By now, digital transaction and payment platforms like Paypal Holdings and Square are well-known household names. The flexibility to share money between peers and a growing list of e-commerce-enabled businesses that accept them has led to fast-growing consumer adoption.
While the world has seemingly gone digital, other industries have been slower to move. That's where 2019 IPO Repay Holdings (NASDAQ:RPAY) comes in. Its service, REPAY (which stands for realtime electronic payments), is tackling under-served digital payment markets like auto loans and mortgages, healthcare, and business-to-business (B2B) transactions.
While I understand the appetite for risk is diminished given current market conditions, the recently public fintech stock's flat performance so far in 2020 is handily outpacing the markets 23% decline year-to-date (as measured by the S&P 500). REPAY is at least worth a little due diligence.
Digital transactions ripe for another disruptive round?
REPAY plays in what CEO John Morris and CFO Tim Murphy told me in an interview are markets ripe for digital payment disruption. Auto loan and mortgage lenders are still highly reliant on legacy payment systems like ACH (and even written checks!) when handling transactions from borrowers. The same goes for the massive B2B marketplace where trillions of dollars change hands every year.
Perhaps the novel coronavirus pandemic and the rising work-from-home ordinance will help propel this segment of digital payments forward. However, REPAY had a pretty good run in 2019 even before the crisis started. Shortly after becoming a public concern in July 2019, the company acquired Trisource Solutions to improve its back-end software and followed it up with the purchase of B2B digital transactions provider APS Payments in October.
Largely as a result of the moves, REPAY's card payment volume increased 72% year over year in the fourth quarter of 2019 to $3.4 billion, and revenue (when adjusted for new accounting standards for the sake of comparability) increased 45% to $49.3 million. Gross profit grew 67% to $24.3 million -- a good sign that the small firm is gaining efficiency as it grows. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) increased 52% to $14.7 million.
A rosy 2020 outlook
Following up a busy year, REPAY made another acquisition in February 2020: Ventanex, which enables payments for mortgages and B2B healthcare. Morris also said that software vendor integrations are also working well. One notable growth driver is credit unions, which are a sizable provider of mortgage, auto, and other personal loans across the country. REPAY works on Jack Henry & Associates' software platform, where it is beginning to help many regional and small credit unions update their payment acceptance capabilities.
With many new pieces in place and still active on the merger and acquisition front, Morris and Murphy expect the next year to be another busy one. The guidance provided on the earnings call was for card payment volume to be between $15.5 billion and $16 billion; revenue to be between $155 million and $165 million; and gross profit to increase another 50% at $115 million to $120 million. Adjusted EBITDA would notch a 42% increase based on guidance for $66 million to $70 million.
One area to watch is how REPAY manages its debt, which ended the year at $198 million. If it can continue to grow and add other high-growth outfits to its ecosystem, this should be a manageable sum. But for now, it's all about those growth rates and helping customers move away from legacy forms of payment. While I'm not personally making a purchase at the moment, I think REPAY is worth keeping an eye on in the year ahead.