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 and in our most recent Form 10-K filed with the SEC. Actual results might differ materially from any forward-looking statements that we may make today.

The forward-looking statements speak only as of today, and we do not assume any obligation or your 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 and earnings supplement, each of which are available on the Company's IR site. I would now like to turn the call over to Mr. Morris. Please go ahead..

The value proposition of our business, and the strength of our organization. The value proposition of our business was demonstrated through the growth we experienced this year, which included an increase in card payment volume of 42%, total revenue growth of 48%, gross profit growth of 44% and adjusted EBITDA growth of 41%.

As for the strength of our organization, I could not be more proud of how incredibly hard our team has worked this year despite all the challenges in everyday life. In 2020, we were able to acquire and have been working to integrate three companies.

Through those acquisitions, we further solidified our position in the B2B space, and they also allowed us to add new verticals to our platform, including mortgage services within loan repayments, along with field services, hospitals and education in B2B, just to name a few.

We launched service transfer exchange to automate loan transfer payments between mortgage servicers, increasing speed, accuracy and transparency and mortgage service transfer for both servicers and borrowers.

We also added 54 new software partners in 2020 across all verticals, further demonstrating that we are a key offering in many of these platforms.

In addition to expanding our product suite and partnership roster, we take pride in integrating new teams from our acquired companies into the REPAY family of employees as we continue to rely on talent to grow.

This employee-first focus has been rewarded with certification as a Great Place to Work for the past five years, thanks to a dedicated company culture in which over 90% of our employees have validated the positive work environment. Now to move on to the fourth quarter, which was the strongest quarter we've ever had.

For the three months we reported, card payment volume growth of 16%, total revenue growth of 23%, gross profit growth of 23% and adjusted EBITDA growth of 29%.

During the quarter, we also completed one of the acquisitions I've just mentioned, CPS Payment Services, an accounts payable automation business, which further enhances our existing health care B2B business and helps to accelerate expansion into new verticals.

Our loan repayment business was strong in the quarter, especially in the auto loan side, where we expect to continue to see rapid growth. The COVID-19 pandemic is reshaping the auto marketplace.

According to EY's 2020 Mobility Consumer Index published in November, nearly 1/3 of the respondents who do not currently own a car say they plan to buy one in the next six months. As a reminder, we believe our TAM for auto is about $600 billion. It's one of the fastest-growing parts of our business.

Our mortgage servicing business also performed very well in the quarter due to increased home buying and refinancing activity along with low interest rates. This increased demand in low mortgage rates has sparked a boom in originations and mortgage service transfers, positioning us well to benefit.

We continue to guide development of our service transfer exchange solution through the STX Advisory Board, which is composed of mortgage industry experts, representing a variety of companies, including U.S. Bank and Home Depot.

Our goal is to improve and standardize payment flow, eliminate errors, reduce delinquencies and create a better experience for borrowers and servicers. On the personal loan side, many of our customers have recently seen a return to sequential quarterly loan portfolio growth in Q4, and we are hearing positive trends into Q1 as well.

Our Instant Funding product continues to experience significant adoption. We've nearly tripled the number of users of this product since the beginning of 2020 and continue to add to this each month as consumers move away from cash and going to physical locations to access their loan disbursements.

The pandemic has proven that loan repayments are resilient. We've also seen significant shifts to electronic payments during this time as many lenders have been focused on increasing digital engagement, which fits well with our enhanced payment technology offering. We believe the shift is permanent and will increasingly grow over time.

Our B2B business was also strong during the quarter. We were particularly pleased with the performance of CPS Payments and can already see the growing value of electronic payables with enterprise customers, such as large health care networks and education systems. We now have approximately 45 total B2B software integrations.

And on the AP side, we've grown our supplier network to 60,000 plus. We made progress against all our growth strategies in the fourth quarter. We've had some great client wins in the quarter driven by our direct sales force. We've ended the year with 43 total credit union customers, which represented approximately 350,000 collective members.

We expanded processes and services and integrated partnerships in the Canadian marketplace. REPAY was also recognized as an approved vendor and a FinTech Innovator of the Year by the Canadian Lenders Association. Credit unions in Canada will be a big focus area for growth in 2021. We are also now actively processing in the buy now, pay later space.

This is a natural move for us given our long history and expertise in installment lending. All of these efforts were also aided by software integrations, of which we added 30 new partners during the quarter, mostly by acquisitions. This brought our total ISV integrations to 124 at the end of December.

