Kubra Data Transfer Ltd. ($RPAY)

Greetings. Welcome to Repay Holdings Corporation's Acquisition Overview Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Stewart Grisante, Head of Investor Relations. Thank you. You may begin.

Thank you. With us today are John Morris, Co-Founder and Chief Executive Officer; and Robert Houser, Chief Financial Officer. The press release and investor presentation regarding today's announcement are available on the company's IR site. During this presentation, we will be making forward-looking statements about our beliefs and estimates, which include, but are not limited to, the transaction rationale, financial benefits, combined and expectations regarding future events and results. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's announcement and in our most recent Form 10-K. Actual results may differ materially from any forward-looking statements that we make today. Forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them, except as required by law. In an effort to provide additional information to investors, today's discussion will also reference certain non-GAAP financial measures. Explanations of those non-GAAP financial measures can be found in today's press release and in the investor presentation, each of which are available on the company's IR site. With that, I will now turn the call over to John.

Thanks, Stewart, and thank you, everyone, for joining us today to discuss this exciting news. Today's announcement advances Repay on our transformational journey to become a leading bill payment provider. We're excited to announce that Repay has reached a definitive agreement to acquire KUBRA for a purchase price of $372 million. With this combination, we are creating a scaled bill payment provider with the breadth, technology and market position to lead the next chapter of digital bill payments across North America. Let me explain why this transaction is so compelling. REPAY has built a market-leading payment processing platform across the consumer finance verticals. Kubra has built a market-leading billing and consumer communication platform across utilities, government and insurance verticals. Together, we will offer a comprehensive end-to-end platform spanning bill presentment, communication services, a best-in-class clearing and settlement engine and payment processing. That is a unique and powerful combination in the market today. The combined scale is significant. Together, REPAY will interact with over 40% of U.S. and Canadian households every month and process over $130 billion in annual payment volumes. Our combined 2025 revenue is approximately $548 million with adjusted EBITDA of approximately $178 million. We will operate across 18-plus dynamic verticals, serving nondiscretionary categories with recurring billing cycles. For those learning about Kubra today, Kubra is a leading billing and consumer communications platform serving some of the largest utility and government entities in North America. Their platform spans billing and payments, alerts and preference management, AI-powered solutions, mobile apps and utility mapping. Kubra serves over 250 clients today through a deeply integrated offering connected to ERP providers across their core verticals. The company's headquarters is in Mississauga, Ontario, Canada and operates through regional hubs in the U.S. What makes this acquisition particularly powerful is how complementary the 2 businesses are. Both companies share a go-to-market approach built on the deep software integrations and vertical expertise. Kubra brings 30-plus years of experience in utilities and regulated end markets. REPAY brings deep expertise in consumer finance and a proven payment technology platform. By combining these strengths, we create robust opportunities to expand with existing clients, integrate with new software partners and win new business across every vertical we serve. Upon closing, Kubra will be led by industry veteran, Rick Watkin, Kubra's current CEO, and report directly into me. I've gotten to know Rick over the past years as we discuss the potential companies together as one. Rick brings decades of Kubra and utility vertical expertise. I'm excited to welcome the Kubra family into the REPAY family as we embark on the vast opportunities ahead. Before turning the call over to Rob, who will go over the transaction details, I wanted to highlight the long-term value that this acquisition brings to REPAY. We have identified compelling expense synergies, platform cost savings and revenue opportunities that we expect to achieve over the next 3 years. This transaction is expected to be approximately 25% accretive to free cash flow by 2028. The scaled platform of profitable growth and free cash flow generation positions REPAY to quickly delever and reignite REPAY's strategic evolution while enhancing organic growth into the future. With that, I'll turn the call over to Rob to go over the transaction details. Rob?

