adjusting for these items, Repay's normalized EBITDA for the year stood at $164.10 million, highlighting the underlying strength of its business model.
In the most recent quarter (Q2 2024), Repay reported revenue of $74.91 million, representing a 4.4% year-over-year growth. The company's net loss for the quarter was $4.07 million. Operating cash flow (OCF) was $30.98 million, and free cash flow (FCF) reached $19.29 million, demonstrating a robust 57% conversion rate and over 90% year-over-year growth.
Breaking down the performance by segment for Q2 2024:
- Consumer Payments segment revenue was $69.29 million, a 5.1% year-over-year increase, with gross profit of $55.55 million, up 7.4% year-over-year. - Business Payments segment revenue was $10.59 million, a 7.8% year-over-year increase, with gross profit of $8.02 million, up 11.2% year-over-year.
The company's total gross profit for Q2 2024 was $58.59 million, representing a 6.6% year-over-year increase. Adjusted EBITDA for the quarter grew by 10% to $33.7 million, and adjusted net income was $21.8 million, or $0.22 per share.
Liquidity
Repay's liquidity position remains solid, with $147.09 million in cash and cash equivalents as of Q2 2024, and $185.00 million in available borrowing capacity under its revolving credit facility. The company's debt-to-equity ratio stood at 0.54, while both its current ratio and quick ratio were 3.83, indicating a strong short-term financial position. This financial flexibility positions Repay to continue investing in its growth initiatives and pursue strategic acquisitions that complement its core capabilities.
Innovation and Value-Added Services
Repay's commitment to innovation is evident in its growing suite of value-added services, such as its Instant Funding product, which has seen a 21% year-over-year increase in transaction volume. This offering allows the company's clients to provide their customers with quick, convenient, and secure funding experiences, further enhancing the overall payment experience.
Strategic Partnerships
The company's strategic partnerships with leading software providers across its target verticals have been a key driver of its growth. By seamlessly integrating its payment solutions into these partners' platforms, Repay has been able to expand its reach and provide a more holistic, technology-driven offering to its clients.
Future Outlook
Looking ahead, Repay's management has provided guidance for the fiscal year 2024, projecting revenue between $214 million and $220 million, gross profit between $245 million and $250 million, and adjusted EBITDA between $139 million and $142 million. The company expects adjusted EBITDA margins of roughly 44% and anticipates that adjusted EBITDA will grow faster than revenue and gross profit. Additionally, Repay forecasts free cash flow conversion to accelerate throughout the year, with Q3 free cash flow conversion expected to be greater than the full-year target of approximately 60%. The company projects full-year free cash flow growth of over 60% year-over-year, with sustained mid- to high-teens growth thereafter. This outlook reflects the company's confidence in its ability to continue executing its growth strategy and capitalize on the ongoing digital transformation within the payments industry.
Challenges and Risks
Repay's story is not without its challenges, however. The payments industry is highly competitive, with established players and nimble startups vying for market share. Additionally, the company's reliance on strategic partnerships and software integrations exposes it to the risks associated with the performance and stability of its partners.
Furthermore, Repay's recent acquisition activity and the integration of new businesses have presented operational and financial complexities that the management team must navigate effectively. The company's ability to seamlessly integrate these acquisitions and realize the anticipated synergies will be a key factor in its future success.
Competitive Advantages and Market Positioning
Despite these risks, Repay's differentiated value proposition, strong client relationships, and commitment to innovation position the company well to navigate the evolving payments landscape. The company's focus on serving niche verticals and embedding its solutions within the workflows of its clients have been instrumental in driving its growth and setting it apart from its competitors.
The digital payments industry has been experiencing robust growth, with a compound annual growth rate (CAGR) of around 15-20% in recent years. This trend is driven by the increasing shift towards electronic payment methods by both businesses and consumers, creating a favorable environment for companies like Repay to expand their market presence.
Conclusion
As the payments industry continues to undergo a digital transformation, Repay's agile and technology-driven approach positions it as a formidable player poised to capitalize on the abundant opportunities in the market. With a robust pipeline of growth initiatives, strategic partnerships, and a proven track record of execution, Repay stands as a compelling investment opportunity for investors seeking exposure to the dynamic payments sector.
The company's focus on specific vertical markets, its proprietary technology solutions, and its ability to deliver consistent growth across key financial metrics demonstrate its resilience and potential for long-term success. As Repay continues to innovate and expand its offerings, it is well-positioned to capture an increasing share of the growing digital payments market and deliver value to both its clients and shareholders.