I want to spend a few minutes discussing several of these integrations. In December, we announced our partnership with the Strategic Regional Health Care Organization, the National Association.

This partnership expands our reach within the health care sector by providing health system members, accounts payable with disbursement automation and revenue-generating rebates. Also, in December, we announced a technology integration with LiveVox, a next-generation contact center platform.

The partnership further enhances the LiveVox customer experience by providing additional digital payment options and processing capabilities in either self-service or agent-assisted transactions.

And more recently, in January, we announced a technology integration with Billtrust, a B2B accounts receivable automation and integrated B2B payments leader.

Through our participation in Billtrust Business Payments Network, or BPN, as they call it, our corporate customers will instantly gain the ability to automate electronic payments to build to a vast network of suppliers, distributors and vendors, both accelerating and simplifying the payment process while also further scaling adoption of virtual credit cards.

In addition, last month, we announced a technology integration with PN3 solutions, a ticketless B2B AP authorization automation software provider.

Through the partnership, PN3's business customers will gain the ability to automate outbound payments through the use of virtual card or ACH to their vendors, adding seamless, fully integrated payment capabilities to its procurement and AP work streams.

Our partnership will also allow us to realize synergies with our B2B receivables offering as REPAY's footprint now overlap payables and receivables across key integrations, including Acumatica and Sage.

And just last week, we announced an integration with BBA, a leading-edge software design company, revolutionizing the insurance industry through employee benefit administration solutions.

The two-way integration between the platforms will enable insurance companies to pay health care providers, including licensed health care facilities, programs, agencies and doctors or services directly from the BBA system.

On the international front, we are also implementing one of the largest nonbank lenders in Canada, and we should be live in early March.

Moving on to M&A, which continues to be a key growth driver for our company; in January, we completed a concurrent common stock and convertible notes offering; and in February, closed the revolver, providing us with ample liquidity to pursue deals.

Our pipeline remains very active, and we believe this capital raise positions us even better in the marketplace. Having completed five acquisitions since going public less than two years ago, we expect that there will continue to be mid-market industry consolidation across the payments industry on both the receivables and payables side.

There are many players out there that are great acquisition candidates for us. Ideal targets for high-growth businesses and large verticals that are underserved from a payment perspective are integrated with software, have attractive margins and have a need for our technology.

Lastly, to continue to position us well for the tailwinds we are seeing in digital payments and the growth we expect to continue to see for our business, we have recently opened a software development office in Ireland in partnership with a local firm call Protego. We are excited about this partnership and believe it to be a great asset as we expand.

To wrap up, I continue to be incredibly proud of our team for their hard work and dedication in growing this company and providing excellent service to our customers. I'm very encouraged by the trends we see in the verticals we serve and also impressed with the businesses we have been able to integrate today.

REPAY has proven resilient during these times and is positioned even better moving forward into 2021. With that, I'll turn it over to Tim to discuss the financials in greater detail.

Tim?.

Thank you, John. Now let's move on to our Q4 financial results before I review our financial guidance for 2021. In the fourth quarter, REPAY delivered strong results across all of our key metrics. Card payment volume was $4 billion, an increase of 16% over the prior year's fourth quarter.

Total revenue was $41.4 million, an increase of 23% over the prior year fourth quarter. TriSource, APS, Ventanex, cPayPlus and CPS contributed approximately $6.5 million of incremental revenue during the fourth quarter. Moving on to expenses in the quarter.

Other cost of services were $11.5 million compared to $9.3 million in the fourth quarter of 2019. The incremental other cost of services from TriSource, APS, Ventanex, cPayPlus and CPS were $1.8 million for Q4. Gross profit was $30 million, an increase of 23% over the prior year's fourth quarter.

On an organic basis, we saw gross profit growth in the mid-single digits compared to the fourth quarter of 2019. Organic growth was solid in October and December, but November was down due to the lapping of a very strong November 2019 for personal loan repayments.

That said, our December organic gross profit growth was in the low teens, and volume trends in early Q1 2021 were strong, which provides us continued confidence in our mid- to high-teens organic growth outlook.

As John mentioned, we've seen many of our larger personal loan customers return to loan growth in recent months, and we benefited from the second round of stimulus payments. We typically see an uptick in Q1 in our loan repayment verticals as a result of tax refunds and a lower sequential Q2.

