Q3 2021 Repay Holdings Corp Earnings Call
[music].
Greetings and welcome to todays earnings conference call being hosted by repay with.
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 results.
These forward looking statements are subject to risks and uncertainties, including those set forth in 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.
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.
It will also include references to certain non-GAAP financial measures.
An explanation of those non-GAAP financial measures are I suppose 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 Sir.
Thank you operator, and good afternoon, everyone.
Thank you for joining us today to review, our third quarter, which was one of our best since becoming a public company over two years ago.
During the quarter, we reported card payment volume growth of 48% total revenue growth of 62% and gross profit growth of 69%, which included 50% organic growth.
We also reported adjusted EBITDA growth of 73% in the third quarter.
Our highly integrated payment technology has been purpose built to address the increasingly connected economy.
These secular trends towards frictionless digital payments were a contributing factor to our growth in the quarter. We continue to be a tailwind that will drive our business for years to come in fact, approximately 95% of our volume is now comprised of a combination of card not present and recurring transactions.
These trends were aided by an incredible effort from our direct sales team as well as ourselves through our IFC integrations, which continued to be a strong growth channel for us.
We currently have 214 software integrations, which represents an increase of 127% year over year.
We have built a really strong sales pipeline as <unk>.
Man grows for our digital payment solutions.
The powerful trends driving our business and numerous valuable sales channels are also aided by the fact that the five three trillion dollar market. We currently address has been and continues to be underserved from a payments perspective.
These verticals still rely heavily on paper forms of payment.
Our technology helps convert these paper payments to digital for both money in and money out transactions, meaning both the acceptance and outbound supplier payments.
We are growing adoption and take each year in these verticals due to our enhanced payment technology.
The BBB space remains wide open and represents the largest opportunity to increase penetration with a focus on virtual cards.
We're making significant progress in <unk> due to the five acquisitions, we've completed and integrated to create a powerful best in class offering in the market.
This is supported by superior distribution throughout 80 class B to B software integrations, representing approximately 15 vertical end markets.
We now have over 3500 clients in our <unk> business.
And on the AP side, we've grown our supplier network to over 105000, an increase of approximately 14% from last quarter.
Crossing the 100000 suppliers is a major milestone for our business.
We have a full supplier enablement team that is working to grow that number every day, which will allow us to increase our virtual card adoption within our customer base.
We're also increasing virtual card penetration through our total pay solution, which came through our acquisitions of <unk>, plus and Cps last year.
This solution allows us to automate 100% of our customers outbound payments no matter the payment modality.
As a reminder, our AP business is focused on medium to enterprise sized customers and is growing approximately 30% annually.
<unk> verticals and a long runway for growth due to low card penetration rates, which we estimate to be in the low to mid teens.
In addition to increasing virtual card adoption within our customer base. We also are seeing early success in cross selling our combined AP and AR capabilities.
We've been close partners with stage and <unk> with <unk> merchant acquiring for some time.
Now have the ability to do accounts payable within each of those integrations, which we think is pretty unique.
We currently have several signed with an active and growing pipeline of clients for both sides of the transaction, meaning AR and AP and expect that number to increase dramatically next year.
In addition to cross selling within our <unk> customer base, we are seeing increasing interest from our lenders wanting to use our API capabilities.
They really value the idea of a one stop shop for payments in general.
In September we announced our strategic partnership with <unk>, and AR and AP automation provider, serving small and medium sized businesses.
This commercial partnership agreement allows us to further expand our <unk> offerings are giving us the ability to deliver cross border payment options.
Buys us another opportunity to expand our payment options and is especially attractive partnership when it comes to our total pay offerings that I mentioned, a few months ago.
We're in the process of testing this technology with international vendors and expect to go to market with this offering in the first quarter of next year.
The partnerships, we signed earlier this year are starting to really bear fruit.
In the spring, we announced our inclusion that CDK global partner program.
We are now processing AP within several auto dealers as part of this program and also building a very healthy pipeline through that connection.
As a reminder, CDK global as the largest global provider of automotive dealership solutions with 15000 retail locations in North America.
Another relationship we discussed once we build trust VPN network.
We have successfully added VPN is a new payment modality within our total pay solution and now have light payments through that channel.
As you can see we continue to expand our total pay solution.
As we add additional payment modalities as well as expand our access to various networks, such as VPN and grow our supplier network.
We're seeing tremendous success and growth in our <unk> business, but equally as important our clients are seeing real value in the services we provide.
