Greetings and welcome to today's earnings conference call being hosted by Repay. 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.

These forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results. Actual results might differ materially from any forward-looking statements that we make today.

The forward-looking statements speak only as of today and we do not assume any obligation or intent to update them, except as required by law.

In an effort to provide additional information to investors, today's discussion will also include references to certain non-GAAP financial measures, an explanation of these non-GAAP financial measures, as well as a reconciliation of these non-GAAP measures to the nearest GAAP financial measures can be found in our earnings release, available in the company's IR site.

I would now like to turn the call over to Mr. Morris. Please go ahead..

Thank you, operator, and good afternoon, everyone. I have just been two months since our last earnings call. The world has changed significantly in that time. We hope everyone is continuing to stay safe and healthy during this difficult and challenging period.

We also want to take the opportunity to reiterate that the health and wellbeing of our employees, customers, partners, investors, analysts and other stakeholders remains top of mind. We are grateful and inspired by the incredible work of our team during this period of stress and uncertainty.

While the macro environment has shifted, our mission and principles remain the same and the value proposition for our business has grown even stronger. The value we deliver to our customers is evident from our first quarter results. We show card payment volume and gross profit growth of 58% and 60% respectively.

On an organic basis, we saw gross profit growth of 20% compared to the first quarter of 2019. Today, I wanted to touch on three key topics. First a year-to-date update on our business. Second, I wanted to spend a few minutes reviewing the aspects of our business that we believe help insulate us during this unprecedented time.

And lastly, I wanted to review our strategies for near and long-term growth. Now to discuss our year-to-date trends.

On our fourth quarter call on March 16, we shared our believe that during this unprecedented period we might see increased interest in innovative electronic payment solutions, meaning that repays value proposition would only become more attractive.

So far that thesis has played as we have experienced increased demand for our offerings in several of our businesses and across existing and new clients as our customers have accelerated implementation of electronic payment capabilities.

We are proud to be able to serve these merchants, providing them with services they need to enable their customers to make payments in this unprecedented time.

Our technology has performed exceptionally well and again, I want to mention that I could not be more grateful for our team and would like to personally thank them for their outstanding efforts through this challenging period. Overall payment volumes in our loan repayment verticals continue to exhibit resiliency.

While we observed some softness towards the end of March, which we believe was driven by consumers and lenders being unable to make and take physical payments, our April volumes have rebounded as more consumers and lenders adopt and implement remote electronic payments.

We also experienced the volume spike in loan repayments as consumers began to receive stimulus package funds, so they're solidifying our belief that loan payments rank high in payment priority. We believe a large majority of our lenders, borrowers would be eligible to receive CARES Act and state unemployment benefits.

Demand for instant funding has also increased as lenders and borrowers quickly moved from physical disbursements to electronic payments. As a reminder, instant funding as a product we introduced last year where lenders can send funds directly to eligible debit and prepaid cards by electronic transactions enabled by visa direct and Mastercard Send.

We would also like to provide an update on our B2B verticals, which is a new and fast growing part of our business. We have seen demand for AR and AP automation increasing largely out of necessity. We continue to expect small and mid sized businesses to adopt more electronic payment options.

We do expect B2B volumes to be slightly impacted in the short term by reduced business spending. On the B2B healthcare side, our business has remained relatively steady. While we have seen a drop in elective surgeries, we expect this business to pick back up once shelter in place orders are lifted, and elective surgeries are permitted once again.

Our TriSource processing platform has remained stable. While there has been some modest impact to legacy diversified retail portfolios. These are not material exposures to our business.

We will continue to monitor the situation closely and while we are not immune to challenges and uncertainties during this time, we continue to believe that our diverse merchant base and the resiliency of the verticals we serve positions us extremely well for the long term.

We also continue to benefit from the secular shift to the more innovative and integrated payment solutions which we specialize, which provides us with unique characteristics that should help provide a steady source of growth as we navigate these unprecedented macro environment. I'll now discuss some of these characteristics.

As I said on the Q4 call for the loan repayment business, a large majority of the payments we facilitate are non-discretionary financial obligations that are recurring in nature. These types of payments are usually set to be automatically paid, are still very necessary even in an economic downturn.

