Q3 2024 Repay Holdings Corp Earnings Call
[music].
Good afternoon, and I did like to welcome everyone to Rebase third quarter 'twenty 'twenty four earnings conference call.
This call is being recorded today November 12 2020 full.
Speaker Change: I didn't like to turn the session over dose do you walk through Sunday head of Investor Relations at Rupee, Steve What you May proceed.
Yeah.
Speaker Change: Thank you good afternoon, and welcome to our third quarter 2024 earnings conference call 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. Those forward looking statements are some.
Speaker Change: Object to risks and uncertainties, including those set forth in the SEC filings related to today's results and our most recent Form 10-K 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 intend to update them, except as required by law.
Speaker Change: In an effort to avoid additional information to investors. Today's discussion will also include references to certain non-GAAP financial measures.
Speaker Change: Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and the earnings supplement which are available on the company's IR site with that I will now like to turn the call over to John.
John Morris: Thanks Stuart Good afternoon, everyone. Thank you for joining us today.
John Morris: Q3 represented another quarter of profitable growth that repay with gross profit growth of 9% adjust.
John Morris: Adjusted EBITDA growth of approximately 10% and free cash flow conversion of 139%.
John Morris: Our year to date results represents strong double digit adjusted EBITDA growth and the acceleration of free cash flow conversion towards our updated full year target.
John Morris: Throughout this year, we have been determined to make progress on our three main strategic initiatives to drive growth for 2024 and beyond as a reminder, they include our go to market efficiency client implementations and a focus on product.
John Morris: Q3 consumer payments performance represents the continuous execution of our core growth algorithm, which includes growth from existing clients as well as signing new clients over the past several quarters.
John Morris: Overall, our core consumer payments growth continues to benefit from the ongoing secular tailwind of processing more digital payments for our clients across our verticals.
John Morris: During the quarter, we further strengthened our existing software partnerships or adding new software partners. Our consumer payments segment now has 176 software partners.
Our go to market and consumer support teams continue to develop our sales pipeline and improve our clients' experience.
John Morris: Added several new clients to our platform in Q3, including 13, new credit units, bringing our total credit Union clients to 313 out of the roughly 5000 in the U S.
In addition, we are gaining traction with regional financial institutions from the direct integrations of our payment technology to multiple core financial institution credit Union software systems, a robust technology customizable features and ongoing client support represents a differentiated solution in the marketplace, leading to a healthy sales pipeline.
John Morris: Now life with the previously announced auto captive lender, which we believe will be a contributor to growth over multiple years.
John Morris: We began processing in late Q3.
John Morris: Unexpected measured ramp during the remainder of the 'twenty 'twenty four through 2025.
John Morris: Also began processing for our mortgage debit acceptance offering with a select group of mortgage Servicers during Q3.
John Morris: We continue to expect contribution from this multi year opportunity to begin in 2025.
John Morris: In addition to new client wins, our growth opportunity continues to expand with existing clients.
John Morris: Across our verticals there are countless examples of clients to begin initial implementation last year.
John Morris: Seven after processing needs without rebates payment technology.
John Morris: And through our client support came back asking for additional offerings, such as IV or text to pay our digital watch for both their existing and new portfolio volumes. Additionally, the accounts receivable management vertical continues to be attractive opportunity with multiple years of growth ahead.
John Morris: This year, we have expanded our accounts receivable management software partnerships and started implementing for several outsourced accounts to our management and loan servicing providers in the U S.
John Morris: And lastly, and value added services, our instant funding product continues to see healthy growth with transaction volume up approximately 24% year over year.
John Morris: Over the medium term, we continue to evaluate new areas or expanding our instant funding capabilities across our verticals.
During the quarter, our growth was partially impacted from normalizing consumer spending trends lapping the significant and immediate contribution from a large personal lender in 2023.
John Morris: Boston Rcs client, which was purchased by another processor chip.
John Morris: Shifting over to our business payment segment during the third quarter, our business payments gross profit grew by 67% year over year gross.
John Morris: Gross profit growth was driven by strength in our core business solid contributions from our political media vertical and the ramp of life new clients during the quarter we.
We continued to see strength within the health care and hospitality verticals and signed several new enterprise clients, including the University of Florida Health systems.
John Morris: Health systems is one of the largest academic health and research centers in the U S with facilities in multiple cities across the state of Florida.
