Q4 2020 Repay Holdings Corp Earnings Call
[music].
Greetings and welcome to todays earnings conference call of being hosted by repay.
With us today are John Morris co founder and Chief Executive Officer, and Tim Murphy, Chief Financial Officer. During this call, we won't be making forward looking statements and by our beliefs and estimates regarding future events and results of these forward looking statements are subject to risks and uncertainties, including those set forth and the SEC filings related to today's results.
And in our most recent form 10-K filed with the SEC actual results might differ materially from any forward looking statements that we may make today the.
Forward looking statements speak only as of today, and we do not assume any obligation oriented to update them, except as required by law and an effort to provide additional information to investors. Today's discussion will also include references to certain non-GAAP financial measures and explanation of these non-GAAP financial measures and the one of that reconciliation of the non-GAAP measures to the nearest GAAP financial.
The measures can be found in the earnings release, and earning supplement and each of which are available on the company's IR site.
I would now like to turn the call over to Mr. Moore.
Please go ahead.
Thank you operator, and good afternoon, everyone. We hope everyone is doing well and staying healthy.
On today's call I wanted to first give an update on our business for the full year and fourth quarter, followed by a review of how we're executing on our growth strategy.
I'll, then turn it over the time to discuss our fourth quarter and more detail and provide guidance for 'twenty and 'twenty one.
When we first previewed our thoughts for 2020 and March of last year, we would have never predicted that the world would be like today.
And while there was so much uncertainty throughout the year. There were two things that became even more certain and the value proposition of our business and the strength of our organization.
The value proposition of our business, which demonstrated to the growth we experienced this year, which included.
And the increase in card payment volume of 42% total.
Total revenue growth of 48% gross profit growth of 44% and adjusted EBITDA growth of 41%.
That's where the strength of our organization I could not be more proud of how incredibly hard our team has worked this year. Despite all the challenges and everyday life and.
And 2020, we were able to acquire and I've been working to integrate three companies.
Those acquisitions, we further solidified our position and the <unk> space.
And they also allowed us to add new verticals to our platform, including mortgage services with them on repayments, along with field services hospitals, and education and B to B just to name a few.
We launched service transfer of exchange to automate loan transfer payments between mortgage servicers, increasing speed accuracy and transparency of mortgage service transfer for both Servicers and borrowers.
We also added 54, new software partners, and 'twenty and 'twenty across all vertical and further demonstrating that we are a key offering and many of these platforms.
In addition to expanding our product suite and partnership roster, we take pride and integrating new teams from our acquired companies into the repay family of employees as we continue to rely on talent to grow.
And this employee first focus has been rewarded with certification as a great place to work for the past five years, thanks to a dedicated company culture, and which over 90% of our employees have validated the positive work environment.
Now to move on to the fourth quarter, which was the strongest quarter we've ever had.
For the three months, we reported card payment volume growth of 16% total revenue growth of 23% gross profit growth of 23% and adjusted EBITDA growth of 29%.
During the quarter. We also completed one of the acquisitions I'm just mentioned C. P. S payment services and accounts payable automation business, which further enhances our existing health care and <unk> business and helps to accelerate the expansion into new verticals.
How long of a payment business was strong and the quarter, especially on the auto loans side, where we expect to continue to see rapid growth.
The COVID-19 pandemic is reshaping the auto marketplace. According to eat wise, 'twenty and 'twenty mobility consumer index published in November and the only a third of the respondents who do not currently own of car say they plan to buy on and the next six months.
As a reminder, we believe our Tam for auto is about 600 billion and it's one of the fastest growing parts of our business.
Our mortgage servicing business also performed very well and the quarter due to increased home buying and refinancing activity along with low interest rates increased demand and low mortgage rates has sparked and boom and originations and mortgage service transfer of <unk> positioning us well to benefit.
We continue to guide the development of our service transfer exchange solution through the SPX Advisory Board, which is composed of mortgage industry experts, representing a variety of companies, including U S Bank and home depot.
Our goal is to improve and standardize payment flow eliminate errors and reduced you'd like with the east and create a better experience for borrowers and servicers.
On the personal loan side many of our customers have recently seen of returned to sequential quarterly long portfolio growth and Q4, and we are hearing positive trends into Q1 as well.
Our instant funding product continues to experience significant adoption.
Nearly tripled the number of users of this product since the beginning of 'twenty and 'twenty and continues to add to the this each month as consumers move away from cash and go into the physical locations to access the loan disbursements.
The pandemic has proven that loan repayments are resilient and we've also seen significant shifts to electronic payments. During this time as many lenders have been focused on increasing digital and engagement.
It fits well with our enhanced payment technology offering we believe the shift is permanent and will increasingly grow over time.
And B to B business was also strong during the quarter, we were particularly pleased with the performance of C. B S payments and you can already see the growing value of electronic payables with enterprise customers such as large health care networks and education systems. We now have of approximately 45 total b to B software integrations and on the AP side.