Thank you, John. We appreciate everyone for joining us today to discuss this announcement and transformation underway. As we noted in our press release and supplementary materials, REPAY has entered into a definitive agreement to acquire Kubra for a purchase price of $372 million. The all-cash transaction will be financed with a combination of cash on the balance sheet and a $500 million term loan issued between signing and closing. REPAY has obtained committed financing and plans to replace the existing revolving credit facility as part of this transaction. This gives us ample liquidity and financial flexibility as we move forward. Net leverage is expected to be approximately 4x at closing when including transaction-related adjustments and synergies. Importantly, with the strong and predictable free cash flow profile of the combined companies, we expect to reduce net leverage to below 3x within 18 months of closing. Rapid deleveraging is a clear priority. We anticipate the acquisition to close during the second quarter of 2026 and is subject to regulatory approvals in the U.S. and Canada. Let me now discuss the combined financial profile. On a combined basis, REPAY's financial profile will have increased scale with continued strong free cash flow generation. The combined 2025 financial metrics are revenue of approximately $548 million and adjusted EBITDA of approximately $178 million. The acquisition of Kubra is expected to generate compelling value creation opportunities, including identified synergies. The company expects the acquisition to be free cash flow accretive by 25% in 2028. We expect to drive approximately $15 million of annual run rate expense synergies by 2028, primarily by streamlining operations, integrating tech platforms and better aligning REPAY's overall corporate structure. REPAY's team has identified revenue opportunities across the combined client base. We plan to expand REPAY's payment capabilities with both existing and new clients, leading to increased digital payment adoption and client retention. Additionally, Kubra provides extensive communication services, which we expect to roll out across REPAY's consumer finance verticals. Once the company's technology infrastructures have been integrated and optimized, we expect to generate platform consolidation and CapEx savings of $5 million plus by 2028, resulting in CapEx dropping below 10% as a percentage of revenue. In summary, this is a transaction that enhances REPAY's scale, further diversifies our revenue base into attractive nondiscretionary verticals and creates a clear path to significant value creation through identified synergies and revenue opportunities, all while maintaining our commitment to rapid deleveraging and strong free cash flow generation. REPAY will continue to execute on our organic growth initiatives as we work towards closing over the coming months. I'll now turn the call over to the operator to take your questions. Operator?

[Operator Instructions] Our first question is from Peter Heckmann with D.A. Davidson.

In terms of the deal, how -- in terms of 250 clients, so those are customers providing services to consumers, so billers and they are, in turn, reaching 40% of households in the U.S. and Canada. So can you talk a little bit about like the relative size of their customers and whether they're on long-term contracts, long-term relationships and a little bit more characterization of within those 3 main verticals, utilities, public sector is public sector primarily also utilities? And then within insurance, what areas of insurance do they have some expertise?

Yes. Thank you, Pete. Yes, these are large enterprise billers. So they're directly billing to consumers. And obviously, some -- the utilities, they have businesses as well. But very large utilities and government. Predominantly, it will be heavier maybe in the utility government space, if you think about utilities and water power light. And then that is scaled across the U.S. as well. It would lean more towards the segment, probably have more utility and government in it than it would, specifically insurance. Overall, though, it touches, as we said, touches over 40% through all the services that we -- that it provides. we touch over 40% of the U.S. and Canadian households.

Yes, Peter, sorry this is Rob. Just on the 40% to -- it's -- we're touching through payments, but also through the communication services that Kubra provides, which allows them -- they have some really extensive good technology where they communicate to consumers. For instance, when your power is out, they provide grids that show the outage maps for power companies and notifications around power, water. And so that extensive capability is what really touches a lot of consumers across both Canada and the U.S.

Let me add as well. Kubra has been around since 1992, right? So probably one of the first leading providers in the overall space. which is pretty amazing. Our opportunity to just be able to partner and combine with someone who is just a leading provider already in these verticals. And in the average, many of these clients have been customers, although the government or utility space is a heavy RFP business. These clients have been customers for years.

That's excellent. Okay. Great. And then just one follow-up. Within Kubra's current revenue stream, is there any notable amount of pass-through interchange or things like postage related to the communications business?

No. They report net. I mean from a gross basis, there is some postage that goes through, but we report -- we will be reporting net when we consolidate the 2 companies together, which would exclude that.

Our next question is from Joseph Vafi with Canaccord Genuity.

Congrats on the transaction announcement here. Just maybe you could get into your thoughts here strategically on timing. It sounds like you've known these guys for a while. Maybe just some thoughts, John, on why pull the trigger on this transaction now? And then just thoughts on delevering. Clearly, it looks like you're going to delever here pretty quickly. Do you see the kind of higher leverage perhaps I mean just thinking if there were other priorities in the business that maybe cash could have gone to without the acquisition and now we're going to delever.

