Q4 2024 Repay Holdings Corp Earnings Call
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Good afternoon, I'd like to welcome.
Speaker Change: Welcome everyone to repay fourth quarter 2024 earnings conference call.
Speaker Change: This call is being recorded today March 32025, I'd like to turn the session over to Stuart Rose 90 head of Investor Relations that replay.
Speaker Change: You may begin.
Speaker Change: Yeah.
Speaker Change: Thank you good afternoon, and welcome to repay fourth quarter 'twenty 'twenty four 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.
Speaker Change: Forward looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and our most recent Form 10-K.
Speaker Change: Actual results may differ materially from any forward looking statements that we make today.
Speaker Change: 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: Provide additional information to investors today's discussion also reference certain non-GAAP financial measures.
Speaker Change: Filiation other explanations of those non-GAAP financial measures can be found in states press release and in the earnings supplement each of which are available on the company's IR site with that I will now like to turn the call over to Jack.
Jack: Thanks Stuart Good afternoon, everyone. Thank you for joining us today.
Jack: On today's call we plan to cover three main topics first a review of the fourth quarter 2024.
Second a recap of our progress and accomplishments in 2024.
Jack: And lastly, the announcement related to a strategic review, including a review of our overall strategic upside yes.
Jack: First some Q4 repay closed out the year with another quarter of profitable growth.
Jack: Gross profit growth showed steady growth adjusted EBITDA increased approximately 9% and free cash flow conversion improved to 64%.
Jack: Our full year results showcase our durable business model with gross profit growth of 6% strong double digit adjusted EBITDA growth and accelerating free cash flow conversion from 42% in 2023% to 75% in 2024.
Jack: In Q4 and throughout 2020 for the consumer payments segment executed on our core growth profile, which includes growth from existing clients as well as sign new clients during the year.
Jack: Core consumer payments continues to benefit from the ongoing secular tailwind you're processing more digital payments for clients across our verticals.
Jack: Did you see the demand for our clients to adopt more payment capabilities. They can repay a powerful one stop payment platform to optimize payment flows while offering value added services.
Jack: Within the consumer payment segment, we added four new selfward partnerships during the quarter, while further strengthening our existing partners, bringing our total software partners to 180.
Jack: Our go to market and customer support teams to leverage these relationships to develop a robust sales pipeline and help improve our overall client experiences.
Jack: We added several new clients to our platform in Q4, including 16, new credit units, bringing our total credit union clients to 329.
Jack: I think that technology is directly integrated into multiple core financial institution credit Union software systems, which is driving a healthy sales pipeline into the 5000, plus credit unions and regional financial institutions across the U S.
Jack: A great example of a recent win is finfet quite yet.
Jack: As the nation's largest credit union that serves approximately 3 million members.
Jack: Prepaid is excited to go live with Finfet to enhance their members' payment experience, giving them 24, seven digital capabilities, while making automotive payments.
Jack: In addition to new client wins, we made great strides in 'twenty 'twenty four to position be faithful vertical specific or other opportunities such as expanding our software partnerships within the accounts receivable management vertical.
Jack: We're also making progress with the credit card servicing industry and yourself vertical climb.
Jack: Clients are selecting repay as a payment technology provider, because our payment capabilities, providing greater flexibility and convenience for their users.
Jack: And lastly, and value added services, our instant funding product continues to see healthy growth in Q4 transaction volume up approximately 34% year over year.
Jack: Our clients primarily use this product today to differentiate themselves by offering a quick and convenient way to securely find their customers within the personal lending vertical.
Jack: Over the medium term the instant funding product can become an additional revenue stream, but other verticals.
Jack: As we continue to evaluate new areas to expand the capabilities.
Jack: Our consumer payments growth was partially impacted from select factors during the quarter.
Jack: These factors were outside of our control such as the full quarter impact of the previously mentioned Rcs client that's rolling off due to be purchased by another processor.
Jack: Lapping the contribution from a large personal lender in 2023.
Jack: And the client loss within the lending communication solutions business, we began moving their transaction processing in house.
Jack: Yeah.
Jack: Over the past year, we have been building momentum within our enterprise sales team.
Jack: Key hires which has translated into incremental contributions during 2024.
Jack: Our core consumer bookings grew nicely year over year, giving us confidence in accelerating growth from new client wins.
Jack: As we move into 2025, we remain confident in executing our go to market client implementation and product initiatives.
Jack: We are also laser focused on improving our overall client experiences, which can lead to improved overall client retention as well as additional value added service opportunities with existing clients to further enhance the core consumer payments growth algorithm at repay.
Jack: Now shifting over to a business day in the segment during the fourth quarter, our business payments gross profit grew 60% year over year.
Jack: Gross profit growth was driven by strength in our core business.
Jack: Solid contributions from our political media vertical and the wrap of fly be clients during the quarter.
