Q1 2021 Repay Holdings Corp Earnings Call

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Greetings and welcome to todays earnings conference call 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 will be making forward looking statements about our beliefs and estimates regarding future events and the results. These forward looking.

What's are subject to risks and uncertainties, including those set forth in the S. E C filing 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 or intent to update them, 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.

An explanation of these non-GAAP financial measures are as long as the reconciliation of these non-GAAP measures to the nearest GAAP financial measures can be found in our earnings release and earnings supplement each of which are available on the company's IR site.

I would now like to turn the call over to Mr. Morris. Please go ahead.

Thank you operator, and good afternoon, everyone.

On today's call I wanted to open with an update on our business for the first quarter.

Followed by a review of how we're executing on our growth strategy, including discussing the acquisition of billing tree, which we also announced today all of it.

Then turn it over the time to discuss our first quarter of more detail and thoughts on the remainder of 2021.

We're pleased with our performance in the quarter with card payment volume growth of 20%.

Total revenue growth of 20% gross profit growth of 22 per cent.

And adjusted EBITDA growth of 18 per cent.

These strong results were experienced across all of our businesses.

On the loan repayment side auto sales continued to be strong this coupled with the industry tailwind to digital payments and the large underpenetrated Tam positions auto as one of the fastest growing parts of our business.

Our mortgage servicing business also had formed very well in the quarter due to increased home buying and refinancing activity.

While we are monitoring of the mortgage origination market. We are focused on processing of fairly specific type of transaction with the mortgage. So we believe that will continue to be a need for our technology in any macro environment.

During the quarter, we went live with two of the top 10 mortgage servicers and the.

Top 10 credit Union on our list of payment IQ platform, our proprietary platform that streamlines and integrates payments and messaging or a seamless experience.

We also added a top 10 mortgage servicer to the S. D. Ex Advisory Board as a reminder, yesterday actually advisory boards goal is to improve and standardized payment flow eliminate areas reduce delinquencies and create a better experience for borrowers.

Finally, we also recently completed additional real time integration activities with Ellie Mae.

To add customers through this partnership.

On the personal loan side volumes have been strong thus far in 2021, while we expected the seasonal slowdown in Q2 fallen tax refund and recent stimulus.

We still see positive momentum through early may.

Our instant funding product continues to experience significant adoption with the recent might showing record loan funding amounts.

Our beat of B business also showed strength during the quarter. We now have approximately 50 total b to B software integrations and the one of the AP side, we've grown our supplier network to over 71000.

Which is up 18% quarter over quarter.

We recently announced that we became a participant in the CDK global partner program.

In connection with this partnership we joined the marketplace of applications and integrations that CDK, a leading enabler of end to end the automotive commerce developed to help nationwide automotive dealers succeed.

Through the integration thousands of automotive dealers will have the ability to automate electronic AP payments, the various vendors and suppliers based on specific invoice data within the CDK system.

We recently signed an agreement to process of electronic payables or the public School district of the top 50 U S City.

Additionally, we are now processing payables for the largest in room hospitality technology provider to global hospitality brands.

Lastly, our Tri source processing business has been performing very nicely as restrictions lift throughout the country.

We have several processing ISO showing strong growth recently with additional customers in the contracting phase.

We made solid progress against all of our key growth strategies in the first quarter sales technology and product.

Of the three areas of focus right now.

On the sales side.

We've had some great client wins in the quarter driven by our direct sales force to which we continue to add talent.

We recently hired three senior level sales leaders with decades of combined payment experience.

The integrations of also continue the strong growth channel for us during the quarter, we added eight new integrations, bringing our total to 132 as of March 31st.

Added 15 credit union customers in the quarter, which brings us the 58, representing approximately 635000 collected members.

We also continued to grow existing relationships and add new names to our buy now pay later pipeline.

We understand retail installment sales and believe our payment technology would be of great asset to many of the companies in the space.

We've also made progress in the product and technology side last quarter, we announced that we recently opened the software development office in Ireland in partnership with the local firm called protocol.

We've already hired over 20 software development related staff and they have hit the ground running.

A lot of technology and product initiatives on our roadmap and many different verticals to attack and we felt this partnership was a great way to quickly get additional resources and throughput.

More recently, we have been finalizing a partnership with pay safe to enable merchants to accept electronic cash payments.

This partnership will allow consumers to have access to approximately 60000 retail locations to make cash payments to merchants on the repay platform with transactions recorded in real time.

It will add even greater convenience to payers and expands the capabilities of lenders and other merchant types to meet consumer preferences.

Now, let's move on the M&A, which continues to be an important incremental growth driver for our company.