We've grown our supplier network the 60000 plus.
We made progress against all of our growth strategies and the fourth quarter.
We've had some great client wins and the quarter driven by our direct sales force. We've ended the year with 43 total credit Union customers, which represents approximately 350000 collective members we.
And we expanded processes and services and the integrated partnerships and the Canadian marketplace.
He was also recognized and approved vendor and the Fintech innovator of the year by the Canadian Lenders Association.
E N and Canada will be a big focus area for growth in 'twenty and 'twenty one.
We are also now actively processing and the buy now pay later space.
The natural move for us given our long history and expertise and installment lending.
All of these efforts were also aided by software integrations of which we added 30, new partners during the quarter, mostly by acquisitions.
This brought our total Isd integrations to 124 at the end of December.
I want to spend a few minutes discussing several of these integrations and.
In December we announced our partnership with the strategic regional Health care organization The National Association.
This partnership expands our reach within the health care sector by providing health system members of accounts payable and disbursement of automation and revenue generating rebates.
Also in December we announced the technology integration with Lightbox.
And next generation contact center platform. The partnership further enhances the lightbox customer experience by providing additional digital payment options and processing capabilities and either self service or agent assisted transactions.
And more recently in January we announced the technology integration would build trust and b to be accounts receivable automation and integrated BTB payments leader.
The participation and build trust business payments network or VPN as they call. It a corporate customers will instantly gained the ability to automate electronic payments to build trust vast network of suppliers and distributors and vendors, but the access.
Celebrating and simplifying the payment process.
And also further scaling of adoption of virtual credit cards.
In addition last month, we announced the technology integration with P and three solutions, a paperless b to B E P authorization and automation software provider.
The partnership P and Three's business customers will gain the ability to automate outbound payments and the use of virtual card or a C. H to their vendors, adding seamless fully integrated payment capabilities to its procurement and AP work streams on.
The partnership will also allow us to realize synergies with our b to b receivables offering.
The base footprint, and Oliver lapsed payables and receivables across key integrations, including acrobat and Guy and Sage.
And just last week, we announced the integration would be the a leading edge software design company revolutionizing the insurance industry through employee benefits administration solutions the.
And the two way integration between the platforms will enable insurance companies to pay health care providers, including including license health care facilities programs agencies, and doctors or services directly from the BBA system.
On the International front, we're also implementing one of the largest non bank lenders and Canada and we should be live in early March.
Moving on to the M&A, which continues to be of key growth driver for our company and January we completed a concurrent common stock and convertible notes offering and in February closed the revolver, providing us with ample liquidity to pursue deals.
Our pipeline remains very active and we believe this capital raise positions us even better and the marketplace.
Having completed five acquisitions since going public less than two years ago. We expect that there will continue to be mid market industry consolidation across the payments industry on.
And both of the receivables and payable side.
There are many players out there that are great acquisition candidates for us.
Ideal targets for high growth businesses, and large verticals that are underserved from a payment perspective are integrated with software have attractive margins and they have a need for our technology.
Lastly, the continued position us well for the tailwind, we're seeing and digital payments and the growth. We expect to continue to see for our business. We have recently opened the software development office, and Ireland and partnership with the local firm call pretty GAAP.
We're excited about this partnership and believe it to be of great asset as we expand.
To wrap up and continues to be incredibly proud of our team for their hard work and dedication and growing this company and providing excellent service to our customers I'm very encouraged by the trends, we see and the verticals. We serve and also impressed with the businesses, we have been able to integrate today.
Repay has proven resilient during these times and is positioned even better moving forward into 2021.
With that I'll turn it over to Tim to discuss the financials in greater detail Tim.
Thank you John now, let's move on to our Q4 financial results before a view of our financial guidance for 'twenty and 'twenty one.
And the fourth quarter repay delivered strong results across all of our key metrics card payment volume was 4 billion and increase of 16% over the prior year's fourth quarter. Total revenue was 41 4 million and increase of 23% over the prior year fourth quarter try source. The Aps from panics CPA cost and C. P. S contributed approximately $6 5 million of incremental.
Revenue during the fourth quarter.
Moving on to expenses and the quarter other cost of services were $11 5 million compared to $9 3 million and the fourth quarter of 2019.
The incremental other cost of services from Tri source, a P. S from tannic CPI, plus and Cps were $1 8 million from Q4.
Gross profit was $30 million and increase of 23% over the prior year's fourth quarter on an organic basis, we saw gross profit growth and the mid single digits compared to the fourth quarter of 2019 of.
Organic growth was solid and in October and December and November was down due to the lapping of of very strong November 2019 for personal loan repayments that said our December organic gross profit growth was and the low teens and volume trends and early Q1, 'twenty 'twenty. One were strong which provides us continued confidence and our mid to high teens organic growth outlook.
