Q3 2022 Repay Holdings Corp Earnings Call
Welcome to todays earnings conference call being hosted by repay wave.
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 or results.
These forward looking statements are subject to risks and uncertainties, including those set forth in the S. E T filings related to today's results as well as in our most recent Form 10-K filed with the SEC.
Actual results may differ materially from any forward looking statements that we make today.
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.
An effort to provide additional information to investors. Today's discussion will also include references to certain non-GAAP financial measures reckon.
The reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in earnings and an 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 you may begin your presentation at this time.
Thank you operator, and good afternoon, everyone.
You can see from our results we delivered strong performance in the third quarter across all our key metrics. This demonstrates the resilience of our diversified business model.
Card payment volume growth of 15% revenue growth of 17%.
Gross profit growth of 20%.
Organic gross profit growth in the quarter was 15%.
How much of the organic growth contribution was from our <unk> business. This quarter. We are excited about opportunities in both our <unk> and consumer payment verticals.
As a reminder, consumer represents approximately 70% of our total business <unk> is approximately 20% and the remainder is primarily rcs.
Consumer and B to B together represent over five trillion of annual peanut volume of which we currently process less than 1% on card, which provides support for our tremendous long term growth opportunities.
All of these verticals have specific transaction processing needs.
Lagged behind other industry verticals and moving to digital payments.
Leached and lower penetration rates for electronic payments, specifically card payments and a general lack of competition, which provides us with the opportunities to embed our payment technology directly into the client into the client software platform, thereby increasing stickiness and expanding margins.
We believe that our vast distribution network of 236, ISP partners and deep presence in each vertical end markets creates a durable growth strong unit economics.
They forget that instability within these ISP relationships, we have launched our integrated partners program to.
To add product features and functionality stood existing integrations nor to further penetrate these relationships. This represents a significant growth driver for 2023 and beyond.
I'll start with a review of our BTB payments business during the quarter.
As you all are aware BTB payments have traditionally been made by check ratio, including AP and a R. So theres, a very large and underpenetrated market to attack in this vertical.
We often get asked what is your competitive advantage.
Versus other beauty players.
There are many players focusing the PDP market, which is mostly driven by the massive opportunity.
<unk>.
I would highlight our complete offering which includes.
Our total pay solution, where we can execute supplier payments on behalf of our clients buy all payment methods, including check HTH enhanced hgh in virtual cards.
AP automation, where we allow our clients to outsource their entire AP function, including a proprietary approach to supplier.
And lastly merchant acquiring.
Allow our clients to accept electronic payments for from other businesses in a highly integrated manner as their ERP accounting since it's such a stage or asking about it.
Please recall that we believe we are one of the only be payment providers to offer two sided integrations bias agent.
Which allows for both AR and AP payment automation and execution directly within the ERP embark.
Second I would highlight our vertical expertise.
They are our largest areas of focus include manufacturing wholesale distribution.
And AP, our largest areas of focus include auto dealers health care hospitals media hospitality property management field services and government.
In addition, we are primarily focused on medium to enterprise sized customers, which tend to be more resilient in any market condition versus that shouldn't be there.
Third.
I would highlight our go to market strategy its supplier network.
As at the end of September we had 85 b to B integrations.
And have expanded with many providers such as Sage, which we announced during the quarter.
We have also a dedicated in house sales team working to sell our solutions.
As of the end of jet timber our supplier network has grown into a 147000 vendors a 40% increase year over year.
I think a large supplier network is especially important when we talk to new customers and sub verticals, having that supplier network that we can already addressed with them. It was very helpful.
Additionally, in terms of our talent.
We have a great b to B team today, but we will continue to build out our sales and partnership functions. We plan to make key focusing specifically on the AP side due to the massive Tam and low penetration of electronic payments.
Turning now to a few Q3 updates within our PDP vertical.
As mentioned on our Q2 call, we expected political media volumes ramp into the second half, thus far political actually and it's generally in line with what we expected.