The evening, we announced the acquisition of billing true.

This is the very exciting announcements as its repay its largest and most important transaction today.

We have evaluated hundreds of attractive acquisition candidates over the years and we believe that billing tree has the best combination of technology distribution talent and scale the complement our company.

<unk> is a leading provider of omni channel integrated payment solutions and biller direct verticals.

We posted the separate presentation to the highlight the transaction on our Investor Relations site.

The only treat has two main products gave you which is the health care payments and software platform that streamline patient communication promotes patient engagement and allows customers to accept all forms of payments, including FSA HSA and flex carts.

Next.

Hey, razor, which offers an omni channel platform that allows customers to accept and reconcile payments using the medium of their choice.

Billy tree enhances our position in large and attractive growth markets, such as the health care credit unions accounts receivable management and energy verticals.

The trees vertical to provide them with access to an estimated card payment volume opportunity of 700 billion.

Addressable card payment volume and billing trees core end markets has experienced favorable tailwind as a result of of the COVID-19 pandemic accelerating the paper to digital.

Payment shifts within billing trees biller direct verticals.

The only true meaningfully expands our scale contributing over $4 4 billion and card payment volume.

$60 million in revenue and 26 million and EBITDA before synergies pro forma for the full year 2021.

The military serves over 1650 clients, including over 120 credit unions.

They have customers across multiple attractive end markets with industry, leading retention metrics.

Pro forma for the full year impact of the billing through the acquisition, we expect to have over 22 billion and card payment volume over 245 million of revenue and over $105 million and adjusted EBITDA and over 175 I S seats.

The billing tree acquisition will also strengthen our existing product suite of deeply integrated custom tailored payment and software solutions for enterprise customers in the health care credit unions at arm industries.

The solutions are tightly integrated with over 50 software platforms and the acquisition is expected to expand our software partner integrations to 175.

Additionally, the only tree also has a highly recurring revenue model with 110% average net volume retention and strong margins.

We expect the transaction to be accretive to adjusted EPS in 2021 before synergies and expect further shareholder value creation from synergy opportunities as the combined company.

The scale capabilities the infrastructure of the combined platform represent significant opportunities for cost savings and increased efficiencies.

As a result of processing cost reductions and operational expense rationalization, we expect to realize annualized synergies of approximately $5 million.

We are incredibly excited about this highly strategic acquisition, having delivered on the promise we made to our shareholders earlier. This year when we raised significant proceeds to pursue M&A.

We will continue to evaluate attractive M&A prospects maintain a very active pipeline of additional opportunities.

Fact that there will continue to be mid market consolidation across the payments industry.

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 Q1 financial results before I review, our revised financial guidance for 2020 one.

As John mentioned in the first quarter repay delivered strong results across all of our key metrics card payment volume was $4 6 billion, an increase of 20% over the prior year's first quarter.

Total revenue was $47 5 million, an increase of 20% over the prior year first quarter.

Panic see paint Boston Cps contributed approximately $4 nine line of incremental revenue during the first quarter.

Moving on to expenses in the quarter other cost of services were $12 5 million compared to $10 8 million in the first quarter of 2020 Ingram.

The incremental other cost of services from Fantastic CPA, plus the Cps were $1 7 million for Q1.

Gross profit was $35 million, an increase of 22% over the prior year's first quarter on an organic basis, we saw gross profit growth of 11% compared to the first quarter of 2020. This organic growth was primarily driven by strength across our loan repayment verticals as well better than expected performance in our Tri source backend processing business.

SG&A was $23 4 million compared to $18 2 million of the first quarter of 2020.

First quarter net loss was 18 million compared to a net loss of $13 2 million in the first quarter of 2020 per.

First quarter adjusted net income was $15 1 million or <unk> 18 per share.

Lastly, first quarter of adjusted EBITDA was $20 5 million, an increase of 18% over the prior year first quarter first.

First quarter adjusted EBITDA as a percentage of total revenue was 43 per cent compared to 44% in the prior year first quarter.

This increase in adjusted EBITDA was the result of organic growth and contributions from acquired businesses as well as continued focus on cost management.

As John mentioned today, we announced the acquisition of billing tree from $503 million, consisting of $275 million in cash, which will be financed with cash on hand and $228 million in stock.

This will be our largest acquisition to date, we also anticipate of tax benefit of approximately $20 million.

This deal will be immediately accretive to earnings before synergies and is a great example of why we chose to access the capital markets in January.

The transaction is expected to close by the end of the second quarter of 2021 subject to certain customary closing conditions and.

Combined net leverage is expected to be approximately two nine times on a post transaction basis, the very comfortable level, which will allow us to continue to fund both organic and inorganic opportunities.

