Q4 2022 Repay Holdings Corp Earnings Call

Speaker 2: Good afternoon, my name is Zico and I will be your conference facilitator today.

Speaker 2: I would like to welcome everybody to Repay 4th Quarter 2022 earnings conference call.

Speaker 2: This call is being recorded today, March 1, 2023.

Speaker 2: I would now like to turn the session over to Stuart Kusanti, Head of Investor Relations at Repay. Stuart, you may begin. Thank you.

Speaker 3: Thank you. Good afternoon, and welcome to our fourth quarter in fiscal year 2022 earnings conference call. With us today are John Moores, co-founder and chief executive officer, Tim Murphy, chief financial officer, Jake Moore, executive VP of consumer payments, and

Speaker 3: And Darren Horak, Executive VP of Business Payments. During this call, we will be making forward-looking statements about our abilities and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties.

Speaker 3: including those set forth in the FCC filings related to today's results and in our most recent form, 10K filed with the FCC. 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.

Speaker 3: In an effort to provide additional information to investors, today's discussion will also include references to certain non-GAAP financial measures.

Speaker 3: Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR stuff. With that, I would now like to turn the call over to John .

Speaker 3: Thank you Stuart and welcome to Repay. We're grateful to have you on the IRC to help us with these efforts.

Speaker 3: Good afternoon, everyone. We're excited to provide an update today on several important developments in the organization. But first, I would like to spend a few minutes reviewing our 2022 financial results.

Speaker 3: From a financial perspective, for the full year we reported card payment volume growth of 25%, revenue growth of 27%, and gross profit growth of 31%.

Speaker 3: Organic gross profit growth for the year was 12%.

Speaker 3: We are pleased with these results as they highlight the benefit of our resilient and diversified business model despite the macro uncertainty facing a subset of our clients.

Speaker 3: From a business perspective, we made great progress on our strategic initiatives. If we continue to increase our sales and distribution resources, we now have over 240 software partners up from 222 at the end of 2021. In addition, we increased our internal sales and support teams by 30%.

Speaker 3: On the product side, we successfully converted the backend of BillingTree to our RCS platform, which demonstrates our continued focus on efficiently processing transactions and strategic execution from acquisitions.

Speaker 3: We rolled out additional payment modalities in 2022, such as Digital Wallager Acceptance and eCash. With many more to come as we look towards the future.

Speaker 4: We continue to be thoughtful and strategic with the capital allocation in 2022.

Speaker 4: We ended 2021 with the acquisition of pay-ex, which enhanced our position in key core verticals.

Speaker 4: We initiated a share repurchase program in May 2022 and have repurchased approximately 1.1 million shares today.

Speaker 4: We also continue to invest in our most valuable asset, our human capital, by adding very talented team members to our organization.

Speaker 4: Our CTO, David Guthrie, joined us a little over a year ago. He has been leading our efforts to drive innovation while refreshing our technology stack and product suite.

Speaker 4: We added Mike Cottrell to lead our RCS operations and Eric Skinner to lead our mortgage vertical.

Speaker 4: We're excited about the opportunities for both of these verticals in 2023.

Speaker 4: Additionally, we now have Preston Cecil, one of the Payx founders, leading our go-to-market efforts in the personal loan and auto-finance particles.

Speaker 4: Finally, we were particularly focused on streamlining our organization in 2022, which culminated in some of the announcements you've seen from us this year.

Speaker 4: First, our divestiture of Blue Cow software a few weeks ago.

Speaker 4: And as you have seen today, a segmentation of our business into consumer and business payments.

Speaker 4: As you know, Blue Cow was a subsidiary of Billing Tree, which we acquired in June 2021.

Speaker 4: This divestiture allows us to focus on higher organic growth opportunities.

Speaker 4: It also accelerates our path towards net leverage below three times, which Tim will discuss in a few moments.

Speaker 4: Our business is now aligned to prioritize investments and resources towards the consumer payments and business payments segments.

Speaker 4: We're excited about the long-term growth opportunities in 2023 and beyond.

Speaker 4: Our consumer payment segment, which accounted for approximately 80% of our card payment volume in 2022, serves the following verticals. Personal and automotive lending, credit unions, mortgage servicing, receivables management, corporate healthcare, and diversified retail.

Speaker 4: The consumer payment segment also includes our clearing and settlement solutions, RCS, and did include the Blue Cow software business prior to its divestiture in February .

Speaker 4: Yic Moore has been leading the consumer payments business in October of 2022 and has been with three bases 2017.

Speaker 4: Before being promoted to this role, he was our EVP of corporate development and strategy.