John Morris: Once fully ramped across locations clients like U S health systems, and other enterprise health care wins become top contributors to our growth.
John Morris: Additionally, we began to benefit from political media spending during Q3, while also onboarding several large new clients during the presidential election cycle, which is great for election cycles into the future for 2024, our preliminary data suggests that the strong media spending trends continued through November during the quarter. Our BTB growth was partially impacted from corporate spending.
John Morris: Patterns within pockets of existing clients, leading to lower volumes, we remain confident in the top of the funnel sales pipeline is our go to market approach is continuing to win new enterprise clients and software partners.
John Morris: And they are we're focused on optimizing payment acceptance answering our ERP partnerships and reinforcing our support teams to maintain exceptional client experience.
John Morris: Within core AP, we continue to grow our software partnerships, while enhancing integrations with existing software partners and increasing our supplier network to now over 330000 suppliers.
John Morris: Our real time vendor enablement process continues to grow the supplier base by vertical and our vertically driven go to market strategy further strengthens our ability and confidence in building a healthy sales pipeline for our now 100 software integrations and partnerships within business payments.
John Morris: And your integration that was announced during the quarter was without tier hospitality software and performance optimization platform.
John Morris: There are integration Oh tier provides a one stop shop for their clients to streamline their operations by automating the entire Indian vendor payment process, while also providing faster and more secure payment options with N O T. A S. D. G pad in the education vertical we are now live with Blackboard. Our team is looking forward to building our partnership.
John Morris: New clients in 2025 and contribute to business payments growth for multiple years to come.
John Morris: See our vertical go to market strategy is driven by directly embedding payment technology with that software partners like Oh tier envelope and blackboard to solve clients' unique patient needs within the various verticals we serve.
Combining our software partnerships with our go to market sales teams.
John Morris: Those leads into signed clients.
John Morris: Within accounts payable were also excited to announce a new partnership with Mastercard to optimize checking ACTH payments when combining our total pay platform with our Mastercard partnership repaid can recognize our clients' payment flows faster leading to further automation and digitization of payments across.
John Morris: Across both consumer payments and business payments, we have been able to grow repay by leveraging our now 276 integrated software partners.
Spanning our product offering and developing our sales and support teams to provide clients with a seamless onboarding process well consistently evolving our tech platform.
John Morris: We look to further scale our business as we automate manual processes, enabling us to expand free cash flow conversion for the remainder of the year and beyond.
John Morris: Additionally, in the third quarter, we completed a convertible notes offering are extending and upsizing, our revolving credit facility to provide us with the flexibility to continue focusing on profitable growth.
John Morris: Celebrating free cash flow our capital allocation strategy remains focused on creating value for our shareholders while.
John Morris: Maintaining a strong balance sheet with ample liquidity and financial flexibility.
John Morris: Our balanced approach incorporates reinvesting in the organic growth opportunities.
John Morris: Well continue to be open to accretive strategic M&A and Opportunistically repurchasing shares under our buyback program, which we utilized in the third quarter.
John Morris: We believe the market continues to undervalue rebased profitable growth strong balance sheet and the ability to accelerate cash generation.
It has been a rule of 40 since becoming publicly traded in 2019, while also remaining committed to allocating capital to drive shareholder value.
John Morris: Our CEO and as part of the commitment to driving shareholder value continues to evaluate all aspects of our company and if necessary take actions to realize this value.
John Morris: We're focused on running the business efficiently, while continuing to execute on profitable growth and free cash generation.
Speaker Change: I'll turn it over to Tim to go over our Q3 financials and our outlook for 2020 for Tim.
Tim Murphy: Thank you John now, let's go over our Q3 financial results before I provide an update on our financial guidance for 2024.
Tim Murphy: The third quarter, we paid delivered solid results across our key metrics.
Tim Murphy: Revenue was $79 1 million, an increase of 6% over the prior year third quarter.
Tim Murphy: Q3, gross profit grew by 9% year over year as we continue to benefit from processing cost optimization and automation initiatives.
Tim Murphy: Our consumer payments segment reported gross profit growth of 2% in Q3, and 6% year to date.
Tim Murphy: Our business payments segment gross profit grew 67% in Q3 and 33% year to date.
Tim Murphy: Adjusted EBITDA was $35 1 million, representing 10% growth in Q3, and 12% growth year to date.
Tim Murphy: Q3, adjusted EBITDA margins of approximately 44% demonstrating our relatively stable SG&A cost and.