As John mentioned, we've seen many of our larger personal loan customers returned to loan growth in recent months and we benefited from the second round of stimulus payments, we typically see an uptick in Q1 and our loan repayment of verticals as a result of tax refunds and the lowest sequential Q2.
SG&A was $21 5 million compared to $24 8 million and fourth quarter of 2019 of.
The fourth quarter pro forma net loss was <unk> 8 million and encourage your pro forma net loss of $7 5 million and the fourth quarter of 2019.
Fourth quarter, adjusted net income of $13 5 million or 17 cents per share compared to adjusted net income of $12 3 million of 20 per share and the fourth quarter of 2019.
The decrease in adjusted net income per share was primarily driven by our pro forma tax adjustment and the current period.
Which we did not include in the prior year period, as well as the higher outstanding share count.
Lastly, fourth quarter, adjusted EBITDA was 19 million and increase of 29% over the prior year fourth quarter, what sort of adjusted EBITDA as a percentage of total revenue was 46% compared to 44% and the prior year fourth quarter. This increase and adjusted EBITDA and adjusted EBITDA margin as a result of organic growth and contributions from acquired businesses as well as rigs.
And cost management delays and hiring several positions and residual payout plans for certain third party sales partners.
On January 19, 2021, we completed a public offering for approximately $6 2 million shares of our class a common stock and a public offering price of $24 per share.
On the same date, we also completed the offering of $440 million of convertible notes with a zero percent coupons.
We also announced the closing of a new Undrawn $125 million senior secured revolving credit facility on February 3rd therefore, our cash and liquidity positions remain very strong as of January 31 pro forma from the concurrent offerings of the payoff of the previous term loan facility, we had $394 million of cash on the balance sheet and access.
225 million dollar of Undrawn revolver for total liquidity of amount of 519 million.
Our pro forma net leverage is down only <unk> six times, which is the lowest we've been since becoming a public company.
As of January 31 pro forma for the common stock offering.
Approximately 86 million shares outstanding on and as converted basis off of.
Please go to the share count, including Unvested shares equal to approximately $88 4 million shares.
Regarding the convertible notes, we are still considering treatment on this well will likely elect net share settlement principal and cash in the money value and shares which allows us to benefit from Treasury stock method for accounting purposes, and this case the convertible will only results and dilution once the stock price increases above the conversion price of $33 60.
Finally, moving on to our outlook for 'twenty and 'twenty one.
We're still in the period of uncertainty around the economy and pandemic depends.
Depending on the pace of recovery, we currently expect much stronger growth and the second half of 'twenty 'twenty, one versus the first half of.
So the second half of the year generally has easier comps and.
And to position us well for the significant shifts we are experiencing and electronic payments, we are planning to invest and sales technology and product this year and further accelerate growth as we move into 'twenty and 'twenty two.
With all of these factors in mind, we expect the following for 'twenty and 'twenty one.
Card payment volume and three between $17 5 billion and $18 billion.
Total revenue to be between 178 million of $188 million.
We expect gross profit and between $134 million and $140 million, which includes organic gross profit growth of 15% at the high and we are of.
Slide and our Investor supplement on our IR site, which provides a detailed explanation of our gross profit expectations for the year.
And lastly, we expect adjusted EBITDA to be between $75 million and $80 million.
And just to note that we expect approximately 55% of our P&L contribution to come and the back half of the year each of the regions reasons mentioned a moment ago.
As of the prior quarters. This range assumes no further unforeseen and COVID-19 related impacts.
Could create substantial economic duress during the year.
We are already experiencing strong momentum and early 'twenty 'twenty, one and look forward to and exciting year ahead.
And now I'll turn the call back over to the operator to take your questions operator.
Yeah.
At this time, we will be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad and.
The confirmation tone will indicate your eyes and the question queue. You May press star two and she'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up on your handset before pressing the star keys one of them on me. Please while we poll for questions.
And our first question is from Ramsey El <unk> with Barclays. Please proceed with your question.
Hi, Thanks for taking my questions on it.
And I wanted to ask about the impact of a stimulus on the personal loan side of your business and as I recall the last year, obviously the your your your customers pulled back on the originations at the same time, the and consumer was sort of flush paying down sort of loan volume. So it seems like it's a bit of a double edge sword for you guys just wondering if.
And how you can if you can characterize what's been happening on that side of your business given that the brand of stimulus, we've just seen and that that which is the likely coming up here and that in the not too distant future.
Hey, this is Tim thanks for the question.
Yeah. So we as you mentioned you know we have seen a lot of our larger personal loan customers returned to loan growth and Q4 and early Q1 of the share.
And so we think that's very positive their originations have been increasing in recent months and that's just the trend we continue to hear.
We did benefit from the recent stimulus of the 600 dollar payments and went out in early January we received some of the volume from those but we haven't heard of that that has led to any decreased originations and stuff.