Data and the great recession illustrates that consumers prioritize loan payments, particularly auto loan payments, which I mentioned earlier. In addition, we believe the current environment will allow us to acquire new clients, we have been prevented from taking in-person payments given the shelter in place orders and accelerate loan fundings.

We believe we can help solve both lender and servicer challenges with our variety of electronic payment methods such as IVR, web, text and mobile. As for our loan mortgage servicing business, while we acknowledge that the mortgage forbearance referenced in the CARES Act may have an impact on overall mortgage payment volume.

Recall that Ventanex specializes in processing complex exception-based transactions of which there will be many in the upcoming months. This is yet another example of our unique portfolio of solutions providing immediate value to our customers during this unprecedented period.

And as I mentioned earlier, we expect small to midsize businesses to adopt more electronic payment options, which will start to benefit our B2B business as we ramp up our AP automation capabilities.

We also believe that in the near term, the willingness to absorb electronic payment costs is likely to outweigh the risk of not getting paid at all and the benefits to working capital will continue to justify the cost. Now more than ever, this world remains right per digitalization in real time.

And we have the full suite of payment solutions to enable that shift all while enabling our customers to run their businesses efficiently during this difficult time.

So the industries we serve and the products we provide position as well, but our business is also strong financially and we've taken even more steps to protect our business in the face of the coronavirus prompted economic crisis.

First of all, we have an attractive cost structure which enables us to manage earnings and cash flow even when topline metrics experienced downward pressure. In addition, our cash and liquidity positions remain strong. Some of the initiatives we have recently put in place center around hiring prioritization and cost management.

We've had developed automated reporting tools to allow enhanced daily portfolio visibility across business lines and payment volumes. We expect some negative impacts on our business from the pandemic and the resulting economic crisis and there could be a delay in the timing of these impacts due to the nature of our business.

Later in the call, Tim will provide some specific context around how the duration and severity of an economic downturn could affect our 2020 results. Based on what we know now and what we see in our business, we believe that our initiatives will provide sufficient capital and earnings preservation through the eventual easing of the crisis.

The final topic I wanted to touch on today before turning the call over to Tim is the review of our strategic initiatives for the near and long-term. As I mentioned earlier, our business and its principles have remained the same, but the value proposition for our business has grown even stronger.

We continue to address the large underserved loan repayment verticals and increase debit penetration with existing customers.

Despite the unprecedented environment in which we are now living, we expected our growth in 2020, will continue to be driven by expanded usage and increased adoption with our existing clients for which we have industry leading volume retention.

A significant portion of our organic growth comes from these existing customers and we expect that to continue to be the case in the near and long term. In addition to existing customer growth, we expect to continue to experience new client wins and existing and new verticals driven by our direct salesforce.

This will be aided by software integrations which we organically added two new partners during the quarter. In addition, we added four integrations in the mortgage servicing and B2B healthcare space through our acquisition of Ventanex in the first quarter. That brings our total to 76 integrations at the end of March.

I like to also note that we had record sales months for the new gross profit in March and April. In April we announced a partnership with TurnKey Lender, a cloud based lending software for evaluating borrowers, decision-making support, and online knowing your process automation.

We're excited about this partnership as it provides access to us to a network of 300 plus lenders across a variety of loan verticals with many of those in the U.S. and Canada. It will also enhance our offering for both loan funding and payments. We're also beginning to experience traction in Canada with some key integrations.

We recently signed a partnership with NovaTech and industry leading end-to-end lease and loan automation software tailored to the needs of any lending transaction. NovaTech has substantial footprint in Canada with 23 Canadian lenders, about 80% of the prime market.

In addition, we are seeing an increased demand for credit unions challenged by the shift in consumer spending habits and payment preferences.

Repay has stepped in to help rapidly deploy new, expanded digital transaction options to offer a full suite of IVR, SMS, text to pay, online web portals and branded mobile applications to ensure the most frictionless customer centric payments experience.

And finally, we also are pleased to announce that Repay has been selected as the payment processing provider for Mercedes-Benz financial services, a leading automotive, financial and mobility services provider.