Tim Murphy: And disciplined approach to managing operating expenses.
Tim Murphy: And could support sales implementation and client service teams across the company.
Tim Murphy: Third quarter adjusted net income was $21 2 million or 23 per share.
Tim Murphy: Q3 reported free cash flow was $48 8 million.
Tim Murphy: During the quarter free cash flow benefited from our solid growth.
Tim Murphy: We're also seeing the flow through from managing both operating expenses and Capex during the year.
Tim Murphy: In addition, net working capital and free cash flow were favorably impacted by approximately $20 million due to the timing of client settlement accounts and approximately $15 million is expected to reverse in the fourth quarter.
Tim Murphy: Without the net working capital timing impact Q3, and year to date free cash flow conversion would have been approximately 80% and 60% respectively.
Tim Murphy: Overall free cash flow conversion remains in line to our expectations and is on track to meet our updated full year outlook.
Tim Murphy: As of September 30th.
Tim Murphy: 169 million of cash the balance sheet with access to $250 million of Undrawn revolver capacity, our total liquidity amount of $419 million.
Tim Murphy: Pes net leverage is approximately two five times the total outstanding debt of $507 5 million comprised of 220 million convertible note due in February 2026 zero percent coupon and a $287 5 million convertible note due in 2029% to 875% coupon.
Tim Murphy: Continuing to expect net leverage to naturally decline from our strong profitability and cash flow generation.
Tim Murphy: Excluding any potential M&A and share repurchases.
Tim Murphy: During the third quarter, we were active in using cash for share repurchases.
Tim Murphy: 30th there's $36 2 million remaining available under the share repurchase authorization.
Tim Murphy: Moving onto our thoughts for the remainder of 2024.
Tim Murphy: Are you getting great results are driven by our growth algorithm of growth with existing clients. The.
Tim Murphy: The full year contribution from clients to begin ramping during the prior year and growth from sign new clients with a measured implementation timeline.
Tim Murphy: Our 2024 outlook is based on our solid year to date results and current trends that we're seeing across our verticals.
Tim Murphy: We continue to expect full year 2020 for revenue to be between $314 million and $220 million gross profit to be between 245 million and $250 million and adjusted EBITDA between $139 million $42 million.
Tim Murphy: We continue to expect approximately 44% adjusted EBITDA margins and anticipate adjusted EBIT to grow faster than revenue and gross profit during the year.
Tim Murphy: We're increasing our reported free cash flow conversion outlook from 60% to 65% because of the positive networking capital impact during the second half.
Tim Murphy: Our original full year free cash flow conversion target did not incorporate the approximately 20 million of net working capital impact that occurred in Q3.
Tim Murphy: Of which $15 million is expected to reverse during Q4.
Tim Murphy: The updated outlook implies reported free cash flow conversion will be below the year to date free cash flow conversion will be higher than 60% when excluding this impact.
Tim Murphy: Without these onetime net working capital dynamics on free cash flow conversion remains on track to accelerate year over year.
Tim Murphy: The cross repaid we continue to see the sales pipeline developed from a software integrations and partnerships, giving us the confidence for sustained multi year growth ahead.
Tim Murphy: As a reminder, our Q4 quarterly cadence is expected to benefit from the incremental contributions are political media business and the business payments segment.
Tim Murphy: Through early November we saw healthy growth related to the presidential election cycle in 2024.
Tim Murphy: As you can see from our year to date results and full year 2020 travel book remained focused on profitable growth finding efficiencies across the business, where we can scale leading to an acceleration in free cash flow conversion, while also maintaining prudent investments towards product in automation.
Speaker Change: I'll now turn the call back over to the operator to take your questions operator.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, even and I will be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star and one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
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Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: The first question comes from the line of Ramsey El <unk> from Barclays. Please go ahead.
Speaker Change: Hi, Thank you for taking my question. This evening I wanted to ask about organic growth in consumer and you mentioned a couple of headwinds you faced in the quarter are.
Speaker Change: Softening normalizing consumer spending trends I should say you mentioned a client loss and there was something else in there that I that I think you called out could you maybe elaborate a little bit on what what happened in the quarter with organic growth and maybe also speak to what the you know what we should be expecting in Q4, and the sort of exit rate into 25.
Speaker Change: Yes, Hi, Ramsey John.
Speaker Change: Good evening.
Speaker Change: As I mentioned.