For instance, when we sign up a large eight hospital 2200, plus bad health system for our AP total pay solution.
We were able to get the program up and running in less than two weeks.
There have been a participation increased over 16 times and we're a company that is currently processing about $9 million.
And vendor payments each month.
Generating approximately $1 million in additional earnings annually.
On the cash rebates and reduced check printing costs.
That's real savings and tangible proof that repay is helping make a material impact to their businesses overall.
Moving on to loan repayment side of our business, which is comprised of consumer driven payments across auto loans personal loans mortgage and credit unions.
One of the fastest growing and exciting areas of this business continues to be the auto loan repayments.
Due to the recent tailwind such as elevated used car prices.
Increased demand in digital engagement.
These long duration loans have greater repayment stats and our sales activity has picked up recently as dealers and lenders map out their customer engagement strategies, which will include payments.
Our high quality deeply connected payment technology has become part of this engagement strategy.
We continue to see gradual rebound in personal loan volume as stimulus impacts were off and consumers take on new loans for funding increasing consumption activities, particularly as we enter the holiday season.
Our lending clients are continuing to find ways to engage more digitally with their customers, which fits very well with our payment technology.
On that topic, we recently announced an expanded integration with <unk> systems, a loan management software company <unk>.
Help lenders electronically send funds directly to borrowers bank accounts in real time.
Driving digital transformation and providing consumers with instant access to funds.
Go point users will be able to access instant funding in tandem with card and processing for payment acceptance across all channels.
Our instant lending business is still going strong and we are seeing increased adoption.
We announced our extended integration with <unk>.
Which will streamline the funding process for lenders on the <unk> system in the U S and Canada.
The integration will enable lenders to instantly fund loans from the same interface that used today without having to switch systems or platforms.
In addition, beginning next year, we will enable <unk> lenders to offer remote cash et cetera.
Which will further increase the convenient options for borrowers to make payments.
We expect this partnership to help accelerate growth in Canada.
We've also recently signed an exciting new partnership with initially a Mastercard company to offer consumer permission lending data and insights to merchants. So they can make predictive lending decisions and verifications.
On the mortgage side MSR values and trading continues to pick up momentum, which increases the value and need for our SPX network.
Our focus on first time payments, where originators through our LMA partnership fills a gap in the marketplace and we see good momentum in receptivity for mortgage customers.
We believe that our emphasis on creating efficiencies for our mortgage servicers continues to create organic growth opportunities both within our existing customer base and with new customers.
I'll try source processing business, which we've renamed repay clearing and settlement or Rcs continues to perform nicely.
Is strategically valuable to own our backend processing platform, which gives us unique capabilities to control the customer experience in areas, such as billing and reporting.
We see very strong sales momentum with processing customer prospects and expect to experience additional new wins going into 2022.
So a lot of progress on both our existing BBB and consumer payments businesses.
We also continue to look to further expand our end markets through M&A as well as organically.
M&A continues to be an important growth driver for our business. Our pipeline remains very active across key areas such as <unk> and healthcare. We're also seeing some interesting opportunities in existing loan repayment verticals.
We're very pleased with our ability to integrate a majority of the seven acquisitions, we've made since going public a little over two years ago.
Our integration of one billing tree is going well.
Or is the end of this year into early 'twenty two we've.
Converting the backend processing to our platform.
In which case, we will start to realize those processing cost synergies.
We have already made solid progress in realizing the opex cost savings.
And we're very much on track to hit the total $5 million synergies target that we estimated previously by the end of next year.
In addition to adding many talented team members and IC integrations. This acquisition has allowed us to further expand our position in the healthcare credit unions and accounts receivable management.
We now have over 190, <unk> credit Union customers combined with billing tree, representing approximately $2 2 million collective members.
This continues to be an exciting growth area for our business.
To wrap up I'm incredibly pleased with our performance this quarter and even more excited about the future for our company.
Our focus on both <unk> and consumer payments verticals as positioning us well in the market.
We continue to feel great about the long runway ahead for organic and inorganic growth and a strong recent additions to our team will help us address these large and growing verticals.
With that.
I will turn it over to Tim to discuss the financials in greater detail Tim.
Thank you John.
Now, let's move on to our Q3 financial results before I review, our financial guidance for 2021.
As John mentioned in the third quarter repay delivered strong results across all of our key metrics card payment volume was $5 6 billion, an increase of 48% over the prior year third quarter total.
Total revenue was $61 1 million, an increase of 62% over the prior year third quarter. This.