At the backend payment processing engine, repaid platform will enable Mercedes to provide more enhanced modern solutions along with deeper and broader payment options to its customer base to match their varied personal preferences for mobile, online, and phone-based transactions.

We are looking forward to a very long and successful partnership with a Mercedes-Benz team. Now moving into the M&A which has always been and will continue to be a driver of growth for the company. As you know, during the first we completed the acquisition of Ventanex which is our third acquisition since we went public last July.

Ventanex bring significant growth opportunities in the mortgage servicing and the B2B healthcare markets. Our M&A pipeline remains active as we continue to look for targets in current verticals along with attractive new verticals that are large, growing and underserved.

To wrap up, the diversity of our business along with the unique solutions we offer has positioned us well in the short term. But also to drive significant post-crisis volume increases, as the move from cash and check to electronic payments continues to accelerate.

I'll now turn the call over to Tim to discuss Q1 results in detail and to go over our outlook for the year.

Tim?.

Thank you, John. I hope everyone is staying healthy and safe during this time. Now, let's move on to our Q1 financial results before our review our illustrative scenario based outlook for the remainder of the year.

Despite the significant change in the macroeconomic environment toward the end of the first quarter, Repay delivered strong results across all of our key metrics. For the first quarter card payment, volume was $3.8 billion, an increase of 58% over the prior year's first quarter.

Total revenue was $39.5 million, an increase of 71% over the prior year first quarter. TriSource, APS and Ventanex contributed approximately $12.5 million of revenue during the first quarter. Moving on to expenses in the quarter. Other costs of services was $10.8 million compared to $5.1 million in the first quarter of 2019.

This increase is primarily due to the addition of TriSource, APS and Ventanex. However, when excluding those additions, the amount with largely flattened Q1. Gross profit was $28.7 million, an increase of 60% over the prior year's first quarter.

On an organic basis, gross profit increased 20% in the first quarter of 2020 compared to the first quarter of 2019. As a reminder, gross profit is a key metric for us and this is how we price new customer deals and how we structure our sales team incentives. SG&A was $18.2 million compared to $8.7 million in the first quarter of 2019.

The increase was primarily due to increased hiring share-based compensation and added operating costs from our acquisitions. First quarter pro forma net income was $1.9 million compared to net income of $4.9 million in the first quarter of 2019. The decrease was mainly as a result of increased SG&A for the reasons just mentioned.

First quarter adjusted net income was $11.4 million or $0.17 per share. Please note this now includes the tax effect adjustment. Lastly, first quarter adjusted EBITDA our $17.4 million an increase of 53% over the prior year first quarter.

First quarter adjusted EBITDA as a percentage of total revenue was 44% compared to 49% in the prior year first quarter. This decrease is primarily a result of additional costs related to becoming a public company such as new legal, accounting and tax resources.

Additionally, TriSource, APS, and Ventanex EBITDA margins are slightly below our loan repayment business. As John mentioned, our cash and liquidity positions remain strong. We have $34 million of cash in the balance sheet, $30 million of undrawn revolver capacity, and $46 million of undrawn delayed draw term loan capacity.

Please note that in early April, we tapped approximately $14 million of the total $60 million delayed draw term loan capacity to pay the first APS earn out. Post this draw on a delayed draw term loan, our pro forma net leverage was approximately 3.6 times, which is well below our current net leverage covenant level of 5.5 times.

I also wanted to note that we have decided to not draw down our revolver at this time. Given our current balance sheet strength and our strong cash flow generation, we believe that we will be able to navigate through these times about needing to access capital from our revolver. But of course we will continue to monitor our liquidity position closely.

As of March 31, 2020 we had approximately 67.3 million shares outstanding on an as converted basis. Finally, moving on to our illustrative scenario based outlook for the remainder of the year. As we mentioned earlier, overall payment volume and our loan repayment verticals continues to exhibit resiliency into the second quarter.

We observed some softness towards the end of March but April volumes have rebounded. And we believe this trend reflects longer-term moves by certain clients towards more electronic payments versus on-site cash or check. We continue to monitor daily volumes across all of our businesses in order to gain visibility into future trends.

We of course cannot predict the length of disruption from COVID-19 and how long the economic impacts are going to last and how deep they will be.