Well, what we do know and what's different this time around versus last spring is that our customers. Our personal loan customers are not concerned with credit issues and delinquencies like they were then.
They are more aggressively lending now they're focused on loan growth versus protecting delinquencies and losses and I think that's just the different trend and we saw.
Early on and so.
And we think things are positive on where you know, we're obviously monitoring additional stimulus and depending on the timing of that and the form that ultimately takes you know, we'll just have to monitor what that means for originations, but like I said because of our customers are really focused on loan growth and.
And that that should be helpful. This time around and not show of steep of a drop and originations. If there is additional stimulus that includes direct payments.
And that's super helpful and and your guidance does not include the potential incremental stimulus.
The way that we might see if the senator and fact passes it.
But really the way we thought about it is if it happens it's likely going to happen at the end of the first quarter or early Q2, and we would think that that may flow through to our volume sometime in Q2, if it does.
And so that's why we wanted to comment on the call that we expect stronger growth and the second half of the year.
After that kind of flushes through in the and the second quarter.
And we would expect the also the overall economy to be recovering and consumer spending and demand to be greater which causes more demand for personal loans.
And so all of those factors kind of lead us to the choke back weighted the year of bit as I mentioned, and we're just monitoring it and so again it will ultimately depend on the the timing and and the form it takes but we do have some assumption and the and the guide for that.
Okay terrific.
Terrific and one more quick one for me could you give us an update on on the the captive of auto loans side of the business of the Mercedes contract and also just how the pipeline looks there and progress on the Unimplemented.
Yeah sure. This is John and good afternoon, Randy and Mike.
So all of our relationship there it has progressed really well.
Both parties have mutually benefited and we continue to think that they will be.
Upside and that relationship for both parties.
We don't specifically.
Yeah pronounced exactly what that's going to be.
Our overall OEM pipeline is healthy and and available it's a as we've said before those.
And those contracts can be much longer in duration and it takes time for them the rollout sometimes slower decision makers and that process, we like our position there, but we're not specifically and we don't announce customers or specific large contracts there we do.
Like our value proposition of where we are for the industry. The.
The features and functionalities and the financial technology, we have we see a need for that and so.
So we would look to continue to to promote our services into that.
Vertical of auto and we think that they will eventually be some opportunity for us as we continue to move through this year.
Okay, great great to hear you're well positioned there and thanks for taking my questions.
And our next question is from Peter Heckmann with Davidson. Please proceed.
What was your question.
Hi, good afternoon, gentlemen, and thanks for taking the question. So I believe you said $6 5 million of acquired revenue and the quarter can you talk about what would be a good run rate.
The first quarter of I think Cps was the only included for a partial quarter and from the fourth quarter.
Yeah, So hey, Pete this is Tim so that is that's the incremental revenue.
Not the total revenue and so I think the as we continued to lap them.
The acquisitions for example of <unk> and Q1 that number of could come down slightly just because it's really just the incremental amount and.
You will have a full quarter of Cps, but there'll also be some.
On some of you know revenue from of maintain ex in Q1 of 2020. So I'd say, it's on maybe just a little bit lower than where that is.
That's why.
That's great and then can you just talk a little bit about some of the the BW run rates I think last time, we heard you were looking at maybe four.
And 4 billion of Stephen.
Volume attributable to the to the growing <unk> business, but kind of how you think about that and in and where you can go in terms of the supplier network and in your heart.
How do we envision that business growing and.
And of unifying what you've acquired so far.
Yeah, Yeah, so yeah, and we put it on updated slide and our earning supplement to show some of the more recent stats and like we talked about on the call. We now have about 45 software integrations and b to be over 60000 and suppliers and supplier network is growing every month one of the reasons, we like a CPI plus and Cps was because they did a really good.
Job of building and growing that network and that network is largely enabled to accept electronic payments and specifically virtual cards, which we think is better margin for us. So we see that sort of.
Both the software providers and the supplier network continuing to grow.
Nicely and in 'twenty and 'twenty, one and then overall volume, we're still probably around 25% of our total business is b to b, but you know that's growing faster than the other parts of our business. So we could see that moving to you know call it closer to 30% through this year.
And we want to see that continue to become a bigger part of our business and other parts of our business are growing really nicely to for example, auto so that'll continue to become a bigger part of the mix as well.
So theres that growth on that side of the business, but we do want to see to be a bigger part.
And we have all the pieces in place we think now with the the people that have come to us through acquisitions and the technology.
We continue to grow that.
Got it thank you.
Okay.
Okay.
And our next question is from Andrew Jeffrey with true of Securities. Please proceed with your question.
Hey, good afternoon, gentlemen, thank you for taking the question.
I mean, I'm intrigued by the the NPL commentary.
John can you elaborate a little bit on.
