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Operator: Good afternoon. My name is Ziko and I will be your conference facilitator today. I would like to welcome everybody to Repay Fourth Quarter 2022 Earnings Conference Call. This call is being recorded today, March 1, 2023. I would now like to turn the session over to Stewart Grisante , Head of Investor Relations at Repay. Stewart, you may begin. Thank you.

Unidentified Company Representative: Thank you. Good afternoon and welcome to our fourth quarter and fiscal year 2022 earnings conference call. With us today are John Morris, Co-Founder and Chief Executive Officer; Tim Murphy, Chief Financial Officer; Jake Moore, Executive VP of Consumer Payments and Darin Horrocks, Executive VP of Business Payments. During this call, we will be making forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today’s results and in our most recent Form 10-K filed with the SEC. 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 include references to 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 would now like to turn the call over to John.

John Morris: Thank you, Stewart, and welcome to Repay. We’re grateful to have you on the IR seat to help us with these efforts. Good afternoon everyone. We’re excited to provide an update today on several important developments in the organization. But first, I would like to spend a few minutes reviewing our 2022 financial results. From a financial perspective, for the full year, we reported card payment volume growth of 25%, revenue growth of 27% and gross profit growth of 31%. Organic gross profit growth for the year was 12%. We are pleased with these results, as they highlight the benefit of our resilient and diversified business model, despite the macro uncertainty facing a subset of our clients. From a business perspective, we made great progress on our strategic initiatives.

We’ve continued to increase our sales and distribution resources. We now have over 240 software partners, up from 222 at the end of 2021. In addition, we increased our internal sales and support teams by 30%. On the product side, we successfully converted the back end of BillingTree to our RCS platform, which demonstrates our continued focus on efficiently processing transactions and strategic execution from acquisitions. We rolled out additional payment modalities in 2022, such as digital wallet acceptance and e-cash, with many more to come as we look towards the future. We continue to be thoughtful and strategic with the capital allocation in 2022. We ended 2021 with the acquisition of Payix, which enhanced our position in key core verticals.

We initiated a share repurchase program in May 2022 and have repurchased approximately 1.1 million shares today. We also continue to invest in our most valuable asset, our human capital, by adding very talented team members to our organization. Our CTO, David Guthrie, joined us a little over a year ago. He has been leading our efforts to drive innovation, while refreshing our technology stack and product suite. We added Mike Cottrell to lead our RCS operations and Erik Skinner to lead our mortgage vertical. We’re excited about the opportunities for both of these verticals in 2023. Additionally, we now have Preston Cecil, one of the Payix founders, leading our go-to-market efforts in the personal loan and auto finance verticals. Finally, we were particularly focused on streamlining our organization in 2022 which culminated in some of the announcements you’ve seen from us this year.

First, our divestitures of Blue Cow software, a few weeks ago and as you have seen today, a segmentation of our business into Consumer and Business Payments. As you know, Blue Cow was a subsidiary of BillingTree which we acquired in June 2021. This divestiture allows us to focus on higher organic growth opportunities. It also accelerates our path towards new net leverage below three times, which Tim will discuss in a few moments. Our business is now aligned to prioritize investments and resources towards the Consumer Payments and Business Payments segments. We’re excited about the long-term growth opportunities in 2023 and beyond. Our Consumer Payments segment which accounted for approximately 80% of our card payment volume in 2022, serves the following verticals; Personal and automotive lending, credit unions, mortgage servicing, receivables management, consumer health care and diversified retail.

The Consumer Payments segment also includes our Clearing & Settlement Solutions, RCS and did include the Blue Cow software business prior to its divestiture in February. Jake Moore has been leading the Consumer Payments business since October of 2022 and has been with REPAY since 2017. Before, he being promoted to this role, he was our EVP of Corporate Development and Strategy bringing a unique experience in several years of insight to the $1.8 trillion TAM opportunity within our Consumer Payments verticals. Our Business Payments segment, which represents approximately 20% of our card payment volume in 2022, is comprised of the accounts payable and accounts receivable automation solutions servicing approximately 4000 clients across the following verticals: health care, media, auto, municipalities, home services and property management; including hospitality, HOA and multifamily management.

Darin Horrocks continues to lead our efforts within the Business Payments. For those of you who aren’t familiar Darin has been part of our team since we acquired the company he founded cPayPlus back in July of 2020. Since we are introducing these segments for the first time today, I thought it would be great for you to hear from Jake and Darin on the opportunity they see and areas of focus for 2023. I would like to turn the call over to Jake, to talk about our Consumer Payments business. Jake?

Jake Moore: Thanks John. Good afternoon, everyone. I’m excited to lead our efforts in Consumer Payments. As you’ve heard us say many times this space is large, growing and underpenetrated and, we are very well positioned to continue capitalizing on this tremendous opportunity. We have built a leading next-gen software platform that drives frictionless payments experiences across all of our vertical markets. Our current and prospective enterprise customers are demanding more customized and more robust technology and payment solutions. Our technology platform and institutional DNA has and will, allow us to stay ahead of the innovation curve. Additionally, we have a differentiated two-pronged distribution model which includes both an internal sales force as well as an extensive library of software partner integration.