Jack: Throughout 2020 for our EP business benefited from our direct sales team and software partners producing robust sales pipeline across the health care hospitality property management and municipalities articles.
We enhanced integrations with existing software partners and added several software partnerships, such as blackboard and the education vertical.
Jack: Oh team here in the hospitality vertical and most recently lightspeed D&S in the automotive vertical.
Jack: Rebased collaboration with Lightspeed D. M. S extends our reach within the automotive industry by extending our vendor payments get automation functionality to a wide range of retailers shouldn't dealerships.
Jack: Our sales teams are leaning into over our over 100 software partnerships and integrations to cultivate enterprise relationships and develop extensive client pipeline.
Jack: By combining these partnerships with our go to market sales teams or normalized basis peanut bookings continue to build while also increasing our supplier network, 38% year over year to now we're at 360000 suppliers.
Jack: During the fourth quarter, we signed several new enterprise clients, including Fairview Health services.
Jack: Baby Health services is an award winning nonprofit health care network with eye care portfolio footprint of over 50 clinics hospitals and medical centers in Minnesota.
Jack: We're excited to start ramping these volumes with our total pay solution.
Jack: Also in enhancing for abuse fraud prevention processes, along the way.
In addition to new wins, our business payments segment, which positively impacted from the continued ramp of many existing enterprise clients, such as great Health and U S health systems.
Jack: Within our political media vertical we benefited from the on boarding of several new clients and the strong AD spending during the 'twenty 'twenty four presidential election cycle.
Jack: During the quarter, our B to B growth was partially impacted from a large client being acquired generally a or softness.
Jack: <unk> represents a large opportunity we are dedicating less resources today are in order to focus on the strong AEP growth opportunity ahead.
Jack: Within a are we remain focused on enhancing our existing ERP partnerships and optimizing payment acceptance within these existing client basis.
Jack: Edition as we focus on accelerating growth managing made the strategic decision to migrate a group of existing AP clients onto our total pay solution to better serve and address future monetization opportunities. When these clients' entire AP spending volumes.
Jack: This client migration initiative like other operational or strategic initiatives was part of our focused approach on driving long term profitable growth.
Jack: Our core AP basis increased in the low teens in Q4, when excluding the one off client attrition and strategic migration of clients.
Jack: We remain confident in the sales pipeline is our go to market approach continues to build our software partners and enterprise clients. While also enhancing our growth profile with additional monetization efforts within our total pay solution leading to an acceleration in growth during the second half of 2025 and into 2026.
Jack: Now onto the next topic, a review of our progress and the full year of 2024.
Jack: But my financial perspective, we demonstrated revenue and gross profit growth of 6% adjusted EBITDA growth of 11% and improved reported free cash flow conversion to 75%.
Jack: From an operating and go to market perspective, we have made great progress as well, including <unk>.
Jack: The focus of our sales and distribution resources.
Jack: We have been able to grow repaid by leveraging our 280 software partners up from 262 at the end of 2023.
Jack: We scaled operations by further aligning our internal sales implementation and support teams.
Jack: Realized efficiencies through process automation and added talented team members in select roles of our organization.
Jack: In addition, repaid recently announced the integration with worst AI and.
Jack: Our merchant underwriting and Onboarding processes.
Jack: By directly embedding workday I used to repay its workflows, we can spend less time on manual aspects of merchant underwriting and Onboarding, while also helping to mitigate cable I'd be rich.
Jack: On the product side, we implemented a new debit acceptance offerings.
Jack: And as we look to the future we working the continuous development of new potential capabilities, such as our T. P.
Jack: We also continue to explore ways to providing value added services to our clients such as expanding into funding into new areas of the company.
Jack: And from a capital management standpoint, we significantly increased our cash generation profile, while strengthening our balance sheet by refinancing our convertible notes to provide ample liquidity and financial flexibility.
Jack: In addition, we repurchased shares in a disciplined way during 2024.
Jack: As we reflect on the accomplishments we achieved in 2024 and turning to 2025.
Jack: Remain dedicated to the best payment experience for our clients and creating value by facilitating the ongoing secular shift to more digital payment flows.
Jack: As always our focus is on creating value for our shareholders since.
Jack: Since becoming a public company in 2019.
Jack: Repay has made eight acquisitions these strategic acquisitions helped us expand our consumer payments segment into six verticals.
Jack: And 180 software partners, while also diversifying repay but they're bleeding business payment platform that represents approximately 20% of our revenue mix today, including 100 software partners and a growing supplier network of over 360000.
Jack: Over the past several years, we have been committed to our core values of profitable growth and improving cash flow generation, while also being disciplined with our M&A, even strategically divesting an asset during that time.
Jack: Repay has built our technology platform to scale, both organically and inorganically with the potential to benefit from additional opportunities ahead.
