RPAY - NASDAQ

Good afternoon. I'd like to welcome everyone to Repay's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] This call is being recorded today, November 9, 2023. I'd like to turn the session over to Stewart Grisante, Head of Investor Relations at REPAY. Stewart, you may proceed.

Thank you. Good afternoon, and welcome to our third quarter 2023 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 subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and in 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. In an effort to provide additional information to investors, today's discussion will also include references to certain non-GAAP financial measures. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR site. Those materials include reconciliations and other explanations with respect to REPAY's organic and normalized organic growth. As described in our materials, Q3 2023 normalized organic growth is calculated by excluding contributions attributable to the divested Blue Cow software business and the contributions attributable to political media in the third quarter of 2022. With that, I would now like to turn the call over to John.

Thanks, Stewart. Good afternoon, everyone. Thank you for joining us today to review our third quarter results. On a normalized organic basis, in Q3, we reported revenue growth of 11% and gross profit growth of 12% and 13% year-to-date. We continue to see stable and resilient trends from our clients throughout the quarter. Our Q3 results performed in line to our expectations. And we believe that these results, as well as the demand we are seeing from our clients, demonstrate the need for our powerful technology and one-stop platform to optimize their payment flows. Throughout this year, we remain focused on operating our business and executing on our strategy. Our efforts in developing our go-to-market and implementation teams, as well as continuously innovating our payment technology, remain our top priority at REPAY as we strive to be a network to all networks. Our clients are very focused on reducing the complexities around receiving and making digital payments while enhancing the overall experience for their consumers and businesses. On the go-to-market side, we continue to expand our services into now 257 integrated software partners while finding ways to further penetrate the relationships. In addition, our internal sales teams remain focused on a multipronged approach to win clients of all sizes, including large enterprise accounts, as well as expanding our offerings into existing accounts. The customer journey also continues to be an area of focus for our sales and implementation teams. We're finding that, in today's environment, many of our clients are doing more with less internal resources. So we're making sure we guide them through the onboarding process while providing ongoing and first-class support throughout the entire client experience. As for technology, we remain committed to improving the payment experience for our clients and their customers by delivering innovative solutions that support evolving payments preferences. We're continuously enhancing our product offerings and have been deploying automation initiatives across our organization, benefiting both our consumer payments and business payments operations. As an example, we have implemented various automation processes for charge-backs, compliance, risk monitoring and enabling our vendor supplier network, leading to significant increases in productivity, which we are expected to scale over time. Our Consumer Payments segment grew organic gross profit by 14% in Q3. This was primarily driven by the ongoing secular tailwinds within the consumer payments verticals we serve and the continued ramp of recent large client implementations. We're now integrated with 161 software partners in the Consumer Payments segment. Our team is excited about the new partnerships that represent a variety of software platforms, including one with our previously announced auto captive wins that will ramp during 2024 by also positioning REPAY to pursue enterprise clients across the lending universe. In addition, expanding partnerships for existing and potential new clients continues to be an area of focus. During the quarter, we deepened our integration with Solera, a global leader in vehicle life cycle management. The expanded integration features REPAY's suite of payment solutions directly within their platform, enabling Solera's clients to accept digital payments through our multiple channels, including online portal, text pay and IVR. During the quarter, we added 9 new credit unions to REPAY, bringing our total credit union clients to 266. As a reminder, the credit union market opportunity represents over $185 billion in annual total payment volume. Similar to credit unions, community banks are also an important opportunity for us. For example, we signed a new community bank client that specializes in providing loans to consumers with operations in the vast majority of the United States. REPAY