This represents a take rate of approximately 110 basis points, mainly reflecting the benefits of increased virtual card adoption in a strong financial profile a country.
So you paid plus Cps billings rent control contributed approximately $17 8 million of incremental revenue during the quarter.
Moving on to expenses in the quarter other cost of services were $15 3 million compared to $10 5 million in the third quarter of 2020.
The incremental other cost of services from CPA, plus Cps billings train control were $3 2 million for Q3.
Gross profit was $45 8 million, an increase of 69% over the prior year third quarter.
As John mentioned on an organic basis, we saw gross profit growth of 15% compared to the third quarter of 2000 22020.
As shown on slide five of the Q3 supplement posted to our IR site.
We remain very encouraged by accelerating organic growth with an exit rate in September of 16% and continued positive momentum into early Q4.
This organic growth was primarily driven by strength across our loan repayment verticals as well as continued solid performance on <unk> backend processing business.
We're also seeing a recent pickup in growth of <unk> due to increased mortgage activity and what appears to be the start of a rebound in elective health procedures.
SG&A was $33 7 million compared to $28 6 million in the third quarter of 2023rd.
Third quarter, adjusted net income was $19 million or 21 per share.
Lastly, third quarter, adjusted EBITDA was $27 million, an increase of 73% over the prior year third quarter.
Third quarter adjusted EBITDA as a percentage of total revenue was 44% compared to 41% in the prior year third quarter. This.
This increase in margin is mainly a result of stronger than expected margins that billing tree, primarily due to solid execution on opex synergy realization.
We do still anticipate increased investment in sales technology and products to continue putting in place the proper infrastructure for accelerated organic growth into 2022.
Combined net leverage is approximately two nine times, a very comfortable level, which will allow us to continue to fund organic and inorganic opportunities.
As of September 30.
$160 million of cash on the balance sheet and access to a 125 million of Undrawn revolver capacity.
Liquidity amount of $241 million during.
During the quarter, we funded approximately $13 million of nonrecurring investments such as the CPA plus earn out and V minority investments.
As of September 30, we had approximately 99 million shares outstanding on a fully diluted basis.
Finally, moving on to our outlook for 2021.
We are pleased with our results year to date, particularly the organic growth and expect the momentum to continue throughout the remainder of this year and into 2022 as the economy recovers.
We are adjusting certain expectations for the year.
We expect volume to be between 23% and $20 8 billion total revenue to be between $216 million and $222 million.
Gross profit between $161 million $166 million, and adjusted EBITDA between $93 million and $96 million.
While we don't intend to provide formal 2022 guidance until our Q4 earnings call given the positive trends you've seen more recently, we would like to provide additional details on our current outlook for next year.
We expect total topline growth to be approximately 30% and underlying this we expect organic growth to be high teens to 20% for full year 2022.
We expect total adjusted EBITDA growth to comfortably exceed 30% in 2022.
Again, we feel very good about our performance thus far in 2021 and look forward to finishing the year strong with accelerated growth into 2022.
I'll now turn the call back over to the operator to take your questions operator.
Thank you Bill.
We now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
We'll hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any Keith to withdraw your question. Please press Star then two.
The first question comes from Peter Heckmann from D. A Davidson. Please go ahead.
Hi, Dan This is John on for Pete one more time with the organic growth for the quarter. It looks like it was 12% plus about like 19 million of revenue from the three acquisitions over the last year.
The organic growth rate for the quarter was 15%.
Awesome and then you repeat the question.
Yes, yes, what was the growth in auto lending business in the quarter as well I know that you guys last quarter related to auto lending area.
Right around 25% growth.
Yes, that's consistent this quarter as well.
Yes.
Got it got another can squeeze in one last one and the growth in the personal lending business.
The growth in the personal lending business is probably in the low teens, it's moving back up toward mid teens.
But as we said the recovery has been gradual.
Got it thank you so much.
Next question comes from Ramsey El <unk> from Barclays. Please go ahead.
Hi, great quarter, I wanted to ask about Tri source and sort of maybe if you could characterize the impact of the delta variant on the Tri sourced business to date and sort of what pace of macro recovery contemplating <unk> basically I'm trying to figure out whether there is quite.
Quite a bit of recovery presuming that business or whether things if the environment cooperates for little more than you anticipated whether that could represent upside.
Yes. This is John Hi, Ramzi.
We have and do we expect.
A clear recovery there in the <unk> business and obviously there can be some positive seasonality in the fourth quarter as it relates to that.