As of April 30th pro forma for billing tree, who will have a $118 million of cash on the balance sheet and access to 125 million of Undrawn revolver capacity for a total liquidity amount of $243 million.

As of April 30th pro forma for billing tree.

We'll have approximately $98 4 million shares outstanding on a fully diluted basis.

Finally, moving onto our outlook for 2021.

Due to the strong results, we've experienced across all of our businesses year to date, coupled with our current momentum that will drive further acceleration in the second half of this year.

We're updating our outlook for 2021, excluding billing tree.

We're now expecting volume to be between $17 7 billion of $18 2 billion total revenue to be between 180 million of $190 million gross profit to between 135 million of $141 million.

Lastly, adjusted EBITDA to be between 76 million of $81 million now, including the impact of the billing tree, which we assume will close on July one we expect the following for 2021.

Volume to between $19 9 billion of $20 4 billion total revenue to each one of 100 $210 million of $220 million.

Gross profit to be between 159 million of $165 million.

Lastly, adjusted EBITDA of between 91 million of 96 months. Please.

Please note. This includes approximately 2 million of expected pro forma synergies for the final six months in 2021.

As with prior quarters. This range assumes no further unforeseen COVID-19 related impacts, which could create substantial economic duress during the year.

We are pleased to welcome billing to each of the repay family and look forward to an exciting remainder of 2020, one along with accelerated growth in the outer years.

I'll now turn the call back over to the operator to take your questions operator.

And at this time, we will be the conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue from participants using speaker equipment. It may be necessary to pick up of your.

The handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question is from Tim Chiodo with Credit Suisse. Please proceed with your question.

Thanks, a lot for taking the question I wanted to dig into some of the client relationships came over with billing trade and also the ISP. So I saw over 1600 clients and 50 I S vs. Maybe you could just talk a little bit about how penetrated those are relative to maybe the existing rebate repay.

Base of Isps and merchant how much runway is there there was there any overlap is that 50 of net number or is that of gross number any extra context, there would be really helpful.

Okay.

Sure.

This is Tim.

Yeah. So we are definitely excited about there.

The software relationships they have them across all of these verticals health care credit unions arm and energy.

The 15 number there is probably a few overlap there we noted in the earnings supplement I think it's maybe in the mid Forty's. If you exclude the off line.

And you know, we're getting access to customers in some very high quality Isps in these end markets.

We think theres still a lot of penetration left we think they are pretty underpenetrated in the existing relationships similar to our situation.

And so you know just like we've put at risk or further penetrating those relationships will be doing something similar with billing trade. So.

That's the big opportunity for us and we like the fact that they go to market in the very similar were to us in terms of an integrated omni channel experience. So.

That's the that was a big part of our thesis here is just that integrated approach in getting access to a lot of different merchants within these end markets.

Okay, great. Thanks, a lot of Tim the brief follow up somewhat related also on the synergy side.

The extent that you is there an extent that you might be able to cross sell some of the b to b accounts payable side. So cps the paid CPA plus into the existing base of merchants and or Isps.

Yes, yes.

Good afternoon.

We do think Theres, a great opportunity there.

Obviously, we we see some opportunity with our existing B to B player of platform with our C. P. P. S EPS or C. P. S platform of already has several opt.

Opportunities that it uses already for the health care, where all of a specifically hospitals et cetera. As you can see with billing true. It has a health care and it's it's the current.

Offering and so we do think theres, an opportunity to cross sell on both sides of that.

We're still early on in evaluating somebody of our needs there, but we think that does give us great opportunity. So.

Even across all of the other verticals, where we think there's also an opportunity to do some things on the beat of beside as we add that into some of our integrated offerings.

Great. Thanks, a lot for taking the question Tim the job.

And our next question is from Craig Maurer with.

Economists research. Please proceed with your question.

Yeah, Hi, thanks for taking the questions guys.

So one unrelated to the deal which is can you discuss the auto sales continuing to be strong and it's the fastest growing piece of repay so can you discuss how that's weighing on take rate second.

Regarding the deal can you discuss if there are any lockups on the 10% that part of the parse non capital one following the transaction. Thanks.

Hey, yeah to the to the first question, Yes auto continues to be really strong Craig growing you know.

25% plus.

As it has been and I.

I'd say that the take rate.

The impact is not too material as you can see the take rate. This quarter was similar to prior quarters and we expect that to continue so I don't think that's going to be a material impact and we also get just a lot more volume in that end market.

And so that flows through the gross profit.

And so in terms of Lockups there'll be a six month lockup with Parthenon.

And so you know and that's.

That's pretty straightforward.