will expand the payment tools available to their agents and customers by offering debit card and ACH processing via newly designed agent portal and customer-facing payment modalities. Additionally, REPAY's payment technology is integrated within the bank's loan management system, allowing our clients to further scale and streamline reconciliation and internal workflows. Credit card servicers as well as accounts receivable management companies continue to be attractive verticals and are a great growth opportunity for us. We began implementing some of the new wins in our growing sales pipeline while also expanding our software partners. As we look into the future, the mortgage servicing space continues to look promising. Banks have been filling back on the servicing side of mortgage industry as they are faced with increasing regulation and capital requirements, allowing nonbank mortgage servicers, who are focused on improving their technology and advancing their payment capabilities, to gain market share. While we do process mortgage payments for several banks, these nonbank servicers represent our primary target market. In addition to this trend, REPAY is partnering with Black Knight to bring debit accepted capabilities to both existing and potential clients. We're progressing along to bring this capability towards the second half of 2024 and beyond. Our teams have identified a group of clients and they're continuing to engage with Black Knight on product development, testing and implementation. And lastly, our Instant Funding product continues to see significant growth with transaction volume up approximately 50% year-over-year. Moving over to Business Payments segment. During the third quarter, our Business Payments gross profit grew 13% when excluding the impact of political media during 2022. Our normalized gross profit was driven by the continued momentum in our sales and implementation pipeline for enterprise and mid-market companies within our health care, property management, auto and municipality verticals. Our AR portion of the segment continues to perform nicely as we focus on penetration of existing ERP systems and payment acceptance optimization. And on the AP side, we accelerated our supplier network to over 233,000 suppliers, which is the largest quarterly adds our vendor enablement team has onboarded. Last quarter, we highlighted strong traction across our business payment verticals with recent wins like Castle Management Group and Property Management. We're continuing to execute on our robust sales pipeline in Q3. During the quarter, we signed many new clients across our verticals like Sierra View Medical Center, a premier hospital and full-service health care center in California. We are now integrated with 96 software partners in the Business Payments segment. A few new partnerships to highlight include PDI Technologies, OMNIA Partners and Blackbaud. PDI Technologies is a leading global provider of software solutions for the convenience retail and petroleum wholesale ecosystem. With our partnership, PDI Technologies' clients can now rely on REPAY's embedded accounts payable automation within their software ecosystem to reduce costs by experiencing greater control and transparency. We recently announced a partnership with OMNIA Partners, the largest purchasing organization for public sector procurement, to add REPAY's automated accounts payable solutions to its portfolio of national supplier contracts. Digitizing outbound vendor payments will streamline and optimize the AP payment experience for government and education organizations. By automating accounts payable, public agencies can modernize how they make outbound payments, increasing efficiency and vendor satisfaction. And finally, we're excited to announce our partnership with Blackbaud, a leading software ecosystem designed specifically to meet the unique compliance needs of health care, education and nonprofit organizations. Through our partnership, REPAY is the exclusive AP integrated solution for the Blackbaud platform. Blackbaud's broad network of clients will be able to perform vendor payment automation directly with Blackbaud's centralized platform, experiencing both time and cost savings. We are looking forward to implementing this partnership throughout the first half of 2024 and offering embedded solution with Blackbaud clients towards the second half of the year. To wrap up, you can see the investments we have made in sales and technology are really paying off. We are partnering with leading software providers, integrating clients of all sizes and providing them with advanced products and services that enable seamless acceptance and outbound execution of digital payments. Our strong balance sheet and cash generation enable us to continue to innovate and grow organically while also allowing us to keep our eye on the M&A market in the event an attractive strategic opportunity becomes available. With that, I'll turn it over to Tim to go over our financials and our outlook for the remainder of the year. Tim?