They're normalizing consumer spending trends are what we so on on that side of the business as it continues to normalize during the quarter as consumers were facing some ongoing affordability pressures impacting the auto and the credit Union verticals.
Speaker Change: In general the lenders maintain a tighter lending environment. So some consumer softness in personal and credit Union autos, but we are continuing to win and add new clients are within these verticals like credit unions of financial institutions.
Speaker Change: And across consumer payments verticals, we've we've aligned our vertical go to market strategy to go after large enterprise clients. So in the midst of some of the consumer spending environment, we are winning and implementing some enterprise clients, but as you as you know that takes some time on that on the enterprise side.
Speaker Change: And I would add that you know.
Speaker Change: Across those those areas. So just some consumer spending softness and then as you mentioned and as we called out there was a loss of a client within Rcs and some of the larger enterprise implementation delays.
Speaker Change: When you when you kind of take those all into account you are in kind of the mid to high single digit range for consumer payments organic growth.
Speaker Change: Okay, fine and and thank you for that and in addition, maybe a similar question on the PDP side. I think you also called out some corporate spend patterns and.
Speaker Change: Some pockets of lower volume and in certain clients. Maybe you could also do the same same thing for the business payment side of the shop.
Speaker Change: Yeah business payments reported growth as we discussed is very strong we had really nice political media contribution we benefited from some of the presidential election dynamics, which we really didn't know would occur until the end of the quarter and actually the greatest volume we saw the highest volume levels were in October.
Speaker Change: So we did benefit from that when you when you strip that out we still saw growth in AR.
Speaker Change: In the quarter, but as we mentioned last quarter. There has been some consumer spending softness, which we think will turn around eventually into next year.
Speaker Change: Excuse me corporate spending softness, which we think will turn around.
Speaker Change: And that did impact some volumes, but we have we have added wins like the University of Florida Health system, which will be ramping we are live with blackboard, which where we're refining our go to market strategy and that will be contributor into next year.
Speaker Change: And so there's lots of building blocks to grow there, but again, we felt good about the reported growth number and then even when you strip out political we did see growth.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Joseph Rafi from Canaccord Genuity. Please go ahead.
Hey, guys. Good evening, Thanks for taking the question, maybe drill down a little bit first and so the mortgage debit service offerings.
Speaker Change: Progress, there and kind of how you expect that.
Speaker Change: So it's essentially roll out in 'twenty, five and could it be a meaningful contributor.
Speaker Change: Showed growth and I have a quick follow up.
Speaker Change: Yeah sure I mean, as I mentioned earlier, we did begin processing for and are for a mortgage debit acceptance offering with a select group of mortgage Servicers during Q3.
Speaker Change: We do expect this contribution to be a multiyear opportunity set as well.
Speaker Change: And really the began in 2025 as.
Speaker Change: As we.
Speaker Change: Scale more with those those particular servicers in and add additional servicers.
Speaker Change: Yeah.
Speaker Change: And so we do think it's a multi year from an overall operating perspective, Tim maybe I want to ask more yeah. I mean, we feel good that the product is live and rehab services utilizing it we have done all the work with Black Knight that we've talked about previously and and having live clients is great not only to just prove out the solution, but also start gathering more data.
Speaker Change: For future client Rollouts. So we do think that there is going to be a benefit for multi years here.
Speaker Change: Got it thanks for that color and then just one more on consumer you know what.
Speaker Change: Just maybe kind of looking at it a little bit differently and kind of same store performance versus new logos a growth in 'twenty four kind of how how should we kind of look at that if you were to parse it a little bit more than you know through that lens. Thanks a lot.
Speaker Change: For 24, I think it's similar to what we've talked about previously which is where a majority of the growth is still coming from existing customers or customers that were ramping from prior periods. We have added some new logos like the auto captive that we mentioned and we do have some new we will have some new wins in mortgage that will add to the debit acceptance that will drive more of the growth next.
Speaker Change: Sure, but for 'twenty for the majority of the growth was still from existing and that's really just a matter of the clients themselves growing adoption in the ramping effect that I mentioned.
Speaker Change: Got it thanks, Jim Thanks, John.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Andrew Schmidt from Citi. Please go ahead.
Speaker Change: Hey, John Hey, Tim Hey, Thanks for taking my question. This evening really appreciate it.
