Repay Holdings Balances Growth and Challenges in Earnings Call

Repay Holdings ((RPAY)) has held its Q3 earnings call. Read on for the main highlights of the call.

Repay Holdings’ recent earnings call presented a balanced sentiment, highlighting both positive developments and ongoing challenges. The company reported revenue growth, strong free cash flow, and an expansion of software partnerships. However, concerns such as client losses affecting growth, margin compression, and decreased political media contributions were also noted. The sentiment reflects a mix of optimism and caution as Repay navigates its financial landscape.

Sequential Improvement in Growth

Repay Holdings reported a 5% revenue growth and a 1% gross profit growth on a normalized year-over-year basis. The company maintained robust adjusted EBITDA margins at 40%, showcasing its ability to sustain profitability despite market fluctuations.

Strong Free Cash Flow

The company demonstrated strong free cash flow conversion at 67%, which allowed for reinvestment into organic growth initiatives. This financial strength underscores Repay’s commitment to fueling future growth while maintaining liquidity.

Expansion of Software Partnerships

Repay expanded its software partnerships by adding five new partners, bringing the total to 291 across consumer and business payment segments. This expansion is expected to enhance the company’s market reach and service offerings.

Business Payments Segment Growth

The Business Payments segment saw a 12% increase in normalized gross profit year over year. This growth was driven by the company’s accounts payable platform and payment monetization initiatives, highlighting the segment’s strategic importance.

Supplier Network Expansion

Repay’s supplier network grew to over 524,000 suppliers, marking a 60% year-over-year increase. This expansion reflects the company’s strategic partnerships and enhanced ACH offerings, positioning it for further growth.

Debt Reduction and Share Repurchase

In a strategic move, Repay retired $73.5 million of its 2026 convertible notes at a discount and repurchased approximately 3% of its outstanding shares in August. These actions demonstrate the company’s focus on strengthening its financial position and returning value to shareholders.

Client Loss Impacts

The company experienced a 4% impact on Q3 growth due to previously discussed client losses from 2024. This challenge highlights the importance of client retention in sustaining growth momentum.

Gross Profit Margin Compression

Repay faced a 3.4% year-over-year compression in gross profit margins, attributed to a larger mix of clients with volume discounts and increased revenue from ACH and check volumes. This compression poses a challenge to maintaining high profitability levels.

Political Media Contributions Decline

The company noted a 10% impact on Q4 reported growth due to lapping strong political media contributions. This decline underscores the volatility of external revenue sources.

Lower Free Cash Flow Conversion Outlook

For Q4, Repay anticipates a free cash flow conversion rate above 50%, down from the previous outlook of 60%. This adjustment is due to the timing of net working capital, reflecting the company’s cautious financial planning.

Forward-Looking Guidance

Looking ahead, Repay anticipates a 6% to 8% normalized gross profit growth in Q4, with free cash flow conversion expected to be above 50%. The company remains optimistic about its strategic initiatives, despite the challenges posed by margin compression and client losses.

In conclusion, Repay Holdings’ earnings call reflects a balanced outlook with significant achievements in revenue growth and strategic expansions, countered by challenges such as client losses and margin compression. The company’s forward-looking guidance suggests cautious optimism as it continues to navigate the financial landscape.