SG&A was $21.5 million compared to $24.8 million in the fourth quarter of 2019. Fourth quarter pro forma net loss was $0.8 million compared to a pro forma net loss of $7.5 million in the fourth quarter of 2019.

Fourth quarter adjusted net income was $13.5 million or $0.17 per share compared to adjusted net income of $12.3 million or $0.20 per share in the fourth quarter of 2019.

The decrease in adjusted net income per share was primarily driven by a pro forma tax adjustment in the current period, which we did not include in the prior year period, as well as a higher outstanding share count. Lastly, fourth quarter adjusted EBITDA was $19 million, an increase of 29% over the prior year fourth quarter.

Fourth quarter adjusted EBITDA as a percentage of total revenue was 46%, compared to 44% in the prior year fourth quarter.

This increase in adjusted EBITDA and adjusted EBITDA margin is a result of organic growth and contributions from acquired businesses as well as rigorous cost management, delays in hiring several positions and residual payout plans for certain third-party sales partners.

On January 19, 2021, we completed a public offering for approximately 6.2 million shares of our Class A common stock at a public offering price of $24 per share. On the same date, we also completed the offering of $440 million of convertible notes with a 0% coupon.

We also announced the closing of a new undrawn $125 million senior secured revolving credit facility on February 3. Therefore, our cash and liquidity positions remain very strong.

As of January 31, pro forma for the concurrent offerings and the payoff of the previous term loan facility, we had $394 million of cash on the balance sheet and access to $125 million undrawn revolver for a total liquidity amount of $519 million.

Our pro forma net leverage is down only 0.6x, which is the lowest we've been since becoming a public company. As of January 31, pro forma for the common stock offering, we had approximately 86 million shares outstanding on an as-converted basis. Our fully diluted share count, including unvested shares, equaled approximately 88.4 million shares.

Regarding the convertible notes, we are still considering treatment on this, but will likely elect next share settlement, principal and cash in the money value and shares, which allows us to benefit from treasury stock method for accounting purposes.

In this case, the convertible will only result in dilution to stock price increases above the conversion price of $33.60. Finally, moving on to our outlook for 2021, we are still in a period of uncertainty around the economy and pandemic.

Depending on the pace of recovery, we currently expect much stronger growth in the second half of 2021 versus the first half. Also, the second half of the year generally has easier comps.

And to position us well for the significant shifts we are experiencing in electronic payments, we are planning to invest in sales, technology and product this year to further accelerate growth as we move into 2022. With all these factors in mind, we expect the following for 2021.

Card payment volume to be between 17.5 billion and 18 billion; total revenue to be between $178 million to $188 million, we expect gross profit to be between $134 million and $140 million, which includes organic gross profit growth of 15% at the high end.

We have a slide in our investor supplement on our IR site, which can provide a detailed explanation of our gross profit expectations for the year. And lastly, we expect adjusted EBITDA to be between $75 million and $80 million.

Just to note that we expect approximately 55% of our P&L contribution to come in the back half of the year due to the reasons mentioned a moment ago. As of prior quarters, this range assumes no further unforeseen COVID-related impacts, which could create substantial economic duress during the year.

We are already experiencing strong momentum in early 2021 and look forward to an exciting year ahead. I'll now turn the call back over to the operator to take your questions.

Operator?.

At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question is from Ramsey El-Assal with Barclays. Please proceed with your question..

I wanted to ask about the impact of stimulus on the personal loan side of your business. And as I recall, last year, obviously, the -- your customers pulled back on originations, at the same time, the end consumer was sort of flush paying down sort of loan volumes. It seems like it's a bit of a double-edge sword for you guys.

Just wondering how you can -- if you can characterize what's been happening on that side of your business given the round of stimulus we've just seen and that which is likely coming up here in the not-too-distant future?.

This is Tim. Thanks for the question. Yes. So we -- as we mentioned, we have seen a lot of our larger personal loan customers return to loan growth in Q4 and early Q1 of this year. And so we think that's very positive. Their originations have been increasing in recent months, and that's just a trend we continue to hear.

We did benefit from the recent stimulus of $600 payments that went out in early January. We received some volume from those, but we haven't heard that, that has led to any decreased originations since then.

What we do know and what's different this time around versus last spring is that our customers, our personal loan customers are not concerned with credit issues and delinquencies like they were then. I think they're more aggressively lending now. They're focused on loan growth versus protecting delinquencies and losses.