And the vertical markets, where they overlap with your existing vertical markets had probably look a little bit different and who the the customers are they some of the household names and in that space or they are some of the perhaps smaller providers and P. M. P. L.
Yes sure good afternoon. So.
Obviously, because we understand retail installment sales.
We see that sometimes even in the auto space.
It is and it's not specifically exactly overlap.
Such and some of them are just specifically there.
And our retail financers of retail type transactions, we think thats.
A great opportunity for us.
You're all aware several retail transactions will be.
Executed and this form as a buy now pay later concept.
It's in our wheelhouse because of we understand the health and to process payments right.
Many situations will be.
The they'll need and actual third party processor to actually move the funds and so we think we're positioned well with that as well as technology as.
As they grow out into the future as well as some of those portfolios mature if some of them have longer.
Horizon's versus just a couple of months here or there.
And then as far as we don't name specific customers.
And as you know.
We have seen growth with some of our existing customers grow really well and 2020 and.
So we would expect that to continue to happen this year as well as we're reaching out and touching some of the.
And probably some of more of the names that you would be familiar with.
It's a measured process for us and that we do think there will be some opportunity for us and continue to grow there.
Okay.
Helpful. Thank you and.
It sounds like you've made some some good headway in our mortgage repayments and and and some of the BBB aspects of mortgage as well.
I think Tim you called out.
Pretty robust volume, which we've seen across the industry any thoughts or concerns about a grow over and mortgage if rates back up and.
And the Refis slow down for example.
No I mean, we we're processing of pretty specific type of transaction within mortgage which is the kind of more complex service transfers or.
Situations, where it's not just the typical recurring mortgage payment and so we still we think our technology, there's still a need for our technology there, even if the refinancing activity, whereas the slowdown somewhat those types of complex transaction does that require.
Better payment technology, and reconciliation tools will still be there and we think just we're just really early and our Ellie Mae relationship and we're starting to gain some traction there. So we'd have a lot of runway and mortgage and I think if the overall industry slows down a bit of obviously, that's not great and general, but we think with our within our business, we still have a lot.
The room to grow.
Helpful. Thank you.
And our next question is from Bob Napoli with William Blair. Please proceed with your question.
Alright, Thank you good afternoon and Tim.
Tim and John.
And just the growth rate mid to high teens.
And your comfort level on that and maybe just give a little color organically, where you see the largest contributors to that over the next three to five years.
Which portions of your business.
And we're gonna be the largest contributors to that growth rate.
Yeah, Hey, Bob and so we are we do feel comfortable with that and I'll get out of calling you to kind of the gross profit bridge that we put on the earnings show Okay. There.
And we think that that's probably moving kind of towards the middle to the end of the year as we as the overall economy recovers and like we talked about we think that's probably a good picture for the growth to us and and longer term I think of autos.
Of that.
And what I was growing north of 25% for us.
And then I think once we get beyond the first year of and acquired business. We think the beat of businesses will be really contribute to that growth and the outer years as well. So we have a lot of different levers for growth now and a lot of different very diverse vertical set but I think with ours are auto and b to b.
And then the credit Union customers and I know you.
Moving into Canada is that purely auto or other opportunities.
For a more gauge or other types of repayments for the the credit Union the credit.
And Union business.
It's it's largely auto today there that's why we entered the space just because we were running into the credit.
Hello.
It is worth and they're doing a lot of direct lending. So that's primarily what it is that doesn't mean, we couldn't process. Some of the other types of payments, but it's still primarily auto and Canada. It's a mix of it's actually a lot of personal loans. In addition to auto and Canada.
Okay, and then just curious on the the Bill Trust partnership.
And is that how.
Does that move the needle for your B to B business.
And so they are they're really strong and certain verticals that were strong and.
And that's how we win.
Our head of beat of be Darin, who run the CPA Clos and he'd been talking to them about a partnership for a long time and there was some overlap and verticals and then we think that they are really good of helping fulfill our adoption. So it gives us the you know a keeper.
Keep a presence in the verticals that we're already in and then it helps with virtual card adoption, which again is higher margin for us on the AP side. So that's wildly how that moves the needle on there's some large customers within those verticals that we think we would have and he's right.
Acquiring if we if we're going through VPN.
And interesting and then just last question quickly on health care health care payments and it's a massive market.
I mean is that in the area.
You haven't talked a lot about that but is there a strategy behind there to make that a much bigger part of.
Of the business and if so.
Maybe a little color around that.
Yeah, Yeah sure.
Go ahead Tim.
Yes, sure. We obviously, we've we foreshadowed that we really like the space specifically as you said, it's an enormous space and.
And we we want to deal with the payment piece of those things.
We obviously think there's great pent up demand there from.
And from the standpoint of.
And elective procedures things like that have really actually not returned back to you.
The pre pandemic levels. So we think there's a great upside there.
And the B to B side of it there's great volume's there, it's just much larger institutions.
And that have you.