Speaker 4: bringing a unique experience and several years of insight to the $1.8 trillion TAM opportunity within our consumer payments verticals.

Speaker 4: Our business payment segment, which represents approximately 20% of our car payment volume in 2022.

Speaker 4: It's comprised of the accounts payable and accounts receivable automation solutions, using approximately 4,000 clients across the following verticals.

Speaker 4: healthcare, media, auto, municipalities, home services and property management, including hospitality, HOA and multifamily management.

Speaker 4: And Horrocks continues to lead our efforts within the business payments.

Speaker 4: For those of you who aren't familiar, Darren has been part of our team since we acquired the company he found at CPE Plus back in July of 2020.

Speaker 4: To which we are introducing these segments for the first time today, I thought it would be great for you to hear from Jake and Darren on the opportunity they see and areas of focus for 2020-30. I would like to turn the call over to Jake to talk about our consumer payments business. Jake? Thanks, John . Good afternoon, everyone. It's time to declare funding and petition me and please vote upside down from my online employee call.

Speaker 4: I'm excited to lead our efforts in consumer payment. As you've heard us say many times, the space is large, growing, and under-penetrated.

Speaker 4: And we are very well positioned to continue capitalizing on this tremendous opportunity.

Speaker 4: We have built a leading next-gen software platform that drives frictionless payment experiences across all of our vertical markets.

Speaker 4: Our current and prospective enterprise customers are demanding more customized and more robust technology and payment solutions. Our technology platform and institutional DNA has and will allow us to stay ahead of the innovation curve.

Speaker 4: Additionally, we have a differentiated two-prong distribution model which includes both an internal sales force as well as an extensive library of software partner integration.

Speaker 5: Trends in the broader segment are largely unchanged from the second half of 2022.

Speaker 5: And the predominant dynamic still holds. The pandemic era cash rich consumer is the thing of the past.

Speaker 5: Consumers have used their pandemic savings and are now pushing credit card balances towards their credit card limits.

Speaker 5: While lenders will continue to tighten underwriting standards, new loan originations remain strong. These new originations are incremental to our existing voids. Additionally, our clients are adopting new products and new payment channels within their existing loan portfolios.

Speaker 5: which also contributes to incremental payment volumes.

Speaker 5: Consequently, our areas of focus as we move throughout 2023 will be to first further penetrate our existing customer base.

Speaker 5: We hear the market commentary related to consumer credit trends and we have talked directly with our clients.

Speaker 5: There continues to be macro uncertainty.

Speaker 5: As a result, our clients are asking for more ways to accept payments, to maximize collections, and to further improve the consumer experience. Instant funding is also resonating with both new and existing customers.

Speaker 5: In Q4, transaction volume was again of approximately 50% versus Q4 2021.

Speaker 5: Our instant funding product provides real-time funding solutions via direct integrations with Visa Direct and MasterCardSimp.

Speaker 5: Additionally, we believe this is yet another way to drive car-based repayment transaction as the default payment method on file is generally a debit card.

Speaker 5: Further, we remain highly confident about the strength of our sales pipeline.

Speaker 5: Last quarter, we highlighted a large enterprise customer win within our traditional installment lending vertical. As these volumes ramp throughout the year, this customer will be a meaningful driver of our consumer payments growth in 2023.

Speaker 5: In addition, we are excited about a direct integration with one of the largest privately held automotive retailers in the United States.

Speaker 5: Repay will be processing the down payment for car purchases and the installment or loan payments for their financing art.

Speaker 5: As we continue to win more large enterprise clients, we are pleased with the adoption trends.

Speaker 5: These clients are implementing more payment channels and modalities than ever before.

Speaker 5: Increasingly, clients are choosing repay-as-complete suite of solutions because of our payment expertise, best-in-class processing technology, and continued investment in product and software partner integrations.

Speaker 5: Additionally, we now serve over 240 credit unions.

Speaker 5: from 200 in 2021 and have a great opportunity just within those customers.

Speaker 5: Further, there are thousands of other credit unions across the United States that represent a significant opportunity going forward.

Speaker 5: We recently signed multiple deals with several large credit unions each of which have over $1 billion in assets.

Speaker 5: As I mentioned earlier, ISC partner referrals continue to be a significant driver of sales.

Speaker 5: In 2022, we increased our integration count to over 150 within our consumer payments business and looked to further increase that as we move throughout 2023. During 2022, we launched our Integrated Partners program to further penetrate these relationships.

Speaker 5: Through embedded APIs within existing integrations, we continue to add product features and new functionalities such as digital wallet acceptance and real-time payments.