And I think that's just a different trend than we saw early on. And so we think things are positive. We're obviously monitoring additional stimulus and depending on the timing of that and the form that ultimately takes, we'll just have to monitor what that means for originations.

But like I said, because our customers are really focused on loan growth, and that should be helpful this time around and not show as steep of a drop in originations if there is additional stimulus that includes direct payments..

That's super helpful.

And your guidance does not include the potential incremental stimulus that we might see if the Senate in fact, passes it?.

Well, really, the way we thought about it is if it happens, it's likely going to happen at the end of the first quarter or early Q2, and we would think that, that may flow through to our volumes sometime in Q2, if it does.

And so that's why we wanted to comment on the call that we expect stronger growth in the second half of the year after that kind of flushes through in the second quarter. And we would expect also the overall economy to be recovering and consumer spending and demand to be greater, which causes more demand for personal loans.

And so all those factors kind of led us to back weight the year a bit, as I mentioned, and we're just monitoring it. So again, it will ultimately depend on the timing and the form it takes, but we do have some assumption in the guide for that..

Okay, terrific. And one more quick one for me.

Could you give us an update on the captive auto loan side of the business, the Mercedes contract and also just how the pipeline looks there and progress on implementation?.

Yes, sure. This is John. Good afternoon, Ramsey. So our relationship there has progressed really well. Both parties have mutually benefited, and we continue to think that there will be upside in that relationship for both parties. We don't specifically pronounce exactly what that's going to be. Our overall OEM pipeline is healthy and available.

If the -- as we've said before, those contracts can be much longer in duration, and it takes time for them to roll out sometimes slower decision-makers in that process. We lack our position there, but we are not specifically -- we don't announce customers or specific large contracts there.

We do like our value proposition of where we are for the industry. The features and functionalities and the financial technology we have, we see a need for that. So we would look to continue to promote our services into that sub-vertical of auto.

And we think that there will eventually be some opportunity for us as we continue to move through this year..

And our next question is from Peter Heckmann with Davidson. Please proceed with your question..

I believe you said $6.5 million in acquired revenue in the quarter. Can you talk about what would be a good run rate for the first quarter? I think CPS was only included for a partial quarter in the fourth quarter..

Yes. So Pete, this is Tim. So that's the incremental revenue, not the total revenue. And so I think that as we continue to lap acquisitions, for example, Ventanex in Q1, that number could come down slightly just because it's really just the incremental amount.

You will have a full quarter of CPS, but there'll also be some revenue from Ventanex in Q1 of 2020. So I'd say so maybe just a little bit lower than where that is and that's why..

That's great. And then could you just talk a little bit about some of the B2B run rates? I think the last time we heard, we're looking at maybe, was it $4 billion of payment volume attributable to the growing B2B business.

But kind of how you think about that and where you can go in terms of the supplier network? And how do we envision that business growing and kind of unifying what you've acquired so far?.

Yes. Yes. So we put an updated slide in our earnings supplement to show some of the more recent stats. And like we talked about on the call, we now have about 45 software integrations in B2B, over 60,000 suppliers. That supplier network is growing every month.

One of the reasons we like cPayPlus and CPS was because they did a really good job of building and growing that network. And that network is largely and able to accept electronic payments and specifically virtual cards, which we think is better margin for us.

So we see that, both the software providers and the supplier network, continuing to grow nicely in 2021. And then overall volume, we're still probably around 25% of our total business is B2B, but that's growing faster than the other parts of our business. So we could see that moving to, call it, closer to 30% through this year.

And we want to see that continue to become a bigger part of our business. Now other parts of our business are growing really nicely, too, for example, auto. So that will continue to become a bigger part of the mix as well. So there's that growth on that side of the business, but we do want to see a big part.

We have all the pieces in place, we think now with the people that have come to us through acquisitions and the technology to continue to grow that..

And our next question is from Andrew Jeffrey with Truist Securities. Please proceed with your question..

I'm intrigued by the BNPL commentary. John, can you elaborate a little bit on sort of vertical markets where they overlap with your existing vertical markets? They probably look a little bit different.

And who the customers are? Are they some of the household names in that space? Or are they some of the perhaps smaller providers in BNPL?.

Yes, sure. So obviously, because we understand retail installment sales, we see that sometimes even in the auto space, it does not specifically exactly overlap as such. Some of them are just specifically their retail financiers of retail-type transactions. We think that's a great opportunity for us.