Okay. Thank you.

And our next question is from Sanjay Zahrani, which K B W. Please proceed with your question.

Thanks.

The graph on the deal I guess first question just on the core trends I was wondering if you could just maybe call out anything specific that you saw during the quarter, leading you to be more optimistic for the back part of the year and any.

The specific impacts related to the stimulus.

Yeah, so organic growth in the first quarter was stronger than we anticipated of 11%.

That's something that we're excited about there was a definitely a benefit from stimulus in late March.

But as we expected.

Due to seasonality around tax refunds and that stimulus volume dropped off into April and early may, but it's actually been a little bit better than we expected. So both of those things combined led us to be more optimistic about the rest of the year. We also have a lot of strength in our tri source backend processing business, we have some I suppose as customer.

Is there that of a.

Continued to ramp and grow and we're excited about that and we also have some pretty large new customers that were contracting right now.

Gives us confidence as well.

So those are things that I would call out and against stimulus had a positive impact for us in Q1.

We're seeing the.

The the drop off from Q2 as expected, but not to the same extent that maybe we expected. So that's another positive.

Okay, Yeah, and we've seen some of ours.

We've seen some nice we've seen some nice wins on the <unk> side as well.

Okay. That's great that's great to hear and then just a quick question on billing tree I see.

In the slide sort of of the financial profile, but can you speak to how you see the growth rates on revenues for that business and how much more improvement you might be able to see on the EBITDA margin of.

The low forties.

Yeah.

Yeah sure. So you can see the growth rates here in the deck to 18% per volume, 15% per gross profit 15 per cent per adjusted EBITDA revenues.

The range kind of in the low to mid teens.

And they have 80 plus percent gross profit margins, which is really strong so actually a little bit higher than us so billing trends.

Solid growth and strong gross profit margins than the currently in the mid Forty's from adjusted EBITDA perspective, we think that could with synergy realization tick up into the high <unk>, maybe even at 50% as we realized some of the synergies so very strong financial profile of both from a growth perspective, and a margin perspective.

And just to clarify you think.

That business kind of continue to grow in the high teens.

At the 21 of them.

I think mid teens mid to high teens is where we think it can grow and have those kind of margins with some expansion with the synergy realization.

Got it alright, great. Thanks.

Yeah.

And our next question is from Andrew Smith with Citigroup. Please proceed with your question.

Hey, John Tim Thanks for all of me on the call and congrats on the billing tree acquisition.

I wanted to start with the.

This question of the personal loan vertical it sounds like obviously, that's trending better than expected into the second quarter here.

Have you sort of revise the expectation for that in each of the.

Back half.

Especially as we come up against some of the easier comps or is it more of a normalization back to kind of run rate levels.

More context in terms of what you're contemplating in the personal vertical the.

The back half would be great. Thanks.

Yeah. I mean, we are we do feel good about where we are so far in Q2.

<unk> talked about it a little bit better than expected. So our initial assumption around macro was Q3 recovery.

In general and then that would lead to stronger growth within the loan repayments and specifically personal loans, starting in Q3 and Q4.

Particularly given the easier comps versus last year in those quarters, and then that leading to a very strong exit rate into 2022. So we still think that's the case.

If we if the trend so far in Q2 holds up for the rest of the quarter, maybe some of that growth that we anticipate it could even be accelerated more in Q3 and Q4 going into next year. So.

Definitely encouraged by what we see so far.

Got it thank you for that and with the only treat it sounds like it picked up some good technology here is there an opportunity to leverage some of this technology across the other.

Verticals that you're in.

Or is it is it just more sort of isolated to two the these new verticals that you are getting into any.

The benefits from just leveraging their tech platform from a direct line perspective. Thanks.

Yeah, Yeah. So yes, its very good technology, the technology stack here of fits really well with our technology stack. We both are omni channel some of.

Of the ways that we've built our platforms are very similar.

That's going to make the integrations of our target operating technology model much easier as well.

We have the opportunity we use some of the same providers on the authorization engine side of it.

Obviously, theres going to be some backend opportunities since we owned tri sourced but on the technology stack side.

Specifically, if you think about the.

The verticals that they are serving health care of they give us a more robust health care front end.

Bill of direct.

The software technology, that's going to fit well for us and it's going to really enhance the need some things we want to do on that side of it.

They have a few of some of the other vertical, especially the energy as well with that kind of give us some additional.

The ability to do some things we don't currently do but overall it fits well we still obviously our technology is is really one of our text stack. So this will fit in well with it but yes, they do give us some some additional abilities there and the key integrations are really critical as well as we continue to expand specific specifically in the health care.

The new units.