Speaker 5: Also, we continue to add payment modalities ahead of market demand.

Speaker 5: We are extremely excited about the work we are doing to create additional payment options within the mortgage vertical.

Through our partnership with Black Knight, we will be able to offer truly differentiated capabilities to our mortgage servicing clients.

And finally, repay clearing and settlement, which we refer to as RCS is also part of the consumer payment segment.

Following significant investments in 2022, we feel RCS is now one of the more modern technology-first processing platforms, which will enhance speed-to-market and processing control for all consumer payment clients.

So again, there's a lot of opportunity in the consumers' payment space and I can not be more excited to lead our efforts.

I'll now turn the call over to Darren to review the business payment section. Darren?

Thanks, Jake, and good afternoon. The business payments segment won't have which I've been a part of for more than two decades. It has experienced incredible growth over the past few years, particularly in this post-COVID-Labor environment. The addressable market opportunity is enormous at approximately $3.4 trillion.

and remains under-penetrated, as B2B payments have traditionally been made via check or manually intensive processes.

We are positioned very well to pursue the growth opportunities within business payments. Repay provides a unique one-stop shop offering both AP and AR automation.

payment and reconciliation to all of their suppliers.

Our customers experience the same string-line process, whether as a supplier is receiving electronic payments or not. Our real-time vendor enablement process is a clear different cheater for us that yields higher electronic adoption.

Our vendor network is now over 160,000 strong and grows every day.

We also have a unique go-to-market engine that includes integrations with 90 leading software platforms.

serving medium to enterprise size clients. Because of the software integrations and because of our vertical market focus.

We have emerged as a leader in healthcare, media, auto, municipalities, home services and property management, including hospitality, HUA and multi-family management.

In the fourth quarter, the business payments growth rate was greater than 30% year over year.

Our integrations with dealer management systems and hospitality management systems are leading to shorter cell cycles with larger clients who have multiple locations.

As a leader in the media vertical, our typical customer is a political ad agency. The purchases add during the election cycles which occur every other year.

During 2022, we significantly benefited from an increase in political advertising spend.

As we move throughout 2023, we are focused on getting more at bats by building the sales team for growth from new customers and to further penetrate our existing plant base.

We're hiring cells executives for a vertical expertise approach, building the cells pipeline as we go after the vast screen filled opportunities within our 90-plus software partnerships.

As I mentioned, we have increased our AP Supplier Network to over 160,000.

This is an increase of over 45% compared to fourth quarter 2021. One of our recent new partner signings was HelloGM, an Analytics and Automation Platform targeted at the hospitality management space.

Our integrated payment solution provides a key function within Hello GM's recently launched accounts payable feature, enabling subscribers to define and manage a seamless workflow through Hello GM.

Within the healthcare vertical, life-bridge held, a large hospital system was five acute care centers, and over 150 locations in the Baltimore area selected repay for their vendor payment needs. At repay, we provide a phenomenal client experience and continue to win clients because of it.

An example of this is with Hennessey Auto, a local Atlanta-based dealership group with multiple locations. Leveraging our integration to their DMS system, they were able to make payment to all their vendors via repay, and they experienced the same streamlined electronic payment experience.

We are committed to continuous improvement and are always looking to further enhance our capabilities.

The initiative is underway to offer enhanced ACH payments to all verticals within business payments.

We are regularly evaluating and leveraging new payment modalities like real-time payments and same to ACH to reduce payment cycle times.

Adding integrations is a key focus. Our technology and infrastructure are clear differentiators for software companies.

that are looking to embed and monetize payments, and we expect these integrated partners to be a clear driver of growth during 2023 and beyond. We have a very strong pipeline of integrated software partners.

And with that, I'll turn it back over to John . Thanks, Darren and Jake. So as you can tell, we're very excited about 2023 and believe that we have the right tea and technology in place to further grow both segments within our large under-finitated temps. Thank you.

The confidence in our growth strategy is driven by, first, a strong sales pipeline in consumer and business payments as a result of our increased investments in go-to-market and product innovation. This has driven many new wins in 2022, which should be fully rolled out in 2023.

Second, ongoing secular tailwinds within our consumer and business payment articles, which have specific trans-assuming processing needs and lag other industries moving towards digital payments.

where our strategic initiatives and partnerships have positioned repay to be in the middle of these emerging new payment flows. We also believe they have the right cost structure in place so that we can support growth while maintaining healthy margins.

Specific to 2023, we are confident in our plan due to several factors.

First, consumer spending remains resilient on the backdrop of a strong labor market. As you know, our end markets are nondescrashinary and highly recurring payment streams.