Yes. So as we've always said, over the last several quarters, even the last several years, we've been doing acquisitions since we went public in '19. And we've actually delevered all the way to where we are today, which obviously allows us to do something like this. So we've been very disciplined on the inorganic side here for the last 3 years, looking for great opportunities like this that are super strategic to us. the #1 priority always for us is organic growth, and we've been investing there. We continue to invest there, as we said last year, some of those investments is overall in our process as well as our sales, our enterprise sales team. And those things are -- we see the fruits of some of those coming through as we look out into '26 and into '27. So those are still going to be a high priority, even a high priority for Kubra. We want to make sure that, that piece of go-to-market is still very strong. Obviously, investing in our technology, which you've seen us do. We think we have very good technology on our product stack and our technology stack are in a really well positioned. So we have been investing there. This is -- as you said as well, I've known Rick for some time, even -- and then the market opportunity is, as I've always said, don't get to choose when great companies are available in the marketplace. This happened to be great timing for us.

And I'd just add on the deleveraging, as we've said on the call, this business is cash flow accretive, free cash flow accretive by 2028. And we have identified synergies that we feel very strong that we can achieve. And so our commitment to delivering those synergies and the free cash flow profile of this business allows us to deleverage, like we said, with under 18 months. So we feel very confident about that.

Our next question is from Charles Nabhan with Stephens.

I wanted to follow up on the question around deleveraging. First would you consider selling any noncore or subscale assets within your current business mix to expedite the deleveraging process? And then secondly, is there anything you could say about the free cash flow conversion profile of Kubra?

Yes. This is Rob. Thanks for the question. So we're still very excited about our other businesses at REPAY, and we think there's cross-sell opportunity when we bring the 2 companies together to leverage some of those businesses. And so we're pretty happy with that, and we're going to continue to focus on those businesses as well, although with Kubra coming on board, we're obviously a larger consumer business, consumer payments business, but there's a lot of opportunity with our B2B business and a cross-sell capability. On a deleveraging aspect on free cash flow, the free cash flow profile of Kubra with the synergies, the synergized free cash flow is in line with similar to what we have at REPAY. And so we feel very good because of the execution of those synergies. The free cash flow conversion and profile will help us get there from a deleveraging perspective, as we said, in under 18 months. So it's a pretty strong free cash flow profile with the synergies that we've identified.

Got it. And as a follow-up, I wanted to ask about -- I wanted to drill into the synergies a little bit. One of your core competencies and advantages within REPAY is your back-end processing capabilities. And I was wondering if you could double-click on what that means for the combined company and if you see any synergies from leveraging those capabilities with the combined asset?

So obviously, we have our own ecosystem, which is very attractive. We -- as we evaluate those on a long-term basis, we think there's a great opportunity for us on a go-forward basis to use all those unique technology assets, including that at scale. That's the one advantage you get of scale is that efficiency of having those systems. As you've heard me say over time, we need to be bigger this is an absolute great opportunity for us to almost double revenue and increase our scale and volume over $130 billion. So that is going to help us over time. We'll be strategic about it. Obviously, we have clients, and we don't want to do anything that would disrupt the payment flows of our clients. But there should and will be some opportunities for us to capitalize on that. We haven't overestimated that in our synergy expectations, but we know that there's some opportunities there as we've proven that historically by owning our own tech stack, owning our own true payment expertise in our ecosystem. So that we'll see some opportunities there.

I would just add, John, John makes the point about ecosystem, the uniqueness of bringing these 2 companies together. is that we have the complete ecosystem. We have bill presentment. We have the bill payment, and we have the back-office processing. A lot of companies sometimes have to partner to get those and REPAY brings all that the combined company under one roof. So that offers a lot of opportunity, again, to John's point around scale.

[Operator Instructions] Our next question is from Timothy Chiodo with UBS.

