Q3 2025 Earnings Call Contradictions: Free Cash Flow Projections, M&A Priorities, and Consumer Spending Outlook Diverge

Date of Call: November 10, 2025

Financials Results

• Revenue: $77.7M, normalized revenue growth 5% YOY (ex-political media)
• EPS: $0.21 per share (adjusted); adjusted net income $18.2M (no YOY EPS comparison provided)
• Gross Margin: Approximately 74.4% (57.8M gross profit / 77.7M revenue), compressed ~3.4% YOY
• Operating Margin: Adjusted EBITDA margin ~40% (Q3 adjusted EBITDA $31.2M)

Guidance:

• Q4 2025 normalized gross profit growth expected 6%–8%.
• Q4 free cash flow conversion expected to be greater than 50% (previously guided ~60%).
• Q4 reported growth will be impacted (~10%) by lapping strong political media revenue in prior year.
• Management will provide 2026 outlook and capital allocation details on next earnings call in early 2026.

Business Commentary:

* Revenue and Profit Growth: - Repay Holdings Corporation reported revenue of $77.7 million and gross profit of $57.8 million for Q3 2025, with normalized revenue growth and gross profit growth of 5% and 1% respectively, excluding political media contributions. - The growth was driven by an increase in client implementations and ramp processes, leading to sustained year-to-date bookings growth.

• Business Payments Segment Performance:
• The Business Payments segment achieved a 12% year-over-year increase in normalized gross profit, excluding political media contributions and the impact of a client loss.

• Growth was driven by accounts payable platform expansion and payment monetization initiatives, along with strategic focus on increasing TotalPay adoption.

• Consumer Payments Segment Trends:

• Consumer Payments segment reported a 1% year-over-year increase in gross profit, excluding the impact of client losses.

• The segment demonstrated stability, with ongoing growth initiatives such as enhancing software partnerships and integrating new payment technologies like the Dynamic Wallet.

• Capital Allocation and Financial Flexibility:

• REPAY opportunistically deployed capital by repurchasing approximately 3% of its outstanding shares in August and retiring $73.5 million of its 2026 convertible notes at a discount.

• The company maintained a strong balance sheet with approximately $96 million of cash on hand and access to $250 million of undrawn revolver capacity.

• Operational and Strategic Initiatives:

• REPAY is investing in organic growth by enhancing go-to-market implementation pipelines, automating processes, and deploying AI tools across the company.
• These initiatives are aimed at building a scalable future and returning to sustainable growth by the end of the year.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized returning to "profitable normalized growth," 67% free cash flow conversion in Q3 and strong adjusted EBITDA (~40%). They highlighted share repurchases ($38M YTD), retirement of $73.5M of convertible debt, ongoing bookings momentum and expectations that normalized growth will sequentially improve into Q4.

Q&A:

• Question from Peter Heckmann (D.A. Davidson & Co., Research Division): In terms of the free cash flow outlook, I guess, how do you see that trending into 2026? We've seen fairly strong or fairly high free cash flow conversion in some years and kind of off in some years. But I think your updated guidance is now greater than 50% for 2025. I guess kind of best guess is for 2026, how are you positioning that?
  Response: Expect an exit FCF conversion in the upper 50s (%) and model that as the run-rate into 2026; Q3 was 67%, Q4 expected in the upper 50s due to working-capital timing.

• Question from Peter Heckmann (D.A. Davidson & Co., Research Division): Okay. That's helpful. And then just can you remind us, it may be in the appendix of the slide deck, but just the specific political media spend headwind from the fourth quarter of last year.
  Response: Q4 '24 political media gross profit headwind was $4.6M; full-year 2024 political media gross profit was ~$11.75M.

• Question from Timothy Chiodo (UBS Investment Bank, Research Division): I was hoping you could expand a little bit upon -- within the B2B business, the Visa commercial enhanced data program, the CDT that's been rolling out this year. Talk a little bit about the various data requirements, maybe how they differ from the prior Level 2, Level 3 requirements. What you think this might mean for overall B2B interchange? What are some of the puts and takes there? And then, of course, I believe there's a slightly higher network fee associated with it as well. We would appreciate any of the context on your business and for the industry overall.
  Response: Visa's CDT evolves prior Level 2/3 rules (Level 2 being phased out); Level 3 requires richer invoice/ERP data to get higher rates; REPAY's embedded/API capabilities position it to pass required data, while on AP they will optimize card types (virtual cards) to maximize interchange.

• Question from Shefali Tamaskar (Morgan Stanley, Research Division): This is Shefali Tamaskar on for James. Just on consumer payments, in the presentation, you called out some pockets of consumer softness. Could you speak to what subverticals you're seeing this in most and what trends have looked like through early November, if possible?
  Response: Consumer demand is generally stable; the softness is concentrated in used-auto (automotive used-car) subvertical, which remains consistent with prior quarters.