But we also have been very pleased with our organic growth rate in that business from the as you recall that was the first acquisition. We made after we went public.
And for all those reasons why we thought it was very very good for our overall technology platform, our ability to move including settle funds on all of the various card rails that still remains true and we're very excited about our competitive advantage in the marketplace and what we're seeing there as far as being a processing customer obviously, we're being our own customer.
We still look at that as a very strong competitive advantage for us as we as we continue to build out many of our features and functionality and our ability to.
Really enhance the overall experience.
So market wise, we see or we see very positive results from what we're seeing there but.
But overall, we do expect it to to be stabilized and rebounded.
Great and I wanted to ask about the about your margins next year.
Can you talk about potentially sort of business investment plans or anything youre trying to solve for next year.
It looks like margins, obviously came in quite strong in the quarter.
And.
Just trying to kind of gauge that.
The puts and takes next year in terms of margins.
Yes, so we.
We feel very good about this quarter as well you're seeing the impact of billing tree on the P&L, It's really positive financial profile. So you can see that flow through.
Gross and adjusted EBITDA margins.
So while we would expect that to continue to benefit the business. We do want to invest in growth, we do want to invest and accelerated growth in areas like sales product and technology.
Which I think maybe wood.
Bring the adjusted EBITDA margins, probably back to around 43%.
There were higher this quarter and then.
From a gross margin standpoint, the billing tree processing cost savings.
Will positively benefit gross margins and so we see those continuing to pick up.
Perfect. Thank you so much.
Okay.
The next question comes from Sanjay <unk> from <unk>. Please go ahead.
Thanks, Good evening.
I guess I was wondering if you could parse apart that 15% organic growth between loan repayment and b to B just to get a contextual understanding of sort of how each of those businesses are doing and then as we look into next year, how do you see that mix sort of evolving.
Yes, I mean, the most of the organic growth is driven by.
It was driven by loan repayments, we still haven't gotten to the point, where we've lapped the acquisitions and <unk> to drive that growth. So most of its loan repayments and then to some extent Tri source and then we are seeing a lot of positive momentum in <unk>. So we'll see the <unk> businesses, we acquired.
Last year flow into the organic calculation in Q4, and then into next year and because they are growing faster than the overall average. That's one reason why we still have confidence in the high teens to 20% and so.
That's kind of how we think about it.
Again, the fast growing beauty business has set us up for longer.
Unit growth.
No I appreciate that and then as we think about.
The M&A pipeline.
No John you sort of mentioned some of the verticals that youre looking but maybe you could just talk about size.
Nope.
Yeah, sure Hi, Sanjay.
As you know we've made two acquisitions already this year, one very large, especially for us that is the <unk> acquisition is going really well so far.
Our operating synergies.
I have been there and we've been.
Fortunate to continue to execute well on our plan there obviously.
Going into 2022 and finalizing our.
Processing synergies there.
Expecting full.
Full year results there what we expected what we told you earlier.
But also if I look at overall M&A. So we wanted to digest that and we've done a really good job of doing that that was intentional but we've also had a very busy summer of seeing active deal flow out there, Jason and our team there have been actively looking at things.
We are selective.
We do look for key attributes.
Eight to 10 attributes that we look for really drive.
Fast growing businesses around similar verticals and where we operate.
And we have seen some of those we have continued to be selective there, but we also see some very attractive things in the marketplace.
Ed.
Would be complementary to some of our existing verticals.
Lynn.
When available or when actionable, we would look to take advantage of that.
Assuming markets allow.
Great I guess, one last question on loan repayment.
Obviously, <unk> is going to be a faster growing space, but as we think about the significant Tam and addressable market. They are still I'm, just curious how youre seeing that unfold because I remember like Oems.
Was it was a bright spot that was an opportunity maybe you can just talk a little bit about sort of the opportunities you're seeing there. Thanks.
Yes, so yes, we still feel really good about that part of our business.
It's growing nicely. Despite some of the Covid impacts auto in particular is where we're seeing a lot of excess of success. We have we still are targeting certain Oems. We think that there is still taking a lot of payments via checking ACTH and so there is an opportunity to move them to digital.
So a big move to online.
Car sales that typically are also doing their own financing and so we're targeting some of those online car dealers as well.
And that's another big area of opportunity and then of course, there's 10 loan repayments as other sub verticals that we really like such as mortgage and credit unions. So even within loan repayments is a diverse set of opportunities and we like all of them.
Okay.
Thanks.
The next question comes from Andrew Jeffrey from <unk> Securities. Please go ahead.