The script here. Thank you very much guys.

And our next question is from Peter Heckmann with D. A Davidson. Please proceed with your question.

Hi, gentlemen, a lot of numbers that came through I'm, just trying to reconcile some of it looks like a great deal.

When you're talking about your vertical president of just post the filling tree acquisition. It looks like I guess, you you segmented billing tree in the health care, our accounts receivable b to B.

If we were already include all of the billing tree and b to be you'd be looking at what almost $9 billion of a can.

And buying the volume primarily well I guess, how would that all of a pro forma basis breakdown between AEP and they are in.

What is your vision for the kind of conforming to maybe one platform over time.

Oh, the yeah. So the the arm space is not actually what we would consider traditional beta b.

And so we wouldn't we wouldn't include that in that part of the business.

And that would be more on the sort of business process outsourcing from enterprise customers looking to help them get paid more quickly and efficiently.

And that puts the.

The payments themselves are actually coming from consumers. So it's more on the the acceptance side.

And so but yes, that's a very large market opportunity collectively across all of these verticals, it's a $700 billion of annual payment volume opportunity.

So if you remove some kind of duplicate volume in <unk> and credit unions. For example, our it increases our total addressable market of five three trillion dollars of <unk>.

Annual payment volume opportunity, so very very additive to the total addressable market and then.

A lot of a lot of benefits within each of these verticals from a software integration and technology perspective.

Yes, and also on a post acquisition basis, if you're looking at business mix and you'll see this in the <unk>.

Investor presentation.

Repayments of about 50 per cent of payment volume <unk> of about 20% of.

Arms about 10% health care is about 10% and other was about 10 per cent.

Yeah.

Okay got it.

That's really helpful. And then just in terms of.

Thinking about the close any any.

Not yet, but I wish interest regular customary.

Peripheral is needed before close it looks like if you think you can get this close in the next six weeks or so.

Yes, Yeah, just standard customary closing conditions and the expectations were to close by the end of Q2.

Thanks, so much.

Yeah.

And our next question is from Ramsey El <unk> with Barclays. Please proceed with your question.

Hey, guys. This is Robert on for Ramsey.

The question on Tri sourced business you had mentioned that this is kind of ramping back up and growing nicely now.

As the business kind of starts to rebound how do you see the revenue mix of that core portfolio ex billing tree.

Reshaping I try sportswear, the six or $7 million business pre COVID-19, but how are you thinking about that business in the post COVID-19 scenario.

Yeah, Hey, it's it's it's substantially higher than that and then really the part of the business the the.

Volume based part of the business has recovered to kind of pre COVID-19 levels, but the really the business, that's really doing well at the backend processing business, where we have customers that are isos, and we help them with clearing and settlement and so that's the part of the business that has really continued to perform nicely.

So it's much higher than that $6 million to $7 million that you mentioned.

Sure.

'twenty one look at the the.

The building true Investor presentation, we still include that and other and even when we strip arm out of other now onto its own bucket the.

Total other is still about 10% and that mostly is tri source.

Okay.

Got it Okay. That's helpful and then.

The second is a follow up question on the energy vertical it looks like you guys acquired or the billing true portfolio of at least had 10% related to energy. So kind of can you help us understand your go forward strategy and energy are you guys looking to expand further into the vertical or was that more so.

After the required as part of the deal.

It's an asset that the bill and she has had for a number of years. It's actually in addition to payments or some software.

And so we've talked in the past about potentially buying software companies. We traditionally only focus on buying payments companies, but this is a good example of one where there is a payment monetization opportunity within the software within the energy space. So there.

They're providing software and payments to fuel and propane dealers and they're doing it in the bundled way. So we think theres a lot of volume to go get that's being.

The process on the software side, but the payments are not happening. So that's part of the strategy going forward is to try to monetize those payments further.

Got it that's helpful. Thank you.

Yeah.

And our next question is from Joseph <unk> with Canaccord. Please proceed with your question.

Hey, guys good afternoon, and congrats on the.

The billing true AD sounds like a nice assets.

Let me dig a little bit more in the personal loans what are familiar of course from I'm, sorry on the auto loans.

We could focus a little bit on what your customers are thinking about their loan books right now and then the follow up is obviously going through a pretty big.

Are you going to scale back M&A for a little bit of what are you thinking there on the music from thank you.

Yeah.

Yeah, our auto lenders feel very good about their books right now.

They are growing nicely and have been and I don't I don't think credit quality is really an issue still even with the growth.

I think that they're just finding ways to engage more digitally with their consumers, which fits really well with our payment technology, we allow them to have that digital engagement through payments.

And so that's just continued to be a theme that we've seen as our auto lending customers.