Speaker Change: Maybe John if I could ask you you had a comment in the script about looking for ways to capitalize on value creation, our realization, maybe just expand on that and in terms of you know one one level deeper in terms of what you mean by that thanks, so much.
John Morris: Yeah, absolutely. So just kind of reiterate you you obviously heard my statement earlier, but.
John Morris: I really do think that the market continues to undervalue.
John Morris: <unk> profitable growth.
John Morris: A strong balance sheet and our ability to.
John Morris: Larry cash we've we think we've demonstrated that this year as we said we would do earlier this year.
Speaker Change: And then I mean.
Speaker Change: Been a rule of 40 since becoming public in 2019.
Speaker Change: So you know as CEO I really my.
Speaker Change: It is my job to drive shareholder value and accretion of that so we as all the different things we're going to be looking at and we are looking at we are evaluating all aspects of the company, especially at the drivers of profitable growth and free cash flow, but also evaluating our markets our go to market strategy.
Speaker Change: We're looking at our relationships and our partners our overall cost structure reviewing our M&A strategy and just overall capital allocation, how do we spend our dollars to drive more growth.
Speaker Change: Our organic growth specifically.
Speaker Change: And we think that those opportunities are absolutely. There are we think we're [laughter].
Speaker Change: Pulling the right levers some of those especially on the enterprise side will take a little bit longer to see if we can see healthy pipelines, we can see hopefully implementation white.
Speaker Change: Areas of the company so.
Speaker Change: We're excited about the future part, but we absolutely there's a there's a near term piece that we're working really hard on the business to drive.
Speaker Change: Those specific areas.
Speaker Change: Got it. Thank you so much for that Jon and then if I could just ask framework question, obviously, we're not to twenty-five yet, but I think this year the organic growth outlooks for roughly if my math is right you have to 11 that includes contribution political media spend.
Next year, obviously that rolls off but you do have a couple of opportunities coming coming on.
Speaker Change: A little bit of malaise currently with the span as you mentioned, but there are some offsetting opportunities is there a framework. We can help us think about just FY 'twenty five growth I know, we have a longer term framework out there, but just curious for some early sort of guardrails to think about just the growth algo.
Next year. Thanks, so much.
Speaker Change: Yeah sure I'll start.
Speaker Change: For 225, obviously, it's early.
Speaker Change: But we were already working hard as you as I always mentioned and even on some of the things we were talking about earlier, they're working on we've got a whole comprehensive plan we're working on.
Speaker Change: Given our durable revenue model are recurring in nature, we have a high confidence in our topline results.
Speaker Change: As a leadership team, where we're in our planning stages right here, we're looking at all of our key objectives and see how we really drive that for next year.
Speaker Change: As we build our strategic plan and priorities for next year.
Yeah.
Speaker Change: We'll give some further detail as we enter into the next earnings call about those details of that plan our growth opportunities and how we plan to do many of those things as we look out into 2025.
Speaker Change: Yeah, I mean, I think to add to that it's also just keep in mind too in terms of thinking about exit rate and what that means for next year. I mean, there typically is seasonality in the business in Q1.
Speaker Change: The second half of next year there'll be a positive benefit from not lapping. This rcs client loss and then there is the other pieces around the mortgage debit initiative to large auto captive rollout other enterprise wins implementing and we're still expecting there to be overall recovery.
Speaker Change: At some point in the consumer verticals, John mentioned and specifically in arm.
So there's lots of different pieces that we're looking at that would be.
Speaker Change: Bridges from where we are today to where we think will be next year, but again like John said, it's it's early.
Speaker Change: To talk more specifically about that.
Speaker Change: Absolutely I really appreciate the comments thank you both.
Speaker Change: Thank you. The next question comes from the line of Pete Heckmann from D. A Davidson. Please go ahead.
Speaker Change: Good afternoon, and thanks for taking the question so.
Speaker Change: It certainly sounds like a political media spend may have increased.
Speaker Change: For the year may have increased like 40% to 45% so that does.
Speaker Change: Representative.
Speaker Change: Difficult comparison for next year I mean.
Speaker Change: Can you talk through some of the specific things do you expect within the business payments segment to kind of help offset that.
Speaker Change: And.
Speaker Change: Maybe it gets you closer to.
Speaker Change: They're closer to a smaller decline I guess is what I'm looking at I mean, the organic growth rates you've seen in business payments have been just a little soft in.
Speaker Change: Is that a business that we still think you should be able to grow in the low double digits.
