Repay Holdings Corporation (RPAY) Earnings Call Transcript & Summary

Good afternoon. I'd like to welcome everyone to Repay Holdings Corporation's Second Quarter 2026 Earnings Call. This call is being recorded. August 10, 2026. I'd like to turn the session over to Stewart Grisante, Head of Investor Relations at REPAY. Stewart, you may begin.

Thank you. Good afternoon, and welcome to REPAY's Second Quarter 2026 Earnings Conference Call. With us today are John Morris, Co-Founder and Chief Executive Officer, and Robert Houser, Chief Financial Officer. During this call, we will be making forward-looking statements about our beliefs and estimates regarding future events and results. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filing related to today's results 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. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR site. With that, I will now turn the call over to John.

Thanks, Stewart. Good afternoon, everyone, and thank you for joining us today. It has been an exciting and busy time for REPAY. During the second quarter, we delivered revenue growth of 33% and achieved approximately 6% organic revenue growth while generating $27.4 million of free cash flow, a 75% conversion. During this time, management has been focused on core growth, clients and operational execution across the company. Our most significant corporate development this year was completing the KUBRA acquisition in June. We immediately began executing on the integration, building on the groundwork we had laid in the months leading up to closing. REPAY is now fully positioned to be a leading consumer bill payment and communication services platform in the United States and Canada. On a pro forma basis, REPAY essentially doubled the revenue of the company while also now reaching over $130 billion of annualized payment volume. REPAY is at the center of the client's experience in essential services and high-priority payments. Historically, billers had to assemble the pieces from separate providers. We can now offer a complete end-to-end digital bill pay platform, bill design and presentment, communications, core processing, and a clearing and settlement engine across verticals and clients. In doing so, we believe REPAY is the only company able to offer this full end-to-end platform for our clients. We're already seeing this in practice. In the first month of owning KUBRA, executive management has been on the road, completing multiple client visits with several of our largest enterprise clients. Existing REPAY and KUBRA clients are actively engaged with us in expanding bill presentment, payments and B2B capabilities. REPAY clients are asking about bill design and presentment capabilities, while KUBRA clients are asking about expanding their payment channels and modalities. KUBRA also deepened our distribution. We now reach 352 software partners across our verticals, 54 of which came with KUBRA. Improving existing integrations and expanding partners helps deepen our clients' relationships and drive new client wins into the future. During the quarter, we also welcomed many new employees to REPAY. Matt Morrow, who joined the company in May to lead our consumer payments verticals, has been reinvigorating the consumer payments sales and operations. We also welcomed Rick Watkin to our executive management team to lead KUBRA's verticals. As expected with an acquisition of this size, integration planning has been a top priority for the company, and we have hit the ground running since day 1 of closing KUBRA. Within the first 30 days, the integration team has reviewed, implemented and completed the integration of KUBRA into REPAY's operating structure. As a result, REPAY has already realized over $4.5 million of annualized run rate synergies exiting Q2, well on our path to achieving $8 million by the end of 2026 and $20 million plus by 2028. Platform unification is off to a strong start. Several of our largest clients have volunteered as early adopters of the upgraded KUBRA platform, with several net new clients already live on it. Over the next 18 to 24 months, we will be executing on production readiness and a phased upgrade to optimize KUBRA's clients' experience with REPAY's payment capabilities and back-end RCS engine. It is vital to emphasize that the upgrades will not be allowed to impede core growth. Our sales and client service teams are deliberately insulated from the integration work so that momentum is not lost. In addition, clients have a voice in the pace of platform upgrades, and our planning does not depend on any individual client moving faster than they are ready. Stepping back, our integration plan is well underway, governed tightly, and I am confident in this team's ability to execute, capture the synergies and compound long-term value for our shareholders. Before handing the call over to Rob to go over Q2 performance in more detail, I wanted to quickly touch on the segment highlights that REPAY achieved during Q2. In Consumer Payments, Q2 revenue increased approximately 33% year-over-year with contributions from KUBRA, while organic growth increased approximately 4%. The investments in our sales and client support teams are beginning to show meaningful progress as we continue to work on ways to automate and improve implementation processes. As we exited the quarter, several large enterprise clients in our implementations backlog went live, giving us confidence in Consumer Payments' ability to accelerate organic growth in the second half of the year. In addition, we continue to see enterprise clients adopting more payment channels and modalities with strong interest building in our Dynamic Wallet and REPAY Voice AI. REPAY Voice AI enhances the overall customer experience by creating dynamic conversations for billing inquiries and payments while also reducing the resource demands for our clients. We also completed a proof of concept with stablecoin and successfully processed payments using the Stellar network. REPAY's anywhere, any way, anytime philosophy is built around giving our clients all the capabilities and payment options for customer choice. Our Business Payments segment had a fantastic quarter in Q2, reported revenue growth accelerating to approximately 32% year-over-year. Our AP supplier network now reaches over 731,000 vendors, representing 65% year-over-year growth. Business Payments has 108 software partners driving the strong sales pipeline across key automotive, property management, government and education verticals. This momentum reflects the past couple of years of expanding partnerships and deepening software integrations. In the second quarter, Business Payments also benefited from improving digital monetization of both new and existing volumes on TotalPay and from strong political media contributions ahead of the 2026 midterm elections this fall. So across REPAY, we saw sustained growth, momentum and excitement building with both clients and partners. We are building REPAY for a scaled future and are actively deploying AI tools across every function of the organization. We're using AI-assisted engineering to accelerate platform unification and deepen connectivity with software partners without compromising quality, resulting in our ability to reallocate over 775 development hours per month. As we continue to progress on our strategic initiatives, execute on our integration plans, build client relationships and expand our capabilities and partnerships, I am confident in our ability to drive profitable growth. We look forward to our continued execution during the second half of the year, where we are expecting to accelerate organic growth into double digits. It's an exciting time ahead for REPAY, and as we continue this momentum, we are eager to share more progress at REPAY's first Investor Day, which will take place in New York City on Monday, December 7. And finally, I wanted to welcome Zach Sadek to our Board of Directors as an independent director. Zach is a senior partner at Parthenon Capital Partners, 1 of our largest long-term shareholders, and he brings more than 2 decades of experience investing in and advising companies across the payments and fintech industries. With that, I will now turn the call over to Rob to go over REPAY's Q2 financials. Rob?