Trends in the broader segment are largely unchanged from the second half of 2022. And the predominant dynamic still holds. The pandemic era cash-rich consumer is a thing of the past. Consumers have used their pandemic savings and are now pushing credit card balances towards their credit card limits. While lenders will continue to tighten underwriting standards, new loan originations remain strong. These new originations are incremental to our existing volumes. Additionally, our clients are adopting new products and new payment channels within their existing loan portfolios which also contribute to incremental payment volumes. Consequently, our areas of focus as we move throughout 2023 will be to first, further penetrate our existing customer base.

We hear the market commentary related to consumer credit trends, and we have talked directly with our clients. There continues to be macro uncertainty. As a result, our clients are asking for more ways to accept payments, to maximize collections, and to further improve the consumer experience. Instant Funding is also resonating with both new and existing customers. In Q4, transaction volume was again up approximately 50% versus Q4 2021. Our Instant Funding product provides real-time funding solutions via direct integrations with Visa Direct and Mastercard Send. Additionally, we believe this is yet another way to drive card-based repayment transactions, as the default payment method on file is generally a debit card. Further, we remain highly confident about the strength of our sales pipeline.

Last quarter, we highlighted a large enterprise customer win within our traditional installment lending vertical. As these volumes ramp throughout the year this customer will be a meaningful driver of our Consumer Payments growth in 2023. In addition, we are excited about a direct integration with one of the largest privately held automotive retailers in the United States. REPAY will be processing the down payments for car purchases and the installment or loan payments for their financing arm. As we continue to win more large enterprise clients, we are pleased with the adoption trends. These clients are implementing more payment channels and modalities than ever before. Increasingly, clients are choosing REPAY’s complete suite of solutions, because of our payments expertise, best-in-class processing technology and continued investment in product and software partner integrations.

Additionally, we now serve over 240 credit unions up from 200 in 2021 and have a great opportunity just within those customers. Further, there are thousands of other credit unions across the United States that represent a significant opportunity going forward. We recently signed multiple deals with several large credit unions, each of which have over $1 billion in assets. As I mentioned earlier, ISV partner referrals continue to be a significant driver of sales. In 2022, we increased our integration count to over 150 within our Consumer Payments business and look to further increase that as we move throughout 2023. During 2022, we launched our Integrated Partners program to further penetrate these relationships. Through embedded APIs, within existing integrations we continue to add product features and new functionalities such as digital wallet acceptance and real-time payments.

Also, we continue to add payment modalities ahead of market demand. We are extremely excited about the work we are doing to create additional payment options within the mortgage vertical. Through our partnership with Black Knight, we will be able to offer truly differentiated capabilities to our mortgage servicing clients. And finally, REPAY Clearing & Settlement which we refer to as RCS is also part of the Consumer Payments segment. Following significant investments in 2022, we feel RCS is now one of the more modern technology-first processing platforms which will enhance speed to market and processing control for all Consumer Payment clients. So again, there’s a lot of opportunity in the Consumers Payment space, and I cannot be more excited to lead our efforts.

I’ll now turn the call over to Darin to review the Business Payments segment. Darin?

Darin Horrocks: Thanks, Jake, and good afternoon. The Business Payments segment one of which I’ve been a part of for more than two decades has experienced incredible growth over the past few years, particularly in this post-COVID labor environment. The addressable market opportunity is enormous at approximately $3.4 trillion and remains under-penetrated as B2B payments have traditionally been made via check or manually intensive processes. We are positioned very well to pursue the growth opportunities within Business Payments. REPAY provides a unique one-stop shop offering both AP and AR automation. Our TotalPay solution gives our clients the ability to automate payment and reconciliation to all of their suppliers. Our customers experience the same streamline process whether a supplier is receiving electronic payments or not.

Our real-time vendor enablement process is a clear differentiator for us that yields higher electronic adoption. Our vendor network is now over 160,000 strong and grows every day. We also have a unique go-to-market engine that includes integrations with 90 leading software platforms serving medium to enterprise-sized clients. Because of these software integrations and because of our vertical market focus, we have emerged as a leader in healthcare, media, auto, municipalities, home services and property management, including hospitality, HOA and multifamily management. In the fourth quarter, the Business Payments growth rate was greater than 30% year-over-year. Our integrations with dealer management systems and hospitality management systems are leading to shorter cell cycles with larger clients who have multiple locations.

As a leader in the media vertical, our typical customer is a political ad agency that purchases ads during the election cycles, which occur every other year. During 2022, we significantly benefited from an increase in political advertising spend. As we move throughout 2023, we are focused on getting more of that by building the sales team for growth from new customers and to further penetrate our existing client base. We are hiring sales executives for a vertical expertise approach building the sales pipeline as we go after the vast greenfield opportunities within our 90-plus software partnerships. As I mentioned, we have increased our AP supplier network to over 160,000. This is an increase of over 45% compared to fourth quarter 2021. One of our recent new partner signings was HelloGM, an analytics and automation platform targeted at the hospitality management space.