Jack: As mentioned previously during the November earnings call I am continue to evaluate all aspects of our company and taking the necessary actions to realize shareholder value.
Jack: With the board's support we have commenced a comprehensive strategic review with the assistance of outside advisors.
Jack: To assess the full range of alternatives aimed at capturing shareholder value.
Jack: The review includes evaluating opportunities to further strengthen <unk> position in the verticals, we serve adjacent end markets.
Jack: Go to market strategy relationships with our partners and capital allocation.
Jack: This strategic review May also include consideration of various strategic alternatives, including M&A. They.
Jack: They take private or sale of the company or other structural changes transactions alternatives that could enhance shareholder value.
I didn't seem to comment further or provide updates regarding the strategic review until it has been completed unless the company determined that additional disclosure is appropriate or required.
Jack: As we are undergoing a review of our business our capital allocation priorities remain focused on creating value for our shareholders, while maintaining a strong balance sheet with ample liquidity and financial flexibility.
Jack: Our approach is as follows.
Jack: To reinvest into organic growth opportunities.
Jack: In 2025, we plan to make targeted sales go to market and relationship management and investments to strengthen our position and accelerate our organic growth in 2026 and 2027.
Jack: The continuing managing capex as a percentage of revenue, while maintaining prudent investments towards technology and product.
Jack: To address the 220 million convertible note due in February 2026, with this capital allocation framework in mind.
Jack: <unk>.
Jack: We continue to be open to accretive strategic M&A and.
Jack: And we will continue to have the authorized share buyback program, where we have opportunistically repurchase shares in the past.
Jack: With that I'll turn it over to Tim to go over our Q4 and full year 2020 for financials Jim.
Tim Murphy: Thank you John now, let's go over our financial results for Q4 and full year 2024.
Tim Murphy: In the fourth quarter and full year 2024, when you pay delivered solid results across all key metrics.
Tim Murphy: Revenue was $78 3 million in Q4, representing an increase of 3% year over year.
Tim Murphy: Revenue increased 6% year over year.
Tim Murphy: Q4, gross profit grew by 2% year over year consumer payments segment gross profit declined approximately 5% during Q4.
Tim Murphy: Grew at 3% in full year 'twenty 'twenty four although business payments segment gross profit grew 60% in Q4 and 40% for the full year.
John Morris: As John mentioned, our gross profit growth was impacted by select client losses in the strategic technology migration of targeted business payment volumes truck total based solution.
John Morris: We believe these are isolated to specific situations, while our core growth remains healthy.
John Morris: Excluding even packs ported.
Gross profit growth would've been approximately 10% in Q4.
John Morris: Q4, adjusted EBITDA was $36 5 million, representing 9% growth in Q4, and 11% growth for the full year Q.
John Morris: Q4, and full year adjusted EBITDA margins were approximately 47, and 45% respectively, demonstrating our disciplined approach to managing operating expenses.
John Morris: Being able to support sales implementation and client service teams across the company.
John Morris: Fourth quarter adjusted net income was $22 4 million or 24 cents per share.
John Morris: Before we reported free cash flow was $23 5 billion, representing 64% free cash flow conversion.
John Morris: Our full year 2020 for free cash flow conversion was 75%.
John Morris: Throughout 2020 for free cash flow benefited from our continued growth.
John Morris: We're also seeing the flow through from managing both operating expenses and Capex.
John Morris: During 2020 for free cash flow was favorably impacted by over $20 million in positive working capital changes, but we expect to reverse in Q1 2025.
John Morris: As of December 31st we had approximately $190 million of cash in the balance sheet with access to 250 million of Undrawn revolver capacity for a total liquidity amount of $440 million.
John Morris: He pays that language is approximately two three times and total outstanding debt of $507 5 million comprised of a $220 million convertible note due in February 2026.
John Morris: Zero percent coupon and 200, $207 5 million convertible note due in 2029.
John Morris: Two 875% coupon.
That leverage will continue to naturally benefit from our strong profitability and cash flow generation.
John Morris: As John mentioned in his opening remarks.
John Morris: Our strategic review of our company, including exploring strategic alternatives with our board support.
John Morris: As part of this dynamic we are refraining from providing 2025 outlook at this time.
John Morris: Before opening for questions I want to reiterate that with respect to the company's strategic give you the board and management team are committed to improving operations and driving shareholder value.
John Morris: Management remains focused on prudently running the business and execute on our capital allocation priorities. During this time.
John Morris: The company cannot provide assurance of exploring strategic alternatives will result in any transaction a particular outcome.
John Morris: As you understand we will not be communicating anything additional about the strategic review process is ongoing.
Again, we do remain focused on managing the business diligently and driving shareholder value. During this time.
John Morris: We will not be taking any questions on the review process during 2025.
John Morris: Thank you.
Speaker Change: Now I'll turn the call back over to the operator to take your questions operator.