To build that more into their offering and that really helps us in terms of penetration and growth within existing customers.

So I'd say that that's still continues to be very strong and then in terms of additional M&A, we have an active pipeline.

Sitting at two nine times net leverage which is a pretty comfortable level for us we have access to about $243 million liquidity between 118 of cash in the balance sheet. After the the.

The billing tree acquisition and access to a $125 million Undrawn revolver. So we think we have capacity for future M&A. We have an active pipeline, we're still looking at deals.

In <unk>, we're looking at potential health care opportunities in other verticals that makes sense and have a lot of the qualities that billing treehouse. So still have an active M&A pipeline.

Great. Thanks, Tim.

Okay.

Yeah.

And our next question is from Bob Napoli with William Blair. Please proceed with your question.

Thank you.

The good transaction.

Like are the just the stock is there a locked in share count is the I mean, there's the what are the exact number of shares the parts of the line is getting.

Yes, so it's just over 10 million shares.

Okay, that's the locked in share of number right.

Yes. It was based on a 12 day, the Wap leading up to signing.

Great. Okay. Thank you and now there's I mean, I think there's a little bit about billing tree and looking at your presentation. There's some decent overlap I mean I think are in.

And of course parts of the business and I mean, you're not in energy but of.

The arm in the credit Union is credit Union, primarily auto and the arm is that primarily personal loans.

And I know that some like.

Recovery.

Our credit unions is the.

Very much additive they have weird about end of the quarter of about 58 customers. They had over 120.

They have some software relationships and credit unions that we don't have that we've been talking to so that's we really like that that's of great vertical and they've they've done well there and so that was the big part of the thesis.

And then.

Accounts receivable management, they are really a leader in that space and have done they have great technology. They are of great relationships, both with merchants and with software providers.

And again, that's very additive to us and we think that there.

Have a ton of great relationships, but we're really excited about is health care and so as you as you may recall were in health care on the AP side, where we're processing payments for third party administrators from insurance companies to providers and also of processing a pea for hospital systems.

This gets us more into the patient side with consumer driven payments.

Whether it maybe at a hospital or whether a doctor of dental practice.

This gets us into that part of health care of there's a lot of different parts of health care, but we think it's of $420 billion market opportunity.

Obviously growing very quickly as consumers.

Trying to take more control over their health care choices. So that's where we're really excited about and that's where a lot of the growth will be focused but they also have strength in these other verticals as well Bob.

Okay. Thank you Bob.

This.

Sorry about that the other.

Thing I would add is the credit unions would lean towards the auto lending.

Yeah.

Great and then in health care is that revenue cycle management is that competing with like fly wire or.

There would be some of the competition in the health care space.

That debt or the.

The revenue cycle management kind of overlaps between health care and arm, but.

We'd be competing with.

You know maybe like it hits the Mad.

Health care, that's the name that we also see in the Ben Hendrix business.

So that's.

That's one that we see from time to time and there is some other private companies that would come across but definitely they are definitely in the RCM space and the like I said of kind of straddles health care and receivables management.

Thanks, and then last question just I mean from a cultural perspective.

You know how does this how does the fifth I mean a lots.

That's a good sized organization with some obviously some some good leadership the now how does that how.

How does that fit together I mean, I guess, the the health care of the energy teams.

Clearly we know how does.

How did you feel about the culture and.

Now how those fit together I mean, you don't have a huge amount of cost synergies in there. So that's more growth oriented against.

Yeah sure so.

We actually think our cultures fit well together.

You know if I'm trying to find an optimal opportunity that strategically and it's very compelling of the combination there's lots of one for once we do that are just this makes a lot of sense of very attractive from a from a financial perspective, but also very attractive from our ability to integrate a lot of the different.

Verticals the they serve it's a it's we understand exactly what theyre doing the the omni channel as they have fits well with our omni channel is our technology fits well.

This makes a lot of sense for us and obviously, they've built a really nice company.

Part of the non has put in a first class team there who's done that yes. I mean this is a scenario where we will have to find some synergies.

But.

We think this is a really good opportunity for us continues to expand in these verticals.

Thanks, John and thanks, Tim.

And our next question is from Tim Willi with Wells Fargo. Please proceed with your question.

Alright, Thank you and good afternoon, I apologize if I missed this at the very beginning of the call of dialed in a bit late but could you talk about.

The first with the.

And the I guess the margin profile right now already very attractive parts of it.

Rather than the size I'm, just sort of curious.

Versus yourself or others in the marketplace. So there is something inherent about the monetization of.

Of the customer base the way, they're just running the back office that gives it such an attractive Roe.