Thank you, John, and good afternoon, everyone. In the second quarter, our financial performance across key metrics, including organic REPAY and the contributions from KUBRA, performed in line with our expectations. Revenue was $100.7 million, up 33% year-over-year, including 1 month of KUBRA. Organic revenue growth was 6%, which includes approximately 2 points of contribution from political media. Consumer Payments revenue increased 33% year-over-year, with organic growth of 4% driven by ongoing ramp of enterprise clients across our key auto and personal finance verticals. We've made progress working through implementations during the quarter with one of our larger clients going live in July. The incremental volumes from this and several other clients are beginning to ramp, giving us confidence in achieving the double-digit organic growth in our 2026 outlook. Within the Consumer Payments segment, KUBRA contributed approximately $21 million in revenue during June, representing approximately 5% year-over-year revenue growth within KUBRA's utilities, government and insurance verticals. After owning KUBRA for a few months, our beliefs have been confirmed in KUBRA's product offering, go-to-market and client support teams. We see strong development in their sales pipeline with many opportunities expanding with REPAY's capabilities. During the quarter, KUBRA demonstrated this from a financial perspective, showing consistent revenue growth and adjusted EBITDA margins before factoring in run rate cost savings still in the process of being realized. Business Payments revenue accelerated during the quarter with reported revenue growth of 32% year-over-year and normalized revenue growth of approximately 19%, which excludes the positive political contributions. The strong Business Payments growth was driven by onboarding several new clients as we gain momentum with our embedded software partners. We also benefited from the segment's strategic monetization initiatives of improving digital payment mix with existing clients on our TotalPay platform. In addition, as we started to see during Q1, Business Payments benefited from strong political media contributions during Q2, our political media vertical not only benefiting from higher political spending from primaries in this year's election cycle but also from new political media clients compared to prior cycles. We continue to expect the majority of political media contributions to occur around the elections in Q3 and Q4. Gross profit was $70.6 million, a 70% margin compared with 76% margin a year ago. I want to be direct about the change in margin, as it's likely to be misread. The change is almost entirely a mix effect from KUBRA, whose vertical product and payment mix, including print and mail and professional services, carries a lower gross margin than core REPAY. It is not pricing or competitive dynamics. Core REPAY's gross profit continues to benefit from our distribution partner initiatives and optimizing network routing. Q2 adjusted EBITDA was $36.3 million, representing 14% year-over-year growth, with adjusted EBITDA margins of approximately 36%. The same margin dynamic applies here. Core REPAY continues to grow from new enterprise client ramps, even as we invest in technology, product and go to market. The reported Q2 margin reflects a 1-month impact from KUBRA's natural mix. Adjusted EBITDA dollars will continue to grow this year, and beginning in Q3, our consolidated adjusted EBITDA margins will reflect a full quarter of KUBRA. However, these margins are expected to gradually improve as we move towards fully realizing cost savings and revenue synergies. Exiting Q2, we've already realized run rate cost savings of over $4.5 million. Our integration team is hard at work executing on our plans for over $8 million in run rate cost savings exiting 2026 and over $20 million in operating and CapEx synergies plus revenue opportunities exiting 2028. Second quarter adjusted net income was $17.9 million or $0.20 per share. Free cash flow was $27.4 million, up 21% year-over-year, representing 75% free cash flow conversion. Adjusted free cash flow, which excludes $1.9 million of technology, merger and integration costs, was approximately $29.3 million, and adjusted free cash flow conversion was 81%. This is a metric I'd like to point out as we work through the integration. It isolates underlying cash generation from the onetime cost of capturing synergies. Let me put some numbers around what John described because the integration is ultimately a cash flow story. Our value creation roadmap has 3 components. First, revenue opportunities. We will increase penetration across all verticals with a