Hi, good afternoon guys.
I appreciate you taking the questions. This afternoon, you threw me off with the 530 call though.
John I wanted to pick up a.
A little bit on your comments about the total payment offering.
And how it allows digitization of all payments in your AP business can you can you talk about thank you mentioned, perhaps more digital remittances can you talk about mix today, and how that effects yield and maybe if we're at.
Steepening point on the curve and which we might see faster digital payments adoption and what that means for your business on a consolidated basis and correct me if I'm wrong <unk>, what about 10% of the total revenue today interchange somewhere in that neighborhood.
That's right, yes, it's about half of the overall <unk> business, which is total <unk> is 20%.
Yes, So hi, Andrew.
Yes, our total paid solution. If you think about it the acceleration of automation and the automation of from kind of the beginning lifecycle of an invoice all the way through the lifecycle through the ERP system.
And in our ability to take that all the way through the payment commerce system.
And back and helping with the reconciliation of all the data points to go with that.
We are set up really for that if we look at our modern technology that we've built and if you think about it our target.
<unk> platform, we acquired with our CP plus platform, which they only started in 2017.
And so thats basically three.
Almost less than three years old if you look at the total.
That is a modern technology, which takes into account all of the different payment modalities that someone would like to pay an invoice with.
So we see it as we built the technology to ingest that into our system and out of their ERP systems accounting ERP systems we.
And then use our our teams to to enhance our video enablement and then that drives the virtual card acceptance of an electronic payment there to the extent that that acceptance is not there then we have the ability to pay either when enhanced ECH or an AC H.
Then we also have the ability to if none of those are chosen or desired we have the ability to deliver them and actual check as you've seen.
Recently, we have added our <unk>.
Relationship with beam to them have the ability to pay international payments with cross border.
<unk> also seen we've talked about earlier this year and we are now live with the VPN network.
If we have the ability to to intelligently route those transactions across that network.
It's the total pay solutions. So if you for.
Everything you want to pay as a business. We can help you pay that we will continue.
To expand those payment modalities.
Someone has a desire to pay something in a certain way, we will continue to increase that or expand that digital wallet. If you look at it also from a perspective on the AUR side of that.
Just like we're paying someone to virtual core they actually need to be able to accept the virtual card or in many cases someone may actually just want to accept a credit card or in general.
Actually we continue to drive that.
In our <unk> side of our business there with our integrations and as you heard me say on the call. We've now combined our AAP has a total solution.
So we.
We're actually combining those and we think that's a very high quality value proposition to our customers a one stop shop. We can we can help you complete commerce with the proper financial technology for both coming and going and when your payment side.
So we're positioned well, we understand all of the technical things and the responsibilities of moving including settling funds.
Which we think is a very trusted position and.
And the overall value chain, but we also deliver the high quality integrated automation of technology.
We think we are.
Well positioned for that to accelerate growth there.
We are generally vertically focus some sub verticals inside of that where we continue to expand our overall supplier network. We think theres. Some exponential effects there as we continue to grow that every single day.
And we're excited about being able to continue to deliver on that our AP automation business.
Is growing really well, it's growing faster than our overall business.
And as we said is what our overall <unk> business is growing really nicely.
So.
We think this sets us up really strong coming out of the fourth quarter here, we think there is.
That sets us up really strong for our 2022 outlook.
Very excited about us that gives us great confidence in our high teens to 20% overall organic rate.
Yes sulfide I look forward to hearing more quantification of that cross sell is I think it is one of the unique attributes.
That you've built with repay.
The other thing I wanted to pick up on a little bit was.
Billing tree in HCM, Tim I think you said that.
Our RCM I should say can you said that perhaps electric.
Electric procedures are coming back.
Can you parse out a little bit billing billing trees growth.
In that pretty strong 22 outlook and then I also wonder if that wouldn't be.
I think you mentioned one hospital system, John but I'm wondering if that wouldn't be a pretty good place to de emphasize the cross sell between <unk> and <unk>.
Yes, I'll talk to the last piece of this so that when the health care side, we do think and Edison initiatives. We're currently working on is our ability to cross sell.
From the AUR side, which is the patient engagement side of our billing tree.
Acquisition and our customers there.
Be able to cross sell them on the AP automation side of that.
And we have as you saw in the example, we gave.
There are hospitals in that network and we deliver a really.
First class solution. We think is one of the best solutions out there and we.
We understand the unique.
Characteristics of the hospitals and the things they did deal with but we also know our as I've mentioned our supplier network.