Second, as Jake previously mentioned, personal leaders continue to see demand for consumer credit and new loan originations remain strong, which are incremental to our existing volumes. Additionally, our clients are adopting new products and new payment channels within their existing loan portfolio, which also contributes to increased payment volumes.

Also, PX is counted in organic growth starting in Q1, and is expected to continue growing higher than the overall company average.

And finally, our arm business is counter-sipical in nature. Volumes in the latter part of 2023 will benefit as consumers select payment plans as a way to pay off outstanding past due for natural obligations.

Our capital allocation priorities remain focused on creating value for our shareholders by investing in organic growth opportunities.

while continuing to be open to a creative strategic M&A.

Repay its position with a strong balance sheet to continue to grow profitably and accelerate cash generation.

At REPE, payment technology is our expertise. We never stand still. At REPE, we want to be a network to all networks that move funds on behalf of consumer and business payments. Our tech platform is constantly evolving as we are modernizing our in-house clearing and settlement engineering, expanding our new payment modalities.

As we look into the future, our platform continues to scale as we automate manual processes.

We're excited about the grip opportunities ahead of us while remaining focused on innovation and execution. With that, I'll now turn the call over to Tim to review our fourth quarter results in more detail and our guidance for 2023. Tim? Thank you, John . Now let's move on to a Q4 for an answer results before our of your financial guidance for 2023. With the guidance results, I thank you for applying for this year's

As John mentioned, the fourth quarter repaid delivered solid results across all of our key metrics. Card payment volume was 6.6 billion and increases 17% over the prior year fourth quarter.

Revenue is 72.7 million, an increase of 17% over the prior year for a quarter. The show represents a take-weight of approximately 110 basis points.

Thanks, contributor approximately 3.3 million of incremental revenue drawing the quarter.

Moving on to expenses. Cost of services were 14.9 million compared to 15 million in the fourth quarter of 2021.

Anchor Mentor, across the services from PAX, we're approximately 1 million per Q4.

Gross profit was $57.8 million, an increase of 22% over the prior year fourth quarter. On an organic basis, we saw gross profit growth of 17% in Q4.

Our consumer payment segment reported solid gross profit growth of 24% in Q4, and our business payment segment continues to be a great gross profit growth driver with 31% over year growth.

Fourth quarter adjusted net income was $21.28 million for $0.23 per share. Lastly, fourth quarter adjusted EBITDA was $36 million and increased with 29% over the prior year of fourth quarter. Fourth quarter adjusted EBITDA as a percentage of revenue was 49%.

We continue to believe that the combination of double-digit organic growth profit growth, along with fasting class adjusted even to margins, makes us unique compared to our peers.

Proformer NetLiverage is approximately three times when adjusting for the divest to turn up the preccil down.

The Westing Blue Cloud allows us to follow our capital location priorities of the Westing and Organic Growth, reducing net leverage and evaluating strategic accrued of M&A opportunities.

Our balance sheet is well positioned heading into 2023 after just paying down our drawn revolver in February . Repay's debt balance of $440 million is convertible with a 0% coupon and 40% conversion premium

This convertible debt does not mature until February 20, 20, 26. They reproximate 83 million of cash in the balance sheet, pro forma for the Blue Cows sale and revolver paydown. Backstab to 185 million under unrivaled capacity.

for a total pro-forma liquidity amount of $268 million. During the fourth quarter, we used approximately $8.7 million of cash for share rate purchases and one-time settlement payments to certain large clients and partners.

As of December 31st, we had approximately 100 million shares outstanding on a fully financial and do a good job in terms of the potential to raise fees.

Moving on to our outlook for 2023. Based on current macroeconomic conditions and the impact of the recent Blue Cross sale, we expect the following financial results for 2023.

volume through between 26 billion and 27.2 billion, revenue to between 272 million and 288 million.

Those profits would be between $216 million and $228 million and adjusted EBITDAX to be between $122 million and $130 million. We previously described our growth outlook under three recessionary scenarios, mild, moderate and severe.

The growth implied by our 2020 outlook assumes our verticals will experience a mild to moderate The trend within personal loans are largely similar to what we discussed previously, and the amount of finance continues to operate in a recessionary environment.

As Darren mentioned, our focus on medium to enterprise-sized clients should allow business famous to remain resilient.

We will continue to update you on macro transverse seeing within our verticals as we report each quarter throughout the year.

As we previously disclosed the Blue Cow Investiture presentation, Blue Cow's estimated 2022 contribution worth 700 million card payment volume.