John Morris: Okay.
Speaker Change: Great. Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star East one moment, please pull for questions.
Ramsey El: First question is from Ramsey El <unk> from Barclays. Please go ahead hi.
Speaker Change: Hi, gentlemen, thank you for taking my questions I appreciate it.
Ramsey El: I wanted to ask about.
Ramsey El: Some of the client losses that you've called out across the business they had sort of attrition I should.
Ramsey El: Characterize it as it is attrition are you seeing any changes in the drivers of attrition I think you called out a couple of folks that were taking things in house, maybe some customer consolidation does this sort of a tricky a period, where you're seeing more of that unusual or is there anything changing in the end market.
Ramsey El: All of your customers basically that that would make you think that this is a maybe a you may see more attrition than you have in the past.
John Morris: Hi, Randy This is John Yeah. Good evening, no we're not seeing any.
John Morris: Major changes leap when any specific ones that I called out.
John Morris: Two of those were.
John Morris: Clients that actually got acquired one of those was in the consumer side of the business and one with others in the business payment side are they were imported clients. So as they were acquired nothing we could have changed about that and then the third one was.
John Morris: On the linear communication solutions, they brought that in house, we don't see any trend associated with that either.
Speaker Change: Okay Fair enough and then a follow up for me on slide seven as you were talking about your consumer payments that performance in the quarter.
Speaker Change: You called out seeing pockets of consumer softness I'm, just curious if you could elaborate a little bit more on what those might be.
Speaker Change: Yeah.
Speaker Change: Those are related to what we've talked about in the past with our auto and arms.
Speaker Change: Continuation of what we saw previously so nothing incremental to that but just.
Speaker Change: The dynamics and the challenges within the auto space around used car sales used cars or used car affordability and then.
Speaker Change: The arm recovery that we anticipate we have not seen and so there's just a continuation of the depressed volumes in the arm space do we talked about previously.
Speaker Change: Got it okay. So a continuation of trends alright appreciate it thank you.
Speaker Change:
Speaker Change: Yeah.
Our next question is from Sanjay, it's like Ronnie from K B W. Please go ahead.
Sanjay: Thank you good afternoon, I guess, maybe starting with how we think about 2025 I know you guys are refraining from providing specific guidance, but just as we think about the trend lines of growth ex any strategic.
Sanjay: Action is could you just talk about sort of didn't direction relative to 2024, youre expecting the segment's top rate.
Sanjay: Yes, I'd say overall, if we think about Q4 I mentioned.
Sanjay: If you strip out the client losses in the strategic migration Tad reported gross profit growth would've been approximately 10%.
Sanjay: And then there is the some of the softness that we just talked about in the consumer verticals around auto and harm.
Sanjay: And so when you take all those things together I think the peak growth rate look similar to how it on a normalized basis, how it looked earlier in 2024 and the first half of 'twenty for the growth rate was call. It mid to high single digits and so I think all of those pieces together build back up to that so again, we're not providing a 2025 outlook but.
Sanjay: That's the way I would think about it when you strip out the losses.
Sanjay: And some of the consumer macro impacts.
Sanjay: And then Mike business payments should continue to grow.
Sanjay: Clip than it is or do we expect that to slow I mean, how should we think about that segment.
Sanjay: We talked about.
So the elements that Theres a client loss there is the like we're not as focused on the a portion of that business.
Sanjay: We're still trying to upgrade and maintain the existing integrations, but really more focused on core AP and core EPS growing call. It low to mid teens and so that's how I'd think about that business is growing at that pace. If you strip out.
Sanjay: The loss and then like I said, we're not has focused on the AOR of course. They are a portion is important to us and we have a lot of strong integrations there but.
Sanjay: We're really investing going forward in the what we would call core AP.
Sanjay: Okay, Great and then John maybe you could just talk about sort of.
John Morris: What led to the decision making process of getting to the strategic review and.
I know that there is no deadline or a specific timeline, but Mike maybe you can just tell us how we should look at it from the outside.
John Morris: In terms of like thinking about progress being made maybe you can just give us a little bit more color on that thank you.
John Morris: Yeah sure so yeah.
John Morris: If you recall back in the November earnings call.
John Morris: I'm committed to evaluating all aspects of the company to really drive and realize shareholder value.
So with the bourses more support we commenced this comprehensive strategic review, which is comprehensive.
John Morris: Where are we with the assistance of outside advisors, we're going to look at the full range of alternatives that.
John Morris: In order to capture overall shareholder value, we're committed to that and we think.
John Morris: And in a very positive outcome for our shareholders and those aspects could be from a.
John Morris: Reviewing our go to market strategies.
John Morris: Our overall capital allocation strategy.
Strategic alternatives, including M&A.
John Morris: Okay great.
John Morris: One one question for Kevin just on the free cash flow conversion. Obviously, you had that one time benefit that sort of gets reversed in the.