Enormous amount of the payment volume there, we think there's a great opportunity for us to continue to build out of our supplier network and build out our our specific integrations.
We have a healthy pipeline with our existing businesses.
And that our marketing into those.
Specific health care institution, so we like that we'd love, we love to be able to supplement that with some inorganic.
Opportunities if thats the possibility for us.
And there could be some of that if we if we're kind of looking out into the future.
Okay. Thank you appreciate it.
The we just announced of the V a.
The partnership which is and it's.
It's just sort of been panics business, which is b to b healthcare.
Two providers and we can also do collections at the two way integration with BVA and then S. R. H O is the integration through Cps and if you recall of Cps serves more of a kind of an enterprise customer on the payable side and they're so they're going after hospital networks, and large hospital and health care providers and.
And so we're kind of and a few different spots and health care, where in the third party administrator of world that facilitates payments between insurance companies and providers and also benefits administration and they were also and the hospital and health care network side of the World, where they're you know they're paying a lot of different suppliers. It's like John said, there's a lot of volume there and we.
And a couple of years.
Great. Thank you.
Yep.
And our next question is from Timothy Chiodo with Credit Suisse. Please proceed with your question.
Great. Thank you guys I wanted to touch base briefly on the credit Union opportunity. So you have announced some very very large partners and Jack Henry Scimitar see you answers correlation and I think it gives you access the roughly 1000 or so credit Union. So clearly that's a big opportunity I was hoping you could give.
So a little bit of and update on where do you stand in terms of penetrating that opportunity and how that could progress throughout this year.
Yeah. Thanks, Tim So we so we're currently we have 43 credit union customers today. So obviously a lot of runway left to get to a 1000 across those different software partners.
And a lot of those 43 were just signed and the last six months or so so they're ramping up and.
If you if you know and the credit Union space, it's a longer sales cycle and it takes a little bit longer to implement like maybe working with the bank.
And so those have been rolling out throughout the end of 2020, and we think that it really benefit us in 'twenty and 'twenty, one as we get a full 12 months of them that their volume.
And and so we're continuing to sell actively in the space through those partnerships sitting at 43 today out of approximately 1000 is like I said a lot of room to grow and then just the full year effect of the of the credit unions, we signed in 'twenty and 'twenty, one 'twenty and 'twenty will be very helpful for 'twenty and 'twenty one.
Right the Annulus Asian, Okay right on thank you, Tim Alright last one or a follow up is a quick one and so the bridge slide that you pointed to for gross profit.
Very helpful slides slide number 12.
And you mentioned, 15% organic.
Gross profit growth is what the guide is essentially and you also mentioned, we should expect that to be a little bit more second half weighted I know and the first half of this year. There's the the tax piece of that you mentioned in terms of Q1, usually being a little bit bigger, but also there's the year over year comp issue, where last year. There were some payments that drifted into Q2 just on timing so.
With that and with that context, maybe you could just talk a little bit of how we should expect that gross profit growth to look in Q1 Q2 to the extent without maybe putting a finer point on it.
Yeah. So you're right. So Q1 is usually a strong quarter for us. The Q1 of last year was also strong.
And then Q2 of last year really strong because of the stimulus. So typically we don't see as strong of the Q2 as we had in 2020 because of the stimulus payments happened and we benefited from that and then of course that led to some origination issues going into Q3, so with those kind of comps and mind I would say probably similar kind of single digit organic.
Ganic growth and the first part of the year, maybe going up and to 10% range, but then expecting higher accelerated growth and the back half of the year to get to the full year mid teen summer.
Okay, Alright, great, but we should think about Q2 is maybe a little bit lower than Q1, just given the cash.
Yeah, that's right yeah, Yeah alright.
Alright, and then we bounce back from the second half alright, great. Thanks, a lot of time.
Yes.
And our next question is from Sanjay Sac Ronny with Cade VW.
Please proceed with your question.
Thank you.
I want to go back to the first question Ramsey had about the stimulus Tim It sounds like you guys are thinking.
Fight stimulus.
The second half, you'll see more sort of economic robustness and that'll drive loan growth because it doesn't stimulus usually have sort of of temporary.
Impact on loan growth and and therefore your revenue.
And it does but the two points to make one is that again, we don't think of our customers are going to be as focused on pulling back originations because of.
Credit losses, and delinquencies, we think theyre going to be more aggressively lending. This time, so I don't think battle I think that'll help.
The last time, where there was just a lot of uncertainty around what the consumer would do and then they pulled back on their own originations. While there was less demand. So I think theres a little bit of a different dynamic here in terms of of our lenders and how they think about loan growth and then I think just you know although there could be.
On it.
A bit of down and softness I guess on related to the stimulus. If the economy overall is doing a lot better and the vaccine is widely distributed and generally things are better I think that could help with demand as well. So I think that could offset some of it this time around.
And are you guys are the biggest.
