Repay Holdings' Q3 2025: Contradictions Emerge on M&A Strategy, Cash Flow Projections, and Consumer Payment Trends

Date of Call: November 10, 2025

Financials Results

• Revenue: $77.7M, normalized revenue growth +5% YOY (excludes 2024 political media contributions)
• EPS: $0.21 per share (adjusted net income $18.2M)
• Gross Margin: Approx. 74.4% (gross profit $57.8M / revenue $77.7M), compressed approximately 3.4% year-over-year

Guidance:

• Q4 2025 normalized gross profit growth expected 6%–8% (towards high single digits), benefiting from lapping one-off client losses.
• Reported Q4 growth will be ~10% lower due to strong political media contributions in prior year.
• Q4 free cash flow conversion expected to be greater than 50% (down from prior 60% guidance) due to working-capital timing; management models upper-50s% as exit rate into 2026.
• Capital priorities: address Feb 2026 convertible maturity using cash and revolver, opportunistic share repurchases, disciplined organic investment, open to M&A.
• Full 2026 outlook to be provided early 2026.

Business Commentary:

* Revenue and Gross Profit Growth: - Repay reported revenue of $77.7 million and gross profit of $57.8 million in Q3 2025. - Normalized revenue and gross profit growth increased by 5% and 1% respectively, excluding the impacts of political media contributions and client losses. - Growth was driven by increased consumer software partnerships, strategic partnerships like Alpha Systems and Fuse, and improvements in implementation workflows.

• Consumer Payments Segment:
• The consumer payments segment saw a 1% year-over-year increase in reported gross profit.
• Excluding impacts from client roll-offs, gross profit growth was in single digits.

• Growth was attributed to partnerships such as Alpha Systems and an improved software integration strategy.

• Business Payments Segment:

• Normalized gross profit in the business payments segment rose by 12% year-over-year.
• Excluding the impact of a 10% headwind from a client loss in 2024, gross profit growth surpassed 20%.

• This growth was driven by increased adoption of the TotalPay platform, a growing supplier network, and a focus on AP opportunities in healthcare and hospitality verticals.

• Free Cash Flow and Capital Allocation:

• Repay achieved a 67% free cash flow conversion in Q3.
• The company opportunistically reduced debt by retiring $73.5 million of its 2026 convertible notes and repurchased approximately 3% of its outstanding shares in August.
• Free cash flow outlook for Q4 is expected to be greater than 50%, driven by working capital timing and margin compression.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized sequential improvement and return to sustainable normalized growth, citing 5% normalized revenue growth, 40% adjusted EBITDA margin, and 67% Q3 free cash flow conversion, while acknowledging gross margin compression (~3.4% YoY) and ongoing margin pressures from up‑market mix and modality shifts.

Q&A:

• Question from Peter Heckmann (D.A. Davidson): How do you see free cash flow trending into 2026 given updated guide (>50% for 2025)? Also can you remind us of the specific political media spend headwind from Q4 last year?
  Response: Model Q4 and exit into 2026 with free cash flow conversion in the upper 50s% (working-cap timing drives guidance); political media headwind was ~$4.6M gross profit in Q4 2024 and ~$11.75M for fall 2024.

• Question from Tim Chiodo (UBS): Can you expand on Visa's Commercial Enhanced Data/level-3 rollout — data requirements versus prior level 2/3, implications for B2B interchange, and related network fees?
  Response: Level-2 is being phased; level-3 now requires richer invoice/ERP data to qualify for enhanced rates; Visa is still fine-tuning requirements; Repay's embedded integrations can pull required data, and on AP we will optimize routing (e.g., virtual cards) to capture the best interchange outcome.

• Question from Jabali Tamaskar (Morgan Stanley): You called out pockets of consumer softness—what subverticals are most affected and how do trends look through early November? Also update on M&A target focus for 2026.
  Response: Consumer softness is concentrated in the used-auto (auto-to-used car) subvertical and remains consistent; M&A pipeline is healthy and opportunistic across consumer and B2B, but capital priority remains addressing the Feb 2026 convertible maturity.

• Question from Alex Neumann (Stephens): Please double-click on the net working capital items that led to the lowered free cash flow conversion guide. Any update on the Canada gateway partnership ramp?
  Response: The guide reduction to >50% reflects timing of when working capital settled ('snapping the chalk line') plus GP compression from up‑market and modality mix; the Canada gateway integration is still in implementation with no material ramp update.