As you are aware, several retail transactions will be executed in this form as a buy now pay later concept. It's in our wheelhouse because we understand how the process payments rate. Many situations will be -- they'll need an actual third-party processor to actually move the funds.

And so we think we're positioned well with that as well as technology as they grow out into the future as well as some of those portfolios mature, if some of them have longer horizons versus just a couple of months here or there.

And then as far as we don't name specific customers, and we have seen growth with some of our existing customers, grow really well in 2020. And so, we would expect that to continue to happen this year as well as we're reaching out and touching some of the -- probably some more of the names that you would be familiar with.

It's a measured process for us, and we do think there will be some opportunity for us to continue to grow there..

Okay. That's helpful. And it sounds like you've made some good headway in mortgage repayments and in some of the B2B aspects of mortgage as well. I think, Tim, you called out pretty robust volume, which we've seen across the industry.

Any thoughts or concerns about grow over in mortgage if rates back up and refis slow down, for example?.

No. I mean we are processing a pretty specific type of transaction within mortgage, which is the kind of more complex service transfers or situations where it's not just a typical recurring mortgage payment. And so, we think our technology, there's still a need for our technology there.

Even if the refinancing activity were slowed down somewhat, those types of complex transactions that require better payment technology and reconciliation tools will still be there. And we think we're just really early in our Ellie Mae relationship, and we're starting to gain some traction there. So we have a lot of runway in mortgage.

And I think if the overall industry slows down a bit, obviously, that's not great in general, but we think within our business, we still have a lot of room to grow..

And our next question is from Bob Napoli with William Blair. Please proceed with your question..

Just the growth rate mid- to high-teens, your comfort level in that, maybe just give a little color organically where you see the largest contributors to that over the next three to five years? Which portions of your business are going to be the largest contributors to that growth rate?.

Yes. Bob, so we do feel comfortable with that, and I'll -- again, I'd point you to kind of the gross profit bridge that we put in the earnings supplement to show how we get there. And we think that that's probably moving kind of toward the middle to the end of the year as we -- as the overall economy recovers.

And like we talked about, we think that's probably a good pace for growth thus. And then longer term, I think auto is going to be [indiscernible] of that. Auto is growing north of 25% for us.

And then I think once we get beyond the first year of an acquired business, we think the B2B businesses will really contribute to that growth in the outer years as well. So we have a lot of different levers for growth now and a lot of different -- very diverse vertical set, but I think it lowers our auto and B2B..

All right. And then the credit union customers, I know you're moving into Canada.

Is that purely auto? Or are there opportunities for mortgage or other types of repayments for the business?.

It's largely auto today. That's why we entered the space just because we were running into credit auto [indiscernible] is what they're doing a lot of direct lending. So that's primarily what it is. That doesn't mean we couldn't process some of their other types of payments, but it's still primarily auto. In Canada, it's a mix.

It's actually a lot of personal loans, in addition to auto in Canada..

Okay. And then I'm just curious on the Billtrust partnership.

Is that -- how does that move the needle for your B2B business?.

So, they're really strong in certain verticals that we're strong in. And that's how we -- our head of B2B, Darren, who runs cPayPlus, he's been talking to them about a partnership for a long time, and there was some overlap in verticals, and then we think that they are really good at helping facilitate our adoption.

So it gives us a deeper presence in the verticals that we're already in. And then it helps with virtual card adoption, which again is higher margin for us on the AP side. So that's really how that moves the needle, and there's some large customers within those verticals that we think we would have an easy time acquiring if we're going through BPN..

Interesting. And then just last question quickly on health care -- health care payments. I mean it's a massive market.

I mean, is that an area you haven't talked a lot about that, but is there a strategy behind there to make that a much bigger part of the business? And if so, maybe a little color around that?.

Yes. I think that..

Go ahead, John..

Yes, sure. We -- obviously, we foreshadowed that we really like the space, specifically, as you said, it's an enormous space. And again, we want to deal with the payment piece of those things.

We obviously think there's great pent-up demand there from a standpoint of elective procedures, things like that have really actually not returned back to pre-pandemic levels. So we think there's a great upside there. There's -- in the B2B side of it, there's great volumes there.

There's much larger institutions that have an enormous amount of payment volume there. We think there's a great opportunity for us to continue to build out our supplier network and build out our specific integrations. We have a healthy pipeline with our existing businesses that are marketing into those specific health care institutions.

So we like that. We love to be able to supplement that with some inorganic opportunities if that's a possibility for us. And there could be some of that if we're kind of looking out into the future..

