Q4 2019 Earnings Call
[music].
Welcome to today's earnings conference call being hosted by Repack with US today are John Morris Co founder and Chief Executive Officer in 10, Murphy Chief Financial Officer.
During this call we won't be making forward looking statements about our beliefs estimates regarding future events universal.
These forward looking statements are subject to risks and uncertainties, including those set forth in the FCC filings related to today's results.
Actual results may differ materially from any forward looking statements we make sure.
Forward looking statements speak only as of today, we do not assume any obligation werent tend to update except as required by law.
In an effort to provide additional information to investors. Today's discussion will also include references to certain non-GAAP financial measures explanation of these non-GAAP financial measures as well as a reconciliation of these non-GAAP measures to the nearest GAAP financial measures can be found in our earnings release available in the company.
Our site I would now like to turn the call over to Mr. Mark. Please go ahead.
Thank you operator, and good afternoon, everyone.
We know that Koby 19 is top of mind right now so we wanted to begin with a few preliminary thoughts on the virus and how it may impact our business.
First the health and wellbeing of our employees customers partners investors and analysts is always on our minds.
We hope everyone is staying healthy unsafe during this difficult in challenging times.
Second.
As we all know recent world events are unprecedented.
Well, we don't have complete visibility into future developments, we are monitoring the situation closely we believed that our diverse merchant base and the resilience other verticals, we serve as well as the secular shift to the more innovative integrated payment solutions in which we specialize provided us with unique characteristics that should help insulate us any type of macro.
[music] environment.
Just a few thoughts regarding our loan repayment business.
The large majority of the payments, we facilitate or Nondiscretionary financial obligations.
At our recurring in nature, such as auto loan payments. These types of payments are usually set up to be automatically paid and are still very necessary, even in an economic downturn.
Payment volumes could be adversely impacted in a recession, if consumer credit were to tighten. However, this would likely be somewhat offset by additional lending to higher FICO score consumers drifting into the Nonprime segment. Additionally, we think debit card penetration would accelerate and this type of environment.
And then with respect to I'd be to be business. These types of payments. We're also not discretionary.
These are businesses that need to pay each other for services in good surrender.
This world continues to remain ripe for digitalization in real time, we had the full suite of payment solutions to enable that experience.
Today, we are providing our outlook for 2020, which Tim will review shortly.
Based on what we currently see in our business, our discussions with our customers and our experience operating this business through various types of environments.
We're coupled with this guidance.
Well, we reporting our first quarter results in May and will provide further updates on what we're seeing in our business at that time.
Now, let's dive into a more positive recap of our performance.
2019 was an outstanding and transformative year for repay in July we became a publicly traded company through our merger with Thunderbridge, providing us with access to capital and successfully positioning the business for long term growth.
We subsequently closed two highly strategic acquisitions and try software solutions, which increased our Bakken capabilities, and a P.S. payments, which brought us into the b to b vertical and increased our Tam I ever a trillion dollars.
Looking forward, we're excited about a great year ahead in 2020, which is supported by strong outlook.
On today's call I wanted to touch on three key topics first recap the fourth quarter and for your results second review, our progress against our growth objectives, and lastly, discuss our plans for 2020 and beyond.
First to move onto our high level financial result, we're pleased with our results in the fourth quarter, which included total volume in gross profit growth up 72% and 67% respectively.
On an organic basis gross profit increased 27% in the fourth quarter and we achieved adjusted EBITDA growth of 52% to 14.7 million compared to the fourth quarter of 2018.
Q4 solidified a very successful year for repay which included total volume in gross profit growth, a 44% and 43% respectively as well as adjusted EBITDA growth of 32% to 48.4 million.
Organically, we also had a very productive year reporting 29% organic gross profit growth compared to 2018.
Now moving on to progress against our growth objectives, we have made significant progress across our key growth categories, which has driven our success.
Starting with organic growth, we continue to address large underserved loan repayment verticals.
Increased debit penetration with existing customers.