• Question from Shefali Tamaskar (Morgan Stanley, Research Division): Great. That's helpful. And then you mentioned also being open to M&A as you look ahead to 2026. So I just wanted to hear about what potential targets look most interesting to you in terms of where you're seeing most like subvertical momentum across business payments and consumer payments. I know you've previously called out B2B being the more focused point for M&A, but curious how the pipeline looks today.
  Response: M&A pipeline is healthy across both consumer and B2B; company remains opportunistic but priority is addressing the Feb 2026 convertible maturity while monitoring targets to accelerate growth.

• Question from Alexander Neumann (Stephens Inc., Research Division): I just wanted to double-click on the nature of the net working capital that's leading to the lower of the free cash flow conversion.
  Response: The Q4 guide (FCF >50%) is lowered mainly by timing of working-capital cash flows and GP compression from upmarket mix and modality mix; Q3's 67% was strong but timing reduces year-end conversion.

• Question from Alexander Neumann (Stephens Inc., Research Division): Got it. And then I know a couple of quarters ago, you announced a partnership with a gateway in Canada. I was just wondering if you could update us on that partnership and how that's ramping?
  Response: No material update yet — integrations and implementations are still in progress.

Contradiction Point 1

Free Cash Flow Projections

It involves differing projections for free cash flow conversion, which is a crucial financial metric for investors.

How will free cash flow trend into 2026? And what was the specific political media spend headwind in Q4 last year? - Peter Heckmann(D.A. Davidson)

2025Q3: For Q4, we're expecting free cash flow conversion to be in the upper 50s, due to working capital timing. - Robert Houser(CFO)

Given first-half growth of low-single digits (excluding political media and customer losses), how do you achieve high-single-digit growth in the second half and what supports this confidence? - Wai-Ming Kwok(Keefe, Bruyette, & Woods, Inc.)

2025Q2: We expect these investments to impact free cash flow conversion in the low 40s for the year. - Thomas Sullivan(CFO & Chief Accounting Officer)

Contradiction Point 2

M&A Strategy and Capital Allocation

It reflects differing statements on the priority of capital allocation for M&A activities, which can impact growth strategies and financial planning.

What are your 2026 M&A targets, and which sub-industries show growth momentum? - Shefali Tamaskar(Morgan Stanley)

2025Q3: We have a healthy M&A pipeline. - John Morris(CEO)

Will the company use cash reserves or take on additional debt to cover the $220 million in convertible notes due within 6 months? - Wai-Ming Kwok(Keefe, Bruyette, & Woods, Inc.)

2025Q2: The capital allocation prioritizes investments in organic growth and managing CapEx. Significant cash will be used to pay down debt from February '26 convertible notes, but additional debt financing might be needed. - John Morris(CEO)

Contradiction Point 3

Consumer Spending and Market Resiliency

It involves differing perspectives on the resiliency of consumer spending and market conditions, which are crucial for assessing the company's financial outlook and growth potential.

Which consumer payments subverticals are experiencing softness, and what are the trends through early November? - Shefali Tamaskar (Morgan Stanley)

2025Q3: We consider the consumer market stable. - John Morris(CEO)

What's the current state of the consumer spending environment, especially regarding credit-related customer acquisition? - John Coffey (Barclays)

2025Q1: From an overall market perspective, we've seen resiliency in nondiscretionary consumer spending. - John Morris(CEO)

Contradiction Point 4

Free Cash Flow Conversion

It involves interpretations and expectations regarding free cash flow conversion, which is a key metric for understanding a company's financial health and its ability to generate cash from its operations.

How will free cash flow trend into 2026? What was the specific political media spend headwind in Q4 last year? - Peter Heckmann (D.A. Davidson)

2025Q3: For Q4, we're expecting free cash flow conversion to be in the upper 50s, due to working capital timing. - Robert Houser(CFO)

What caused the deceleration in gross profit from Q3 to Q4? - Rufus Hone (BMO Capital Markets)

2024Q4: The way I would think about it is if you strip out the impacts from this year and then what we expect to reverse in Q1 of next year, you would see a comparable conversion. - Timothy Murphy(CFO)

Contradiction Point 5

M&A Strategy and Capital Allocation Priorities

It highlights inconsistencies in the company's strategic approach to M&A and capital allocation, which are essential for understanding the company's growth strategy and financial planning.

What potential M&A targets are of interest for 2026, and where is subvertical momentum evident? - Shefali Tamaskar (Morgan Stanley)

2025Q3: Our capital allocation priority is addressing our February convertible debt maturity. - John Morris(CEO), Robert Houser(CFO)

With the increased $25M buyback authorization, do you plan to prioritize buybacks over M&A? - John Coffey (Barclays)

2025Q1: Our capital allocation priorities remain focused on organic growth, followed by share repurchases and providing liquidity to address the 2026 convertible notes. Tuck-in M&A would be considered after these priorities. - John Morris(CEO), Tim Murphy(CFO)