Speaker Change: We do think it has that potential.
Speaker Change: You know Theres a couple of pieces to that we think.
Speaker Change: Theres, a real opportunity to monetize more of our clients' total payment volume we have a total pay solution.
Speaker Change: And there's certain situations, where we're predominantly processing virtual cards for clients and we want to be monetizing other forms of payments such as enhanced ACTH, So where we have a specific targeted initiative around monetizing more of the overall volume.
Speaker Change: And then building out the supplier network helps with that where October 330000. So that's the specific initiatives, we have enterprise software opportunities like blackboard to two <unk>.
Speaker Change: Our payable solution into that and we are refining our go to market strategy to drive more wins within that software relationship and other software relationships. So we expect to add.
Speaker Change: So those are some of the.
Speaker Change: Key initiatives for US next year, it's around payment modernization and driving a payable.
Speaker Change: Payables within enterprise software those are the key areas of focus we think can make this business you'll get this business back to teens plus growth.
Okay. Okay. That's helpful. And then just in terms of that.
Speaker Change: The OEM did I hear correctly that you said it went live about halfway through the quarter.
It was towards the end of the quarter.
Speaker Change: And we are seeing volume ramp now and that will continue throughout not only next year, but probably multiple years.
Speaker Change: We've seen that in the past with with the auto captives that we are processing with and so like.
Speaker Change: That's why we feel excited about multi years of growth and so it's live now and where we're doing what we've done in the past which is facilitate further ramping.
Speaker Change: Okay, and so do you typically just get the new loans that are in the beginning and as the book turns over you get all of them or is there actually a conversion of a portion of the year the back book.
Speaker Change: It's typically a conversion, but they'll they'll convert by portfolio and so we'll get a specific portfolio and make sure thats running smoothly and then we will get additional portfolios to make sure those are running smoothly and again that can happen over multiple years.
Speaker Change: So it's not just new volume, it's conversion of existing volume as well.
Speaker Change: Okay, great. Thank you.
Yeah.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Rufus Hone from BMO capital markets. Please go ahead.
Speaker Change: Hey, guys. Thanks, I wanted to come back to the organic gross profit growth so excluding the political media.
Speaker Change: Can you kind of quantify the components of the deceleration you saw from the second quarter into the third quarter and then if you could sort of help us bridge from that core organic gross profit growth that you saw this quarter. So how youre thinking about the fourth quarter that'd be great. Thank you.
Speaker Change: So as I mentioned, I mean, some of the components or quarter over quarter would be the the Rcs client loss, which as John mentioned that was that client was purchased by another processor and they converted to them next deconversion process happened over the course.
Speaker Change: Of course of the quarter and impacted us and we will continue to impact us into next quarter.
Speaker Change: In the beginning of next year and that was probably a couple of points of overall growth. There is consumer spending just general softness that John will provide some details on by vertical which I would also quantified to be.
Speaker Change: Two or three points of growth and then there is some enterprise.
Speaker Change: Client implementation delays.
Speaker Change: Call it another point or so of growth and then corporate spending softness that we've talked about with <unk> and another point or two so that's how we would bridge from the.
Speaker Change: Normalized organic growth in Q3 back up to somewhere where we were the first half of the year.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you ladies and gentlemen, a reminder, if you wish to ask a question. Please press star and one.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of Alex Newman from Stephens. Please go ahead.
Speaker Change: Hi, Yeah. Thanks for taking my question here.
Speaker Change: And funding growth grew 24%. This quarter can you just talk about some of the drivers there and what percentage of revenue that business makes up in consumer payments.
Speaker Change: Yes. So we are excited about some of the things we're doing with our instant funding product, which as a reminder, that's where using the visa direct into Mastercard send networks to send funds directly.
Speaker Change: Specifically as we've mentioned on prior calls that we we use that.
Speaker Change: For specifically the funding of <unk>.
Speaker Change: Personal loans, where those me installment loans et cetera on behalf of our clients and lenders.
Speaker Change: We are.
Speaker Change: Coming out of the first quarter, we had a large win last year. We're lapping that was a major user of that we do have a healthy pipeline of some of that some of those additional things in our pipeline that we would expect.
Speaker Change: Later on in the fourth quarter potentially in the first quarter.
Speaker Change: We continue to implement some of them some of our existing clients mentioned.
Speaker Change: You mentioned that on our call as well where we have.