Organically added four software partners during the quarter. In addition, we added seven integrations and the B to B space through our acquisition of a P.S. in the fourth quarter that brings our total to 70 integrations at the end of 2019.
These are valuable to our business, probably sales and marketing perspective, but also contribute to our industry leading retention rate.
Also repays direct Salesforce continues to provide card acceptance by providing thought leadership at key industry conferences and events.
It's joining to Jack Henry Symitar vendor integration program in late last year, we've been able to penetrate credit unions, which is a large an underserved market in the auto lending space on that note. We recently added correlation as a software partner, who drives innovation and core processing to over 75 Americas credit unions.
Moving onto our international efforts 2020 will be our second year operating in Canada. The team is very busy building our ecosystem in the country working on both the front in the Bakken as well as integrations to various software partners.
We've also had early success and building our customer pipeline in Canada.
This will be another year of building a base for this business and we continue to believe that 2021 will be an inflection point after which are work will begin to see more meaningful contribution.
We really think there was a great opportunity in the country to be a clear industry leader.
We also remain focused on finding operational efficiencies across our business and the fourth quarter. We continue to work with our various processing partners on ways to more effectively and efficiently grew volumes were starting to convert merchants away from the A.P.S. backend and third party gateways to the repay platform.
And expect this process to ramp up in the second half of 2020.
On the M&A front as you know during the fourth quarter, we completed the acquisition of a P.S. payments, which was our second acquisition in 2019, and our first foray into the B to B vertical.
We're excited about this new at highly underserved vertical as a very large tam with many attractive sub verticals, providing numerous organic and inorganic growth opportunities.
Secondly on the M&A front, we recently announced the acquisition of been tenants, which brings us significant growth opportunities into the mortgage servicing and b to B health care market.
You have been Texas technology platform offers inbound and outbound HP omni channel payment solutions and complex rules based processing.
You know enables its clients to stand the receive funds across numerous payment types, including but not limited to a C. H debit card credit card virtual card and chat.
You bet tannic solution is deeply integrated into its clients work flow back connectivity with their primary enterprise software solutions.
Which is definitely an advantage.
The mortgage servicing and B to B health care markets are in the early stages of a secular shift from legacy payment medians do the more innovative and very it payment solutions, which we specialize.
Additionally, in taxes, consumer finance and health care B to B focus aligns well with our existing client base. We're in the early stages of exploring potential cross sell opportunities between both customer sets, including ATP functionality, which would provide those customers more robust offerings.
More on that during future calls.
Before I turn the call ever to Tim I want to lay out our outlook and priorities for 2020.
Well the year, we're expecting our gross profit to grow 50% at the midpoint, which we driven by three levers.
First our existing clients for which we have industry, leading volume retention.
Second we will continue to expand usage and when new customers in existing and new verticals by highlighting our proprietary integrated payment technology platform, which reduces complexity for merchants enhances the customer experience.
We currently have 78 individuals our sales organization, including 50 direct sales reps up from 40 and 27 at the end of 2018, who will be focused on these efforts.
And as I said earlier.
As of the end of 2019, we had 70 software partners, who will be assisting this team with referrals. We continue to expect to add one to three per quarter across all of our verticals going forward.
And finally in our 2020 numbers will have the full year benefit I've tried sourced and <unk> solutions, along with 10 and a half months I've been tennis contribution, which we acquired in February.
Importantly, supporting these efforts as a total addressable market opportunity up 2.3 trillion, which is underserved today.
There's a huge secular shift from cash checks and H.T.H. to a real time electronic payment.
So we believe there is lot solid runway for organic growth in 2020 and beyond.
And of course, our M&A pipeline continues to be active as we look for attractive verticals that are large growing an underserved.
As well as we expand our footprint and current verticals.
We're positioned well for these inorganic opportunities.
To wrap up we're pleased with our performance during the quarter and 2019 as a whole and are even more excited about what has to come.
Oh this wouldn't be possible with our incredible team here at repay we'd like to thank each and every one of them for all their hard work and determination over the past year and look forward to grow any company alongside them at 2020.