Contradiction Point 1

M&A Strategy and Focus

It reflects a shift in the company's strategic focus for M&A, which could influence future growth and business direction.

Which M&A targets in business and consumer payments subverticals show the most momentum? - Jabali Tamaskar(Morgan Stanley)

2025Q3: We don't have any specific verticals in mind, but we look for strategic opportunities in consumer payments or business payments to accelerate growth or give us a strategic advantage. We're focusing on embedded payments in some form. - John Morris(CEO)

Are there specific verticals or pipeline opportunities you're targeting for strategic tuck-in M&A? - Wai-Ming Kwok(Keefe, Bruyette, & Woods, Inc.)

2025Q2: We look for strategic opportunities in consumer payments or business payments to accelerate growth or give us a strategic advantage. We're focusing on embedded payments in some form. - John Morris(CEO)

Contradiction Point 2

Consumer Payment Softness and Trends

It highlights potential inconsistencies in the company's assessment of consumer payment trends, which may impact strategic decision-making and investor expectations.

In consumer payments, where is softness occurring and what trends are emerging as of early November? - Jabali Tamaskar(Morgan Stanley)

2025Q3: Softness is seen in the automotive-to-used car sector, which remains consistent with previous trends. Overall consumer payments are stable. - John Morris(CEO)

Consumer payments in auto, personal loans, and mortgages remain resilient, but some softness exists. Can you clarify where the softness is occurring and whether it's temporary or cyclical? - Shefali M. Tamaskar(Morgan Stanley)

2025Q2: We see a resilient consumer. Specifically, the auto side remains challenged, but we haven't seen any impact from tariffs. We see normalized spending. - John Morris(CEO)

Contradiction Point 3

Free Cash Flow Conversion Expectations

It involves changes in financial expectations, specifically regarding free cash flow conversion, which are critical indicators for investors.

How do you expect free cash flow to trend through 2026? - Peter Heckmann(D.A. Davidson)

2025Q3: Free cash flow conversion is expected to be in the upper 50s for Q4 2025 and continue at that rate into 2026 due to working capital timing and margin compression. - Rob Hauser(CFO)

Based on the first 2 quarters' low-single-digit growth excluding political media and customer loss, yet guiding for high-single-digit growth in the back half of the year, what supports your confidence in achieving this? - Wai-Ming Kwok(Keefe, Bruyette, & Woods, Inc.)

2025Q2: Free cash flow conversion for the full year is expected to be in the high 70s to 80%. For Q2, on a year-over-year basis, we expect FCF conversion to be about 85%. - Thomas Sullivan(Interim CFO & Chief Accounting Officer)

Contradiction Point 4

Cash Flow Projections

These contradictions involve differing descriptions of expected cash flow trends, which are crucial for investor analysis and forecasting.

How will free cash flow trend into 2026? - Peter Heckmann(D.A. Davidson)

2025Q3: Free cash flow conversion is expected to be in the upper 50s for Q4 2025 and continue at that rate into 2026 due to working capital timing and margin compression. - Rob Hauser(CFO)

Can you explain the EBITDA growth trajectory for 2025? - Sanjay Sakhrani(KBW)

2025Q1: Our adjusted EBITDA growth would be similar to the gross profit growth we described, with no incremental spend. The 2024 political media contribution contributed about four or five points of growth impact, which is normalized out in our current growth rates. - Tim Murphy(CFO)

Contradiction Point 5

M&A and Capital Allocation Strategy

These contradictions relate to the company's approach to mergers and acquisitions and capital allocation, which are key strategic decisions that can impact future growth and shareholder value.

Which M&A targets have the most subvertical momentum in business and consumer payments? - Jabali Tamaskar(Morgan Stanley)

2025Q3: We see a healthy pipeline for both consumer and B2B M&A opportunities. We continue to evaluate M&A opportunities that strengthen our position for growth across both commercial and consumer payments. - John Morris(CEO)

With the increased $25 million buyback authorization, will you prioritize buybacks over M&A moving forward? - John Coffey(Barclays)

2025Q1: When we believe that our share price is disconnected from our overall long-term intrinsic value, we will opportunistically repurchase shares. Our capital allocation priorities remain focused on organic growth, and tuck-in M&A would be after other priorities, with a focus on maintaining enough liquidity for convertibles coming due in 2026. - John Morris(CEO), Tim Murphy(CFO)