Repay Holdings' Q3 2025: Contradictions Emerge on Visa Interchange, Free Cash Flow, and M&A Priorities

Date of Call: November 10, 2025

Financials Results

• Revenue: $77.7M, normalized revenue up 5% YOY (excludes 2024 political media contributions)
• EPS: $0.21 per share (adjusted net income $18.2M)
• Gross Margin: Approximately 74.4% (57.8M gross profit / $77.7M revenue), compressed ~3.4% YOY

Guidance:

• Q4 2025 normalized gross profit growth expected to be 6% to 8%.
• Q4 normalized growth benefits from lapping one-off 2024 client losses but faces margin pressures and mix shifts; reported Q4 growth will be ~10% lower due to lapping strong 2024 political media contributions.
• Q4 free cash flow conversion expected to be >50% (revised down from ~60% due to working-capital timing); management expects exit FCF in the upper-50s into 2026.
• Priorities: organic growth investment, debt reduction for Feb 2026 convertible, opportunistic buybacks, and openness to M&A.

Business Commentary:

• Revenue and Gross Profit Growth:
• REPAY achieved 5% revenue growth and 1% gross profit growth on a normalized year-over-year basis in Q3 2025, excluding political media contributions during 2024.

• The growth was driven by optimizing digital payment flows across consumer and business payment verticals, enhancing go-to-market strategies, and improving operational efficiency.

• Business Payments Segment Performance:

• The Business Payments segment reported a 12% gross profit increase on a normalized year-over-year basis, excluding a political media contributions headwind.

• Growth was primarily driven by accounts payable platform adoption, payment monetization initiatives, and expanding the enhanced ACH offering in healthcare and hospitality verticals.

• Consumer Payments Segment Dynamics:

• The Consumer Payments segment saw a 1% gross profit increase year-over-year in Q3, with single-digit growth excluding client rolloffs.

• Growth was supported by new software partnerships, enhanced integrations, and the launch of REPAY's Dynamic Wallet, improving client and customer experiences.

• Operational and Financial Management:

• REPAY generated a strong free cash flow conversion of 67% and maintained a robust adjusted EBITDA margin of 40%.
• Operational initiatives included automating processes, strengthening partnerships, and leveraging AI tools, leading to improved productivity and quicker implementation workflows.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted a return to "profitable normalized growth," 40% adjusted EBITDA margins and 67% Q3 free cash flow conversion, but also noted gross profit margin compression (~3.4% YOY) and a reduced FCF outlook (from ~60% to >50%) due to working-capital timing and mix headwinds, reflecting optimism tempered by margin pressures.

Q&A:

• Question from Peter Heckmann (D.A. Davidson): In terms of the free cash flow outlook, how do you see that trending into 2026? Also, can you remind us the specific political media spend headwind from the fourth quarter of last year?
  Response: Expect free cash flow conversion in the upper-50s exiting into 2026 (model as exit rate); Q4 '24 political media gross profit headwind was $4.6M (full-year 2024 ~ $11.75M).

• Question from Timothy Chiodo (UBS): On the B2B side, please discuss the Visa commercial enhanced data (CDT) rollout: data requirements versus prior Level 2/3, implications for B2B interchange, and the associated network fee impact.
  Response: Visa is replacing prior Level 2 with enriched invoice/ERP data requirements to qualify for Level 3 rates; REPAY's embedded ERP-capable solutions position it to implement, but the industry is still testing and adaptations are ongoing; on AP REPAY will optimize virtual-card types to maximize interchange despite some higher network fees.

• Question from Shefali Tamaskar (Morgan Stanley): On consumer payments, what subverticals show the most softness and how have trends looked through early November? Also, you mentioned being open to M&A for 2026 — what targets or areas look most interesting?
  Response: Softness is concentrated in the automotive used-car subvertical and remains consistent through early November; M&A pipeline is healthy across consumer and B2B but capital allocation priority remains addressing the Feb 2026 convertible maturity while pursuing opportunistic deals.

• Question from Alexander Neumann (Stephens Inc.): Can you double-click on the net working capital driver behind the lower free cash flow conversion guide? Also, any update on the Canada gateway partnership ramp?
  Response: The FCF guide reduction to >50% reflects timing of when working capital is 'snapped' for the year plus GP compression from upmarket and modality mix; the Canada gateway integration is still in progress with no material ramp to report.