I will now turn the call ever does tend to discuss Q4 and full year results in detail and to go over our guidance for 2020, Tim.
Thank you John before I dive into our financial results I wanted to highlight that the company has adopted the new revenue recognition standard assay topic six so six via the modified retrospective method of adoption.
The adoption of assay six so six resulted in presentation changes in our statements of income with revenues and expenses presented net interchange network and other fees in accordance with topics six so six.
Under this method 2018 results are not restated.
To further clarify.
In addition to now showing revenue after interchange network fees another change, resulting from the adoption of six so six was to reduce revenue by certain other processing related fees of 3.6 million for full year 19.
Oh, there was no impact to gross profit our earnings due to the adoption of six to six this change to other processing related fees resulted in full year 19 gross margins, increasing by approximately 250 basis points.
Please refer to slide six of the Q4 earnings supplement for additional details.
Now, let's move onto our solid Q4, and full year financial results before our view our outlook for 2020.
Repaid delivered another strong quarter across all of our key metrics, leading us to exceed or hit the high end of our targets initially laid out for 2019.
For the full year as compared to 2018 card payment volume increased 44% total revenue on a combined basis, excluding the impact of six so six increased 28% gross profit grew 43% and adjusted EBITDA increased 32%.
Organically, we also had a very productive year reporting 29% organic gross profit growth compared to 2018.
For the fourth quarter card payment volume was 3.4 billion, an increase of 72% over the prior years fourth quarter total revenue excluding the impact of six to six on a combined basis was 49.3 million an increase of 45% over the prior year fourth quarter try source and he has contributed 6.5 and 3.2 million or revenue respectively. During.
In the fourth quarter.
Moving onto your expenses in the quarter.
Excluding the impact of six so six enriching the network fees were 59 compared to 12.5 million in the fourth quarter 2018.
The increase was primarily due to increased card payment volume, which leads to higher interchange network fees, including the impact of 606. Other cost of services were 9.3 million excluding impact of six to six other cost of services were 9.9 million compared to 6.9 million in the fourth quarter of 2018.
The increase was primarily due to the additions of try source and they P.S. However, when excluding trice worsening P. S. The amount was down in Q4 consistent with trends in prior periods.
Gross profit was 24.3 million an increase of 67% over the prior years fourth quarter I don't know organic basis gross profit increased 27% in the fourth quarter of 2019 compared to the fourth quarter 2018.
As a reminder, that's the key metric for us as it is how we price new customer deals and our sales team incentive structure is also based on gross profit.
As she and I was 24.9 compared to 8.1 million in the fourth quarter of 2018.
The increase was primarily due to stock compensation expense related to new equity issuances transaction costs related to our acquisitions, new hires in public company costs.
Fourth quarter pro forma net loss was 7.5 million compared to net income of 2.1 million the fourth quarter of 2018.
The decrease was mainly the result of the increased yesterday for the reason just mentioned.
Fourth quarter adjusted net income was 12.3 million or 20 cents per share.
Please note different Bauer comparability purposes. In 2019, we did not include a tax effect adjustment wherever we intend to do so going forward in 2020.
Lastly, fourth quarter adjusted EBITDA was 14.7 million, an increase of 52% over the prior year fourth quarter.
First quarter adjusted EBITDA as a percentage of processing and service fees was 43% excluding the impact of six so six compared to 45% in the prior year fourth quarter. This slight decrease is primarily result of additional cost when it's becoming a public company such as new legal accounting and tax resources. Additionally, try sourcing <unk> EBITDA margins are slightly below.
So our loan repayment business.
As you all know on February 10th we announced the acquisition of Ventana disrupt a $50 million, which 36 million was paid at closing and the remaining 14 million maybe payable through performance based earn outs of Atlantic's acquisition was financed with a combination of cash on hand in borrowings under repays existing credit facility.
As part of the financing for this transaction, we entered into an agreement Truest Bank and other members of our existing Bank group to amendment upsize, our existing credit facility by $115 million to provide additional capacity for growth.