. We just announced the BBA partnership, which is in -- it's our Ventanex business, which is B2B health care to providers. We can also do collections. That's a two-way integration with BBA. And then SRHO is an integration through CPS.

And if you recall, CPS serves more of a kind of an enterprise customer on the payable side and there -- so they're going after hospital networks and large health care providers. And so we're kind of in a few different spots in health care.

We're in the third-party administrator world that facilitates payments between insurance companies and providers and also benefits administration. And then we're also in the hospital and health care network side of the world where they're paying a lot of different suppliers.

So like John said, there's a lot of volume there, and we're in a couple of different [indiscernible]..

And our next question is from Timothy Chiodo with Credit Suisse. Please proceed with your question..

Great. I want to touch base briefly on the credit union opportunity. So you have announced some very, very large partners in Jack Henry Symitar, CU*Answers, Correlation, and I think it gives you access to roughly 1,000 or so credit unions. So clearly, that's a big opportunity.

I was hoping you could give us a little bit of an update on where you stand in terms of penetrating that opportunity and how that could progress throughout this year?.

Yes. Thanks, Tim. So, we're currently -- we have 43 credit union customers today. So obviously, a lot of runway left to get to 1,000 across those different software partners. And a lot of those 43 were just signed in the last six months or so. So they're ramping up.

And if you know the credit union space, it's a longer sales cycle, and it takes a little bit longer to implement, like maybe working with a bank. And so, those have been rolling out throughout the end of 2020, and we think that it really benefit us in 2021 as we get a full 12 months of them -- their volume.

And so we're continuing to sell actively in the space through those partnerships sitting at 43 today out of approximately 1,000 is, like I said, a lot of room to grow. And then just the full year effect of the credit unions we signed in 2021 -- or 2020 will be very helpful for 2021..

Right. The annualization. Okay, right on. All right. Last one or a follow-up is a quick one. So the bridge slide that you pointed to for gross profit, that's a really helpful slide, Slide 12. So -- and you mentioned 15% organic gross profit growth is what the guide is essentially.

And you also mentioned we should expect that to be a little bit more second half weighted.

I know in the first half of this year, there's the -- the tax piece that you mentioned in terms of Q1 usually being a little bit bigger, but also there's the year-over-year comp issue where last year, there were some payments that drifted into Q2 just on timing.

So with that context, maybe you could just talk a little bit how we should expect that gross profit growth to look in Q1, Q2 to the extent without maybe putting a finer point on it..

Yes. So you're right. So Q1 is usually a strong quarter for us. Q1 of last year was also strong, and then Q2 of last year, really strong because of the stimulus. So typically, we don't see as strong of a Q2 as we had in 2020 because the stimulus payments happened and we benefited from that.

And then, of course, that led to some origination issues going into Q3. So with those kind of comps in mind, I would say probably similar kind of single-digit organic growth in the first part of the year, maybe going up into 10% range, but then expecting higher accelerated growth in the back half of the year to get to the full year mid-teens summer..

Okay. All right. Great.

But we should think about Q2 as maybe a little bit lower than Q1, just given the comp?.

Yes, that's right. Yes..

All right. And then we bounce back for the second half..

And our next question is from Sanjay Sakhrani with KBW. Please proceed with your question..

I want to go back to the first question Ramsey had about the stimulus. Tim, it sounds like you guys are thinking, despite stimulus, the second half, you'll see more sort of economic robustness and that will drive loan growth.

Because doesn't stimulus usually have sort of a temporary impact on loan growth and therefore, your revenue?.

It does, but the two points to make. One is that, again, we don't think our customers are going to be as focused on pulling back originations because of credit losses and delinquencies. We think they're going to be more aggressively lending this time.

So I don't think that will -- I think that will help versus last time where there was just a lot of uncertainty around what the consumer would do and then they pulled back on their own originations while there was less demand. So I think there's a little bit of a different dynamic here in terms of our lenders and how they think about loan growth.

And then I think just although there could be some -- a little bit of down or softness, I guess, related to the stimulus, if the economy overall is doing a lot better and the vaccine is widely distributed and generally, things are better, I think that could help with demand as well. So I think that could offset some of it this time around..

And are you guys seeing -- go ahead, John..

Yes. Just the biggest thing that we all are aware of is that this year, there's a vaccine, right? Last year, that time of the year, people thought it would be 18 to 24 months before there's a vaccine.