To account for this uncertainty, we are providing three illustrative scenarios that make assumptions on a macro economic and market specific drivers that may impact our business over the remainder of the year and these are laid out in the supplement posted on our investor relations website.

Now our first scenario assumes a fairly rapid recovery into Q3, meaning that public health measures are well-coordinated, stay at home orders expire and consumer demand bounces back strongly. Also, this scenario assumes that people return to work over the summer and the rise in unemployment is largely temporary.

For a loan repayment business, this would mean that delinquencies and defaults tick up slightly for a brief period and originations slow through Q2 before returning fully in the second half of the year. For B2B business, this means that there is a bounce back in manufacturing distribution volumes in Q3 and healthcare payments remained steady.

Under this scenario, we would also expect the diversified payments, which is our TriSource portfolio rebound in Q3 and that ARM experiences some near-term weaknesses, but benefits in medium term as consumer debts have transitioned to this new market.

Under this scenario, we foresee the business performance consistent with the low end of our prior guidance. There may be some upside to this if the recovery occurs early in the third quarter. Our second scenario assumes the recovering in Q4.

Specifically, we assume public health measures aren't that well coordinated the first scenario and unemployment is moderately elevated at year end, which is offset by seasonal hiring contributing to the Q4 recovery. This scenario also assumes that consumer demand normalizes by the end of the year.

For our loan repayment business, this would mean that increased delinquencies and defaults persist to the third quarter and that originations dip further as lenders tighten underwriting requirements.

For B2B business, this would mean that manufacturing and distribution remain weak to the fall and early winter and that healthcare expenditures are down relative to pre-crisis levels with a rebound in elective healthcare procedures.

Under this scenario, we would also expect that diversified payments demonstrate a phase recovery not reaching pre-crisis level into the latter half of Q4 and that ARM businesses experienced weaker collections and yields for the next six months.

Under this scenario, we estimate about a 10% risk to the low end of our prior revenue guidance with less of an impact to adjusted EBITDA due to the cost actions we've been taking, which we can further implement. Our third scenario which represents our most bearish case assumes continued difficulty through 2020 and an early 2021 recovery.

This scenario of assumes sustained elevated unemployment due to permanent loss of jobs if consumer demand remaining week going into 2021. For a loan repayments business, this would mean that the second half of 2020 continues to experience elevated levels of delinquencies and defaults lasting into 2021 and depressed new loan origination volumes.

Our B2B business this means that manufacturing and distribution volumes continue to show significant weakness in Q4 and there are sustained decreases in elective healthcare procedures.

Under this scenario, it also means that there was a longer-term shutdown of diversified businesses that will continue through Q4 and the ARM businesses experienced weaker collections and yields for a prolonged period.

It's obviously most challenging to try to forecast what this could mean to each of our business lines, but this would require us to assess revenue headwinds and to adjust costs more aggressively in order to best mitigate impact to adjusted EBITDA. As mentioned earlier, in terms of cost actions, we have chosen to focus on three key areas today.

The first area is hiring prioritization. We have placed a freeze on non priority new hires. We define priority as those that will mainly continue to support revenue generating and product development initiatives, technology developers, product owners and sales management. The second is operating expense management.

We eliminated all nonessential spending and implemented enhanced expense approval processes. The third area is vendor cost management. We have been in close to – with our key vendors on ways to reduce processing related costs. They anticipate the above cost actions will save approximately $3 million to $4 million in 2020.

We may decide to implement additional expense management initiatives if we sense the likelihood of a more prolonged recovery period is increasing. I will now turn the call back over to the operator to take the questions.

Operator?.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Bob Napoli with William Blair. Please proceed with your question. .

Thank you, John, Tim, good to hear from you guys. Question, if you could give a little color on exactly what you saw on trends, like how much of a slow down in March and then acceleration. So yes, I mean I guess you had like 20% organic gross profit growth.

Maybe talking about it in those terms and kind of which sectors you saw decelerate in the accelerate. We've seen some numbers where we've gotten like week by week numbers out of a Visa or some other companies, I don’t, if you can get to that lever or not organically..