Combined pro forma an LTM net leverage is estimated to be approximately 3.7 times on a post transaction basis.
Moving onto our full year 2020 outlook.
Card payment volume is anticipated to be between 15.5 billion and 16 billion.
Total revenue is anticipated to be with your 155 million at 165 million. This includes the adoption of six so six gross profit is expected to be between 115 million, a 120 million and adjusted EBITDA is expected to be between 66 and 70 million.
You will not be providing quarterly guidance, but I wanted to remind you of the seasonality in our business.
Volumes during the first quarter of the calendar year tend to increase in comparison to the remaining three quarters of the calendar year on a same store basis in our loan repayments business.
This increase is due to consumers receipt of tax refunds and the increases in repayment activity levels that fall.
Finally, I want to give me an update on our share count.
We began the quarter with 62.7 million shares outstanding on asking burden basis based upon the achievement of certain performance hurdles toward the end of Q4, we added another 4.3 million shares ending 2019 with approximately 67 million shares outstanding on an as converted basis.
We posted a supplemental deck on our IR site, which includes the slides it lays out our share count.
I'll now turn the call back over to the operator take your questions operator.
Thank you at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
For participants you think speaker equipment and may be necessary to pick up your handset before pressing the star keys.
A confirmation telling will indicate your line is in the question Q.
You May Prestart you if he would like to remove your question from the Q1 moment. Please while we poll for questions.
Our first questions come from the line of Andrew Jeffrey of Suntrust. Please proceed with your question.
Hi, guys certainly appreciate.
Taking the question good results in a.
In a in a tough environment for sure I'm, a couple of things I guess I'm thinking about.
For starters I know, it's a relatively small business.
A big market.
Could you maybe comment a little bit on what you think about the potential for.
Well, we're currently seeing as far as disruptions being a real catalyst for electronic payments. It seems like that would be a pretty important lever for a lot of companies.
Passionately in a downturn to increase efficiency of their accounts payable in receivable functions.
That's something you're you're sort of looking forward to or do you think that's more of a 21 event, but.
I'd love to hear high level thoughts on that.
Yes, Thanks, Andrew we we agree with you we think that there's there's been a shift to more real time payments and electronic payments, but there would be to be and certainly this type of environment could accelerate that whereas people want to move away from checks and you know want to move to electronic payments.
He said automated payments that are officially reconciled through their ERP systems. So we know it's probably too early to say you know exactly how long that will take what we think that it could certainly be.
Celebrate here I want to electronic as you mentioned.
I also would have mentioned.
As we all aware of.
Hi, good 19 situations or the fact that you really can't cut checks from home could increase the thought process around this yeah.
Yeah, I think that's a very good point.
And then a good to see that the roster via speeds continue to grow at a healthy pace.
Oh boy.
It sounds like you added what maybe eight CAD in the quarter.
Are those.
Generally along your existing verticals are they concentrate it did.
One vertical market another going to auto <unk> personal just.
Sense of how we might expect I actually partnerships, how they grow and how we expect them to grow going forward.
Yes, so we added 11 in the quarter.
For where organic and seven came from the NPS acquisition. So we ended with 70 and so you know of the four I believe has fewer and credit unions. One was in personal loans and I believe all was an auto and then the other seven would be in B to B.
Got it.
Okay I'll jump back into queue. Thank you.
Yes. Thank you.
Our next question it's come from the line of Bob Napoli of William Blair. Please proceed with your question. Thank you and good afternoon, good quarter and Jeff.
And I'm, sorry, I'm juggling two calls I apologize if this was.
Brought up in the initial comments just in your guidance.
I mean, how were you as far as we progressed through the year. What are you seeing like minutes a minute from the no the effects of the up to the virus on the business and what are you hearing from from your customers.
Yes. Thanks, Bob So we are we haven't reaching out to our customers regularly and and so far what we're hearing is that they have a real need for remote payments. There are looking for more ways to accept payments that are not coming through the store not coming through cash and so they're asking us about how they can adapt.
Tower different payment methods and channels.