Thank you, John. Now let's go over our Q3 financial results before I review our financial guidance for 2023. As a reminder, Q3 normalized organic growth is calculated by excluding contributions attributable to the divested Blue Cow Software business and the contribution attributable to political media in the third quarter of 2022. In the third quarter, REPAY delivered solid results across our key metrics. Card payment volume was $6.4 billion, revenue was $74.3 million in the third quarter, which represents a take rate of approximately 116 basis points. Take rates were higher due to continued strong performance in our non-card volume-based businesses within consumer payments, specifically in communications solutions and Instant Funding along with higher yields in business payments. As a reminder, as we win larger clients, our mix will naturally bring down take rates over time. Revenue attributable to Blue Cow and political media in Q3 2022 was approximately $2.7 million and $1.9 million, respectively. Gross profit was $56.7 million, an increase of 12% on a normalized organic basis. This normalized organic gross profit growth removes approximately $2.7 million and $1.7 million of gross profit attributable to Blue Cow and political media in Q3 2022, respectively. Our Consumer Payments segment reported organic gross profit growth of 14% in Q3. Our Business Payments segment gross profit grew 13% when excluding the impact of political media during Q3 2022. Third quarter adjusted net income was $19.9 million or $0.21 per share. Lastly, third quarter adjusted EBITDA was $31.9 million. Third quarter adjusted EBITDA as a percentage of revenue was 43%. Adjusted EBITDA margins remained stable quarter-over-quarter but have been partially impacted by inflationary pressures which may continue to increase costs. As a company, we have always focused on profitable growth, refining processes across the business where we can scale through automation while also maintaining investments towards innovation. This has led to REPAY surpassing the Rule of 40 on an organic basis for the 17th consecutive quarter. The combination of resilient double-digit normalized organic gross profit growth and strong adjusted EBITDA margins separates us from many of our peers. Our net leverage is now approximately 2.5x. We expect net leverage to naturally decline throughout the year from our strong profitability and cash flow generation, excluding any potential M&A. As of September 30, we had approximately $118 million of cash on the balance sheet with access to $185 million of undrawn revolver capacity for a total liquidity amount of $303 million. REPAY's total outstanding debt of $440 million is comprised of a 0% coupon convertible note that does not mature until February of 2026. Moving on to our thoughts for the remainder of the year. Based on the year-to-date results as well as current trends, we are raising our 2023 revenue outlook. We expect volume to remain between $26 billion and $27.2 billion, revenue to now be between $286 million and $292 million. We are reaffirming our gross profit outlook to remain between $218 million and $228 million, reflecting normalized organic gross profit growth of 9% to 14%. And our adjusted EBITDA look to remain between $122 million and $130 million, which reflects gross profit margin and adjusted EBITDA margin ranges in line to our year-to-date results. As a reminder, during the fourth quarter, we will be lapping strong overall results in the same prior year period as well as increased contributions from our Business Payments segment due to the political media cycle in 2022. Political media added approximately $6 million of gross profit in 2022, heavily weighted in Q3 and Q4. Our full year 2023 outlook range continues to plan for a potential slowdown in the overall macroeconomic environment during the remainder of the year. For additional details on 2023 normalized organic gross profit growth, please refer to the 2023 outlook bridge on Page 12 of our earnings supplement posted to the company's IR cycle. As you can see from our results, we have solid momentum heading into the fourth quarter of the year. We expect adjusted free cash flow conversion to accelerate into 2024 as we realize the benefits from investments we made in sales, product and technology over the past several years. I'll now turn the call back over to the operator to take your questions. Operator?

[Operator Instructions] The first question comes from Bob Napoli from William Blair.

Solid results. I guess my first question would be just on free cash flow conversion, just your thoughts over the medium term. I mean I think that's the #1 question that we get, and I think some visibility on that would be really helpful to the valuation of your business. And so I know you've made a lot of investments, including this quarter, but some color on what you're targeting, what you think the right level is over the long term, would be really helpful.

Yes, absolutely. Thanks for the question. So yes, as you mentioned, we have made a lot of investments in our products and technology. We've been enhancing our existing software integrations. We've been combining platforms, and a lot of that work is behind us. CapEx was up a little bit in Q3, but we expect that to come down again in Q4, similar to the Q2 level. So over the medium term, as we grow the top line and bring down CapEx to be probably, call it, in the 12% to 14% range next year, 12% to 14% of revenue, and below that in the outer years, we'll see free cash flow conversion increase. So we want to continue to invest in the business. We want to continue to innovate and build out our technology stack, build out our product suite. But I expect, as a percentage of revenue, CapEx will come down. So as we grow and CapEx comes down, free cash flow conversion will increase.