Thanks, Bob. So as we discussed, we did start to see some volume declines toward the end of March as the nationwide shelter in place mandates rolled out and there was a lot of our lenders branches were closing. And so there was a transition period when those lenders and consumers were not able to make payments in the store.

And so that caused the transition for about a week and a half or two weeks. And then we started to see volume. And when repayments pick back up again toward the end of March into early April and loan repayments have continued to exhibit strength throughout April and into early may.

And we think that the stimulus payments from the CARES Act have really lead to increased repayment volumes, which again, as we discussed solidifies the belief that these consumers really place a high priority and on loan repayments. And so we think there was maybe 5% to 10% impact toward the end of the first quarter.

And then in loan repayments, we again saw that bounce back. And then in our TriSource portfolio, which is largely focused on retail that declined more rapidly. And then business-to-business payments also declined in April. But we've seen that rebound in early May.

And the TriSource portfolio will probably take a little bit longer to come back, because it'll come back as states open up and businesses are allowed – retail businesses are allowed to operate again. So overall April was inline with Q1 monthly averages. The home repayments was up and these other two portfolios were slightly down.

And now in May, we see loan repayments continue to be up. We see B2B has rebounded in early May and TriSource retail portfolios then TriSource probably take a little bit longer to come back as things open up..

Thank you. That's helpful. Then a follow up question just on kind of the longterm, if you think that this is accelerating the secular shift, which businesses you may be seeing that in, if you're seeing more demand from customers at the top of the funnel in certain businesses.

So any thoughts on the effects of the pandemic increasing demand for your products and what you think that means longer term?.

Yes, so I do think it's accelerating demand for electronic payments and electronic funding and renewals of loans.

So, that as we mentioned, we had very strong new sales in March and April and we think a lot of that had to do with merchants that were in the funnel that maybe were taking a little longer to pull through or were resistant to the various payment channels and had to accelerate their adoption of all of these electronic payment channels like IVR, and text and mobile.

So we're seeing that happening and we're seeing them move through our contracting and underwriting process much more quickly than they were previously. So we think there's this real catalyst within loan repayments. And then B2B, the softness in April, I think, was just business spending in general was down.

But I do think that there's a shift now to these electronic payment methods that will be longer lasting. So I think this is certainly benefiting B2B payments. And so, we feel good about that. We feel coming out of this in a position of strength with higher adoption rates, which is as you know, a significant driver of organic growth..

Thank you. I appreciate it..

Thank you. Our next question comes from the line of Sanjay Sakhrani with KBW. Please go ahead with your questions. Sanjay your line is live..

Sorry, I was on mute. Thank you guys. Nice to hear from you. I'm glad you're well. Just to follow up on Bob's first question, when we think about the April trends how confident are you guys that it's a sustainable kind of upside case given some of it might be artificially propped up with stimulus and if the stimulus goes away, that might roll over.

Are there any anecdotes that you might be able to provide in terms of market share gains or anything else like that?.

Yes, we feel confident that it's sustainable in the sense that there's the increased adoption as well. And so even if there were – even – and the stimulus also is not just the direct recovery rebates that went to consumers, there's also the enhanced unemployment insurance and other features that would allow them to continue to make these payments.

And then if for some reason there were dip in those payments, we think that the fact that the adoption has increased would offset any dip and then hopefully by that point it would be into one of these recovery scenarios.

So we think there's – we think it's sustainable from that point of view and then coming out of that, that increased adoption, like I said earlier, really benefits us. That's our view. And then we do see very positive trends in early May, as I mentioned. So it seems to be continuing. We are not seeing any slowdown in that trend. So that's how we view it.

And John, if you want to add anything there?.

Yes, Sanjay, I really think I mean this is a pivotal change to accelerate through electronic payments and digital payments. I've seen that before. And I really think this will change the overall consumer behavior as well. But I also think that exactly, I think you are, and everyone's, you know, we said that the stimulus payments we did see that happen.

We've seen some of that activity. And we continue to see some of that. Ultimately there could be a scenario where in a consumer as far as new lending, there could be some delay in some of that which could filter through over time. But generally speaking where installment based type loans that are especially the auto loans or are longer term loans..