We've also recently seen a slight uptick in demand for our instant funding product. So we can instantly fund alone to the debit card versus having to and someone cash in a physical branch location. So we're hearing that there's there are.
Our tools seem to meet the needs of of our merchants in this environment, but obviously its rapidly evolving and so it's just something like you mentioned that we're monitoring throughout each day and.
In terms of how we think about our outlook we've taken into account all the inputs and information we have available to us and in factor that is so that's the way it is.
From our customers.
All right I mean, I would imagine that your some of your customers are looking good giving deferrals to cut to have you had discussions I mean, not sure. If you see that right away, but is are you seeing a and maybe it's too early I think every day seems like a month or these days, but are you seeing so you haven't.
Seen any change in trend you have to do you feel like your penetration rate is going up offsetting any some potential decline in business and payments.
That's right Yeah, we we.
Like you said, it's fast moving but we're seeing just additional need for our products and you know additional demand we have not seen any specific incidence of referrals are deferrals excuse me. We're just we're just really seeing customers trying to figure out how they can give you know more options for repayment to thereby.
Bars.
And then just last question on the health care business. What are your what is the growth rate of that business and what is the game plan to really ramp that up.
Yeah. So that's one aspect of the Ventana ex acquisition, we they have they didnt mortgage servicing as volatile as well as b to B healthcare that business is growing nicely probably above our legacy business in the low 20% range.
And we think that.
It's a dynamic situation right now obviously around health care, but you know the early read is that you could see increased claims which could potentially lead to increased payment volume activity.
Thank you appreciate it.
Our next question comes from the line up Craig Maher of Autonomous Research. Please proceed with your question.
Yes, Hi, John and Tim Hope, everybody as well HM.
Quick question on auto we're seeing Oh, we're seeing commentary from certain banks, suggesting that there's been Titanic shifted activity recently from new car purchases to used car purchases I'm considering that you guys are hunter.
<unk> percent used cars have you been seeing this in your business and does this.
How do you think about that for the rest of the year. Thanks.
Yeah, Yeah. Thank you Craig Yeah, we are seeing that so these are.
Financial institutions are non bank, so non bank lenders and as you said there how focused on used car sales and so what we've been seeing is more lending activity as used car sales pick up in.
A lot of positive commentary around that trend so.
That we feel good about that as you know as we've discussed our big focus right. Now is is growing our auto business than growing our PDP business and that's fits in nicely with that.
Thanks, a lot.
Next question, it's comforting to line up Mike Grondahl of Northland Capital markets. Please proceed with your question.
Yeah. Thanks, guys. He just did a high level, what do you seem to kind of the personal loans basin and also.
With your credit Union customers.
Personal loans, which we feel good about we feel like there is there's been additional adoption like I said as as our personal lenders use more and more of the payment channels and methods. We see the use of debit cards increased our debit card penetration has gone up.
That's where I mentioned, we've said we've seen a slight uptick in demand things and funding product given recent developments.
And so we feel good about that and then a you know the Jack Henry Symitar integration is starting to show some benefits we've gotten a couple of fairly large credit unions now through that.
Network and as we mentioned on the call Weve recently signed up another partner call correlation which.
You know touches over 70 575 of the top credit unions across the country. So now starting to get some good leads from that relationship as well. So a and then that kind of dovetails nicely with the commentary around auto loans and potential increase in auto loan activity given the focus on used car sales.
Got it just a follow up.
With the P.S. acquisition that B to B vertical you know very large any update there kind of obviously you've got to seven integrated partners, you called out, but what else you'd be we'd we'd be watching there.
Yeah, I would say that particular acquisition is on track, we're working through our integration work streams and that's going well.
We think there's significant opportunity there.
Specifically, we're on the IR site I think we will look as the we moved through the spring in this particular.
Environment, we think that that theres additional opportunities for us to add some unique channel partners as well as some integrations there.
If I look longer term or our ability to possibly as I mentioned in our release to cross sell some of our.
The automation features a as well as to build some of the out that out overtime. So we see significant opportunity into hopefully to be vertical that we will continue to invest in overtime organically and if there's an opportunity to add to that Inorganically, we would look to do that.