I wanted to talk a little bit about just overall take rate. I know there was a combined volume number there. But if you could just give a rough sense around the take rate of the business when viewed on the net revenue divided by volume basis and how that's trended over time? And as a slight follow-up to that, you had mentioned earlier that it's already netted down in terms of the net revenue, one of the prior questions, but revenue down to gross profit, if you could just give us a sense there. And then I have a brief follow-up, but congratulations, John.

Thanks, Tim. So I'll start with the volume. The $130 billion, as you know, we specifically don't report on a quarterly basis, our overall volumes. That will not be something we'll continue to do. And we just want to give you something of the magnitude and the scale. That will also -- that also includes volumes such as ACH volume, which today we don't report as well. So if you're looking at it from a total take rate perspective, that's -- it will be hard to back into that specific number here. Overall, on the revenue generation piece, we will obviously be following 606 on our revenue generation side of that. The -- you could tell on the margin side, this has a little bit lower margin. We'll wind up on an adjusted EBITDA basis in the low to mid-30s on a combined basis.

Yes. And part of that margin profile, just to add to that is large enterprise clients with Kubra. Large enterprise clients bring a little bit lower margin profile. But again, long-standing recurring nondiscretionary volume, which is a pretty nice thing to have in our synergized EBITDA over time, we feel really good about it.

Perfect. Yes, that's all very clear. Really appreciate it. And then, John, you kind of already anticipated my follow-up proactively by saying around the ACH and debit part. But if possible, if you don't mind, just giving a little bit of mix on how that looks across ACH and debit. I'm guessing that's the 2 main forms, but if there's anything else in there.

Yes. We -- obviously, we don't break it out, but specifically in the overall large enterprise consumer, especially in utility, you're going to lean more towards the ACH world as that's kind of think about it as the automatic drafting from your bank account. So that's going to be heavier in that space. But inside of this as well, there's large -- we have large opportunities for communications, various types of communications as we were talking about. There's things around utility mapping, things around alerts and preferences, this overall. It's a very scaled opportunity for us. Tim and the whole team here, this makes us one of the biggest bill payment providers in the U.S., right? And then the scale of these nondiscretionary verticals and the ability to really diversify us on the recurring -- these recurring payment methods. recurring payment flows is fantastic if you think about that. strategically very strategic overall. These were verticals that we have wanted to organically go into that would have taken us years and then to be able to partner with one of the best and biggest in the space is pretty amazing to have that opportunity to do that. We're really excited about that. It does make -- consumer payments itself would be about 45% on a forward basis. Kubra makes up about 45% and business payments would make up about 10%. So diversification, we already have these nondiscretionary payment flows in the Repay's current business. This adds even more stickiness to that on an overall enterprise basis. So really excited about that. If you look at the -- and then Tim has spoken about the free cash flow accretive part of that going out into 2028, scale with ability to drive even more cash flow once we've executed on our synergies, executed on some of our strategic plans here as we look into 2028, bigger in revenue, bigger in cash flow. We think that makes it a really dynamic opportunity for us.

Tim, I would just add real quick that it's got an ACH and debit profile, but there's also a sizable credit profile. So they do take credit card payments in the utility space for sure. So there will be a credit volume as well.

Excellent. All right. Actually, I apologize, I normally wouldn't do this, but if you don't mind, if I throw in one more. I apologize if I missed it in the presentation or the slides, but did you mention maybe, let's call it, a last 3-year CAGR growth rate or so? Or is it more that we should be looking at that mid-single-digit number for the industry? In other words, what has been the growth of the business over the last, call it, 3 to 5 years? And maybe what's a reasonable go-forward growth rate expectation?

Yes. I would -- for purposes of modeling right now, I would stay with where the industry is in the mid-single-digit range. We'll provide more color when we close and give a guide, but I would probably think the mid-single-digit range.

This now concludes our question-and-answer session. I would like to turn the floor over to John Morris for closing remarks.

Thank you, everyone, for joining us today. Today's announcement further enhances REPAY's position to drive value for our clients by offering a comprehensive end-to-end digital platform and support their customers. The REPAY of Tomorrow is built to scale across nondiscretionary verticals and further benefit the vast opportunities ahead of us. I look forward to sharing more on our progress throughout 2026 and beyond. Thanks again for joining us today.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.