Contradiction Point 1

Visa Commercial Enhanced Data Program and Interchange Impact

It involves the impact of Visa's commercial enhanced data program on B2B interchange rates, which could affect Repay's revenue and profitability.

Can you explain Visa's commercial enhanced data program and its impact on B2B interchange? - Timothy Chiodo(UBS Investment Bank)

20251111-2025 Q3: The program involves enriched data requirements for invoices from ERP systems. Visa is refining requirements, which will impact AP and AR interchange. We're working to ensure our solutions meet these requirements. We're optimistic about our capability to optimize interchange rates. - John Morris(CEO)

Can you elaborate on the Visa Commercial Enhanced Data Program and its impact on B2B interchange rates? - Timothy Chiodo(UBS Investment Bank)

2025Q3: Visa is phasing out Level 2 requirements and introducing Level 3 requirements. We're working to pass additional data to qualify for better rates. For the AP side, we're optimizing our MasterCard or Visa virtual cards for the best interchange rate. - John Morris(CEO)

Contradiction Point 2

Free Cash Flow Outlook

It involves Repay's free cash flow outlook, which is crucial for investors to assess the company's financial health and growth potential.

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

20251111-2025 Q3: For Q4, we expect to be in the upper 50s regarding free cash flow conversion, which is due to working capital timing. As we exit Q4, we'll likely hold around the upper 50s going into 2026. - Robert Houser(CFO)

How do you see free cash flow trending through 2026? - Peter Heckmann(D.A. Davidson)

2025Q3: We expect to be in the upper 50s in Q4, due to working capital timing. This is our exit rate going into 2026. - Robert Houser(CFO)

Contradiction Point 3

M&A Strategy and Prioritization

It highlights differing perspectives on the priority given to M&A activities versus debt repayment, which could impact the company's growth and financial strategies.

Which potential targets are most attractive for M&A in business and consumer payments? - Shefali Tamaskar (Morgan Stanley)

20251111-2025 Q3: We have a healthy M&A pipeline. We're actively reviewing opportunities in both consumer and B2B segments. Prioritizing capital allocation for debt maturity is crucial. - John Morris(CEO)

Will the primary cash allocation be directed toward the $220 million in convertible notes due within 6 months? - Wai-Ming Kwok (Keefe, Bruyette, & Woods, Inc.)

2025Q2: We would prioritize the use of cash or capital towards the convert, which is due in February of '26. We would not have 100% cash available to pay that off in full cash, just to be clear. But we would like to use significant cash on hand to pay some debt down from a prioritization perspective, but we would have to tap back up our revolver to take down the rest of that. - John Morris(CEO)

Contradiction Point 4

Consumer Spending Environment

It involves differing perspectives on the stability and softness in consumer spending, which impacts business performance expectations.

Which consumer payments subverticals are showing softness, and what trends have been observed through early November? - Shefali Tamaskar (Morgan Stanley)

20251111-2025 Q3: We see the consumer market as stable. Softness is observed in the automotive (used car) segment, consistent with previous trends. - John Morris(CEO)

Can you provide more details on current consumer spending trends? - John Coffey (Barclays)

2025Q1: From an overall market perspective, we've seen resiliency in nondiscretionary consumer spending. Our clients are not seeing major impacts from consumer spending amid macroeconomic uncertainties. - John Morris(CEO)

Contradiction Point 5

Capital Allocation and Strategic Review

It highlights shifts in strategic focus, including the priority of capital allocation between share buybacks, M&A, and organic growth.

What potential targets are most attractive for M&A in business and consumer payments? - Shefali Tamaskar (Morgan Stanley)

20251111-2025 Q3: We have a healthy M&A pipeline. We're actively reviewing opportunities in both consumer and B2B segments. Prioritizing capital allocation for debt maturity is crucial. - John Morris(CEO)

With the increased buyback authorization, will you continue to focus on buybacks rather than M&A? - John Coffey (Barclays)

2025Q1: When we believe our share price is disconnected from our intrinsic value, we will opportunistically repurchase shares. Our capital allocation priorities remain focused on organic growth and sufficient liquidity to address $220 million convertible debt in 2026, though we remain open to accretive strategic tuck-in M&A. - Tim Murphy(CFO)