Speaker Change: Clients.
Speaker Change: Continue to use multiple products and solutions, we have even though they may not start out using all five or six of the things we have.
Tim Murphy: Generally they add on those additional things and that obviously contributes to same store, Tim maybe want to mentioned about contribution level.
Tim Murphy: I'd say overall across the company non card volume based products represent about 20% of revenue.
Tim Murphy: And specifically within consumer.
Tim Murphy: The instant funding business, which is primarily the use case today is within personal loans that is growing nicely.
Tim Murphy: We mentioned the payment monetization opportunity in <unk>, but there's also a monetization opportunity in consumer where we have just.
Tim Murphy: I would I would say probably less than 10% of our personal lenders using this product and so there is upside just in selling this product to existing lenders and.
There's examples of that for other non card products like AC H, where we could.
Tim Murphy: Penetrate ECH further across our existing client base and consumer so we see we see monetization opportunities across both consumer and business payments instant funding is a great example of that.
Speaker Change: Very helpful. And then just quickly could you talk a little bit about the current M&A strategy, what you're seeing from a valuation standpoint and potential areas of interest.
Speaker Change: Sure.
Speaker Change: So as Tim mentioned, we are.
Speaker Change: Heavily focused on how we allocate our capital obviously organic growth being one of those but on the on the M&A side.
Speaker Change: We have seen.
Speaker Change: Activity pick up in the market from a.
Speaker Change: For sale perspective.
Speaker Change: There's several things that we have our own organic pipeline of deal flow that we look at and we find some attractive things that are out there are obviously valuation seems to be more normalizing this year versus the last two years.
Speaker Change: So for the right particular verticals for divide particular.
Speaker Change: Things that would be embedded software for payments.
Speaker Change: Embedded payments and software that those would be attractive things, we would look at at.
Speaker Change: Attractive valuations that could obviously do something that would drive growth for us but.
Speaker Change: But we are seeing increased activity some of those things could be late fourth quarter from an overall, meaning those particular assets changing hands or could slip into the first quarter of next year.
Speaker Change: We are seeing we are seeing opportunities across both consumer and business payments so across both segments.
Speaker Change: Just to kind of step back in terms of the overall capital allocation strategy like John said, the primary focus is reinvesting into organic opportunities.
Speaker Change: We're doing that with enterprise sales and consumer and primarily in enterprise software and business payments.
Speaker Change: And then we are open to accretive strategic M&A.
Speaker Change: Okay.
Speaker Change: We are looking at various deal sizes, but likely looking at tuck ins that could make sense for us and then we have the authorization that I mentioned two opportunities to opportunistically buy back shares.
All of that we think could keep us in a very reasonable leverage level and allow us to address the $220 million of remaining convert to in February 26.
Speaker Change: So again focused on organic growth and then balancing.
Speaker Change: M&A and buybacks with being able to address the remaining zero percent coupon convert while also maintaining reasonable leverage levels.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Pat <unk> from Credit Suisse. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking the question wanted to ask float revenue associated with settlement accounts.
Speaker Change: Who is earning net income typically between repay in the sponsor bank and does that play a role in the discussion around sponsor bank fees when it come to the table to negotiate.
Speaker Change: Just to clarify we do not earn float revenue.
Speaker Change: Those accounts are not.
Speaker Change: <unk> held with us, meaning they're essentially merchant accounts and Theres a delayed settlement to the merchants in this case, specifically in AC H and so because of that delay we have the cash, but we're not earning float revenue on that and the sponsor bank fees, which flow through Cogs would be separate from that discussion now that they are opportune.
<unk> for us to evaluate flow revenue across both consumer and business payments, but today.
Speaker Change: It's not a factor.
Speaker Change: Okay got it understood I appreciate it.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, a reminder, if you wish to ask a question. Please press star and one.
Speaker Change: Yes.
Once again, if you wish to ask a question Please press star and one.
As there are no further questions I would now hand, the conference over to John Martin for his closing comments John.
John Martin: Thank you everyone for your time today.
John Martin: Our year to date results demonstrate our solid execution towards our 2020 for outlook and accelerating free cash flow.
John Martin: We will continue to remain focused on profitable growth executing on our strategic initiatives and allocating capital to drive our shareholder value.
Speaker Change: Thank you for joining us today.
Speaker Change: Thank you the conference of repay holding Corporation has now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: [music].