Okay. Thank you.
Our next question, it's come from a line of Sanjay Sakhrani of KBW. Please proceed with your question.
Alright, Thank you guys I.
I Hope you guys are safe and healthy.
I guess.
Question, Tim on the outlook could you help me it's aggregate as we think about the growth rates how much is coming from organic versus acquired just for clarity purposes and then.
Only are there any qualitative.
Backdrop type of data points, you could provide to that that informed you come up with that guidance.
Yes, so thanks for the questions Yeah, I'll point, you to the earning supplement Oh, we actually put a bridge and they earning supplement slide 11, and we wanted to show you for gross profit.
We look at the midpoint of our range you can see that's an increase of about $39 million 15 of that is coming from organic growth and 24 is coming from a growth from acquired entities. So it's you know total growth of 50% put or implies organic growth of about 20%.
So we feel we feel we still feel really good about organic growth. Obviously, we're seeing a big benefit of the full year of the acquired entities, but organic is still strong. It's it's driven by a lot of the same factors, we've been talking about which is increased our penetration with existing customers.
Increasing our software relationships would <unk>, which provides us access to new customers in existing existing verticals and then just focusing on expanding our salesforce as John mentioned, we have significantly increased our salesforce both from an AD direct sales rep perspective, as well as a sales organization.
Captured perspective, and we think all that helps facilitate organic growth.
Got it.
And I guess and just in terms of the qualitative factors.
Informing your guidance as you mentioned, you're you're incorporating what you're seeing today.
Yes, yeah, we're surveying our top customers and talking to our salespeople.
We have looked and at some of the data around tax refunds as you know like I mentioned on the call. Our business is somewhat tied to tax refunds and you know consumers, taking those refunds and making you to larger than expect larger than typical payments are actually paying off loans.
We think the data on that has been strong volume return we tax return volume data has been strong we see that some of it may slip a little bit into Q2, if there are delays and refund processing, but in terms of the overall outlook. We think the volume is strong year over year. So that's something that we booked out recently as well.
Okay.
And I guess just following up on that.
It past examples of stuff like this where there might be an epidemic or natural <unk> natural.
Event to like a hurricane that probably has impacted some of your merchant I'm curious is there anything that you can just aggregate from that that sort of.
Well the fall out as a result is there a slow down and then a sharp pick up I mean, maybe anything that you can qualitatively give us in terms of that would be helpful.
Yeah, I mean, I think that they may experience.
Short term.
Decrease in repayment activity, just because of the immediate disruption, but what they do his day, then shift to trying to figure out the most efficient way to get repaid and we're where we help solve that problem for them, which is why we're seeing some of them reach out to us now trying to figure out how to get.
Access to more efficient paint remote non cash payment methods and we think that that will help accelerate data penetration and so we've seen the past where that may be a short lived phenomenon, where they are declining repayments just because of the immediate disruptive nature or whatever that event maybe.
Okay, but then as they offer more payment options for their customers, which we help and facilitate we see that pick up fairly quickly.
Got it.
And I guess, a final question sorry on capital management, obviously, the stocks been hit a little bit harden looks like it's up quite a bit in the aftermarket. So it may not be that bad, but but if we think about sort of capital priorities I I assume it's still sort of slanted towards acquisition and organic growth to extend that there are opportunities when we look at.
Is that true number one part one and number two is.
If we look at sort of the M&A pipeline have devaluation has actually gotten more attractive and might lead you down a path to be more aggressive here or is it still pretty stable to up to where things were a couple of weeks ago. Thank you.
Yeah. So on the first point, we are so focused on growth and so from a capital deployment perspective, we would want to focus on M&A opportunities and just facilitating organic growth through hiring sales and technology people.
I think that the pipeline is active hi remains full.
We.
We've seen probably some short term decrease evaluations as everyone has but we're not sure how long that will last and that's not really driving us being particularly aggressive around any of these situations. It's more about finding the right target and making sure it's great strategic fit and that's an attractive valuation I'm. So that's that's.
