Executive Summary / Key Takeaways

• REPAY Holdings, a vertically-integrated payment processor, is shifting its strategic focus to intensified organic growth investments in core and adjacent verticals after concluding a comprehensive strategic review.
• Despite a reported revenue decline in Q1 2025 driven by specific client losses and lapping prior political media spend, management points to resilient core growth and expects sequential quarterly normalized gross profit acceleration throughout 2025.
• Key operational priorities include enhancing direct sales, capitalizing on non-card payment monetization opportunities, and building indirect partnership channels, targeting a high single-digit to low double-digit normalized gross profit growth exit rate in Q4 2025.
• The company maintains a strong balance sheet with ample liquidity ($415 million as of March 31, 2025), supported by accelerating free cash flow conversion expected to exceed 60% by year-end 2025 (excluding one-time impacts), providing flexibility for organic investment, opportunistic share repurchases, and addressing the 2026 convertible notes.
• REPAY's competitive positioning leverages its proprietary integrated technology and deep vertical expertise, particularly in underserved markets like consumer finance and B2B AP, although it faces challenges from larger, more diversified players and macroeconomic uncertainties.

Setting the Scene: Vertical Focus and Integrated Payments

Repay Holdings Corporation operates as a specialized payment technology provider, embedding its solutions within specific, industry-oriented vertical markets. Founded in 2006, the company's journey took a significant turn with the Business Combination in July 2019, which established its public corporate structure and set the stage for expansion through strategic acquisitions. This history underscores a deliberate strategy to target niches where tailored payment solutions, deep market knowledge, and integrated technology can create a competitive advantage.

The company's business is structured around two key segments: Consumer Payments and Business Payments. The Consumer Payments segment, representing approximately 86% of Q1 2025 revenue, focuses on verticals like personal and automotive loans, receivables management, and credit unions, enabling clients to efficiently collect and disburse funds. The Business Payments segment, contributing about 14% of Q1 2025 revenue, targets areas such as retail automotive, education, healthcare, and hospitality, providing solutions for both accounts payable and accounts receivable. This vertical specialization allows REPAY to develop deep integrations with software partners, a cornerstone of its go-to-market strategy.

The payment processing industry is undergoing a secular shift towards digital transactions, presenting a significant growth opportunity. While the overall U.S. consumer payment market approaches 80% card penetration, many of REPAY's target verticals, such as mortgage servicing, still exhibit much lower digital adoption rates, sometimes in the single digits or low teens. Similarly, the B2B accounts payable space continues to rely heavily on paper checks, indicating a substantial runway for digitization and automation. REPAY's strategy is designed to capitalize on these trends by providing a comprehensive, integrated platform that simplifies complex payment workflows and offers value-added services.

Technological Edge and Innovation Pipeline

At the heart of REPAY's strategy is its proprietary, integrated payment technology platform. This platform is designed to reduce the complexity of electronic payments for businesses while enhancing the end-user experience. A key differentiator is the company's ability to seamlessly embed its payment capabilities directly into clients' existing software systems, including core financial institution and credit union platforms, as well as various ERP and vertical-specific software solutions.

This integrated approach offers tangible benefits. For instance, the platform supports a wide range of payment modalities, including debit and credit card processing, ACH, virtual cards, and instant funding. The Instant Funding product, which saw transaction volumes increase by approximately 19% year-over-year in Q1 2025, provides clients, particularly in personal lending, with the ability to offer rapid and convenient fund disbursements, a feature that differentiates them in the market. Management views Instant Funding as a potential revenue enhancer with opportunities to expand its application to other verticals.

REPAY is also investing in its technology roadmap to stay ahead. This includes continuous development of new capabilities such as RTP (Real-Time Payments) and enhancing existing offerings like enhanced ACH. The strategic decision to migrate certain AP clients onto the TotalPay solution, while causing some near-term volume impact, is aimed at better serving these clients and addressing future monetization opportunities across their entire AP spending volumes, including enhanced ACH alongside virtual cards. This focus on monetizing non-card volumes is a key operational priority moving forward. The company's real-time vendor enablement process in Business Payments, which has helped grow the supplier network by 40% year-over-year to approximately 390,000 suppliers, is another example of technology supporting operational efficiency and network effects.