Okay I appreciate it. And my follow- up questions on the outlook. And I was curious, I'm just trying to think through scenario one versus scenario two.

I'm curious how – do you think scenario one is a high probability event or do you think it's more likely a scenario two event? I'm just trying to measure it up relative to how we're thinking about macro environment and unemployment rate levels, understanding that there's a strong secular tailwind underneath that, which I completely agree with.

So I'm just trying to measure up sort of what's the most likely scenario one versus scenario two as we sit here today. And then in the event scenario three happens, how quickly can you make some adjustments to your model to catch up to a new reality if that were to happen, even though it seems lower probability. Thanks..

Yes, sure. So, based on what we know about our merchants and these loan repayment verticals, we think it's probably closer to scenario one.

Of course we can't predict exactly how quickly this recovery will happen, but based on what we know, we would think it's more likely a scenario one if it were to slip to the scenario three, as we mentioned, we've been focused on a couple of cost actions, probably the biggest driver of expense reduction is only focusing on priority hires.

So if we saw this moving towards scenario two or even scenario three, we would be able to put freeze on additional hiring. We are still in growth mode or still hiring the key people to focus on those revenue generating initiatives. And so for some reason we saw that we needed to pull back, we have that lever to pull.

And so I think that we are monitoring that very closely and would take action on that as soon as we felt that was reasonable..

Yes, thank you..

Yes I would add to that a few things that we also have is that as Tim mentioned and I mentioned on our call we had record sales, new sales months in March and April. And obviously we would anticipate that coming online for their main number of the year as well. So that's should be a positive thing.

And then when we talk about this secular shift the acceleration of the shifts from cash in itself and there's checks involved as well, but the shift from cash, I think, is a real near term positive for if you're offering digital remote payments as we are..

Great, thank you..

Thank you. Our next question comes from the line of Joseph Vafi with Canaccord. Please either question..

Hi guys. Good afternoon. Thanks for taking my call. Just a couple.

I was wondering if have you seen a change in the environment and kind of in terms of who is paying transaction costs or interchange fees, I know it's kind of born, both of these are born by perhaps consumer sometimes in some of your segments and by merchants, or suppliers, or vendors in others.

And I'm just wondering if given all the dynamics now there's any change in how pricing is done and who is paying for the pricing? And I have a follow-up..

Yes, so typically in a large of our loan repayment vertical, it's absorbed by the lender. But in the loan and the auto lending space, it can be more acceptable to be in the form of convenience fee or borne by the consumer. We have some seen some easing of that on the lender side sometimes where they would want to accommodate the consumer.

So that's one thing. And then on the B2B side it’s traditionally worn by the business side of it, meaning the person taking the payment. But there's a concept of discounts and things like that there.

We haven't seen any immediate changes there, but over time, more and more businesses, may want to look at a scenario where the offering is made to someone chooses to use a credit card. They may choose to change that, but we haven't seen any major shifts on the B2B side associated with who bears the costs..

Sure. And just kind of the TurnKey Lender looks like a really interesting partnership deal with kind of a leading Fintech or Fintech leading platform. And I know you've worked with different partners in the past in software, but this is a little bit different. I think it's not really a – it seems like it's a little bit of a different application.

So just wondering that and then relative to the M&A environment, I mean, I think, some people would get more cautious on the M&A environment right now and some would perhaps look at it more opportunistically, that prices may be a little more attractive now. How you are balancing M&A versus other strategic endeavors right now. Thanks a lot..

So on the….

Go ahead Tim..

Go ahead John..

Yes, on the couple of things we announced as far as the partnerships, yes, we think as we haves strong relationship that they opened up our ability to reach 300 plus lenders on the TurnKey Lender software platform. So we think there's a great opportunity there for as we continue to expand into Canada as well.

And same thing on a NovaTech is our ability to expand into Canada. One of the things we've talked about in the past is when we enter into a new area or geographical area and/or vertical, in this case, Canada is geographical, it takes us a little while to form these sulfur relationships, which will allow us to extend our reach.

And so we think both of those will allow us to extend our reach into the Canadian market, lender market. And so we think that's a very positive relationship for us. And then on the acquisition side Tim can give some color here as well. We see opportunity there. And we think we're positioned well as a public company.