As also enhanced to deal with some of the things and some of the vendors we see in the in the healthcare industry.
And add to add to that in addition to the consumer driven health care payments with billing tree and then we have the hospital vendor payments with Cps. We also have a part of our business with <unk>, where we serve tpa is through third party administrators that are facilitating outbound payments to providers.
And Thats, where we see positive momentum with <unk>.
Elective health care procedures, particularly because we see that volume picking up going to providers who are.
Given that service. So we're now a couple of different parts of health care, which we like and both the acceptance side.
Our bond payment side and as John said, there's multiple different avenues for cross selling there.
I appreciate it thank you.
The next question comes from Bob Napoli from William Blair. Please go ahead.
Thank you good afternoon.
And I know you've mentioned this a little bit but wanted to dig into the take rate improvement.
For the I guess, the third straight quarter to take rate.
Went up.
110 basis points, indeed called out virtual cards.
And that does seem to be a very large opportunity virtual cards or cross border in the <unk> business is that.
Where are we in that how much is that the primary driver to the improvement in take rate.
And does it have legs.
Yeah, Hey, Bob So, yes, the virtual card adoption, increasing we have better unit economics on that and so just at a higher take rate increased virtual card adoption.
And penetration that will benefit the take rate also this is our first full quarter with billing tree. If you recall building trade has a take rate of 325 to 130 basis point. So that is now flowing through.
Cross border, which is our partnership with beam has not we're not totally live with that right now we're testing international vendor payments, but we will go to market with that in Q1, So thats upside that's not in the.
100, and or the fourth quarter number even thats more of a 2022 and that we do.
We do think that will positively benefit take rate.
How much of your business is cross border.
In <unk> of your <unk> business is cross border today, and what do you think it can be.
Yes.
One of the reasons, we formed a commercial relationship with <unk> was we were not currently processing cross border.
So as we rolled out.
At all okay finish our testing and roll that out in the first quarter. We will give you more color as we see some of the some of the results from that.
Great, but we should expect the take rate to move up from 110.
Generally.
In 'twenty, two and onward and some of those new products. So we planted and billing tree with the addition of building tree.
Yes, I think Thats 110 is a good number for the foreseeable future, but once go cross border or get some legs and it becomes a bigger part of the business.
As billing tree grows and virtual card penetration grows yes, I think there is opportunity there.
And then on the loan repayments that you see an acceleration.
During the quarter end.
October I know some of your clients, especially on the consumer side in particular had a pretty good ramp up in.
Loan originations. So are you seeing an acceleration there.
Yes, we are we are which is one of the reasons I mentioned that we exited the quarter with a 16% organic growth quarter rate overall was 415, but exited in September at 16, and we are seeing increased originations with some of our larger lenders.
We see the instant funding volume increase and to us since in funding as a good leading indicator of origination activity because we're funding new loans.
Just kind of anecdotally heard from our customers that they see originations picking up going into the holiday season.
Great. Thank you appreciate it.
The next question comes from Timothy Chiodo from Credit Suisse. Please go ahead.
Thanks, a lot for taking the question I have one that's somewhat specific to repay them also sort of an industry question and then last one is a follow up on the origination so for the industry. One just wanted to dig in a little bit again to the the value proposition. So when a supplier has offered the various choices to accept payment enhanced.
<unk> CH being one of them maybe at some point down the line enhanced ECH could be working with in RTP or a faster payment rail rather than a traditional ACTH, but regardless, if we put one bucket of the enhanced ACTH and the other of the virtual card and Big picture, If we think about components around data and messaging and rescue reckon.
Filiation and the other one being speed of settlement and the money goodness. If you will of the payment when the supplier just given the choice of those two.
What are the considerations there in other words why does someone opt for virtual card rather than ACTH at various times.
Yeah, Hi, Tim it's John.
So it can vary and it can vary by industry are our sub vertical obviously theres more sensitivities potentially around.
Higher tickets right. So higher ticket can obviously drive the need for some type of.
It's less likely to be a virtual card, but it obviously as well as industry specific we have a much higher virtual card penetration rate in our auto space, we have a lower.
Patient rate than say an hour our healthcare.
Specifically and maybe on the Tpa side, where someone is actually paying in actual medical bill.
But we actually see on the vendor payment side very positive results even in some of our hospitals.
So it does depend on the average size of the ticket from a virtual card versus a different payment modality and it also what drives that as well as acceptance and if someone actually cannot.
Truly accept a a credit card.