Revenue profile of it just sort of jumped out of me in terms of the revenue and margin dynamics there that looks so good.

I sit there at.

Yeah, some similar to our verticals. These are just relatively underpenetrated from a electronic payment perspective, and it's also highly integrated with the key software providers. So just like repay building true adds a lot of value of their merchants and they're able to hold margin because of that and they're just have chosen.

Very attractive verticals that I.

Like I said, we're moving away from legacy payment methods more to electronic specifically card.

Not a lot of.

The competition not heavy competitive environment like maybe of retail transaction would be and so there's just stronger margins and I think they've done a good job of.

Building relationships with our vendors and putting in place solid contracts with their vendors from our processing cost perspective to keep those gross margins high and then have run the business in.

The relatively lean way to allow for strong adjusted EBITDA margins. So.

Very similar to the question that was asked earlier about culture, they've they've kind of built their business and of a similar way we have now both from a processing perspective.

On the Opex perspective, and also from a technology perspective in terms of omni channel is focused on the specific verticals and of <unk>.

Really integrated way, so a lot of overlap and very positive.

Great I appreciate that the one quick follow up and again I apologize if you touched on some of your prepared comments, but just any update around the initiative around the mortgage industry.

The call out their partnership wise momentum wise, the just sort of wanted to get an update about that that end market opportunity.

Yeah, a lot of momentum there we've signed some very large mortgage servicers recently, we've added a large credit union to do their mortgage payments recently all of them looking for a highly customized.

The processing platform that handles complex exception based processing.

So a lot of momentum there gaining a lot of momentum with the Ellie Mae relationship where the.

Of the technology piece of that is coming together nicely.

Furthering that technology integration to onboard customers more quickly, we're adding customers of Ellie Mae So a lot of positive trends within the mortgage.

Great. Thank you very much from the time.

Yep.

Yeah.

And our next question is from James Faucette with Morgan Stanley. Please proceed with your question.

Hi, This is Michelle on for James two quick questions from me. The first is just on the payment volume side is there any seasonality that we should be aware of versus some of the ongoing strength that you called out in the April may trends that you've been seeing I guess, we wanted to make sure we're capturing the cadence of what the business.

Should look like and then obviously any incremental from from the recovery that you're seeing and then just a quick all of their follow up on the payment volume side could you give us a sense as to what the.

The organic growth has been trending up thanks.

Yeah. So the seasonality is in Q1 typically within the loan repayments, we get a lot of additional volume from tax refunds when consumers receive those refunds, the often make larger than normal payments on their loans or might even pay off their loans and then and then that's usually has the seasonal dip into Q2.

<unk>.

All of our lenders are more focused on lending and originating than they are in collecting due to refunds and then we start to see accelerated growth in Q3 and Q4. So that trend is continuing to play out and we would expect that again seasonally Q2 would be down from Q1 for that reason, but then we experienced accelerated growth in Q3 and Q4.

So we're seeing that continue.

And then from an organic perspective, we had a really strong quarter organic gross profit growth was 11%.

So that was very strong for us and.

We're excited about that we had really large volumes from a lot of our larger personal and auto lenders.

And that was a good signal.

Thanks.

Our next question is from Mike Grondahl of Northland Securities. Please proceed with your question.

Yeah. Thanks, guys did you say the the three senior sales people you hired will they be focusing on a specific vertical.

Or more generalists and then did you say how many sales people you picked up with billing tree.

The the new sales hires one of them of specifically will be focused on selling <unk> for our tri source backend processing business and so looking to add additional customers. There like I said that business has performed very nicely, it's really high margin and we're looking to add customers in this particular.

Sales person has a lot of experience there within the payments in that part of the payment business. The others will be focused on enterprise level customers and loan repayments.

Looking to add.

Very large customers across the different sub verticals within the loan repayments. So.

Wherever there would be focused.

And then the billing tree team as you know.

Really the largely have relied on distribution from software partners. So they haven't had to have a huge direct sales force.

They've got a lot of referrals from the software partners would you. They do have a strong sales team will that'll be very additive to us and we will be trying to find ways to help further penetrate those items relationships just like we do every day.

Yeah.

Got it okay. Thanks.

Our next question is from Tom Blakey with Suntrust. Please proceed with your question.

Hi, guys.

Thanks for taking our questions.

The first question is on.

The <unk> volume.

The.

The qualitative or actual number the attach rate of acquiring of the kind of total volume opportunity.

Of your PDP customers and Relatedly what of.

And you're thinking about growth going forward and thats going to the segment how much is coming from.

Our new ERP integrations, and what percentage would be coming from of further penetration rate of existing customer base.

And then the.