10 million revenue, 9.5 million gross profit, and 4 million of adjusted EBITDA. Given that it was non-recurring and that's not receiving additional investment, we expected that business to grow low single digits moving forward under repays ownership.

Thus, in addition to helping us achieve our goals of lower net leverage and greater financial flexibility, the sale is also accretive to longer term growth.

Please note that where our outlook implies lower revenue take rates than in prior periods, this is primarily due to the addition of several enterprise clients at more competitive pricing.

Business payments growing as a percentage of our overall mix, and the Blue Cow sale as that business had higher take rates than the corporate average. We expect organic growth to be slightly higher in the first half of 2023 through the top comps in the second half of the year, while we maintain the normal cadence of quarterly contributions. We continue to expect Q1 2023 to be positively impacted by tax refi-

We estimate approximating a $6 million benefit from political ad spending in 2022, which is mostly in the second half of the year.

For additional details on 2023 Organic Rose Prophet Crowe, please refer to the 2023 Outlook Bridge on page 11 of our earnings supplement, both to the company's IR site.

Lastly, we expect adjusted free cash flow conversion to remain strong in 2023, accelerating throughout the year into 2024, as we realize the benefits for investments we have been making in sales, product, and technology over the past several years.

We're already off to a strong start in 2023 and look forward to continuing this momentum throughout the remainder of the year.

I'll now turn the call back over to the offer to take your questions. Thank you. We will now be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You may press start if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your answer before pressing the star keys.

One moment please, while we pull for questions.

Our first question is from the line of Bob Napoli with William Blair. Please go ahead. Thank you. Good afternoon. Thank you for taking my question. I really appreciate the additional disclosures. I have been very excited to be here.

on consumer business payments super helpful and also the focus on free cash flow conversion. The question on the business payments segment, take it down to the gross margin line. What are your thoughts on the growth of business payments and then like the bottom line EBITDA profitability would imagine would be the lieu of EBITDA margins as you're investing for growth.

It's a business that can grow 25%. We're investing in that business mainly to go to market and product.

And it's also pretty profitable from adjusted EBITDA standpoint. It's not as profitable as a consumer payments business, but it's still pretty healthy margins. It's overall slightly dilutive, but of course, it's a creative to growth. And so we will take that trade off. And so that's why we're investing additional dollars there in 2023.

Thank you. That's very helpful. On the consumer side, can you give any cover on? I mean, you talked about auto being in a recession on the growth of the auto. Remind us of the percentage of consumer that auto might be. So just to trends in auto consumer broadly, different verticals.

what you're seeing so far into 2023.

Yeah, so for personal loans, you know similar trends that we talked about our last call and end of last year coming in this year have been pretty consistent. That personal loan is about 20%. Auto is also about 20%. Again, we've been talking about the dynamics within auto finance now since last quarter and I think the trends are pretty similar. So . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

You know what, all the durations are so long though that, you know, if there's the link when the increase is which we have seen, that doesn't flow through to us.

quickly because we're processing for the back book and the durations can be five to seven years and so that We might not feel that for a few more quarters That's about 20% as well We're seeing a lot of strength in credit unions I think credit unions have benefited from some of these other verticals being down a little bit I think our mortgage servicing business has done very well. Most of our growths coming from existing clients and mortgage servicing

And then ARM, which is about 10%, we think there's potential for increased volumes in a lot or half of this year, given some of the delinquency trends and the other sub verticals within consumer payments. That could benefit us in the second part of the year. So there's some moving pieces here, but generally we feel good about it. As you understand, the entire family consumer payment need private transmission.

That's also a very nice growing business for us.

very nice growing business for us. Thank you, appreciate it.

Thank you. Our next question is from the line of Pramsi LSL with Barclays P2Quared.

Hi, thanks for taking my question and I'll also echo really appreciate the incremental disclosure around segmentation. It's very, very helpful. I wanted to ask about the margin cadence in the year and how we should think about it from sort of a modeling perspective.

Yeah, so hey Ramsey, thanks for the question. You know, I think as we mentioned.

If you think about take rates, you'll see that take rates are a little bit lower in 23 than 22. The first part of the year, they'll be similar and they'll kind of tick down a little bit. That's primarily driven by enterprise wins, or competitive pricing, mixed shift to B2V, which is slightly lower take rate. Which again, we'll get the incremental dollars from the larger enterprise wins.

and we like the incremental growth from B to B. So those are, we'll find about those, but they will show a take rate coming down a little bit throughout the year and then gross profit margins. Should price stay pretty consistent.