And that would drive them to a different different modality.
Ultimately last one is <unk> still take checks right and we still greater than 50% of all the payments and <unk>.
But youre absolutely correct.
We see great value in our overall software.
And our ability to transmit as I was talking about just follow the trail of all of the debt.
The data elements of an invoice on a one by one basis through its lifecycle of clearing and settling all the way back into the reconciliation process as a one for one to think about it think of it as a just a ledger system.
We're going there and back and completely a one for one ledger against that there is great.
There is great value in that just in that alone because.
A person doesn't have to touch it in many respects they just have to verify and quantify that it balances.
And that.
Thanks, Steve.
The lack of the ability of a human to actually intervene with it.
Great value to it so we're continuing to see that as we expand and we see that we seeded the digital transformation happening.
We do think that obviously the pandemic really.
With everyone working remote and when do you think that opened the eyes of the World and then we do think that tailwind is real and we think that will continue on through 'twenty two 'twenty three even in 'twenty four 'twenty five.
Automation continues to happen there.
Okay.
Great. Thank you so much John my brief follow up there.
It can be a quicker one so you mentioned, Tim you mentioned some <unk>.
Strengthening our accelerating originations heading into our expectation of those to happen into the holiday season. You also mentioned your actual results accelerating exiting September and into early Q4, which is great. I just wanted to follow up on a comment that we had talked about in the past around some of the durations of those loans were extending a little bit and that was going to maybe bump some of them.
Repayments into Q1 and be supportive of Q1 results as well alongside the continued acceleration in Q4 is there any update in terms of how that's played out if that's continued to be the case.
Yes.
Great about Q3, and we feel good about Q4 too but for any originations that are picking up due to holiday season. For example that would fall into Q1 and so if there is loan being made now or into early December that's likely Q1 payments. So.
<unk> concept.
For us it's all about originations, though even if the duration has been extended a bit we're still going to get that payment. It's just a matter of timing and so we still see that same trend happening.
Excellent. Thank you both for both of those questions.
Okay.
Sure.
The next question comes from Andrew Schmidt from Citi.
Please go ahead.
Hey, John Hey, Tim Thanks for taking my questions here.
First of all I wanted to ask about the <unk> business.
The way to characterize how fast that's growing in a pro forma basis organic gross profit.
Just curious when we start lapping the <unk>.
Yes.
Really all of your PDP acquisitions in the fourth quarter.
What's that what that's going to lead to growth. So any any context around what that currently is currently running at it on a pro forma basis would be helpful. Thanks.
Yes, it's growing about 25% to 30%.
Business is growing a little bit faster as John mentioned on the call.
That's becoming.
A bigger part of the overall mix within <unk> and so that's one of the reasons again, we felt good about providing an initial outlook for next year and feel good about the continued strength in organic growth going into next year is because we have those <unk> assets, particularly on the AP side.
Got it that's helpful. It's pretty encouraging and then.
Yes.
To see the progress of the cross sells.
And 18 bundling when youre going to clients.
In your mind does that create an opportunity. If you were to add more <unk> solutions to be able to sell in given the.
Progress you've been seeing in cross selling so far.
Yes, so we do see the value prop.
With adding AP automation to the our customer base already.
That's one of the easier cells from a cross sell perspective, because thats, an already a customer they see the immediate need.
They do like the one stop shop.
Having being able to make.
<unk> payments outbound, but also that we are already using they are already using us for inbound payments.
So as that growth continues we do we do actually think it actually will help our growth rate by being able to offer both for new onboarding customers.
I guess the question more specifically around right now I think your position is more around merchant acquiring and payment acceptance.
If you if you are having success on the E&P side.
On the merchant acquiring side are there opportunities to war.
Whether it's cash application invoicing things like that just curious from a product pipeline perspective, as it pertains to PDP assets.
From a product price volume perspective, we actually think.
We will just like we did with our beam relationship will continue to expand the payment modalities.
That in itself increases your opportunity for additional payment adoption, even though we actually do.
<unk> the <unk>.
<unk> payments as well anytime that we can offer a more attractive payment modality that is valued in the value chain.
Generally will come with a little bit better margins there.
So that will continue to enhance we also think that.
Overall, if you look at the various different.
Avenues in which a payment can be sent or outbound inbound messaging around that the ability to have that fully integrated.
We think that obviously creates great stickiness from a customer relationship perspective, but overall it really drives the high quality experience with their vendors.
And as we said as well that driving our vendor supplier network.