John Morris: First quarter.
John Morris: Think about free cash flow conversion should we.
John Morris: Think about it on an adjusted basis to be comparable in 2025 or does that.
John Morris: Is that affected by other stuff this year.
John Morris: Okay.
John Morris: No I would think of it that way I mean, we if you look at the earnings supplement we did.
John Morris: Show Us some detail on that on slide six and so I think if you strip out the impacts from this year.
John Morris: And then also stripped them out from what we expect to reverse in Q1 of next year you would see.
John Morris: Comparable conversion and overall, we are showing as we've talked about previously faster adjusted EBITDA growth in topline and a continued reduction of capex as a percentage of revenue so.
John Morris: This should lead to continued strong.
John Morris: Free cash flow conversion when you strip out dependent.
John Morris: Working capital impacts in both periods.
Speaker Change: Okay, great. Thank you.
John Morris: Okay.
The next question is from Joseph <unk> from Canaccord Genuity. Please go ahead.
John Morris: Hey, guys. Good afternoon, thanks for the questions.
John Morris: Anything going on in on the competitive landscape that we should be aware of and then secondly.
John Morris: Any update on your you know your focus on the.
John Morris: The mortgage vertical I know there was a lot going on with some of the with some of the card networks. Thanks a lot.
John Morris: Yeah.
Speaker Change: Yeah, Hi, Joe So if a competitor from a competitive perspective as you know last year, we continued to invest in enterprise sales our products our technology. So we're well positioned there obviously, we're seeing strength in our sales pipelines that actually.
John Morris: Drive say overall, our ability to compete.
Speaker Change: And both sides of the business so we.
Speaker Change: We find ourselves well positioned there, but we will as part of this strategic review, we'll obviously make sure that.
Speaker Change: Those are all things are true.
Speaker Change: The overall end markets, we still are very positive on as well.
Speaker Change: And I think you mentioned mortgage on the mortgage side as we mentioned.
Speaker Change: Last year and really in our November call.
Speaker Change: That's kind of a multi year organic opportunity for us that's still progressing as we indicated then where our clients are.
Speaker Change: Rolling that out.
Speaker Change: As we move throughout this year.
Speaker Change: And <unk> within AP.
Speaker Change: Ben calling out wins within the health care and hospital vertical recently, we're having lot of success there and so this speaks to the approach of being vertical specific within AAP and you can see our solution is now winning in those verticals and we're not we're not trying to compete in every vertical we're in areas such as.
Speaker Change: Health care hospitals auto dealerships property management and we're seeing.
Speaker Change: Positive traction there in those particular end markets.
Speaker Change: Great. Thanks, guys.
Speaker Change: Next question is from Andrew Schmidt from Citi. Please go ahead.
Speaker Change: Hey, John Hey, Tim Thanks for taking the questions. This evening.
Speaker Change: Wanted to ask just another macro question, but perhaps more specifically on the personal lending vertical.
Speaker Change: Talk about your expectations there versus the prior year, and then anything you're seeing in terms of <unk>.
Speaker Change: And our supply side trends to be aware of in the coming year. Thanks, So much.
Speaker Change: Okay.
Speaker Change: I'd say trends are pretty similar to what we've talked about previously personal loans there is some.
Speaker Change: Positive momentum and positive developments around origination activity based on our conversations with clients and some of the name as we track publicly there do seem to be indications out there.
Speaker Change: Loosening their underwriting standards and.
Speaker Change: Opening up to originations I do think there's demand for that and so they're looking to meet that demand. So I would say generally that's what we're seeing in personal.
Speaker Change: Not that different from what we said from prior periods, but a little bit of positive momentum there.
Got it. Thank you Tim that's great to hear and then you know the.
Speaker Change: Total P volume migration. This strategic shift you called out could you just walk through the mechanics of that in terms of it sounded like that was.
Speaker Change: Driver of the.
Speaker Change: Of the BTB payments results this quarter in terms of coming in a little bit lower but just trying to understand what the mechanics look life like and what's going on under the hood. Thanks, So much.
Speaker Change: So we've identified certain clients that were really focused on virtual cards, and we want to be able to monetize monetize the total payment volume and so where there are instances where there.
Speaker Change: Effectively virtual card only clients were looking to migrate them to our total pay solution as part of that there was some volume lost but we were that was a strategic shift we were aware of those potential losses that we were aware of those impacts could happen with the idea that once that volume has been converted.
Speaker Change: There is a greater monetization opportunity to not only monetize virtual cards, but also paid AC H and so we think that we are aware that there could be impacts, but we are willing to make that strategic move for the future monetization benefits of having all of that total payment volume on our.
Speaker Change: On our platform.