That's how we generally look at it.
Great. Thank you guys.
Our next question it's come from the line of charter Rafi of Canaccord Genuity. Please proceed with your question.
Hey, guys. Good afternoon, good results and what turning into a tough environment thought maybe you know what just follow up on the M&A side of things that it looks like you recently done some you know.
A lot of touch points on the M&A side moving into a lot of new markets and just wondering when you think about M&A from here.
Are you thinking about bolstering presences in existing markets, where you are in or have recently entered in or are there new markets that that's still makes sense just thinking that you know we pay sits and up a middle more of a middle market situation, where M&A moves the needle. Moreover.
For a bunch of big acquirers.
Yes, Thanks, Joe we think both.
We look at existing verticals and we've we've got some targets in mind that it could make sense for us as John said in the Btv space. I mean, we've noted recognize some competitors within the ERP is and so it would be combination of looking at.
Players in the existing space then also just.
Looking at the attributes of new verticals. So as we look at large verticals that are growing quickly at an underserved from a payment perspective that are highly focused on integrated payments that have attractive margins and that could use our technology to enhance their product offering and so when we think about new verticals. That's how we that's how we think about.
From an attribute perspective it if it were to check all the attributes and we would be interested in it wouldn't have to be an existing vertical.
Okay. That's helpful. And then I know you mentioned some of your prepared comments about you know perhaps.
Certain groups of of consumers and borrowers might drift into more of a sub prime category I was wondering.
Perhaps explain the mechanism how that may.
End of accrued to you over time, and how that might work with your customer base.
Yeah. So what we're referencing there was internet in a period of tightening where banks may be cutting credit to certain FICO score bars, yeah, those those bars still need loans and so they for example in auto loan.
I think would no longer get a bank auto loan they may come to our customers to get an auto loan and so if there were any decrease in repayment activity in that type of environment, we think to actually could be a slight offset by having new originations and those originations would be to higher credit borrowers that would be more likely to repay and so that's really the the trend.
And that we were mentioning and that's something that we.
So on heard from our customers in the last downturn.
Sure and then maybe just one quick final one I don't know if I heard up organic payment volume number for Q4, I might've missed it there a couple of calls going on thanks, a lot and good quarter.
Thank you Yeah, we mentioned organic gross profit growth in Q4 about 27% in.
Okay Anik volume growth was in the low twentys.
Great. Thank you.
Our next questions come from the line of Mark Palmer <unk> B T. I Ji. Please proceed with your question.
Yes, Hi, gentlemen, thank you.
Just a housekeeping in that first of all what was the company's leverage ratio in cash balance at quarter end.
Hi, yes, so it was about 3.7 times net.
How it's about 25 million of cash.
And so.
That includes best pro forma for the acquisition of attacks.
Okay. Thank you and as you're thinking about M&A you know what are you comfortable with regard to that leverage ratio, you know where where could go to that you'd still feel like you're in good stead.
Yeah, I mean, we we were cognizant of the four times level I'm really wouldn't want to push much beyond that it would have to be a really really strategic deal for us that we saw a path to de levering down closer to three times within cost 12 to 18 months, but.
Probably comfortable right around four times that leverage and.
So yeah, we would have to consider that as part of funding any potential acquisition.
Okay. Thank you very much.
Our next question, it's comforting to line up Joseph Foresi of Cantor Fitzgerald. Please proceed with your questions.
Hi, This is good I know Reagan and on behalf of Joe for easy.
So I.
I was just wondering how we should think about the impact of the Ats invent the next integration.
As it pertains to margins in 2020, and the levers involved in hitting the adjusted EBITDA range.
Yes, and so if you will notice the margins in 2020 based on the outlook or in the 70% to 73% range.
And that compares to 75% in 2019, and so as we've mentioned for gross margin perspective try source.
Events have been tactics are a little bit below our legacy business and so there that is contributing to the mark to gross profit margin declining slightly who inorganic perspective in our legacy loan repayment business. We don't see any margin compression CES is really due to the mix shift related to the acquisitions.