As for recent wins, we announced an agreement with Jones Health care group, a market leader in advanced packaging medication dispensing solutions.
We were able to create a one stop shop payment ecosystem, Nathan Jones pharmacy customers to self service and pay invoices online.
We also recently announced an exclusive referral partnership.
What's been meant a leading provider of solutions to optimize the cost cycle for the health care industry.
The replay will be the exclusive accounts payable solutions for spend bench clients across the health care sector.
On the consumer payment side of our business, we saw strength across our various sub verticals as.
As a reminder, the Tampa just this part of our business, it's approximately two trillion.
Annual payment volume and credit cards are not typically accepted for loan repayments, which has resulted in an overall low card penetration.
Our debit card acceptance offering provides many benefits to the winter, including celebrated payment cycle, which is the ability to win more and faster through card processing.
24, seven payment acceptance throughout always open omnichannel offering.
The channel payment methods web mobile IV are in tax.
Fewer ancillary charges, such as unicef's for borrowers through automatic recurring online debit card payments.
Rec software integrations doing bad payments into loan dealer and other workflow management systems, which reduces operational complexity for our clients.
As of 930, we had approximately 150 ICU relationships, where just the consumer side of our business.
Also our solutions offer improve regulatory compliance through fewer HTH returns.
I used to funding product.
Which we processed through visa direct Mastercard send continues to show strength in the third quarter.
Volume was approximately 50% ahead of our Q3 2021.
We believe this is another way to influence our more digital card base repayment transactions at the prepayment method on file as a debit card.
Recall that we are a payments leader in the personal loans auto loans credit unions mortgage servicing payment verticals. We now have approximately 5500 clients across these end markets you couldn't close to 230 credits.
And these markets lenders are looking for ways to engage with the bar.
To do this find employment of our Omnichannel payment solutions, which are fully embedded into the lenders financial software.
In fact, we recently extended our existing relationship with their strong bank one of Canada's largest lenders.
This new agreement with Big will focus on supporting various forms of lending through buy now pay later and embedded financing solutions and further expand some prepaid services offered within the Canadian market.
The macro conditions in the personal loans vertical.
We need the same trends exist that we discussed previously including continued strong demand for credit.
But the auto lending vertical we believe our offering is more important now than ever before as lenders look to make auto loan collections as easy as possible for their customers.
We also continue to be encouraged by our efforts in the mortgage servicing sector.
Mortgage servicers are looking for more flexible and convenient ways to pay for that.
Still have to follow strict processing notification and servicing requirements.
Our payment platform makes it easy to keep always happy and Servicers and compliance.
In every area of business, we are focused on finding the right talent in place to further accelerate penetration we found out at our recent hire of a mortgage vertical Erik Skinner.
Eric joins us from Black Knight, where he was responsible for M. S P and back office customer experience modernization.
Yes, its bass experienced team working on the mortgage servicing industries throughout different times in the market and brings a unique product perspective to repay.
Mortgage has become one of the fastest growing areas within repay going north of 30% in Q3 22.
Versus the same period last year.
Please recall, we are lessons that the macro mortgage since most of our growth is derived from existing clients.
We're also now actively selling our solutions into clients across the consumer verticals, such as lenders and health care providers that have experienced some recent wins.
Lastly on the consumer side, we expect to see a pickup in our accounts receivable management or arm and revenue cycle management businesses as consumers take on more financial obligations, such as credit card balances medical bills and cell phone bills.
According to the Federal Reserve Bank of New York Credit card balances in Q2.
So the largest year over year percentage increase in more than 20 years.
Placements will be picking up here in the short term based on the challenges with inflation consumers are going to have to select payment plans. That's a way to see all these outstanding pasty financial obligations, which benefits repay as we gain volume from that consumer making more payments.
We paid clearing and settlement or Rcs continues to perform nicely, but significant pipeline for future growth.