Speaker Change: Got it that makes a lot of sense. Tim are you seeing I understand the strategic shift it makes sense to offer a broad range of payment modalities, but you're seeing a broader shifts from virtual cards ECH within the broader supplier base. Just you know the kind of the common question in terms of.
Speaker Change: Payment acceptance cost and trends and things like that thanks a lot.
Speaker Change: We still see healthy adoption trends within the virtual card, but we are promoting the payday CH option more regularly and we are only able to do that when we have the total payment volume.
Speaker Change: And they are on in total pay solution. So that is again, a strategic move to be able to capture more of that.
Speaker Change: More of that spend versus just the virtual card and we are seeing that happen and we're getting we're promoting it and we want that to happen. We think it's nice to have the balance between virtual card and <unk> and if we have to we can default to sending regulatory check, but again, we think being able to capture the TPB.
Speaker Change: Monetize similar rates on virtual card, but that incrementally add paid HTH.
Wins for us in the future.
Andrew Let me add some additional color there are net new wins or are all yes.
Speaker Change: Green space and a lot of times. So that's that shift itself, we're actually bringing them to the virtual card or piece, sometimes for the first time.
Speaker Change: So were those net new wins, we talk about a lot of times those are just.
Speaker Change: Nevertheless, outsourced payables before.
Speaker Change: And to the extent, we can get again, we're seeing really nice growth in TPB, we don't disclose that separately, but we're seeing that trend and we just need to be able to capture more of it and monetize it.
Speaker Change: Got it. Thank you John Thank you Tim I appreciate the comments.
Speaker Change: Our next question is from Pete Heckmann from D. A Davidson. Please go ahead.
Pete Heckmann: Hey, good afternoon, I, just wanted to confirm but.
Speaker Change: In terms of these client losses that you've had three client losses that you thought.
Pete Heckmann: Explained.
Pete Heckmann: Were those fully reflected in the fourth quarter or would you expect a little bit of additional revenue to run off.
Pete Heckmann: Next quarter.
Pete Heckmann: One of them was we mentioned last quarter, but this quarter was the full full quarter impact and then the others. Yes, we've experienced the full runoff. This quarter. So there will be a lapping effect in the back half of next year, but we'll see the impacts of those in the first half.
Pete Heckmann: About 25.
Pete Heckmann: Back half of this year.
Pete Heckmann: Got it got it and then in terms of the <unk>.
Pete Heckmann: Some of the attrition.
Pete Heckmann: Related to the total pay my migration.
Pete Heckmann: I guess is that is that was that fully reflected in the fourth quarter was there a little bit more to go.
Yes, that's been reflected in the fourth quarter.
Pete Heckmann: Alright, that's all I had thank you.
Pete Heckmann: Okay.
Speaker Change: Our next question is from <unk> from BMO capital markets. Please go ahead.
Speaker Change: Hey, guys. Thanks, maybe sticking with the organic growth.
Speaker Change: Organic gross profit growth ex political I know you touched on it from a high level, but could you sort of put a final point on the deceleration you saw from the third quarter into the fourth quarter.
Speaker Change: Instead of bridging from that plus 1% organic growth last quarter to the minus nine this quarter. Thanks.
Speaker Change: Yeah.
Speaker Change: Again that was.
Speaker Change: Largely related to the decline in losses, we mentioned and then the strategic migration of the EAP volume.
Speaker Change: There was a little bit I guess I would say if additional softness and a part of <unk>. That's why we've emphasized AP.
Speaker Change: But as I mentioned when you ship out those impacts and then you take into account some of the ongoing arm in auto.
Speaker Change: Macro impacts and should get us back to a level that we saw earlier in 2024. So if you look at the normalized growth rates.
Speaker Change: In Q1, and Q2 of 2024, I think that's more indicative of it would be.
Speaker Change: And obviously okay.
Speaker Change: In order to get to that number you're already youre already normalizing for the political which was in the fourth quarter, which political for us.
Speaker Change: We'll not be in 'twenty five.
Speaker Change: Got it and maybe just as a follow up but was there any offsetting benefit from the ramp in the auto captive customer you called out last quarter end.
Speaker Change: The mortgage debit acceptance customer.
Speaker Change: That is the client is still ramping but I wouldn't say materially offset any of the other impacts.
Speaker Change: Okay got it thanks.
Speaker Change: Our next question since Charles Nabhan from Stephens. Please go ahead.
Charles Nabhan: Hi, good afternoon, and thank you for taking my question.
Charles Nabhan: Had a quick one on the consumer segment on slide seven you indicated that the.
Charles Nabhan: The headwind from the client losses in Q4 was roughly 5% so if I add that back too.
The gross profit decline this quarter were roughly flat my question is.
Charles Nabhan: As we.
Charles Nabhan: Assuming some normalization over the course of the year could you maybe help us understand how much of that is going to be coming from macro improvement versus.