There is long term value there as well for us in those eventually I'll start paying off and as we look out into the future.
Got it.
A lot of sense I appreciate that John and then.
I guess, one more as it pertains to just the initial sort of commentary regarding 2022 organic gross profit growth.
What are you assuming with the personal loan vertical are you seeing there.
There is a substantial rebound or is it pretty much status quo from here just any commentary on the embedded assumption there would be helpful. Thanks a lot.
Yes, the assumption is that it continues to recover.
And eventually gets back to pre pandemic levels and then growth.
We're hearing that in terms of the anecdotal comments I had mentioned earlier from our customers about.
Increased origination activity. We're also hearing a lot of them say that they want to go fully digital and so even if.
Even if the originations are back to where they were if they are accepting more of the payments digitally will be the one processing those and so that's why we like the opportunity for existing customer growth even outside of the origination commentary and so that digital adoption is also an opportunity for organic.
Combined with their return to pre Covid origination levels.
Okay got it so the kicker from the stepped up Digitization post COVID-19, Okay that makes a lot sense. Okay. Thanks, a lot guys I appreciate the commentary.
Thank you.
The next question comes from James Faucette from Morgan Stanley. Please go ahead.
Yes.
Thank you very much most of my questions have been answered or at least somewhat addressed but I had a couple of clarifying ones.
When you look at your growth for next year.
Give us a run.
Russ.
Breakdown between organic and inorganic but does that just to be clear that inorganic does that contemplate any incremental acquisitions or is that just what you've already done and base.
That is what we've already done.
Don't forecast future acquisitions.
Okay I just wanted to be sure and then.
One of the interesting things.
Youre different areas of exposure.
There's obviously been ebbs and flows, especially over the last couple of years around things like elective.
Medical procedures at the same time, we're seeing.
Pretty good growth it looks like in the personal loan or the intention to drive personal loan growth in the industry generally Sir can you give a little more color as to what you've seen in terms of your business how those things are moving around in.
From a demand and opportunity standpoint, and how thats impacting your outlook for next year.
Yes, so as we've talked about I mean personal loans have just been kind of gradually coming back with increasing origination activity each quarter.
We continue to see that and expect to see that.
To your point elective health procedures kind of came back.
Prior to Delta, we saw a pretty strong bounce back and then they slowed down and now we see them coming back again, so I think there is an opportunity for.
Increased volume in the healthcare space related to electric procedures going into next year I think that's a area that hasnt fully rebounded and it has been up and down and we think that.
Likely will rebound next year, assuming there is not another delta variant.
So probably continued gradual and loan repayments and then it's been up and down and healthcare electric procedures, we expect that to actually fully rebound and then some of our other areas have just stayed strong.
Like we've talked about with auto and <unk>. So.
Our swaption downs, but.
We think that there will be a really true normalization next year and we feel good about that.
That's great that's really helpful, especially on your assumption set on some of those things.
I'm, sorry, I may have missed it I'm sure. It's been asked but I just I was jumping between calls so I wanted to ask.
On the auto repayment side, obviously, theres a lot of pressures on that market right now.
Impacting originations at all from your perspective or.
And if so how meaningfully and how are you building that into your outlook for next year.
Yes, yes. Good question. So I think a lot of the pressure is really on the new car space.
We do play in that space, a little bit with our some of our larger relationships, but we're also.
Mostly on the used car space, where there really hasnt been as much pressure and even as used car prices have gone up the demand has stayed strong.
And there really haven't been as many supply chain issues of chip shortage issues in the used car space. So from our perspective, we haven't seen.
A decrease in demand, we haven't seen that flow through to.
Any decreased origination activity.
They are actually have been.
Higher funding amounts because of the increased prices and then what we've seen too is that the duration have lengthened.
One thing out to six or seven years, which helps us as well I would say some of our future organic opportunities will be would be upstream some but that's those are things that would be in our pipeline.
Got it got it that's really helpful. Thank you so much.
Okay.
This concludes the question and answer session I would like to turn the conference back over to Mr. Morris for any closing remarks.
Yes. Thank you everyone. Thank you for your time today. We are again, we are very excited about our performance in the third quarter and our resorts.
We were able to achieve we're also very excited about.
This leads us into our fourth quarter.
And obviously, how this sets us up for our 2022 year.
From an organic perspective, thank you for all your questions.
Look forward to speaking with you again soon.
Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant evening.
Yes.
Okay.
Sure.
Okay.
Sure.
Yes.
Okay.
<unk>.
Okay.
Perfect.