So that's a big difference maker, although, obviously, we are still in a pandemic, and we're having a -- take all those things into consideration and our outlook we're looking at as well..

And when you look across the different lending asset classes, it sounds like auto is really doing well. And that's where you've seen -- to think there's still a lot more success to be had? So because -- I mean, I think personal loans sort of where it's a little bit more stressed if the stimulus occurred.

Is that a fair statement?.

Yes. Personal loans is impacted more by the stimulus, I think, than auto. Auto had performed really well. There was maybe a short blip right when the pandemic started, but they ended up performing really well throughout the year and early into this year.

So yes, I think the personal loans space is where it could be more impacted, but we still see a lot of strong growth in auto..

Okay. And then final question for John. You mentioned the inorganic growth opportunities helping to execute on some stuff.

I mean, like maybe you can just speak to the pipeline contextually sort of where you're looking at acquisitions and sizes, relative sizes?.

Yes, sure. So as I mentioned in the announcement, we have a healthy pipeline of things we're looking at. We -- some of the things we also said when we were raising the funds in January as well. All those things we found to still be true. I do personally think that 2021 will be a year of continued consolidation in the marketplace.

We wanted to be well positioned on our balance sheet to be ready for that. We see opportunities that are in our pipeline that are coming available in the marketplace that from a size perspective are on the higher end of what we have traditionally done. Our pipeline is also healthy for kind of the traditional typical size deals we do.

And we have many of those in process of evaluations as well. But then there's larger sized transactions that would be in the higher end of what we have. We have specifically -- or not specifically done some of the largest deals in our history.

So we think it's going to be a great opportunity for us this year, assuming that it matches the criteria that we like to look for, then we think we can continue to accelerate growth with any types of inorganic opportunities out there. So we see a great opportunity, and we actually were excited.

We're excited that we're well positioned to take advantage of that. And by being well positioned, we've seen opportunities come our way, at least for valuation purposes..

And those would be additive to the verticals that you're in right now? Or would it -- could it be outside of them?.

Some, yes, absolutely could be for the verticals that we're currently existing, and there could be a complement there for an expansion of some of the areas we already touch. And then obviously, there's some opportunities that would be a new vertical for us that we think have the great characteristics of our existing verticals..

Our next question is from Joseph Vafi with Canaccord. Please proceed with your question..

Good end to the year. Just wondering here, just with all the M&A activity in 2020.

How far along are you at this point in cost synergies relative to those acquisitions? And kind of more specifically more maybe perhaps on the back end on transaction efficiency and stuff given the processing capability, and how to think about that over the next couple of years? And then just a quick follow-up after that..

Sure. Joe, so we have converted one of our acquisitions, APS, to our back end. We did that in Q4 of 2020. And then we see some opportunity in the B2B AP businesses to potentially consolidate providers and find some synergy opportunity. That's part of our plan for 2021 is to work on that. And so that's actively happened and will continue to happen.

And like you said, having on back end from a merchant acquiring standpoint, has been really helpful for that..

And is that -- and how should we think about how that may drive transaction margin? Or is it something that you can call out over time? Or is it just more incremental?.

It's probably more incremental, but we do -- you see that our gross margins are a little bit up in 2021 versus last year. And so part of that is we expect to be able to reduce some of our processing costs associated with these conversions..

Okay. Great. And then just it'd be helpful to perhaps think about the business run rate now. Revenue contribution maybe from consumer loans, consumer auto -- or I mean that's consumer -- personal payments, auto and then B2B, if that's something you can provide. Thanks a lot..

Yes. Yes. So I think it's still probably similar to what we talked about, which is 65% loan repayments, about 25% B2B and then 10% other, which is really TriSource. But I think the mix within loan repayments is really shifting to auto away from personal loans. And so that's becoming a bigger part.

And then credit unions, Canada and mortgage are also all growing, which will become a bigger part of that loan repayment mix. And then like I said earlier, the B2B side is growing probably faster than other parts of our business. And so that's why we want to see that continue to increase from 25% towards the 30% range..

And our next question is from James Faucette with Morgan Stanley. Please proceed with your question..

I wanted to follow up quickly on the comments and questions that you've already answered regarding acquisitions.

First, in terms of your outlook for '21, is there any contribution from acquisitions built into the guidance, but for deals that you haven't yet announced or completed?.

No, no..

Okay. And that makes sense. And that's what I thought.