Just some take on your target would be helpful. But let's see, the next question I would have nice results out of the consumer business, really, really strong, just any color you can give on where you're seeing the health. I mean there's been some noise out there that credit unions have really pulled back on auto loans or just really tightened credit. And I know you're not tied to originations, but it does affect you eventually. But where is that strength that you're seeing coming from? And what are your thoughts as we move into next year? I think you called out tougher comps as we move into '24.

So we are pleased with our strong year-to-date performance of our normalized 13% organic growth. And then obviously, we're seeing some positive trends similar to that in October, similar to Q3. On the consumer payments side, some parts of that is continued enterprise wins that have been rolling out throughout the year, and we expect some additional parts of that. And then on the credit union side, as I mentioned on our call, we had additional credit units added to our total credit union. I think we're now up to about 266 or so of those. The whole digital transformation is real, and that consumer experience of driving that interaction on the credit union side, we're providing that financial technology. So we're still seeing positive confirmations in the marketplace of the need for our technology, at least that's the part we see.

I mean the tightening that you're seeing in the credit union, that the market is seeing in credit union lending, isn't affecting you because of the secular trend to digitization of loan repayments. Is that kind of...

Yes. I mean the loans are still growing in the credit union space, maybe not as fast as they were previously, but I think they still are showing some level of loan growth. But more importantly, it's the digitization of payments and credit unions overall, just like some other financial institutions looking to upgrade their tech stacks, and part of their own digital transformation is increasing the payment experience for their borrowers. So as they upgrade their overall technology experience to upgrading their payments with it, we're benefiting from that.

The next question comes from Andrew Schmidt from Citi.

Good to see the consistent results. I guess if I could put a finer point on the fourth quarter normalized organic gross profit outlook, it's still a pretty wide range for the year. John, you mentioned good trends were consistent with the third quarter through October. Maybe you could just talk about just some of the assumptions that you're making in the fourth quarter and then, more specifically, how you're expecting organic gross profit growth to trend relative to the third quarter.

Andrew, it's Tim. As I said on the call, I mean, even on a normalized basis, it's a tough lapping quarter for us. And when I was talking about the lapping, it was for Q4. If you look at Q4 of last year, even normalized, it was the strongest quarter we had. So that lapping is just part of it. We did mention that we still feel good about trends in October, but the planning assumption for the year is that there will be an overall macroeconomic slowdown and probably the place that's most visible is in the auto market. And so we're planning for that. And that's kind of how we build up to it. So part of it is lapping, part of it is just the planning assumption around potential slowdown and the continued challenge in auto.

And just a quick follow-up to that. Planning assumption totally makes sense, and you mentioned recessionary trends in auto, but are you seeing anything right now in the repayment volume that might suggest that things are slowing at all? Or is it more of a comp issue when we think about the fourth quarter? I guess what I'm getting at, are you seeing anything that's changed? Or is it more about just your starting point from a planning perspective?

Yes, it's really the comp issue and then the planning assumption. In personal loans, we're seeing consistent trends with the prior quarter. And in fact, the large enterprise win that John referenced has been a really nice win for us and has contributed nicely. And then auto is still challenged, like we said, and the credit unions are growing nicely. So there's positive trends, but the lapping and then just the planning assumption around the slowdown are the main drivers.

If I could just squeeze one more in, a question that's on a lot of people's minds is just the management of payment cost acceptance from enterprise suppliers. Just wondering if you've seen any pushback on just virtual card acceptance for large ticket items from enterprise suppliers or, generally speaking, what you're seeing in terms of just enterprise payment cost acceptance trends. Anything there would be helpful.

We're not seeing anything different. I mean it may depend on the end market you're serving within AP. We have been serving auto dealerships, hospitals, municipalities, property management companies, and we're not seeing anything different with the supplier acceptance trends. We've grown our supplier network really nicely this quarter to over 233,000. We're offering a TotalPay solution, which allows us to pay them all different ways, virtual card, enhanced ACH, ACH and check, and we still see really nice virtual card adoption. So we don't see anything in our particular end markets that would cause us to think there's a dramatic shift in acceptance trends. So maybe it's just unique to different verticals.