While specific quantitative metrics comparing the performance of REPAY's technology (e.g., processing speed, uptime) directly against all competitors were not detailed, the company emphasizes its ability to offer a "one-stop shop" for all payment types and modalities within its targeted verticals as a competitive advantage. Investments in R&D and technology are ongoing, reflected in capitalized software development costs ($10.4 million in Q1 2025) and a reduction in software amortization expenses in Q1 2025, suggesting a maturing of certain software assets. The integration with Worth.ai for merchant underwriting and onboarding is aimed at leveraging technology to speed up internal processes and mitigate risk. These technological efforts are crucial for maintaining REPAY's competitive moat, supporting its vertical specialization, and driving future growth by enabling new products and improving operational efficiency, which in turn supports margin expansion and free cash flow generation.

Financial Performance and Liquidity

REPAY's financial performance in Q1 2025 showed a decrease in reported revenue and gross profit compared to the prior year period. Revenue was $77.3 million, down 4.2% from $80.7 million in Q1 2024. Gross profit declined by 5% year-over-year to $58.7 million. This reported decline was primarily attributed to the full quarter impact of previously announced client losses and the absence of political media spending that benefited Q1 2024 results. Costs of services decreased by 2.6% year-over-year, partially offsetting the revenue decline.

Despite the reported figures, management highlighted that when excluding the impact of client losses and strategic migration initiatives, reported gross profit growth would have been in the low single digits in Q1 2025. This suggests a level of underlying resilience in the core business. Adjusted EBITDA for Q1 2025 was $33.2 million, a decrease of 6.6% year-over-year, resulting in a solid adjusted EBITDA margin of 43%. Selling, general, and administrative expenses remained relatively flat, indicating disciplined cost management. Net loss attributable to the company increased to $7.9 million in Q1 2025 from $5.2 million in Q1 2024, influenced by factors including interest expense and changes in the tax receivable liability valuation.

Looking back, full-year 2024 demonstrated revenue and gross profit growth of 6%, with adjusted EBITDA growing 11% and achieving margins of approximately 45%. This performance highlights the company's ability to grow profitably despite facing headwinds.

Liquidity and cash flow generation are key strengths for REPAY. As of March 31, 2025, the company held $165.5 million in cash and cash equivalents and had access to a $250 million undrawn revolving credit facility, providing total liquidity of $415 million. Net cash provided by operating activities in Q1 2025 was $2.5 million, a significant decrease from $24.8 million in Q1 2024, primarily due to changes in working capital and the net loss. Reported Q1 2025 Free Cash Flow was negative $8 million. However, this was negatively impacted by approximately $16 million in net working capital timing reversals and $3 million from client losses. Excluding these impacts, Q1 2025 free cash flow conversion would have been similar to Q1 2024's rate of approximately 38%. Management expects free cash flow conversion to accelerate significantly throughout 2025, exceeding 50% in Q2 and reaching above 60% by year-end (excluding one-time working capital impacts).

The company's debt structure includes $220 million in 0% convertible senior notes due in 2026 and $287.5 million in 2.88% convertible senior notes due in 2029, totaling $507.5 million in outstanding principal. Net leverage stood at approximately 2.5 times exiting Q1 2025. REPAY made a $16.3 million payment related to its Tax Receivable Agreement (TRA) in Q1 2025 and expects to make annual TRA payments when sufficient taxable income is generated. The TRA liability was $190.4 million as of March 31, 2025. The company remains in compliance with its debt covenants and expects to maintain sufficient liquidity to address the 2026 debt maturity.

Strategic Evolution and Outlook

REPAY recently concluded a comprehensive strategic review initiated in March 2025. In light of prevailing macro uncertainty, the Board determined that additional investment in organic growth would yield the best results for shareholders at this time, generating returns above other potential alternative outcomes. This decision was informed by an in-depth assessment that confirmed significant market potential within the company's reach.

The strategic review has solidified key operational priorities aimed at accelerating growth. These include enhancing the direct sales model by allocating more resources to sales teams and targeting specific enterprise logos in core growth verticals. The company also plans to capitalize on more monetization opportunities, particularly by targeting non-card payment volumes through its TotalPay solution. Furthermore, building more indirect partnership channels in both the Consumer and Business Payments segments is a priority. These initiatives are expected to drive sequential quarterly normalized gross profit growth throughout 2025.

