8-K: REPAY Holdings Reports Mixed Q4 Results but Projects Stronger Cash Flow in 2024

REPAY Holdings Corporation announced its fourth quarter and full year 2023 financial results, showing a 2% gross profit growth in Q4 and 6% for the full year, alongside a 13% normalized organic gross profit growth for both Q4 and the full year.

Summary

• REPAY Holdings Corporation reported a 2% gross profit increase in the fourth quarter of 2023 and a 6% increase for the full year.
• Normalized organic gross profit growth was 13% for both the fourth quarter and the full year of 2023.
• The company's Q4 revenue was $76 million, a 5% increase year-over-year.
• Net loss for Q4 was $77.7 million, significantly impacted by a $75.7 million goodwill impairment loss.
• Adjusted EBITDA for Q4 was $33.5 million, a 7% decrease year-over-year.
• Consumer Payments saw a 13% year-over-year normalized organic gross profit growth in Q4, while Business Payments saw 25% growth.
• The company's AP supplier network grew by over 60% year-over-year to over 261,000.
• REPAY added five new integrated software partners, bringing the total to 262.
• Instant funding transactions increased by approximately 45% year-over-year in Q4 and 50% for the full year.
• The company now serves over 276 credit unions, a 15% increase year-over-year.
• For 2024, REPAY projects revenue between $314 and $320 million, gross profit between $245 and $250 million, and adjusted EBITDA between $139 and $142 million.
• Free cash flow conversion is expected to be approximately 60% in 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the significant net loss in Q4, offset by positive growth in other areas and a positive outlook for 2024. The goodwill impairment is a major concern, but the projected improvements in cash flow and profitability provide some optimism.

Positives

• REPAY demonstrated strong normalized organic gross profit growth of 13% for both Q4 and the full year.
• The company's Consumer Payments and Business Payments segments showed significant organic growth.
• The AP supplier network experienced substantial growth, indicating increased adoption of REPAY's solutions.
• Instant funding transactions saw a significant increase, highlighting the demand for faster payment options.
• The company's credit union client base grew by 15%, showing strong market penetration.
• REPAY is projecting strong revenue, gross profit, and adjusted EBITDA for 2024.
• The company expects to accelerate free cash flow conversion in 2024.

Negatives

• REPAY reported a significant net loss of $77.7 million in Q4 2023, primarily due to a $75.7 million goodwill impairment loss.
• Adjusted EBITDA decreased by 7% year-over-year in Q4 2023.
• Business Payments card payment volume decreased by 34% in Q4 2023 compared to Q4 2022.
• Business Payments revenue decreased by 20% in Q4 2023 compared to Q4 2022.
• Business Payments gross profit decreased by 13% in Q4 2023 compared to Q4 2022.

Risks

• The company is exposed to economic conditions and political risks affecting the consumer loan market and commercial spending.
• Changes in the payment processing market, including competition and regulatory changes, could impact REPAY's performance.
• The company faces risks related to retaining key personnel and maintaining relationships within the payment ecosystem.
• REPAY may not be able to execute its growth strategies, including identifying and executing acquisitions.
• Data security risks and changes in accounting policies could also affect the company.
• The company's future performance is subject to uncertainties and contingencies that are difficult to predict.

Future Outlook

REPAY expects revenue between $314 and $320 million, gross profit between $245 and $250 million, and adjusted EBITDA between $139 and $142 million for full year 2024, with free cash flow conversion around 60%.

Management Comments

• John Morris, CEO of REPAY, stated that the company delivered solid performance in the fourth quarter, with normalized organic revenue and gross profit growth of 14% and 13%, respectively.
• Tim Murphy, CFO of REPAY, mentioned that they expect adjusted EBITDA to grow faster than gross profit in 2024 and reduce capital expenditures, leading to an acceleration of cash conversion.

Industry Context

The announcement reflects the ongoing shift towards digital payments and the increasing demand for integrated payment solutions in various verticals, aligning with broader industry trends. REPAY's focus on vertical-specific solutions and software integrations positions it to capitalize on these trends.

Comparison to Industry Standards

• REPAY's normalized organic gross profit growth of 13% is strong compared to many established payment processors, but the net loss due to the goodwill impairment is a significant concern.
• Companies like Global Payments and Fiserv, while larger, often have lower organic growth rates, but they also have more diversified revenue streams and less volatility in their earnings.
• REPAY's focus on specific verticals like auto finance and healthcare gives it a competitive edge over more general payment processors, but it also makes it more susceptible to downturns in those specific sectors.
• The projected free cash flow conversion of 60% for 2024 is a positive sign, indicating improved efficiency and profitability, which is a key metric for investors in the fintech space.

Stakeholder Impact

• Shareholders may be concerned about the significant net loss in Q4, but the projected improvements in 2024 could provide some reassurance.
• Employees may see continued investment in the company and potential for growth.
• Customers should benefit from the company's focus on innovation and improved payment solutions.
• Suppliers and creditors may see a more stable financial outlook with the projected improvements in cash flow.

Next Steps

• REPAY will continue to focus on profitable growth and scaling through automation.
• The company will maintain investments in innovation and product development.
• REPAY will work to improve free cash flow conversion throughout 2024.
• The company will continue to expand its client base and deepen its presence in existing verticals.

Key Dates

Keywords

payment processing, fintech, gross profit, EBITDA, card payment volume, organic growth, digital payments, software integration, AP automation, credit unions