Gotcha.
And just the biggest thing that we all are aware of is there's this year. There is a vaccine alright last year.
That time of the year the people thought it would be 18 to 24 months before there's a vaccine. So that's a big difference maker. Although obviously, we were still in the pandemic and we're having to take it all of those things into consideration and and our outlook, we're looking at as well.
And when you look across the different lending and asset classes. It sounds like auto is really doing well and that's where you've seen the.
There's still a lot more success to be had so because like I mean, I would think personal low loans and sort of where it's a little bit more aspect of the stimulus it hurt.
Is that a fair statement.
Yeah personal loans is impacted more by the stimulus I think the auto auto performed really well.
There was maybe a short blip right when the.
The pandemic started but they ended up performing really well throughout the year and early into this year. So yes, I think the personal on the spaces, where it could be more impacted but we still see a lot of strong growth and auto.
Okay, and then final question for John You mentioned, the inorganic growth opportunities, hoping to execute on some stuff I mean like.
Maybe you can just speak to the pipeline and contextually and sort of where you were looking at acquisitions and size and relative.
Relative sizes.
Yes sure.
So as I mentioned and the the announcement, we we we have a healthy pipeline of things. We're looking at are we some of the things. We also said when we were raising the funds and January as well all.
Those things we found that there's still be true.
I do personally think that.
The 'twenty 'twenty, one will be a year of continued consolidation and the marketplace. We want it to be well positioned on our balance sheet to be ready for that we see opportunities that are in our pipeline and that are coming available in the marketplace that from a size perspective are on the higher end of of what we have true traditional.
<unk> done our pipeline is also healthy for kind of the traditional typical cut size of deals we do.
And where we have many of those and process of of evaluations as well.
But then there's larger sized transactions that would be on the higher and.
What we have.
Specifically I have not specifically done and some of the largest deals and.
And our history. So we think it's going to be a great opportunity for us this year.
And that it matches the criteria of do we like the look for.
And and we think we can continue to accelerate growth with any types of inorganic opportunities out there. So we see it we see a great opportunity and we're actually we're excited we're excited and we're well positioned to take advantage of that and by being well positioned we've seen opportunities.
Come our way and at least for valuation purposes.
And also the additive to the verticals that youre and right now or would it could it be outside of that.
Some yes, absolutely could be.
For the verticals that we're currently existing and there could be of complement there.
Expansion of some of the areas, we already touch and then obviously there is some opportunities that would be and.
New vertical for us that we think have the great characteristics of our existing verticals.
Okay, great. Thank you.
Yeah.
Our next question is from Joseph <unk> with Canaccord. Please proceed with your question.
Hey, guys. Good afternoon go down to the to the year.
Just wondering here just with some of them all.
All of the M&A activity and in 'twenty and 'twenty.
And how far along argue of at this point and.
You know cost synergies relative to those are two of those acquisitions and kind of more specifically more on maybe perhaps on the back and on transaction efficiency and stuff given the processing capability and.
And how to think about that over the next couple of years and on just a quick follow up after that.
Sure Hey, Joe So we.
We have converted one of our acquisitions Aps to our back and we did that and Q4 of 2020.
And then we see some opportunity and the beat of be a P businesses and potentially consolidate providers and and find some synergy opportunity. That's part of our plan for 2021 is to is to work on that and so that is actively happening.
And we will continue to happen and like you said, having on back and from the merchant acquiring standpoint, it's been really helpful from that.
And is that and.
And how should we think about you know.
How that May may drive.
Transaction margin or is it something that the.
You can call out over time or is it just more incremental.
It's it's probably more incremental but we do you do you see that our gross margins are a little bit up.
And 2021 versus last year, and so part of that is we expect to be able to reduce some of our processing costs associated with these conversions.
Okay, Great and then.
It'd be helpful to perhaps you know think about the business run rate now.
The revenue comp revenue contribution maybe from.
Consumer consumer loans.
Tumor auto or maybe that's consumed personal payments auto and then b to B. If if that's some from you can provide thanks a lot.
Yeah, Yeah, so it's the eye.
I think it's still probably similar to what we talked about which is 65% loan repayments of about 25% of <unk> and the 10% of other which is really tri source.
And but I think the mix within loan repayments is really is shifting to auto away from personal loans.
And so that's becoming a bigger part and then and you know of credit unions, Canada and mortgage are also all growing which will become a bigger part of that loan repayment mix and then.
Like I said earlier, the B to B side is growing.
Probably faster than other parts of our business and so that's why we want to see that continue to increase from 25 toward the.
The 30% range.
Great.
So lot guys much appreciate it.
Yes.
And our next question is from James Faucette with Morgan Stanley. Please proceed with your question.
Thank you very much wanted to follow up quickly on the comments and questions that you've already answered regarding acquisitions first.