The next question comes from Ramsey El-Assal from Barclays.

This is Ryan Campbell on for Ramsey. So your normalized business payments gross profit growth came in at 13% in the quarter. So all else being equal, given next year's big political cycle, unlike this year, is this the normalized growth rate you should be expecting to see in business payments next year? Really, any color there would be helpful.

Well, yes, so Q4, we actually think could be a little bit above Q3. Q2 was 15%. Q3 came in at 13%. We did experience some implementation delays. We have started to see those flow through the pipeline. John talked about focusing on the customer journey and the implementation experience. So that's a key area for us to try to find ways to be more proactive and move deals through the pipeline more quickly. And toward the end of Q3 and into early Q4, we're seeing some success with that. So I think that number will be a little bit higher in Q4, and that's probably a good way to think about it going into next year.

The next question comes from Sanjay Sakhrani from KBW.

This is actually Steven Kwok filling in for Sanjay. The first one I have was just around the take rate, just how should we think about it moving forward? It seems like the year thus far, take rate has been stronger than expected, just if you could provide some color around that.

Yes, absolutely. So as we mentioned, we raised our revenue outlook for the year. We're seeing a lot of strength in our revenue, as you said, year-to-date, and so we felt good raising that. And it's a similar trend as previous quarters where some of our non-card volume-based products performed really well. Those would be the communication solutions and Instant Funding on the consumer side. And then overall, our yields in Business Payments were higher and have been increasing. So we increased the revenue guidance, which implies a little bit higher take rate than previously in Q4. The other thing I'd say is, over time, as we ramp more enterprise wins, that take rate could come down a little bit, but we'll likely have higher GP dollars, which will lead to faster GP growth as a result of the enterprise wins. So it's been really strong. It gave us comfort increasing the revenue guidance, but the mix shift to enterprise could bring that down a little bit in future periods.

And then just following up around the guidance because the gross profit didn't really change. So just wondering, if you could give a little bit more color around the cost of services and how we should think about that for next quarter and then into 2024.

Yes. I mean those products that I just mentioned are lower-margin products in general. So they don't flow through from revenue to GP the same way. They have higher COGS. So if those are more prevalent, that could be one explanation for that. But in general, like I said, a lower margin would imply that it's just a little bit higher cost of service related to those types of products but they're not card volume-based.

The next question comes from Tim Chiodo from UBS.

Also on the take rate, so the 1.16 that you mentioned, Tim, can you give us any kind of a rough sense of how much that non-card revenue is that's contributing? I understand the take rate has a little bit of interchange there from the B2B AP. There's a little bit of a take rate. There's a little bit of convenience fee, and there's a little bit of the non-card revenue. If you could give any context on the relative sizing of those or, most specifically, the non-card related revenue that basically adds to the numerator but not to the denominator when we look at take rate.

Yes. I appreciate the question. It's about 20% to 25%.

20% to 25% of revenue is coming from the non-card. Okay. So if we back that out, the underlying take rate would look lower, which makes total sense.

Yes, it would, but it's still in the 90s, call it. So we still feel really good about the card take rate. But yes, optically, it would be lower if you back that out.

Tim, I mean, our EBITDA margins would look similar to what we previously reported this year if you...

Adjust for the revenue.

Adjust for the revenue piece.

The follow-up briefly, I know that Andrew mentioned this earlier, I'm sorry to come back to it, but the guidance range for gross profit, when you gave it last time, it was kind of wide, but there was still half of the year left. And now that there's only 2 months left it just seems like kind of a wide range. Was there any reason, anything that you saw that maybe just led you to keep it at that pretty wide range?

I think it's just a combination of year-to-date performance and how that has looked on the GP level and then the dynamic where the drivers of the increased revenue don't have the same margin profile as the overall business. So if those are lower margin, they're just not flowing through the same way to GP. So year-to-date performance and product mix are the two main reasons.