Management anticipates positive impacts from these investments and the ramp of recent client wins to be reflected in reported growth in the second half of 2025. While a specific full-year 2025 outlook was not provided, the company expects normalized gross profit growth to accelerate from low single digits in Q1 and Q2 to slightly faster in Q3, culminating in a high single-digit to low double-digit exit rate in Q4 2025. Adjusted EBITDA growth is expected to follow a similar trajectory, assuming stable margins. The acceleration in free cash flow conversion is a key focus, projected to exceed 50% in Q2 and accelerate above 60% by year-end 2025 (excluding one-time working capital impacts).

Capital allocation priorities align with this organic growth focus. The company will continue making incremental organic growth investments, manage CapEx prudently, and opportunistically repurchase shares when the price is disconnected from intrinsic value. The Board recently increased the share repurchase authorization to $75 million, with approximately $61.2 million remaining as of May 12, 2025. Maintaining a strong balance sheet to address the 2026 convertible notes is also a priority. While the focus is organic, the company remains open to accretive strategic tuck-in M&A opportunities that could further accelerate its position and growth potential.

Competitive Landscape and Risks

REPAY operates in a competitive payment processing market, facing a diverse set of rivals ranging from large, diversified financial technology giants to smaller, niche-focused players. Larger competitors like Fiserv (FISV) and PayPal (PYPL) possess significant scale, extensive networks, and robust financial resources, enabling broad market reach and substantial cash flow generation. Fiserv, with its deep bank and merchant relationships, and PayPal, with its vast consumer and e-commerce ecosystem, represent formidable competition, particularly in areas where REPAY seeks to expand its digital penetration.

More growth-focused competitors like Block Inc. (SQ) demonstrate rapid innovation cycles and strong positioning in specific segments (e.g., small business, consumer fintech), while companies like Affirm Holdings (AFRM) specialize in areas like installment lending, overlapping with REPAY's consumer finance verticals. These players can offer competitive pricing, rapid product development, and strong brand recognition in their core areas.

REPAY's competitive strategy centers on its vertical specialization and integrated technology. By focusing on specific industries like consumer finance and B2B AP, REPAY aims to offer solutions deeply embedded within client workflows, providing a level of customization and expertise that larger, more generalist processors may lack. Its proprietary technology and real-time enablement processes are designed to offer efficiency and value in these niches. However, REPAY's smaller scale relative to giants like FISV and PYPL can result in higher operating costs and less financial flexibility for massive infrastructure investments or aggressive pricing strategies. While REPAY's growth rate has been healthy, it has lagged behind some of the more rapidly expanding competitors like SQ and AFRM in recent periods.

The company faces several key risks. Macroeconomic conditions, including inflation, evolving trade policies, and potential slowdowns or recessions, could adversely affect payment volumes, particularly in consumer and commercial spending. While REPAY's focus on non-discretionary payments in some verticals offers some resilience, economic uncertainty remains a factor. Client concentration and the risk of client losses, as experienced in Q1 2025, can impact reported growth. The competitive landscape itself poses a risk, with potential for increased price competition or technological disruption from rivals. The obligation under the Tax Receivable Agreement represents a potentially substantial future cash outflow, although the company expects to fund this from realized tax savings. Finally, the ability to successfully execute the planned organic growth investments and achieve the targeted acceleration in the second half of 2025 is critical to the investment thesis.

Conclusion

REPAY Holdings is at a pivotal point, having concluded its strategic review and electing to double down on organic growth within its specialized vertical markets. While recent reported financial performance has been impacted by specific headwinds, the underlying core business shows resilience, and management has laid out a clear path for sequential gross profit acceleration throughout 2025, targeting a strong exit rate by year-end. This outlook is underpinned by targeted investments in sales, monetization opportunities, and partnership channels, leveraging the company's proprietary integrated technology and deep vertical expertise.

The company's solid balance sheet and accelerating free cash flow generation provide the necessary financial flexibility to pursue these organic initiatives, address upcoming debt maturities, and opportunistically return capital to shareholders through buybacks. While the competitive landscape is challenging and macroeconomic uncertainties persist, REPAY's focused strategy on underserved niches and its commitment to technological innovation position it to capitalize on the ongoing secular shift to digital payments. For investors, the story hinges on REPAY's ability to successfully execute its refined organic growth strategy, translate pipeline opportunities into realized volume, and demonstrate the expected acceleration in financial performance and free cash flow conversion in the coming quarters.