And you know those integrations are growing nicely.
The we as we mentioned we're starting to convert just starting to convert merchants from Hps is backend and gateway to our back end gateway and we see that really ramping up in the second half of the year.
Yes, we that should help with slight margin pickup going into 2021 that total dollar amount of the synergies on the S side was there's not too large overall relative to the rest of business, but it sure law first nice.
Got it okay.
Great and then it sounds like repays, mostly shielded from Colgate 19, do the recurring nature of the business.
But potentially could see negative impacts coming from a weaker consumer if it were to come to that.
Just curious what your expectations are for the next few months and then I'm also as it relates to the full year.
Thank you.
Yeah, I mean weve based on information, we have today available to us and so as it has mentioned after serving our customers and looking at some industry data around trends in tax refunds in other data sources, we feel comfortable with what we put out today.
We are we really are able to go forecast or project.
How quickly this will spread it's a very fast moving situation as we mentioned in its evolving each and every day, so but based on the information we have available to US now this is where we feel comfortable.
Perfect. Thank you.
As a reminder, if he would like to ask a question. Please press star one on your telephone keypad.
Our next question, it's come from about lineup Timothy Chiyoda of Credit Suisse. Please proceed with your questions.
Thanks, Hey, John 10 question on the <unk>. So you talked about 11 of them four of them organic just focusing on the for organic.
Look clumps symitar in there from previously.
When you look at the other payment platforms it might be working with those I ask these are there any are you. The only partner that's working with them and it's just a matter of penetrating debit or someone in there that perhaps you could gain share from maybe just give us a little bit of that landscape in terms of who else is in there if anyone.
Yeah. This is John.
So well very seldom are we exclusive we may be the preferred provider and many situations or specifically say like samatar, we would not be you the only when there, but how we're using our integration specifically for the adding to the additional payment channels to enhance the consumer.
Her experience for repayment of auto loans for credit unions is quite unique in itself, probably so were that integration as well as well as the correlation integration. We mentioned that those have both added to our pipeline opportunities are significantly.
Having those integrations. So we see are seeing more an opportunity there and it's from a competitive perspective. It does just open up opportunities for us.
As soon as a way to enhance that.
To give you a little bit of.
As we were so listening some of our customers as well and because of the the virus it's actually a.
Specifically I remember a credit you and indicating they didnt have the ability to take a remote transaction.
So it's opened up some opportunities for us there to help them, a and have their ability to to to be able to have remote and now a virtual.
Payment from that perspective, so we see positive things on all those integrations and they'd become referral partners.
As well and obviously your desk your core ERP systems.
So overall very positive we as you saw in our guidance, we still just guide to one to three a quarter <unk> and.
We still want to stay on pace with that you don't you can't exactly control timing there will be times. When we are are better yeah right at the top into that range, possibly or maybe sometimes at the bottom in that range, but overall, we have a good pipeline of those and they are integrations to those so.
So far so good there.
Great, Okay, and a quick follow up I know you mentioned the organic.
Growth in gross profit for the guide implies around the 20% level.
What does that number on net revenue growth do you have that and also I believe the gross profit growth was 29% on a like for like bases organically in 2019 and that seems like.
900 basis, a basis point of deceleration just maybe you could comment a little bit on that.
Yeah. It was it was 27% in the fourth quarter as mentions a 29% was the full year HM.
Yeah, we've we feel good it also note that 20% is at the midpoint.
And so the highest had imply higher.
Higher gross profit growth and so.
You know that we still feel really good about that you know there's some level of conservatism there.
And so.
[noise], we think 20% is strong.
It's blended okay.
Okay, all right right on yeah, and absolutely aligned with what you guys have laid out in terms of a medium term guide in terms of the high to mid teens revenue growth with maybe slightly faster in gross profit.
As long as that's still the case I think I think it all makes sense. Thanks a lot.
Thank you.
Thank you so much. This concludes our conference for today you may disconnect. Your lines at this time. Thank you for your participation.
Thank you.