While initially getting clobbered with the rest of the stock market in March, Repay Holdings (NASDAQ:RPAY) stock has rallied and is up about 27% to-date in 2020. The economic lockdown is having a detrimental effect on the performance of many digital payment platforms, and this company's REPAY service is no exception.

However, the company serves industries that are behind the curve in adopting real-time digital transactions -- an area that has become more important than ever during the coronavirus crisis. Thus, the company reported a big uptick in sales in the first quarter of the year, and it thinks business is unlikely to reverse course as the crisis eases.

Q1 by the numbers

REPAY kicked off 2020 with a 58% year-over-year increase in card volume to $3.8 billion. Paired with a handful of acquisitions in the last year, that led to big growth in results, including a 20% increase in organic gross profit growth from its core platform (60% when including acquisitions).  


Q1 2020

Q1 2019



$39.5 million

$23.0 million


Gross profit

$28.7 million

$17.9 million


Adjusted EBITDA

$17.4 million

$11.3 million


Adjusted net income

$11.4 million

$8.90 million


EBITDA = earnings before interest, tax, depreciation, and amortization. Data source: Repay Holdings.  

While profits not increasing as much as revenue might turn some investors off, it's important to remember REPAY is very small. This is a growth story right now, and bigger bottom-line returns will follow later. As a small outfit operating in the huge digital payments industry, merger and acquisition activity is also still ongoing.

But for now, REPAY's performance in Q1 was pretty good considering the unprecedented situation in which the world now finds itself. According to CEO John Morris, performance in the period included some weakness in repayment activity toward the end of March as lenders and consumers adjusted to the economic shutdown and worked around shelter-in-place orders. That weakness reversed course and things picked up pace again in April.  

A woman holding a smartphone and card.

Image source: Getty Images.

Deepening reliance on real-time payments

And this is where REPAY could wind up playing a key role for its customers as the world puts the pieces back together post-coronavirus. While real-time digital transactions have grown commonplace in retail and consumer-centric industries (credit and debit card penetration across all industry sales is expected to reach 67% by 2022), card payments are well below average where REPAY plays. Auto and personal loan payments, mortgage payments, and business-to-business transactions are still heavily dominated by cash (physical or check) and ACH (a form of digital transaction, but not a real-time payment as it takes at least a day for transfer). 

Taken collectively, there is potentially huge opportunity here. Loan and business-to-business transactions use instant digital payments less than half of the time -- some, like mortgages, only utilize instant digital transfer about 10% of the time. Taken collectively, the sandbox REPAY is working with transacts some $1.1 trillion a year. At an annual revenue run rate just shy of $11 billion, that leaves plenty of room for the small technologist to make some moves and pick up card payment activity.

Of course, there are reasons these industries have been slow on the uptake. Servicing debt with a credit card payment typically isn't allowed. Even when using a debit card to pay off a loan, a loan servicer has to deal with interchange fees for processing the transaction. Utilizing the now legacy ACH technology, though slow, avoids that interchange rate. 

But even if ACH holds up, disrupting cash and check is still a big opportunity. The future was already moving away from cash, and now that a pandemic is in the equation, processing physical money went from an increasingly expensive but necessary model to one that possibly may completely fall out of favor with the general public. REPAY is also helping drive down the cost of real-time transactions, making the form of settlement more attractive to businesses. Add to the mix REPAY's Instant Funding service (used for loan funding and other payments to consumers) that taps Visa Direct and Mastercard's networks, and this looks like a well-rounded tech platform geared to help loan providers prepare for the future.  

Of course, REPAY's success still depends on it being able to sustain growth, and though it has ample liquidity and positive cash generation to withstand the current crisis, debt is elevated at $241 million. Thus, further acquisitions could require issuing more stock to pay for them. As a reminder, issuance of new stock dilutes ownership of existing shareholders.

Nevertheless, with shares currently trading at 6.2 times trailing 12-month sales, Repay Holdings has a compelling story that deserves some attention as the dust settles from the coronavirus crisis.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.