In terms of your outlook for 'twenty. One is there any contribution from acquisitions built into the guidance, but for deals that you haven't yet announced or completed.
No.
Okay and the.
That makes sense and that's what I thought and and the second was just more color in terms of when and as you're looking at deals. How are you feeling about things and what are you seeing in terms of valuations time to pay back potential synergies et cetera or are those moving around significantly from what <unk> seen in the past or alright.
And in general the types of deals Youre looking at and the pipeline you know how should we think about those bearing and in terms of financial contribution from what we've seen you do already.
Yeah, and one of the reasons, we went out and raised capital like we did it was because there are some larger opportunities and the market larger than we've done in the past and so those and those would have more synergies. They would have a lot more volume that could potentially be moved to our backend or.
Even at that scale of potentially opex synergies. So we're seeing more of those opportunities come to market those are typically.
And a process that we may have to work through which could impact valuation, but theres still some conversations we're having directly with owners of businesses that.
It could be favorable for us from a at from a valuation standpoint, so it's kind of of mix, but we do see larger deals out there across the number of different verticals, which is why we feel good about our current balance sheet and so.
And we'll continue to be thoughtful about structuring and potentially putting in place earn out structures and then also on the larger ones finding synergies that we think are actionable and able to be realized and are filled.
The short timeframe.
And that makes all of that makes a lot of Samsung and you know when you're looking at those bigger deals with potentially more synergies.
Should we imply take from that the there's an implication that the valuations could be higher or not necessarily.
Yeah, I mean, maybe a little bit higher just it's a bigger deal and so there probably.
Looking for something a little bit higher than we've done in the past, but it kind of depends on the vertical and again it depends on the ownership structure and the dynamic we have with the sellers and they're a lot of different discussions happening, but and in the past we've typically looked for.
Synergies in terms of cost saving processing cost savings, but and some of these situations. We may have to look more broadly and synergies and some of that has to do with valuation.
Makes sense sounds exciting thanks, guys.
Yep.
Our next question is from Mike Grondahl with Northland Securities. Please proceed with your question.
Yeah. Thanks, guys you mentioned the buy now pay later space, how long have you been in there and and can you kind of let us know what youre doing there specifically.
Yeah, Hey, Mike we've been in the space for Awhile, and it's really an extension of its and another type of installment loans and it happened and happens to happen.
And the point of sale and and e-commerce transaction, but.
We've had customers doing that type of.
Lending for a few years now.
And it's really they like the fact that we're experts of processing recurring scheduled installment loan payments, which is really what that would've buy now pay later transaction looks like and so we've been in the space for a few years and a lot of the customers that we've had have evolved and increase their technology capabilities too.
Interact with their customers and payment technology as part of that and so we see a lot of positive opportunity ahead.
Great. Thank you.
Okay.
And our next question is from Tim Willi with Wells Fargo. Please proceed with your question.
And thank you and good afternoon I just had one question I don't think it's been asked so I apologize if I missed it but could you just you mentioned investments and 21.
And I think technology sales, maybe there was another area called out could you maybe just talk a little bit more about you know any more.
Specific.
Themes of areas within those topics and then also any way to think about like the cadence of the investment spending and how we should think about.
Conceptually modeling that throughout the course of the year.
Yeah. So we yeah, we mentioned sales technology and product is the three areas of focus.
Al mentioned the protocol the relationship that we talked about where we have set up of development office and you know in.
In conjunction with protocol and Ireland and that's the really the point of that is to try to get more software development throughput. We have a lot of different initiatives. We have a lot of different verticals to attack and we felt like that was a great way to get additional resources and throughput within technology. So that's part of the additional investment and then just hiring really good salespeople and partner.
And ship management.
Folks across all of the different verticals. We have is another big area of focus and continue to increase the software partnerships beyond the 124 that we have today.
And that we've.
Started hiring some of those resources and 2021 already.
And both technology and sales and then product is the other area too.
And our work with the technology team to kind of commercialize some of these efforts and.
Work directly with the customers to to bring them to them and so.
Yeah, it's going to be the the pace of investment will start to kind of start to accelerate probably more toward the.
The middle of the second half of the year as we get more comfort with just the overall environment, but we think that sets us up well to potentially even accelerate growth going into 2022.
Great. That's all I had thanks very much.
Okay.
And we have reached the end of the question and answer session and I'll now turn the call over to John Morris for closing remarks.
Yes. Thank you everyone for your time today, we really appreciate it.
We're looking forward to a to a and exciting year ahead of US we think we are well positioned.
To take advantage of the opportunities, we see there both organically and Inorganically.
As I said on the call as well we know we've got I think the best team and the business and we think we build some of the best technology out there. So we're super excited what's ahead of us.
Especially as we get to a more normalized post pandemic basis.
And we really like all of the different parts of our business.
And looking forward to.
And the opportunity to continue to.
To add value for our shareholders.
And for your time today.
This concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
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