The second question is on billing tree is very interesting here.

Part of their business is related to our management I was wondering how complementary.

This acquisition is of your existing build trust relationship.

That'd be helpful. Thank you.

In terms of beat of the volume that the opportunity is huge.

Peter the AP automation, we estimate our addressable.

Opportunity of $2 two trillion of the BW merchant acquiring its.

At 1.2 trillion, so about three and a half trillions of ours of payment volume opportunity in b to b across AP and a R and we.

We think that our customers have probably a higher than average virtual card volume penetration rate and so we're trying to increase that and have them send more and more of their payments via virtual card and have the.

The supplier has enabled to accept virtual cards, which is the higher margin business for us than say traditional IC H. So that's what we're trying to do is just kind of.

Just go off most of the customer conversations of Greenfield and Theres not its not a competitive takeaway. It's just trying to move them away from check too.

Electronic payables and specifically.

Enhanced H C H O a virtual card that's on the on the payables.

Payables side and on the merchant acquiring side with the media, but yes, it's going to market through erp's, whether it be say <unk> and trying to tap their customer base to utilize the card payments and accept cards for it in the business to business transaction and again trying to increase penetration of card acceptance within the BW merchant acquiring.

And billing tree.

Our management business, there is really more about a business process.

<unk> outsourcing and acceptance of payments.

And it may be on something that's past due.

Health care payment for example.

And that's just helping their customers get paid more quickly and efficiently.

It's not really related to the P. P N integration, it's more about getting acceptance of those three.

Third party, maybe late payments in those various sub verticals.

I would also be revenue cycle management, you talked about before where the hospital has outsourced their billing and collections.

The hospital is looking for of paint to be able to take payments via card from their patients.

The revenue cycle management was also part of it.

Thank you very much.

Okay.

And our next question is from Bob Nichols with William Blair. Please proceed with your question.

Thank you for the follow up just on the billing tree that looked like the net take rate.

It is a little bit higher than it is for.

From a repay.

The things the blended laid up close to 110 basis points of that sounds like the kind of an eight basis point something like that.

That sounds right, yes, yes, they do have 100 of take rate yes.

Yes.

Is that sustainable net debt.

No.

And then I guess you mean.

You do compete head to head in some regards and some pieces of it.

Uh huh.

Make it a little bit less competitive in some areas.

Yeah, I think it is sustainable based on the data we've seen in the conversations we've had with customers and software partners in the air as the sales people within the organization, we do think it's sustainable.

And so that's again, it's a very attractive financial profile as you're pointing out.

Strong gross profit adjusted EBITDA margin has a very high take rate.

Think of that.

Can persist going forward.

Thanks, and then just a question on one day should John.

But the there's going to be because of the.

Health care and because of the.

Energy space and some of the other things that the it can be a little more of.

Credit in that take rate credit itself has the highest okay.

Okay, Okay, great. Thank.

Thank you and then.

Just on the BTB payments business with the four acquisitions, you've made what is working better than others or anything thats really standing out and what is the growth rate of.

Yeah, that'd be the payments business combined so what's standing out whats the overall growth.

Cps has done really well there the business that does payables for.

Large hospital systems or education systems, they're really going after an enterprise client and the they're really good at that type of sale.

And we've seen them now win some large customers like we talked about of the call. The top 50 U S City. We're now doing all of their payables for their public school system. As you can imagine there'd be a lot of vendors there and a lot of payables.

We're just seeing a lot of those types of large enterprise wins.

They just do a really nice job with the help.

We hope that will continue across those various verticals in that business growing is growing product, 2025% on a combined basis.

The big part of it is adding to the supplier network as you know that's the big piece of of the payables business in the not only adding suppliers pulling them to accept virtual cards, both <unk> plus and Cps to a great job of virtual card enablement with so that's why we think we have higher than average virtual card acceptance rates.

In these particular sub verticals of the supplier enablement is very strong.

Thank you is that the the.

The P and L. A.

Are you are you actually using the VPN at this point or are you still working on integrating.

The technology integration is close to complete but we've identified some customers.

Within the sub verticals, particularly field services that we think.

We'll benefit from that freely.

Near future here near term.

And is that kind of the BPM does that materially moves the virtual card acceptance rate is that oh the benefit.

It should yeah, you kind of you get access to the supplier of directory to understand who take part of the exceptional cards and what their rates are and that's part of the.

All of your proposition there.

Thank you.

Uh huh.

And we have reached the end of the question and answer session and this also concludes today's conference and you may disconnect. Your lines at this time.

Thank you for your participation.

Uh huh.

[music].

Yeah.

Yes.

Yeah.

Mhm.

[music].