complete end-to-end digital bill pay platform and extending KUBRA's bill presentment and communication services into REPAY's existing consumer payments client base. Second, expense synergies. We are unifying corporate functions, automating processes during integration, upgrading platforms while reducing maintenance and infrastructure costs, and capturing scale efficiencies in payment processing. And third, CapEx savings. We are consolidating product investment across verticals as we optimize to a single unified platform architecture by 2028. On timing, we expect to realize more than $8 million of run rate synergies exiting 2026. The run rate benefit builds through 2027 and 2028 as platform upgrades complete and legacy environments are retired. These synergy plans are identified, tangible and assigned inside each work stream and are actively tracked against milestones. I would also note that we have deliberately built the plan so that synergy capture is not contingent on any single client platform's upgrade timeline. That decoupling is what gives us confidence in the trajectory even as we give clients latitude on pace. Now moving on to the balance sheet and liquidity. We ended the quarter with $84 million of operating cash on the balance sheet plus an undrawn $100 million revolving credit facility that provides flexibility. Our capital structure now consists of $288 million of 2029 convertible notes with a 2.875% coupon and a $500 million senior secure term loan priced at SOFR plus 5.5%. At the end of Q2, pro forma synergized net leverage was approximately 3.7x. Deleveraging is a clear priority. We are targeting net leverage to be below 3x within 18 months. The path is straightforward, continued free cash flow generation and the adjusted EBITDA contribution from KUBRA and the synergies we just walked through. REPAY has reduced leverage following prior acquisitions, and we intend to do it again. With a strong first half behind us, we are confident in achieving our outlook. We are reiterating our full year 2026 outlook we provided when the KUBRA acquisition closed on June 1, which incorporates 7 months of KUBRA contribution. We continue to expect revenue of $490 million to $500 million, representing approximately 60% reported growth and 10% to 12% organic revenue growth. We expect normalized revenue growth of 7% to 9%, which excludes political media contributions and KUBRA. We continue to expect between $8 million to $10 million in political media revenue during the full year. We expect adjusted EBITDA to be between $168.5 million and $176 million, representing approximately 35% margins. Free cash flow conversion is expected to be 30%. Adjusted free cash flow conversion is expected to be approximately 35%, which excludes the in-year costs associated with realizing synergies. Please keep in mind the net interest expense is included in our free cash flow calculation, which includes the interest payments associated with our convertible notes and new term loan. In our 2026 outlook, KUBRA is expected to contribute between $150 million to $154 million in revenue and approximately $27.5 million to $30 million in adjusted EBITDA. REPAY's strategy remains focused on creating long-term value by executing our integration plan, generating strong cash flow to reduce leverage, and investing in future growth and partnerships. For the remainder of 2026, we will continue to deploy capital towards these priorities while unlocking synergies, streamlining operations and identifying additional combined growth opportunities. Our #1 priority remains operational execution. The integration team is dedicated to incorporating KUBRA into REPAY going forward while vertical leaders continue to focus on core operations without distraction. Over the next 18 months, we are committed to disciplined capital allocation and returning net leverage to below 3x. The combined free cash flow generation and confidence in synergy realization provided management comfort in obtaining our net leverage target. We will execute and delever, and we will continue to prudently invest in organic growth, partnerships, products and platform to deliver the best experience for clients and end customers. So with the groundwork laid out during the first half of the year, progress has started to become evident as we move into the second half of 2026. As we work through implementations and continue our sales momentum, REPAY has the right teams in place for organic growth to accelerate into double digits. We have the integration governance and the platform roadmap for value creation opportunities with KUBRA. With that, I'll turn the call over to the operator to take your questions. Operator?