Charles Nabhan: Versus new bookings I know you have a number of go live scheduled for this year.
Charles Nabhan: Okay.
Charles Nabhan: Yes, so again the key.
Charles Nabhan: Client losses don't take into account the macro impacts from Harman auto that I mentioned earlier, so that that client losses gets you to flat in those macro impacts gets you to call. It low single digits and then you have the ramp of the <unk>.
Charles Nabhan: Captive auto when you have the ramp of the previously assigned accounts you have the <unk>.
Charles Nabhan: Really strong bookings that John mentioned.
Charles Nabhan: All of which would get you a higher so again, we're not providing a 25 outlook here, but that's how I would frame it up.
Charles Nabhan: Got it appreciate the color.
Charles Nabhan: A follow up you had indicated in the strategic review that M&A was with also an option.
Charles Nabhan: Just to drill into that as well as your product roadmap could you maybe talk a little about what would be on your wish list. If you were to go the M&A route and you know I.
Charles Nabhan: I guess any comments around what's on your product roadmap organically would be helpful as well.
Charles Nabhan: So from an M&A perspective, we really like consumer Bill pay.
Charles Nabhan: In some large consumer bill pay verticals today in terms of auto and <unk>.
Charles Nabhan: Mortgage and personal.
Charles Nabhan: There are others, where not in such as insurance or government utilities. So those could be interesting and we see some targets in those spaces.
Charles Nabhan: There is some consumer end markets, we're not in that are more related to general commerce I would say.
Charles Nabhan: And then I would say in <unk>, we'd be focused on.
Charles Nabhan: So there are a lot of sort of tuck in opportunities within AP that could get us into additional verticals and grow our supplier network.
Charles Nabhan: So I would say.
Charles Nabhan: Either existing or new consumer copay verticals broader consumer commerce, and then BW AAP.
Charles Nabhan: A couple of things to that always.
Charles Nabhan: Anything that you could add to our software partners that would embed payments that we fit well into those could potentially increase our verticals.
Charles Nabhan: Or complement our existing verticals or adjacent verticals as I mentioned in our strategic review.
Charles Nabhan: And then.
Charles Nabhan: Something that would we would always be a hi Fi.
Charles Nabhan: That would be very attractive something that could drive overall scale something that could drive.
Charles Nabhan: Our overall distributions.
Charles Nabhan: Could be software partners are just ways that we can really try to drive a flywheel effect of driving overall distribution.
Speaker Change: Got it appreciate the color. Thank you.
Speaker Change: Next question is from Timothy Chiodo from UBS. Please go ahead.
Speaker Change: Hey, Thank you for taking the question Tim You mentioned earlier P. D. C. H I just wanted to drill into that more from an industry perspective, when we think about paid ECH typically it's paid because youre able to attach information and add value to a typical ACTH peanut. So the question would be number one is is there.
Speaker Change: Anything different about the data that you can or cannot attached to an AC H payment in your enhanced ECH offering relative to what you can attach to a card.
Speaker Change: And then second is.
Speaker Change: Within the various other bank based payment rails is there any difference that you would call out or reason why you would or would not whether it's cost or timing et cetera associated with either something like an RTP or is that now or something along those lines relative to the traditional <unk>.
Speaker Change: Thanks.
Speaker Change: Yeah, I mean again.
Speaker Change: Supplier is willing to pay a fee because theyre getting enhanced data relative to a regular ACTH. So it may not be as robust and seamless has a card transaction, but it is more so than a regular ACTH and they're willing to pay for that I think the difference is just the feet of them is lower so it is higher than regular ACTH for lower there.
Speaker Change: Card and then like we've said our economics are better because our cost of processing ACTH is lower so for us we kind of net out in the same place even though.
Speaker Change: So, but it's better for the supplier because they pay less and get more data. So it's pretty nuanced in terms of what that data, but there.
Speaker Change: There is really a win win for both of US they are paying less and getting rich data and we're ending up with a similar net economic situation.
Speaker Change: So enrich data.
Speaker Change: Which makes obviously makes reconciliation a lot easier the bulk payment of things as well as the overall embedded part of that which makes reconciliation as well and to tie down.
Speaker Change: Back to the original invoices, a whole lot easier and easier to reconcile.
Speaker Change: Thanks, Tim and John Mayer follow up, though but is it safe to say then that more of the.
Speaker Change: Suppliers are set up to receive that information with the virtual card relative to the number that are set up to receive that information with knee C. H payment or is that something that you sell for.
Speaker Change: Okay.
Speaker Change: Yes, we intend to solve for that through our supplier enablement and so again, we like owning the 360000 plus supplier network, we do our own.
Speaker Change: Proprietary former supplier enablement or we have really hands on real time approach and that allows us to determine.
Optimal way to pay and how they want to be paid and so.
Speaker Change: We like we like owning that network, we like owning the enablement process and that gives us visibility into the best way to pay.