The next question comes from Joel Riechers from Truist Securities.

This is Joel on for Andrew Jeffrey. I had a question around the domestic health care space. And we know it's pretty complex. And from what we've heard from some competitors, they talked about some to lay the implementations there. Can you speak to the health care pipeline and visibility in general and tell us if you're seeing anything like delays that could impact the timing of RCS revenue in that vertical?

Yes. So from our perspective, the health care vertical, predominantly for us, although we have a smaller part of that on the Consumer Payments side, a large part of that, for us, is going to be health care vertical in the Business Payments side and predominantly more on the payable side of that, which is the back office side of the hospital world. A very large enterprise, they have their own sequencing of implementation rollouts. It could have been some reasons for delay early in the year, but actually, we've experienced some very positive momentum with some of our health care wins here in the third and fourth quarter. And you would almost have to say it's quite specific in the size of clients and their technical ability sometimes.

And then with the 2024 political season in mind, can you tell us just if the competitive landscape has changed at all in the last year? And if you could give us some color on what line of sight looks like for media spend, just given the tough comps that you've reference in B2B?

Yes. So it's very similar competitive dynamics there. There's really us and one other large player that participate in the AP side for political media spend. And 2022 is a non-presidential cycle. And like we said on the call, we produced about $6 million of gross profit. '24 is a presidential cycle. And based on the market data we've seen, we think that could grow our gross profit by about 25%. So just based on overall market growth, the presidential cycle being bigger than the non-presidential cycle and what we see in our pipeline, that's how we think about growth in '24 over '22, specifically for political media.

[Operator Instructions] The next question comes from James Faucette from Morgan Stanley.

It's Michael Infante on for James. Tim, I just wanted to ask how you're thinking about the implied card payment volume in 4Q. Obviously, take your comments on macro broadly, but seems to be well ahead of sequential 4Q norms. So I was curious about how you're thinking about the drivers there and sort of how you're thinking about exit rates into next year.

Yes. So we didn't change our guidance for CPV, and we do have this large personal lending customer who has been ramping throughout the year. That's one driver of it. We do have the Business Payments growth that I mentioned. We think it's going to be higher in Q4 than Q3. That's another driver of it. So those are a couple of factors where we think that it could potentially lead to a higher number. But again, we didn't change our CPV volume range specifically.

And then maybe just a quick update just in terms of where you are in terms of getting some of the AR functionality onboarded and how you're thinking about the near- to medium-term impact of that.

AR and B2B, we have the functionality in place. Generally, we've been optimizing payment acceptance within B2B, which is one of the reasons for the higher take rates and margins. We have refreshed some of our integrations. So we now have more capabilities within those integrations like Sage, for example. We added Microsoft Dynamics on the AP side, and we're enabling that on the AR side. So we have good momentum in AR, and that has been a driver of some of the growth in take rate and margin improvement this quarter.

The next question comes from Joseph Vafi from Canaccord Genuity.

Nice to see that double-digit adjusted organic growth. Maybe kind of talk on software integrations. You're doing really well, good performance, always adding to those portfolios. How does the competitive environment look there versus the last few quarters? And obviously, Payix has been acquired, and I kind of consider them a competitor and how that may be affecting the competitive landscape on the software integrations. And then I'll have a follow-up.

Joe, it's John. Yes, so we have 257 of those software partners as mentioned, 161 of those are on the consumer payment side, which we wouldn't really compete with Payix on that side of it, and 96 on the business payment side. And we actually are very focused on the ones that we can truly help monetize payments. And as we're really streamlining how we partner with them to go to market, we actually expect a really good runway in looking in '24 on that. Obviously, some things take time, but the way some of those unique relationships are stacking up for us, as I mentioned a couple on our call, we mentioned PDI doing some things on the business payments side, we mentioned Blackbaud on how we're going to integrate an embedded payable solution for them to roll out on behalf of their clients, and then some existing large relationships that we have on the AR and the AP side, we will look to continue to really streamline that as we have been working on that whole customer journey client success model.