We continue to win business from the larger incumbent acquirers and truly believe that a more modern acquiring platform will allow us to keep taking share future periods.
Before I turn the call over to Tim I wanted to provide a few thoughts about next year and beyond.
So I hope you take away from my comments, we continue to be energized by our unique offering technology platform and our exceptional team.
In addition, we remain very encouraged by the secretary <unk> business, including the ongoing trends away from cash check towards digital payments.
We are laser focused on growing organically.
With growth from both existing customers and new customers of all sizes.
Our specialization in key verticals will continue to aid our growth for years to come.
Our sales teams have deep experience in these verticals and a strong understanding of client needs.
We have hundreds of IFC relationships to expand our reach and provide ease of implementation aided by our superior software and payment solutions that are specifically designed with these verticals and clients in mind.
And while we are targeting investments in these high conviction in your yes to seize more market share.
I've always and will continue to remain focused on sustainable durable growth with strong unit economics.
One of our main priorities is to have the right cost structure in place. So that we can support growth while maintaining healthy margins.
Now for 2023, specifically sitting here today, we continue to feel confident and solid organic growth.
Even in an economic downturn.
Following reasons number one.
Core consumer payments business, particularly the lending verticals are resilient and should grow even during a downturn.
As a reminder.
Consumer also includes our arm business, which is expected to see a pick up as consumers experience passenger financial obligations, such as credit card balances medical bills and cell phone bills.
Number two pay X will be included in the consumer payments organic growth beginning in Q1 of next year.
And its growth rate is expected to be well above the overall corporate average.
Number three.
A strong sales pipeline and consumer and BTB payments as a result of our increased investments in go to market and product innovation.
This has driven many new wins in 2022.
Which we should be fully rolled out in 2023.
Number four as I mentioned previously our <unk> services are focused on medium to enterprise businesses.
Believe that next customer base will be resilient in any environment.
This is a much faster growing part of our business, which we expect to have solid growth next year, despite having the media volume back of 2022.
Finally, while we continue to be open to M&A, our capital allocation priorities are currently focused on creating value for our shareholders by investing in initiatives that support our growth strategies as well as buying back shares.
We believe our current valuation of our shares does not align with the value of our company.
The program, we have placed in place is responsible way to deploy capital consistent with our disciplined approach.
With that I'll now turn the call over to Tim.
Our third quarter results in more detail Tim.
Thank you John now, let's move on to our Q3 financial results before I review financial guidance for 2022.
As John mentioned in the third quarter repay delivered solid results across all of our key metrics card payment volume was $6 4 billion, an increase of 15% over the prior year third quarter revenue was $71 6 million an increase of 17% over the prior year third quarter. This represents a take rate of approximately 112 basis points.
<unk> contributed approximately $3 1 million of incremental revenue during the quarter.
Moving on to expenses cost of services were $16 6 million compared to $15 3 million in the third quarter of 2021, Inc.
Incremental cost of services from pay extra <unk> 9 million for Q3.
Gross profit was $54 9 million, an increase of 20% 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 2021.
SG&A was 36 million compared to $33 7 million in the third quarter of 2021.
Third quarter adjusted net income was $22 8 million or 24 cents per share.
Lastly, third quarter adjusted EBITDA was $31 7 million, an increase of 30% over the prior year third quarter.
Third quarter adjusted EBITDA as a percentage of revenue was 44%.
We are continuing to prudently manage hiring and other non personnel expenses due to the current macro environment.
Combined pro forma net leverage was approximately three four times down slightly from three five times at the end of Q2.
We continue to expect this to be closer to three times by the end of 2022.
As a reminder of the $460 million of total gross debt 440 million of distance convertible with a zero percent coupon a 40% conversion premium.
This convertible debt does not mature until February 2026.
Yeah.
As of September 30th we had approximately 64 million of cash on the balance sheet and access to a 165 million of Undrawn revolver capacity for total liquidity amount of $229 million.
We feel very good about our balance sheet heading into a potential downturn.
As of September 30th we had approximately 100 million shares outstanding on a fully diluted basis.
Moving onto our thoughts for the remainder of the year based.
Based on the results from the first nine months of the year as well as current trends, we're reiterating our guidance for 2022.
Which includes volume to be between 25 billion and $26 3 billion.
Revenue to be between 268 million and $286 million gross profit to be between 24 million and $216 million and adjusted EBITDA to be between $118 million and $126 million.
In terms of cost management as we have done in the past we continue to work with our vendors to find opportunities to reduce processing costs as we add volume.
In the event of an economic downturn, we will remain nimble devoted a further pull back on hiring and reduced other operating expenses such as travel.
We feel very good about our third quarter results, which sets us up well for strong performance throughout the remainder of 2022 went into 2023 with the expectation for continued growth in any macro scenario.
Now I'll turn the call back over to the operator to take your questions operator.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask your question you May Press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Andrew Schmidt with Citi. Please proceed with your question.
Hey, John Hey, Tim Thanks for taking my questions and great to see the consistency here good quarter.
Well I wanted to start off with just some thoughts on 2023, I know you guys alluded to growth in any sort of any economic scenario might see it but.
I know last quarter, we were talking about kind of the mid teens growth rate in 2023, and obviously the economic picture has changed a little bit but is there a framework you can give us maybe just.
Some guardrails around different scenarios around what growth could look like in different different economic scenarios for 2023, and any color around that would be helpful. Thanks a lot.
Yeah, Thanks, Andrew I mean I think.
Based on what we know today, we still feel good about growth next year for all the reasons that John laid out.
In his remarks, and you know theres a lot of specific callouts, there that support growth really in any macro scenario.
We are currently seeing what could be considered a mild recession, maybe we're not entering it yet but it could be entering into early next year and that would support growth in the range that you mentioned and even if it were more severe we still think we grow nicely. So like John said, there's discipline. So it's really specific items that support that.
Our context in that framework, and we don't see really a situation, where we start to grow significantly backward.
Super helpful. Thank you for that I appreciate all the context on the call.
I guess, just drilling down into consumer consumer lending, primarily personal loan and auto.
When you talk about what Youre seeing there on just the origination side.
And then also I think the big opportunity here is new wins and he's alert alluding to in the past. So maybe you can talk about kind of existing customers versus net net new from a pipeline perspective.
Are those both are shaking out thanks a lot.
Yes, Hi, Andrew it's John .
For your time today, yes, so if we look at the overall, what we're seeing is.
Specifically on the consumer side, the lenders are finding more and more opportunities to digitally engage with the consumer and the borrower are they're finding more and more of a opportunity for us to use many of our omni channel omni payment modality solutions.
Our dialogue has been healthy.
Around those topics our pipelines are strong as you had mentioned so those things are part of that as we look out into 'twenty three that give us additional confidence from some of the things we see but.
But as I look at that and I look at those those are healthy conversations.
Another example of that is you talked about some wins.
We did have a very large customer win.
In the quarter.
And from that perspective that it's exciting for us because not only that.
That particular customer actually is going to be most used most all of our channels omni channels as well as almost all of our payment modalities. So.
That size.
For US that's continues to speak to engaging with our prospects as well as gauging our existing clients to just drive out the opportunities to treat.
Foreign payments in a more digital experience on behalf of consumers, who expect more of that in today's economy.
Makes sense. Thank you very much guys I appreciate the comments.
Our next question comes from the line of Andrew Jeffrey with Truest. Please proceed with your question.
Hi, guys, it's got stepping on for Andrew.
Just wanted to dig into a little bit more on the strong performance of instant funding.
Could you talk a little bit about does that provide.
<unk> ability into.
The next few quarters.
Yeah just.
Any trajectory changes or thoughts on.
Plants weapons.
Yeah sure. So this is John .
Yeah, we talked about earlier that there's a 50% grew.
<unk> growth year over year quarter over quarter from that perspective year over year quarter end.
That's a good sign as each you're asking here on the question. That's a good sign from what we see is a typically as we're seeing someone fund alone that way then the most likely it becomes.
Part of their digital wallet, so they want to potentially want to be repaid that way. So that's it's an initial sign of the overall shift to more digital payments, specifically more real time digital payments when using our debit solutions.
And then it's also.
That's that's a demand driver for for the lending side and so those are actually funding loans.
We're continuing to see really good evidence of that as I was saying earlier yeah. So.
Someone using not only are using our funding mechanism been using most of our repayment and modalities.
For full repayment.
Maybe to your point on visibility it is somewhat of an indicator for us on origination activity. The more funding that happens, it's likely happening because theres just a pickup in originations and so that is a good sign for future repayment opportunities.
Got it that's super helpful.
And then you know as the market kind of is the.
Enterprise value slips here below 1 billion.
What are your thoughts on perhaps maybe combining with another company.
Well it looks like.
You bought some interesting assets, but market seemingly implies youre struggling demonstrate.
Yeah, just just discuss that a little bit more.
Yeah. So.
As I said earlier, we believe the current valuation of our shares does not align with the value of our company.
And we are we believe as we continue to execute.
On our game plan, which we've done this quarter and we will continue to do and we think that the value the market will find that true value.
Yeah, and then on the integration point I mean, we've done I think a really good job of integrating a lot of these assets.
We mentioned last quarter that we converted billing trees back end to our backend platform, which is called Rcs.
We're seeing in our gross profit margins this quarter some of the reduced processing costs and the <unk>.
Synergies from that transaction in that conversion.
Just a great example of executing on what we talked about in terms of realizing cost savings as a result of acquiring and integrating billing tree and you'll see that flow through in our numbers. This quarter as gross gross margins are higher so I think we've done a nice job there we've not done an acquisition really this year since packs. So we've had I think a year.
Here, where we could focus more internally and.
We've made a lot of improvements and in terms of integrating those businesses, but also in terms of product enhancements and heading in.
Building out our sales force so we.
We feel good about all the deals we've done and the integration.
As they've come together.
Got it thank you for all the commentary.
Our next question comes from the line of Peter Heckmann with D. A Davidson. Please proceed with your question.
Hey, good afternoon, everyone. Thanks for taking the question I wanted to ask a little bit on mix and so to the extent that we are.
U S does go into a mild to moderate recession.
And let's say that does wind up affecting payment volume in the lending businesses and maybe you see an uptick in receivables management, but what are the implications there.
The mix shift on on margins.
If the lending businesses fell to let's say.
40% of total revenue can you give us an idea of like how much that might impact margins.
Yeah.
Well to your point.
The arm business, we think is pretty counter cyclical.
We do better than that actually has higher take rates and margins.
So that would that would be helped keep margins pretty consistent if parts of other parts of the lending verticals were down.
And then.
B to B that would as we talked about were more focused on the medium to enterprise sized customers, there, which we think are more resilient and smbs and that type of macro environment and the margins. There are only slightly lower than the overall average, but the growth rate is higher so that might bring margins out a little bit of the mix shifted more to <unk>, but I wouldn't say it would be.
Material, but it would also support growth.
Yeah, that's a good offset there as well.
Okay. That's helpful and then.
Clearly you have in the form of the convert do you have a nice long term very low cost source of capital.
The extent the opportunity presents itself.
Do you currently have the authorization to buy back those those bonds in the open market and reduce your total leverage.
No. The authorization. We currently have is on our common stock and so we've not really.
We've somewhat considered what that would look like on the convert but I think.
Given the zero percent coupon given the maturity date is not until February 2026, we would focus on our existing authorization and that's something maybe down the line closer to the maturity, we would potentially consider but not currently.
Okay. Thanks for your thoughts.
As a reminder, ladies and gentlemen, it is star one to ask a question.
Our next question comes from the line of James Fawcett with Morgan Stanley . Please proceed with your question.
Sure.
Good results here guys just in that context wondering if you can help us a little bit with the underlying market backdrop, you know last quarter.
You highlighted that you are.
Seeing some difficulties just on the back of of.
Credit tightening, but this quarter you obviously were able to work through that can you talk a little bit more about the changes you're seeing in the underlying credit markets since last quarter and any change.
How do you expect that to flow through to your business I guess.
Part of that can you give us an update on where you think you stand around sensitivities within the business in terms of credit risk et cetera. Thanks.
Yeah, I mean, we like we said with the trends are pretty similar to last quarter and the lending verticals I don't think it's materially different like personal lenders are still focused on.
No.
Managing delinquencies, which means that they've tightened underwriting a little bit, but not much different than last quarter.
And then auto.
The market there is pretty similar as well from a macro perspective.
We do see continued strength in <unk> that that was important to helping to support the growth this quarter as well we.
We had some large customers that outperformed our expectations. This quarter that are actually higher margin customers and that led to the increased take rate increased margins. In addition to the billing true cost savings. So I don't think the macro drop backdrop is that materially different.
Then we talked about previously we've just been able to continue to execute and youre seeing that in our results.
James the other thing that we continue to see remember we're not a lender we're just merely process.
Processor on behalf of them with financial technology that helps do all those things.
But so we don't have credit risk exposure.
From that perspective.
Which I think it's again.
And the payments were processing or these are.
Obviously your automatic recurring type payments that are tied to some financial obligations. So.
We still see sticking us around that and then we still hear from our clients on the consumer side. The demand for credit is definitely still high in and many forms that's a good thing.
Depth of the pandemic that demand dropped off.
Yeah.
Yep. Thanks.
Thanks.
Our next question comes from the line of Tim <unk> with Credit Suisse. Please proceed with your question.
Great. Thank you for taking the question I wanted to touch on organic gross profit growth I believe you said that for the quarter. It was about 15% organic I was wondering if you could help us a little bit with what the exit rate was was it higher lower about the same and what's implied for the Q4 guide in terms of organic gross profit.
Growth and then within that Q4 implied guide maybe what's the underlying implied organic gross profit growth absent some of the benefits from the political media spend.
Yeah sure. So yeah, we had 15% organic gross profit growth. During Q3 like you mentioned, we exited the quarter a little bit higher than that so we would expect total organic gross profit growth for Q4 to be mid to high teens.
And excluding the political media spend we would expect that to be somewhere in the low double digits. So we still expect continued strong organic growth next quarter in a solid exit rate going into next year.
Alright, great Tim. Thank you for those numbers, that's really helpful. And then a minor minor follow up is you mentioned some nice strength in mortgage I want I want to say you set up about 30% or so and clearly the mortgage industry itself is not having that type of growth. So it's clearly indicative of strong share gains maybe you could just put a finer point on that and some of the <unk>.
That you are seeing and share gain that you're having in this industry.
Yes, so I'd like to remind everyone as well we are we are on the servicing side. So these four our lots.
All of the mortgages that were made over the last couple of years of low interest rates.
And so that's a great position to be not necessarily on the origination side.
And therefore, obviously that is going well, we have had some wins in that space more and more people are using more of our solutions.
We had existing customers are using more and more of our solutions that are as you know as well.
That's a highly regulated transaction and our opportunity to continue to help.
Around compliance as well as some of the things that we do to deliver a great value on behalf of our clients there and that overall digital experience has been very positive for us. So we see more opportunities there as we look out into 'twenty three.
Every large large underserved.
Marketplace.
Just like we've seen historically in some of the other verticals.
And we're excited about some opportunities we look to execute on in 2023.
Yes, Tim also that we.
Like John said, when we have existing customers that have an existing book to service, but also those customers are adding new products and or some of them are bringing servicing in house and.
All of those different circumstances, we benefit from additional payment volume and so that's why we wanted to just reiterate the fact that a lot of this growth is coming from existing customers and winning we do win new business, but a lot of it is coming from existing so we're not as sensitive to the macro.
Oh, you are completely agree for John and Tim Yeah, I think we and I think investors fully understand you're not exposed to the new originations that we think about the duration of loan repayment clearly thats one of the longer ones and clearly it's a it's a it's more of a penetration into the existing base of mortgage repayments I guess is a good way to summarize it and it seems like you are penetrating that.
Right well.
Exactly.
Okay.
Yeah.
Our next question comes from the line of Bob <unk>.
Holly with William Blair. Please proceed with your question.
Thank you good afternoon.
Good to see the strong growth and BTB payments was wondering if you could maybe dig in and get a little more color on.
Uh huh.
Which areas, where youre investing where youre seeing.
Strength in it.
What is the.
The margins.
Is it a is that dilutive as BTB payments with the higher growth investing or is that dilutive to your EBITDA margins.
So yeah, we're investing mostly on the AP side, Bob We're just really big opportunity and we've announced some new partnerships. There we are seeing a lot of success in the healthcare space in <unk>.
We're seeing a lot of success in auto dealerships hospitals those are some some recent areas of focus within <unk> AP.
The margins there arent quite.
The level of the overall corporate average so it would be slightly dilutive, but not materially different.
We've really bought businesses that are profitable, which is unique within <unk>, particularly on the AP side and so those businesses had profitability and cash flow when we acquired them and have even become more profitable under our ownership. So it's I'd say slightly dilutive to adjusted EBITDA margins, but not materially and.
Certainly accretive to growth.
And then where do we get a lot of questions on the acquisitions that you've made and it's hard to tell how they're performing or can you give any color on how the integrations have gone and how these <unk> no no.
Or are there certain acquisitions that stand out of us.
But for outperforming in certain others that are underperforming and how is the integration and there's just a lot of questions around.
Around that that doesn't seem too that we don't seem to have enough color on maybe.
Yes, I'll start so.
As we spoke about earlier.
We have finalized that.
Billing tree integration this fast.
<unk>.
And that we know really well you get to see some of those margins from our overall processing the integration coming through in the third quarter here.
The people part has been integrated for.
It's almost always integrated from day one.
As we continue to vertically align around our specific vertical was underneath consumer and under B to b.
That's something we've been doing this year and that's going really well and we will continue to iterate on that that will drive our innovation and competitive spy sub vertical.
As our overall.
All the acquisitions are.
Several of those have been very successful for us if I go back to our very first acquisition, we bought our core.
Processing platform try source, which is we call Rcs today.
And then obviously we.
We've put together several b to be very attractive assets I think we have some of the best total pay is what's what are some of the best technology in this in this space.
And as we've moved an aggregated that volume together thats come together really well and our teams have come together well.
I think we've been quite successful at bringing those pieces together.
Overall from an acquisition perspective, so that excites us as we look out into 'twenty, three and I think in terms of specific deals I mean, Cps has been great for us.
That got us bigger into the hospital space C. P. Plus is really our core Paypal platform now and brought US the total pay solution and also our approach to supplier enablement came through CPI plus so they all have their own unique attributes and reasons why we did the deals but we've now brought them together I think.
Pretty cohesive way.
Theyre gelling nicely and we've also made some.
Management changes, where we have more dedicated.
Sales and operations folks supporting the integrations there as well so I think it's been very successful in that.
We're talking about mortgage because of our <unk> acquisition.
Probably 15 years of knowledge buried in our technology there that.
It gives us a very successful product in some key key integrations, so key integrations and those and then as we mentioned already we're looking out into 'twenty three pay X becomes in part of our organic growth. So everything next year it becomes part of organic growth.
As an overall consolidated company and and we kind of talk about that in buckets of consumer business payments and then software and services. Thank.
Okay, just sneak one last one in just your and I jumped on I apologize if you addressed this but.
If you could talk about trends you've seen in October and just your confidence in.
The growth and profitability for 2023.
As you know more uncertain environment.
Yeah, I mean, John John laid out some pretty specific points around why we feel good about growth in 2023 I mean.
You've got the consumer verticals, specifically lending that are resilient.
The arm and revenue cycle management businesses, which I think we'll see a pickup going into next year given some of the increased credit balances for consumers pay X becomes part of organic that's growing faster than the corporate average and then our exposure in <unk> is more of a medium to enterprise, which we think is more resilient and smbs even in a down.
Turn so.
We've seen positive trends into early Q4 organic growth in Q3 was 15% its a bit higher than that in early Q4, we expect it to be higher for Q4 than Q3, and we really see a lot of prospects for growth going into next year for all these reasons and then we are I mentioned earlier on this call.
Our pipelines our sales pipelines from both our consumer and our business payments have been very healthy in and producing great wins.
Any of those should be coming online for us in 'twenty, three specifically, a very large customer win in the quarter.
It should be very positive for us in 'twenty three as it comes online.
Great good to see the solid results I appreciate the answers to the questions.
Go ahead.
Our next question comes from the line of Ramsey El <unk> with Barclays. Please proceed with your question.
Hi, guys. Thanks for taking my question. This evening and apologies. If you commented on this already I was late joining.
Paired remarks.
Greg came in above our expectation and I think I did hear you talk about maybe deal integration, having a positive impact there, but maybe you could help us think through the drivers of the improvement in take rate and sort of how we should think about that moving forward.
Yeah sure. So the there was a couple of really large customers that are higher margin higher take rate customers that performed very well in the quarter and continued to perform well in the Q4. So that supported the higher take rate. We've got some of our non volume based products likes Kinston funding.
It had been doing really well maintain X has a communication solutions business that is performing very nicely within mortgage that increases the take rate.
So theres a number of drivers there the comment on the billing tree conversion was more supportive of the expanded gross profit margins that sits between net revenue and gross profit and reduces processing costs. So in addition to the increased take rate. There is a reduction of processing costs all of that flows through to expanding gross profit margin. So number of key drivers that we continue to.
See into Q4.
We feel good about 110, or so basis 110 basis points or so consistent take rates.
We were a little bit higher than that this quarter.
Got it alright, thanks, so much and a quick follow up for me can you give us an update on cross selling.
That is progressing and also the degree to which it's contributing to your your solid results this quarter.
Yes, as I mentioned, we are seeing.
More cross sell opportunities out in on our consumer side to say just for our AP automation.
Starting to see those we're still early on a couple of those larger ones.
But we are seeing more and more of those happen and then obviously the cross sale on some of our key integrations, where we're already there on the on the on the <unk> side, we're on the AUR side. So our cross sell with the AP side of that we're starting to see some traction on that side of it.
But I Wouldnt say thats significantly changing all the numbers, but we're starting to see activity pick up yes.
Yes, I think that will flow through more to next year. We have won some nice cross sells that are ramping now and will contribute more to 2023, but the effort is certainly.
Widespread throughout our sales force, both within <unk>, where we cross sell AP to existing <unk> customers and now like John said, it's starting to have our consumer sales team sell to a consumer clients as well and now experiencing wins there.
Got it appreciate it thanks.
There are no further accusing our questions in the call I'd like to hand.
I hand, the call back to John Morris for closing remarks.
Yes. Thank you operator thank.
Thank you everyone for your time today, we feel good really good about our Q3 results and we also we're going to continue to work hard and execute on our game plan as we continued to drive growth.
For the fourth quarter here as well as into 'twenty three.
Thanks, so much for your time.
Yes.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.