Speaker Change: Tim long term bigger picture long term.
Speaker Change: If you think about it.
Speaker Change: The world of automation the world of overall.
Speaker Change: Overall, cyber and fraud, we think.
Speaker Change: The World, we think what we add and the value around cyber security around the making and sending of payments is going to be even more important to if I look out over the next three years or so.
Speaker Change: We have great value just in that piece alone.
Speaker Change: And as you can imagine the mailing of checks.
Speaker Change: Yeah, Hi, checking itself has your routing and account number on it right and so our ability to drive value around security of that transaction.
Speaker Change: We think is something we will see more and more of us.
Speaker Change: The era of fraud, while continues to elevate itself with the automation.
Speaker Change: Yeah.
Tim Murphy: Thank you Tim and John.
Speaker Change: As a reminder, if you'd like to ask a question. It is star one.
Speaker Change: Our next question here is from Mike Grondahl from Northland Securities. Please go ahead.
Hey, guys. Thanks kind of a high level question, but you know.
Speaker Change: Double digit topline growth has been really elusive tough to get back to.
What has been the biggest hurdles to get back to that is it sales is it the end markets is it. This client retention could you just kind of walk us through why that's been so hard.
Speaker Change: Yeah.
Speaker Change: I think that the.
Speaker Change: Clients the timing of the client losses is a big factor as we said earlier, they're hitting us in Q3 and really to a larger extent in Q4, So I think the timing of that.
Speaker Change: Continued macro impacts in auto and arm.
Speaker Change: Which layer on to that and then we've mentioned some.
Speaker Change: Impacts and that are part of <unk>.
Speaker Change: And so those are all factors that I was describing where I preach from the.
Speaker Change: Normalized growth back to where we are.
Speaker Change: What we showed in early 2024.
Speaker Change: Now we did mentioned that we've had really strong bookings across both consumer and business payments, we've been selling enterprise accounts and consumer and then embedding payments into enterprise software and <unk>.
Speaker Change: We're ramping some accounts have signed last year that will have more of an impact. This year. So there is momentum within go to market through our strong signs within bookings and ramping.
Speaker Change: But there have been some impacts that are really hit.
Speaker Change: A lot in Q3 and to a greater extent in Q4.
Speaker Change: Let me add into that as part of this comprehensive strategic review as you heard me mentioned earlier.
Speaker Change: Our goal is to find ways to accelerate growth and so that's one of the many things will be reviewing and we're confident we will find opportunities there.
Speaker Change: Hey, that's helpful guys. Thanks.
James Faucette: Next question is from James Faucette from Morgan Stanley Investment management. Please go ahead.
Speaker Change: Hi, This is chipotle mascara on for James You mentioned wanting to drive further distribution and wanted to understand how you're thinking about the current opportunity set and the partner network are you more focused on penetration of existing partners or expanding the partner base and if so what sigma.
Speaker Change: Or vertical that you're interested in expanding based off of where youre seeing less demand right now.
Speaker Change: Yes, sure. So we're now up to 280 of those partners.
Speaker Change: About 180 on the consumer side about 100 on the business payment side.
Speaker Change: You can see we also added to that during the quarter. So.
Speaker Change: Both the answer to that question is both we want to continue to.
Speaker Change: Obviously drive our overall penetration into our existing partners and we think Theres a lot of a lot of opportunity there.
Speaker Change: And just to add that as we go to market and find additional strategic relationships, we want to do that.
Speaker Change: And we've talked about overall enterprise software platforms.
Speaker Change: We think theres a significant opportunity as we look out the next two to five years on driving helping them drive the monetization as we embed our software into their core platforms, our ability to do that both on the APN. The AUR side, we think there's a significant opportunity out there for us and will continue to invest in both of those and those should produce really paused.
Speaker Change: Outcomes for us as we look out over the years.
I'll add to that.
Speaker Change: Like John said, we're investing in both and we do add new software relationships each quarter, but there is a pretty significant opportunity within the existing base to increase penetration to your point and there is some.
Speaker Change: Our software relationships, where we may be 10% or less penetrated and so we think theres an opportunity to find ways to jointly market and jointly promote to solution to increase the penetration of existing.
Speaker Change: In addition to adding new.
Speaker Change: And we've said in the past as well on the enterprise.
Speaker Change: Sulfur platforms on the BW payables side, we've said, that's a multiyear organic growth opportunity for us.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: This concludes the question and answer session I would like to turn the floor back to management for any closing comments.
Speaker Change: Thank you operator, thank you everyone and thank you for your time today, our 2000 2024 results demonstrate our solid execution towards profitable growth and accelerating free cash flow.
Speaker Change: We remain focused on our strategic initiatives to drive overall shareholder value.
Speaker Change: Thank you for joining us today.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
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Hmm.
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Hum.
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