And then I know you called out the instant payment growth again being really high. Could you just kind of remind us how big that TAM might be and how the economics look on that payment volume versus some of your others.

Yes. Thanks, Joe. So Instant Funding is a product we utilize Visa Direct to Mastercard Send, and we're funding loans directly. So that's the primary use case for us: to fund personal loans. And that's a great growth driver for us. It's been growing really nicely. As our customers adopt more digital payments, they also want to digitize the entire funding part of the process. And so this helps them do that. And then if you recall, if we fund directly on to a debit card, they're more likely to set up the repayment of the loan on that debit card as a default mechanism. So it also gives us the opportunity to increase acceptance on debit cards within personal loans by funding the loans directly. And so it's a pretty big opportunity of our thousands of lenders. We probably only have a few hundred using it today. So there's still a long runway to go. And you're funding the loans, so the ticket size is much larger, versus the repayment streams, which ticket sizes are lower, but the economics are more like an ACH where it's a per transaction fee. It's not basis points on the funding volume. It's per transaction. So the ticket size isn't as relevant in terms of the actual economics to us, but there is a lot of volume flowing through there. And then we pay a typical card brand fees and bank fees. But overall, it is a lower-margin business. That's why I mentioned one of the reasons we didn't increase gross profit guidance because this is a driver of revenue growth but it's a little bit lower margin.

The funding of the loan could be lower margin. But if the consumer repays off that same card, then it's got some nice benefits over time, I get it.

Yes. That's a perfect example of when we talk about monetizing payments through the whole ecosystem with embedded payments, both outflows, that would be an outflow, and then an inflow back and a multi-modality. That's a different modality, although it may be card-based it's going down a different rail in some respects, than debit, your funding, your sitting credits versus pulling debits. And so that's kind of key to our overall long-term core strategy of a network to all networks that move funds to and from.

The next question comes from Bob Napoli from William Blair.

John, the debit interchange bill, how would that affect, Tim, your business if debit interchange gets cut significantly? John, when the Durbin Amendment came through, I can't remember if you were running this business or not?

We were, yes. And we benefited. In the past, we benefited. If you look at some of our pricing models, the way it's priced, if you think about a convenience fee or you think about some type of fixed rates in pricing, if it were to go down, that we would benefit in some form there.

So you benefit. I mean could your revenue come down, your cost comes down more or what?

No. I mean if you're charging them a fixed fee and our costs come down, we're still charging them that percentage of volume. We just have lower costs, which would increase margins.

Right. Do you think there would be pressure on your gross take rate over time or not immediately, but over time?

I don't think so. In that particular pricing model, we would be still charging. If it's, call it, 1.5%, it would still be 1.5%. So I don't think that would change the actual revenue, just be that we would have lower cost and better flow through the P&L.

All right. Appreciate it. You mentioned buy now, pay later in your press release. Just wondered if that's if there's anything significant going on there or if you think there could be.

I mean it's definitely an addressable market opportunity. We have a handful of those names now, and we're talking plans when everybody pays on time and it's 4 or 6 installments, and it's simple, then there's no need to have a processor like us. You could use Worldpay or any other e-commerce provider. But when those installment plans start to look more complex and look like loans where there's delinquencies and interest and fees and penalties, it's started to feel a lot more like an installment in growth driver for us, but it's certainly a market we can address.

We'll see if there are any further questions before we conclude. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the call back to John Morris for closing remarks. Thank you. Sir?

Thank you, everyone, for joining us today. As we've mentioned, we are very pleased with our third quarter performance. We continue to invest in our business and our sales and our technology as we partner with our software partners to drive embedded payment solutions really help drive this digital transformation that we think is very real. We remain focused on profitable growth while maintaining our investments towards innovation, which we think will continue to pay off for us. So with that said, we want to, again, thank you for your time today. Have a good evening.