And then the second was just more color in terms of when -- as you're looking at deals, how are you feeling about things? And what are you seeing in terms of valuations, time to pay back, potential synergies, et cetera? Are those moving around significantly from what you've seen in the past? Or just in general, the types of deals you're looking at in the pipeline, how should we think about those bearing in terms of financial contribution from what we've seen you do already?.

Yes. I mean one of the reasons we went out and raised capital like we did was because there are some larger opportunities in the market, larger than we've done in the past.

And so those -- those would have more synergies, they would have a lot more volume that could potentially be moved to our back end or even at that scale, potentially OpEx synergies. So we're seeing more of those opportunities come to market.

Those are typically in a process that we may have to work through, which could impact valuation, but there's still some conversations we're having directly with owners of businesses that could be favorable for us from a valuation standpoint. So it's kind of a mix.

But we do see larger deals out there across a number of different verticals, which is why we feel good about our current balance sheet.

And so we'll continue to be thoughtful about structuring and potentially putting in place earn-out structures, and then also on the larger ones, finding synergies that we think are actionable and able to be realized in a fairly short time frame..

Yes. That makes a lot of sense.

And when you're looking at those bigger deals with potentially more synergies, should we imply -- take from that, that there's an implication that valuations could be higher or not necessarily?.

Yes. I mean, maybe a little bit higher, just it's a bigger deal. And so they're probably looking for something a little bit higher than we've done in the past. But it kind of depends on the vertical. And again, it depends on the ownership structure and the dynamic we have with the sellers. There are a lot of different discussions happening.

But in the past, we've typically looked for synergies in terms of cost savings, processing cost savings. But in some of these situations, we may have to look more broadly at synergies, and some of that has to do with valuation..

Our next question is from Mike Grondahl with Northland Securities. Please proceed with your question..

You mentioned the buy now pay later space.

How long have you been in there? And can you kind of let us know what you're doing there specifically?.

Yes. Mike, we've been in the space for a while. It's really an extension of -- it's just another type of installment loan. It happens to happen at the point of sale at an e-commerce transaction, but we've had customers doing that type of lending for a few years now.

And it's really -- they like the fact that we are experts at processing recurring, scheduled installment loan payments, which is really what that would have buy now pay later transaction looks like.

And so we've been in the space for a few years and a lot of the customers that we've had have evolved and increased their technology capabilities to better interact with their customers and payment technology is part of that. And so we see a lot of positive opportunity ahead..

And our next question is from Tim Willi with Wells Fargo. Please proceed with your question..

I just had one question. I don't think it's been asked yet, so I apologize if I missed it, but could you just -- you mentioned investments in '21 around, I think, technology, sales. Maybe there was another area you called out.

Could you maybe just talk a little bit more about any more specific themes or areas within those topics? And then also any way to think about like the cadence of the investment spending and how we should think about conceptually modeling that throughout the course of the year?.

Yes. So yes, we mentioned sales, technology and product as the three areas of focus. I'll mention the Protego relationship that we talked about where we have set up a development office in conjunction with Protego in Ireland, and that really, the point of that is try to get more software development throughput. We have a lot of different initiatives.

We have a lot of different verticals to attack. And we felt like that was a great way to get additional resources and throughput within technology. So that's part of the additional investment.

And then just hiring really good salespeople and partner relationship management, folks across all the different verticals we have is another big area of focus to continue to increase the software partnerships beyond the 124 that we have today.

That we -- we've started hiring some of those resources in 2021 already in both technology and sales, and then product is the other area to work with the technology team to kind of commercialize some of these efforts and work directly with the customers, too, to bring them to them.

So it's going to be -- the pace of investment will kind of start to accelerate probably more toward the middle of the second half of the year as we get more comfort, which is the overall environment. We think that sets us up well to potentially even accelerate growth going into 2022..

And we have reached the end of the question-and-answer session. And I'll now turn the call over to John Morris for closing remarks..

Yes. Thank you, everyone, for your time today. We sincerely appreciate it. We're looking forward to an exciting year ahead of us. We think we are well positioned to take advantage of the opportunities we see there, both organically and inorganically.

As I said on the call as well, we -- we've got, I think, the best team in the business, and we think we built some of the best technology out there. So we're super excited with what's ahead of us, especially as we get to a more normalized post-pandemic basis.

We really like all the different parts of our business and looking forward to the opportunity to continue to add value for our shareholders. Thank you for your time today..

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation..