Repay Holdings Corporation (RPAY) Third Quarter 2026 Earnings Call - REPAY HOLDINGS CORP

Financial Performance:

• Third quarter 2026 revenue reached $153.4 million, a 97% year-over-year increase, including full-quarter contribution from the CUBRA acquisition.
• Organic revenue growth was 13.6% (approx. 9 percentage points from political media); normalized organic growth excluding political media was ~5%.
• Business payments grew 99% year-over-year (40% excluding political media), while consumer payments grew 0.3% organically.
• Gross margin decreased to 65% from 74% due to mix effects from CUBRA (lower-margin print/mail services); management expects margin improvement as the mix shifts to digital.
• Adjusted EBITDA was $50.9 million (33% margin), up 63% year-over-year, driven by strong political media margins and synergy realization.
• Adjusted net income was $22.5 million ($0.25 per share).
• Free cash flow was negative $21.1 million, impacted by a $14 million investment in a bank reseller channel, $15 million in interest expense, and $11 million in working capital timing related to political receivables.
• Pro forma synergized net leverage was ~3.8x; the company targets deleveraging below 3.0x by year-end 2027.
• Balance sheet includes $64 million in operating cash and a $100 million undrawn revolving credit facility, providing ~$164 million in total liquidity.

Guidance and Future Outlook:

• Full-year 2026 revenue guidance reiterated at $490–$500 million (approx. 60% reported growth, 10–12% organic growth).
• Updated full-year normalized organic growth guidance to 5–6% (down from 7–9%), primarily reflecting lower-than-expected consumer payments growth offset by higher political media.
• Full-year 2026 adjusted EBITDA guidance reiterated at $168.5–$176 million (~35% margin).
• Free cash flow guidance revised down to 20–25% (from 30%) and adjusted FCF to 25–30% (from 35%) due to the $14 million bank investment and expected $5 million fourth-quarter payment.
• Business payments political media revenue forecast raised to $16–$18 million for the full year, exceeding the prior $8–$10 million range.
• CUBRA annualized cost synergy run-rate target raised to $11 million by end of 2026 (from $8 million); long-term target remains >$20 million in operating and CapEx synergies plus revenue opportunities by 2028.
• Consumer payments segment expected to grow in the low single digits in Q4 2026, with growth trajectory re-acceleration anticipated in 2027.
• A 2027 outlook for CUBRA remains unchanged at $150–$154 million revenue and ~$27.5–$30 million adjusted EBITDA.

Business Segments and Product Lines:

• Business Payments: Standout segment; accounts payable business monetizing platform volume, plus significant growth in the embedded partner channel.
• Consumer Payments: Revenue below expectations due to slower pull-through from 2026 new sales and prior year cohorts; recently launched "Repay Voice" (natural language), "Agentic AI" for vendor enrollment, and "Dynamic Wallet" (digital wallet bill access).
• CUBRA Integration: Integration on track with clients showing cross-sell interest; CUBRA revenue grew ~8% on a pro forma basis, driven by professional services, payments, and communication services.
• Strategic Partnerships: Launched a bank reseller channel with a large global fintech; $14 million invested in Q3 with $5 million expected in Q4, targeting 52 bank agreements (96% of plan achieved).
• New Go-Lives: Recent wins include a captive auto leasing program for a global automaker and new consumer lending/credit union clients.

Market and Competitive Landscape:

• Company now manages the entire bill lifecycle for clients, serving as a single partner for design, presentment, communication, processing, and settlement.
• Combined company supports $130 billion in annual payment volume, reaching >40% of U.S./Canadian households and 8 of the top 10 U.S. gas/electric providers.
• Political media activity in Q3 exceeded the peak of the 2024 presidential election cycle; market share gains allowed outperformance of the overall market.
• Strategic goal is to become the leading bill-presentment and payment company in North America.

Risks and Challenges:

• Consumer Payments Execution: Slower booking-to-live timelines and weaker revenue pull-through from 2026 cohorts; impacted by extended implementation periods for large enterprise deals.
• Margin Compression: Near-term gross margin pressure due to CUBRA's lower-margin mix (print/mail), though digital shift is expected to reverse this long-term.
• Integration Risks: Continued focus required to integrate CUBRA technology and platforms while managing operational changes in the consumer segment.
• Political Revenue Cyclicality: Political media revenue is cyclical; while high-margin, it fluctuates and is not a year-round recurring driver.
• Working Capital Volatility: Elevated receivables at quarter-end due to political campaign timing; expected to normalize by year-end.

Management Commentary and Tone:

• Management tone was confident in the strategic direction, emphasizing successful integration and AI-driven efficiencies.
• Leadership changes in the consumer payments segment (e.g., new sales leadership) are highlighted as key drivers for pipeline rationalization and improved execution.
• Strong emphasis on AI deployment for both product enhancement (Repay Voice, Agentic AI) and internal operations (fraud detection, security alert response).
• Commitment to deleveraging and disciplined capital allocation, viewing the bank channel investment as high-return despite near-term FCF impact.
• CEO John Morris and CFO Rob Hauser stressed the "one integrated company" vision and the complementary nature of the CUBRA acquisition.

Analyst Questions and Answers:

• Consumer Payment Slowdown: Explained by weaker pull-through from 2026 bookings, longer implementation times for enterprise deals, and timing of revenue recognition; management expressed high confidence in Q4 2026 low-single-digit growth and 2027 re-acceleration following pipeline rationalization.
• Bank Reseller Channel: Confirmed $3 million Q3 revenue contribution; full-year revenue target for the channel is ~$6–$7 million. $19 million total investment ($14M Q3 + $5M Q4) expected to generate recurring revenue with ~40% profit margins.
• Political Media Outlook: Full-year forecast raised to $16–$18 million (38% improvement over 2024 presidential cycle); Q3 results were 37% better than 2024 Q3.
• Auto/Loan Segment: New OEM automaker live; average ticket size for new auto is higher (debit volume), while consumer finance shows stability; monitoring potential used car demand shifts.
• Sales Team Turnover: Confirmed "a handful" of turnover in core consumer sales during Q2-Q3, accompanied by new hires to drive pipeline quality.
• Investment ROI: Management framed the $19M bank channel investment as equivalent to the annual revenue return of the political media business, highlighting recurring value and volume monetization potential.

Other Key Points:

• The company is utilizing "Agentic AI" to manage ~95% of security alerts, reducing response times from ~300 minutes to ~7 minutes.
• Implementation timelines are reducing due to AI adoption.
• First investor day scheduled for December 7, 2026, in New York City, to present long-term financial framework.
• Combined company now has 52 banks consented for the reseller channel, with agreement signings ahead of plan.