Throughout the year, we're showing a higher-grows profit margin in 23 than we've had in 22. That expansion is due to our continued focus on optimizing processing costs.

full year benefit of having billing tree on our back end. And you know, that's something we'll continue to focus on and then adjusted EBITDA margins should be a little bit lower in the back half of the year because of just hiring we're doing in the first part of the year and then some of the hiring we did in the second part of 2022. Okay, that's super helpful. And then following up on the billing tree back end conversion, obviously, as you mentioned,

the larger integration pieces of the recent acquisitions. I think it's probably the end of anything material. The other flow through, I guess I would say, are just we've worked on renegotiating terms with some of our large referral partners. Those renegotiated terms lead to better, more favorable.

across the services and hired most profit margins. And there's opportunities like that to increase margins, which is what we're projecting versus just anything related to prior acquisitions. tua tat coins.

Okay, perfect. Thanks so much. Thank you. Our next question is from the line of ShioDo with Tim ShioDo with Credit Swiss. Please go ahead.

Great, thanks a lot. Appreciate you taking the question. So the 8 to 14% been normalized organic growth, profit growth on slide 11 and really appreciate that bridge. It's extremely helpful along with the additional disclosures. So thank you. I just want to reconcile with comments to make sure that I was following correctly. I think you were saying that actually the personal loan originations remain relatively strong. To

Also, PAKS is coming in and that contributes to stronger organic growth, smaller but faster growth. You also mentioned the counter-cyclicality of the arm segment. But was the guidance implying, given those comments around the personal as being strong now, a slight degree of macro deterioration?

or to circle back to the coming, is it actually implying that things stay relatively stable as they are now?

Hey Tim, thanks for the question Tim. We, like we said, we were kind of planning for a mile to moderate recession. There's already some of that happening in our verticals, and that's the commentary we mentioned on the call. There may be the planning assumes there may be a little bit more of that, but of course we're not sure when and if that will happen.

But that's kind of the underlying assumption is mild to moderate. When we talked about that last quarter, we gave those scenarios and we felt like it made sense to talk about our guidance in that context.

Jim, thank you, complete follow and I think everyone appreciated those scenarios completely. I was more just squaring it with the fact that the personal loan originations are currently sound like they're strong. Last thing on slide 11. Oh, sorry, go ahead, Jim. Thank you.

Yeah, I think what we were saying was, you know, there's demand, there's demand for these loans. And so our customers are originating.

At the same time, they're also very mindful of tightening the credit box and making sure that they are managing credit and delinquencies. And so I think the comment really from Jake was around the demand we're seeing. And as we've said in the past, the most important thing is that there's demand for these loans and that our customers will choose through their underwriting standards whether or not to loosen up.

There were larger size tax refunds, so therefore some of the loan repayments came in at larger sizes, and therefore the fixed fee component might have been less leverage if you will in terms of a takering perspective. I think that was a mild headwind in terms of the larger payment sizes last year. If you could just recap that dynamic for us, and if that's something that you'll benefit as you comp over that, because if I remember correctly, it was a little bit of a headwind to March of 2020.

which could, you know, potentially help take rate, but we're monitoring whether that lower refund, you know, actually has less of a seasonal impact in terms of total volume because a lower refund may lead to a potential lower payment amount on the loans. So it's a different dynamic this year than last year, but you're remembering it correctly.

Perfect. Thank you so much Tim for both of us. Thank you. Our next question is from the line of Andrew Schmidt with city. Please go ahead.

Hey guys, good evening. Thanks for taking my questions. Just put it in a drill down on the macro assumptions a little bit more. I think, I remember correctly, I think in November , we were thinking about more mild procession scenario, which would have put the growth a little bit higher.

Now obviously we're thinking mild to moderate and I just want to be clear whether anything has changed in terms of what's going on in the various consumer payments verticals or is there an incremental dose of conservatism. Just want to square that up a little bit in terms of what we were seeing back then and what we're seeing now with the benefit of more information. Thanks a lot.

Yeah, Andrew, thanks for the question. So we basically are trying to take into account what we know now versus then. Not much has changed other than auto finance has continued to operate in more of a recessioner environment and that hasn't changed, although that could turn in the future.

But that's what we're seeing today. And so I think we're comfortable with our planning assumptions here. And in the mild to moderate kind of puts us within the organic and normalized organic GP outlook ranges, we show on slide 11 of the supplement. And then that's how we're thinking about it.

Got it. That's helpful. And then if I could seek in one on just business payments, I appreciate your comments commentary on the more vertical, verticalized go-to-market approach. I think that makes a lot of sense. Maybe you talk about just, you know, vertical expansion.

When we think about vertical expansion, is that approach likely to come from organic or inorganic? That segues into an obvious question on cap allocation and what the M&A pipe looks like. But first, just a question on just...

It will work well as go to market and then expansion to different verticals. Thanks a lot guys. Hi, this is John . So from an inorganic perspective, we obviously, as you are aware, we have our own M&A team that we have a healthy pipeline of deals that we look at from time to time.

And specifically, we would love for an opportunity to continue to build and both our consumer payments and business payments with the right specific strategic asset. There are fewer, as you were aware, there are fewer of those out there, specifically on the B2B side. But we would look to, if it's complimentary and very strategic, that would be something we would be very interested in evaluating.

And that generally acquisitions themselves would come with additional verticals inside of that business payments if it were business payments. As far as the opportunities on adding additional verticals, that can happen and does periodically happen and we would see that happening in our foreseeable future.

specifically would come naturally as part of some type of integration or even some type of or ERP integrations as you wear are not specifically exactly vertically focused. We find opportunities in multiple different areas as we, you know, we didn't exactly start in all the ones we were in today. So maybe there are some additional color to that.

Yeah, thanks John . So a perfect example of vertical expansion, you know, this past year has really been us further penetrating and focusing on the hospitality management space.

And that really came pretty organically through an integration partner wanting to use our technology platform and connect to us via APIs. And we've made several announcements this past year of hospitality management systems that wanted to...

really be able to offer payments as a service as part of their software offering.

they've been able to do that by leveraging our technology and expanding. And because of our success there, right, we've really focused on that vertical to expand. And so that's an example, and I think there's more opportunities like that as we look at further expanding into additional integration partners.

All right, thank you John , thank you Jan, appreciate the comments. Next question is from the line of Andrew Jeffrey with tourist securities. Please go ahead.

Hi, good afternoon, everybody. Thank you for entertaining the question.

Good afternoon, everybody. Thank you for entertaining the question. Question on RCS.

Can you characterize the type of business that your partners are bringing you in that channel or to your back end? I assume that all that volume is very nicely incrementally profitable. I just wonder.

about sort of the characteristics of growth at RCS. Does it kind of match the rest of the company? Maybe just frame it up, these are the sort of I'll think about it as the front end business that you're driving through your consumer and B2B segments.

Yes, hi Andrew, good afternoon, thanks for joining us. This is John . So it is specifically on RCS as you are here. We're repaid, we're actually its largest client. But also we find that especially as we've invested in modernization, we're really excited about. We're really excited about.

our new launch of that modern platform this year. We have found specifically in our industry as it's called RCS, is our repay clearing and settlement engine. It's a real strategic advantage for us, and we have found that in the marketplace that people...

have recognized that. It turns out to be a small world. After all, as you can see at times in our business and our expertise and our ability to extrapolate that out into the future, we think that's a really positive for us. But we're very selective. And as we partner with these specific processing partners, we have a look at our machine work. Never know, we never know what that would be. If you have heard our

It's mostly it's going to be someone of meaningful size. That's very strategic for us, that we have long relationships or existing relationships out in the marketplace that we are aware of. That is incremental to us. We are just a processing partner for them. I'll let Tim talk about the dynamics around that part of it.

But very strategic for us, Shailer, as you wear Shailer, one of the confounders has led that effort for us. And we will be strategic about it, but also remind us that repay is as large as client and we will always, we in ourselves will continue to expand and grow with that as well. Yeah, thanks, John . So we have about 30 customers.

done more quickly, they want sponsor bank support, all of which we bring to them. And we're winning business there because of that. And like John said, we've now modernized the back end solution itself. And so those are the type of customers we're winning. We have about 30 today. We're adding probably several each quarter. And that business in the last year actually grew very nicely.

John , I don't know, I'm sorry, about 30% growth in the sales and support team. I wonder, does that, how, I guess how much of that is sales and does it?

Does it kind of skew repay more toward direct sales than you've been in the past? I'm just thinking about go-to-market motion and whether and sales force productivity and whether the way you're going to market is changing and how that might influence.

profitability or LTV to CAC or economic metrics like that. Yeah, so we've always been direct and obviously we partner with our software, integrated software partners, but we are continuing to just grow and scale that, which we think is a great investment for our direct organic growth.

So it's a similar pattern that we've always had. We continue to just invest in that, which that should then obviously continue to deliver us long-term organic growth. And also I'd say to question about the 30%, most of that 30% are direct sales.

And a lot of them now are on the consumer side specifically are focused on enterprise accounts. We just want an enterprise account that we're rolling out. That's pretty meaningful to us. And so a lot of those resources are focused on enterprise. And then we're adding a lot vertical specific on the B2B side.

as Darren mentioned. So a good amount of that 30% is direct sales and the rest would be more support rules. Okay, good. Thank you.

Thank you. Our next question is from the line of James Fawcett with Morgan Stanley . Please go ahead.

Hey guys, this is Jeff Goldstein on for James. Thanks for taking my questions. Can you expand a little bit on recent trends you're seeing in your arm business? Just curious if you're starting to benefit from increasing consumer debt there or if that's yet to come and how we should think about growth in 2023 for that business. Yeah, so thanks for the question. It's worth,

are starting, credit card balances are starting to really increase and I think that will ultimately flow through to collection placements and volumes but probably not until Q3 or Q4. Some of the bigger public names in that space, if you look at some of the data they've put out that suggests that they're building that supply but it will likely flow through to us in a second half. Okay, got it. Alright

And then from my follow up, I know you're primarily focused on medium-sized enterprise customers, but can you just remind us of your SMB exposure and what type of trends you're seeing in that business? On the B2B side we have very little SMB exposure, probably I would say it can't say none, but very, very little. The focus truly is on medium-to-enterprise.

And so that business should be more resilient. We're not seeing the spend impact yet that maybe is being seen in the SMB space and you know that's one of the reasons we focus there.

And so that business should be more resilient. We're not seeing the spread impact yet. Maybe it's being seen in the SMB space. And that's one of the reasons we focus there. Thank you. God, thank you.

Thank you. Before we take the next question, I remind you to all the participants that you may press star 1 to ask a question. I repeat, you may press star 1 to ask a question.

Our next question is from the line of Charles Subban. Rich Stevens, please go ahead. Hi, good afternoon and thank you for taking my question. So, just going back to your comment on your lenders tightening standards, I wanted to get a sense for whether the securitization markets had any bearing, if any, on the ability of your...

market to fund new originations. So we feel good about that. That's something we have looked at from the larger customers. You know we can't say that definitively across our entire business, but you know we're not hearing that securitization challenges are resulted in not being able to meet demand.

Got it. And just as a quick follow up, I know political spend is going lower and I appreciate the disclosure, around the 3% impact in 22. But is there, should we assume that that 3% goes away completely or is there any revenue coming out of that in the coming year? That we should take into consideration.

Pretty much, yeah, I mean the political media really is every other year during election cycles. I mean, we're as we've mentioned previously, we're building a non-political media business but that will take some time but the political media spend is truly every other year.

Pretty much yeah, I mean the political media really is every other year during election cycles I mean where as we got you previously we're building a non-political media business But that will take some time, but the political media spend is is truly every other year Got it. Appreciate the color guys. Thank you

Thank you.

Our next question is from the line of Joe Wasi with Canacord. Please go ahead.

Thank you. This is Balazsani on for Jill. Thanks for taking our questions. On the last quarterly update, you noticed some traction in cross-selling opportunities on the AP side, potentially some large ones in the works. Any update on how those cross-selling efforts are progressing? It s became her new time, when many quantumANKT True 2D magnesium.

Darren, do you want to take that one? Yes, thanks for the question. Appreciate that. So, on the cross-cell-uppers, we're really focused on a couple of different initiatives there. As I mentioned, we've got the unique opportunity to where we offer both AR and AP.

AR really be in the traditional acquiring business that's an integrated customer through one of our ERP solutions. And so over the last year to two years.

We've been working to make sure that we've got the payables capabilities in those ERP capabilities to cross-el for that existing client base. And we've had a good deal of success there as we've rolled out that functionality in those integrated ERPs to be able to cross-el. And so that's actually one of the areas that have let us into additional hospitality management with some partners there.

So that's been very successful. And then when we look at the additional cross sell, the CPS business that was acquired in 2020 was largely a portfolio of virtual card only clients. And so one of the things that we've been working on there is the cross sell, our total pay solution into that client base so that those customers have the ability to...

to utilize our full capabilities of delivering all their vendor payment solutions. So it really upsell an issue if you will on the payable side. And we've seen a good deal of success there as well. But I would say we're just getting started and we expect more of that to come for 2023.

That's great, but thank you. And just to follow up on your direct sales force, do you feel that you're now operating at the optimal level or should we expect to see more hires there? Thank you. Yeah, I think this is John . I expect us to continue to invest organically out into the future. We see the opportunity. Thank you.

What we have seen and what we know is we just need more at bat. We think there's more home runs out there Thank you as there are no further questions at this time. I would like to turn the flow back over to John Morris for closing comments Thank you rewind for joining us today

2023 and beyond. Thanks for joining us.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

The.