[Operator Instructions] Our first question is from Joseph Vafi with Canaccord Genuity.

Nice results. Maybe congrats on KUBRA and KUBRA showing some nice, looks like, pro forma growth. Could you kind of walk us through the KUBRA pro forma growth in the quarter and then if that is actually incorporated into your organic growth in consumer? And maybe kind of just drill down a little bit more on some of these cross-sell opportunities, which looks like it could be a good driver here in consumer. And then I have a quick follow-up.

Yes, sure. Hey, Joe, it's Rob. Thanks for the question. Yes, so for the quarter, KUBRA grew around 6% within Q2, and on a full year -- full half year pro forma, it's around 5%. And we expect it pro forma to continue to grow in the mid-single digits for the rest of the year as part of our guide. It was -- when we talked about our consumer organic growth, excluding political media, 4%, that's without KUBRA. So that was just our core consumer business. Our organic growth number is obviously just our core consumer business, less 2 points for political media, which got us to the 4% growth.

Great. Nice to see that rebound. And then just to drill down on that a little bit, if you could kind of frame the growth, same store sales versus new logos. I know you were talking about some new ramps but where that growth came from, and I guess feels like there should be follow-through on it if those are new volume levels or new customers that are ramping.

Sure, sure. So within Q2, we're starting to see ramp -- new ramp come in, and so that was driving our organic growth of 4% in our consumer business. I'll talk consumer first, and then I can shift over to B2B and then talk KUBRA. And in our outlook for the back half of the year around consumer is we continue to see new clients go live and ramp, and we're going to see that ramp up pretty substantially as we go into Q3 and really exit the year in our consumer -- core consumer business at double-digit growth. And then if you look at our B2B business around -- again, I'm just going to talk organic first, 19% growth in the quarter, excluding our MPI business. We think, as we look through the rest of the year, that's going to grow out at roughly the mid-teens, as we think about the rest of the year. And if you look at our B2B business and what the growth was driven by in quarter, roughly 60% of it, of the growth was around what we've been talking about for the last 2 quarters, converting and monetizing some of that big ACH volume that came into our TotalPay platform. And then the remaining, say, 40% of the growth was around brand-new clients coming onboard, so ramp on new clients. And we continue to see that out through the rest of the year. Our MPI, on a reported basis, we still were guiding the $8 million to $10 million for the year. We had a good first half because of the primaries and so first half of the year, around the $3 million-ish range, and we're still projecting our $8 million to $10 million for the end of the year. So pretty good growth on that side. And then when you look at KUBRA, the nice thing about KUBRA is if we pro forma our total company, 40% of our company now is utility and government business, and that's a nice, steady, consistent, reoccurring, non-discretionary payment mix that doesn't have a ton of seasonality in it. So again, KUBRA is going to grow -- continue to grow at around that mid-single-digit range for the year. So hopefully that frames it out for you a little bit.

Yes, Joe, this is John. I'll add a couple more things to that, is one is highlight the 731,000, the size of our vendor network on our B2B. As that gets even bigger, our ability to monetize and scale and really see pull-through on a net new client basis is really important there. That can help us drive and you can see that's grown 65% year-over-year. We see the ability to continue to drive growth in that as we look throughout the year as well as a good indicator of some strength ahead of us as well. And I think one of your questions was also some of the revenue opportunities. Although we don't want to get too far ahead of ourselves, but we -- some early indicators are we -- our ability to extend some of the KUBRA bill pay and bill presentment and communication services over to some existing REPAY client base, kind of the iMail services, some of the bill presentment pieces of that. There are some strengths with the KUBRA platform that we know we can offer to our larger consumer payments original REPAY base. So we're excited about that. We hope to be able to talk more about that as we kind of come through our first quarter of full ownership here in the third quarter but some really good signs there.

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

Sorry for the delay on the buzz in. In terms of KUBRA, 6% growth year-over-year and the impact of margins. I guess I think you previously guided to about mid-single-digit growth in KUBRA, and that's encouraging. But in terms of margins, I guess it's -- you talk about maybe the aspirational goals of where you think you can get KUBRA's margins over the next, let's say 3 to 4 years.