We think some opportunities are going to come out of this. We would look to – we've seen some additional activity there, although we're not specifically – we're being patient there and obviously watching what's happening specifically health, as this impacts various different businesses.

But we do think there could be some opportunity there that would fit all our requirements that we look for. It would be something that we would look to continue to evaluate, but we continue to build our pipeline of M&A possibilities and opportunities. And we're looking forward to just kind of seeing how the next few months work out.

Tim, you might want to add some credible color there..

Yes, I think, that's right. We have – as we've discussed, we have an internal corporate development team that is trying to keep the pipeline full, and active and having some dialogue actually we’re starting to receive some inbounds. And so we're fielding those and evaluating them. And when the time is right, we'll consider what makes the most sense.

But as we said on the call, it's an – it's still an active pipeline..

Great. Thanks very much guys..

Thank you. Our next question comes from the line of Craig Maurer with Autonomous. Please proceed with your question..

Yes, hey John, Tim, good to hear you guys. I was hoping first you could comment on the yield and how we should expect that to move if at all, based on how volumes are shifting right now between different segments? And second there was an 8-K published late in April regarding your warrants. And I was hoping you can comment on the plan for the warrants.

Thanks..

Yes, sure. So we felt like the revenue yield was strong in Q1 about 103 basis points, which is up from Q4. We would expect it to be similar to that level going into the next few quarters.

And so we're feeling good about our pricing and take rates from that perspective and also about gross margins and we've been able to continue to drive profitability through from revenue to gross profit. So that continues.

And now in the warrant we did put out a notice of a potential reduction in price and there's nothing concrete on that that notice period is still open and we'll be evaluating that this week.

And just wanted to kind of proactively be thinking about how we can manage the warrants and clean up the warrants if the opportunity presented themselves and that was the purpose of the notice to sort of start the clock on that period. And so if we choose to do something there will obviously be additional information disclosed on that..

Thank you..

Thank you. Our next question comes from the line of Peter Heckmann with DA Davidson. Please proceed with your question. .

Hey, good afternoon. Most of my questions have been answered.

I was just wanting to follow-up on the $3 million to $4 million in cost savings in 2020 that you are targeting about how much of that should show up in the second quarter?.

Yes, so I'd say about approximately $750,000 to $1 million of that. Most of that is coming from the priority hiring bucket. And so we did turn that process on right at the beginning of the second quarter. And then we also implemented these other two initiatives right at the beginning, the second quarter as well.

So, I think that should have just about a full quarter effect there. And again, most of it coming from, slowing down hiring, not stopping hiring, but just only focused on the highest priorities..

Okay.

And then as regards just to forbearance in the auto lending space, how do you think about that typically? What's the normal forbearance period and then how do you typically see a borrower catch up?.

Well, there's not been any mandated forbearance in auto. We've heard that that's true in mortgage and student loans, but we've – in auto our understanding with discussions with our customers is, it's voluntary. And so, we have heard of some situations where there's been deferrals, but that's not necessarily widespread.

And those deferrals will still ultimately be due. And so as we discussed, we feel very positive about our loan repayment volumes. And so I've not seen any decrease specifically related to any widespread deferrals, which means that when those hurdles are ultimately due, they will serve to increase our volume at that time.

So, I'm not aware of any mandated deferrals with an auto a handful of kind of a case by case in terms of voluntary deferrals, but again, that will benefit us in the future when those are paid..

Okay. And just last one, the amount of acquired revenue that you mentioned outperformed my expectations.

Was there one area of outperformance or was it just maybe some conservatism originally on the commentary around the acquired revenue?.

I think it was – the businesses have performed well. I think it was probably just generally so conservatism at the outset. But we feel good about them and feel good through like they performed nicely in Q1. .

Got it..

Yes, I think, also just the organic growth contribution to year-over-year probably helped as well. .

Got it. Okay. That makes sense. All right, I appreciate it..

Thank you. Our next question comes from Mike Grondahl with Northland Capital Markets. Please proceed with your question. .

Yes, thanks guys. The total sales reps and the direct sales reps, where were they at the end of March 2020.

And can you just compare that to a year ago?.

Yes, sure. So probably now in the low 50s from a direct sales rep. And if you recall, we are direct salesforce, so we don't have ISOs or agents. We do rely on the software partners as referral partners and lead sources. So that's probably in that low 50 range and that would have been a year ago, maybe around 25 to 30, so significantly increased it.

A lot of that has come through acquisitions. One of the things – pieces that we really like about the businesses we've acquired is that they've had strong distribution channels. And some of them we've enhanced those already. So that addition, the increase in direct salespeople is a mix of just new organic kind of hiring and then from the acquisitions..

Got it. And just a quick follow-up the Mercedes-Benz Financial Services, win, can you talk a little bit about the sales cycle there? And it sounds like it could be a big customer trying to size it for us a little..

Sure. It was a pretty long sales process. Not only just the regional sale but now the implementation.

And so our team has done a fantastic job going live with Mercedes, obviously it's a blue chip customer and they had a lot of demands and we feel like our customized technology is really benefiting them already, but it took us a lot to meet all their specifications and we think that that will enhance our overall platform, not just from Mercedes.

So it was a great effort. And so – we've started processing recently, we're just gathering data now. I think it's probably too early to talk about a specific contribution.

We did put some contribution in for this year, but we were very conservative with that just because we wanted to understand processing volumes, understand the different channels that we’d be using in the usage and adoption of those channels over time. And as we had more visibility into actual processing transactions, I have a better sense for that..

Got it. Okay. Thank you..

And I would add, just in general, we don't anticipate, obviously – not very often we talk about specific customers. We wanted to make you aware since we had mentioned something like this on some prior calls that we would be looking at the captive world we thought this would be appropriate to announce.

But obviously we don't anticipate announcing all of our margins and pricings for every specific customer, things like that. But we do like the way – we like the opportunity, we think we can continue to enhance our technology and our technology was one of the leading reasons why we won the opportunity..

Thank you. Our next question comes from the line of Timothy Chiodo with Credit Suisse. Please proceed with your questions..

Thank you. And thanks for taking the questions. Good afternoon guys. My question is around the instant funding product. We've mentioned it a few times, the last few earnings calls and just want to dig into a little bit, any added context you could give us around the potential sizing or market opportunity for that product, the appetite for it.

And then more specifically on the economics, meaning the gross revenue that you are charging and sort of, the cogs I guess, if you will, which is, I'm assuming, are the Visa director, MasterCard and related network fees and interchange, et cetera. Maybe you could just help us understand the gross and the net.

Maybe it's on a basis points basis or if it's on a cents per transaction, any added color there would be very helpful. Thanks..

John do you want to take that one?.

Sure, yes. So just overall the way that product is specifically priced is on a per transaction basis, although it may be, you could definitely have a decent amount of volume. It would be on a per trend, kind of a click revenue basis.

Therefore you would see it on a net revenue basis, it would not be a substantial contributor without peers, substantial amount of per transactions coming through.

One of the reasons we don't – we're not getting ultra aggressive with what we are seeing on from a net revenue perspective is we're trying to see as that volume ticks up over time as adoption happens. It will take a while to be meaningful to the actual net revenue contributions.

But what you've heard us say before is what we think is unique about it is, and we have seen increased activity and increased on-boarding from existing and new customers. We think it's a unique differentiator from a couple of different reasons in that now the consumer is wanting to get funds real time.

And they're wanting to get through a card-based transaction. We think that could over time accelerate the adoption or the shifting of the transaction to a more real time transaction on the repayment side. And on that side, as you're aware, we do – we are – that is priced on a basis points and per tran fee generally speaking.

So we think it's more of a, an opportunity for to accelerate the shift to digital in real time. And in the near term, we don't have any specific numbers we can give you from a contribution to net revenue.

We will continue to be conservative there as we see that move and change over time without kind of getting ahead of our self we will continue to be conservative on our outlook..

Great. Thanks a lot John. I appreciate that..

Thank you. Ladies and gentlemen, at this time, there are no further questions. At this time I'd like to conclude the conference and thank you for your participation. You may disconnect your lines at this time..