Our integrated payment solution provides a key function within HelloGM’s recently launched accounts payable feature enabling subscribers to define and manage a seamless workflow through HelloGM. Within the healthcare vertical LifeBridge Health, a large hospital system with five acute care centers and over 150 locations in the Baltimore area selected REPAY for their vendor payment needs. At REPAY, we provide a phenomenal client experience and continue to win clients because of it. An example of this is with Hennessy Auto, a local Atlanta-based dealership group with multiple locations. Leveraging our integration to their DMS system they were able to make payment to all their vendors via REPAY and they experience the same streamlined electronic payment experience.

We are committed to continuous improvement and are always looking to further enhance our capabilities. The initiative is underway to offer enhanced ACH payments to all verticals within Business Payments. We are regularly evaluating and leveraging new payment modalities like real-time payments and same-day ACH to reduce payment cycle times. Adding integrations is a key focus. Our technology and infrastructure are clear differentiators for software companies that are looking to embed and monetize payments and we expect these integrated partners to be a clear driver of growth during 2023 and beyond. We have a very strong pipeline of integrated software partners. And with that I’ll turn it back over to John.

John Morris: Thanks, Darin and Jake. So as you can tell we’re very excited about 2023 and believe that we have the right team and technology in place to further grow both segments within our large underpenetrated TAM. The confidence in our growth strategy is driven by: first, a strong sales pipeline in Consumer and Business Payments as a result of our increased investments in go-to-market and product innovation. This has driven many new wins in 2022, which should be fully rolled out in 2023. Second, ongoing secular tailwinds within our Consumer and Business Payment verticals, which have specific transaction processing needs and lag other industries in moving towards digital payments. While our strategic initiatives and partnerships have positioned REPAY to be in the middle of these emerging new payment flows.

We also believe they have the right cost structure in place so that we can support growth while maintaining healthy margins. Specific to 2023, we are confident in our plan due to several factors. First, consumer spending remains resilient on the backdrop of a strong labor market. As you know, our end markets are nondiscretionary and highly recurring payment streams. Second, as Jake previously mentioned, personal lenders continue to see demand for consumer credit and new loan originations remain strong, which are incremental to our existing volumes. Additionally, our clients are adopting new products and new payment channels within their existing loan portfolio, which also contributes to increased payment volumes. Also Payix has counted in organic growth starting in Q1 and is expected to continue growing higher than the overall company average.

And finally, our ARM business is countercyclical in nature. Volumes in the latter part of 2023 will benefit as consumers select payment plans as a way to pay off outstanding past due financial obligations. Our capital allocation priorities remain focused on creating value for our shareholders by investing in organic growth opportunities while continuing to be open to accretive strategic M&A. REPAY is positioned with a strong balance sheet to continue to grow profitably and accelerate cash generation. At REPAY, payment technology is our expertise. We never stand still. At REPAY, we want to be a network to all networks that move funds on behalf of Consumer and Business Payments. Our tech platform is constantly evolving as we are modernizing our in-house Clearing & Settlement engine, expanding our new payment modalities.

As we look into the future, our platform continues to scale as we automate manual processes. We’re excited about the growth opportunities ahead of us, while remaining focused on innovation and execution. With that I’ll now turn the call over to Tim to review our fourth quarter results in more detail and our guidance for 2023. Tim?

Tim Murphy: Thank you, John. Now let’s move on to our Q4 financial results, before I review our financial guidance for 2023. As John mentioned, in the fourth quarter REPAY delivered solid results across all of our key metrics. Card payment volume was $6.6 billion, an increase of 17% over the prior year fourth quarter. Revenue was $72.7 million, an increase of 17% over the prior year fourth quarter. This represents a take rate of approximately 110 basis points. Tax contributed approximately $3.3 million of incremental revenue during the quarter. Moving on to expenses. Cost of services were $14.9 million compared to $15 million in the fourth quarter of 2021. Incremental cost of services from Payix were approximately $1 million for Q4.

Gross profit was $57.8 million, an increase of 22% over the prior year fourth quarter. On an organic basis, we saw gross profit growth of 17% in Q4. Our Consumer Payments segment reported solid gross profit growth of 24% in Q4 and our Business Payments segment continues to be a great gross profit growth driver, a 31% year-over-year growth. Fourth quarter adjusted net income was $21.8 million or $0.23 per share. Lastly, fourth quarter adjusted EBITDA was $36 million, an increase of 29% over the prior year fourth quarter. Fourth quarter adjusted EBITDA as a percentage of revenue was 49%. We continue to believe that the combination of double-digit organic gross profit growth along with best-in-class adjusted EBITDA margins makes us unique compared to our peers.

Pro forma net leverage is approximately three times, when adjusting for the divestiture of Blue Cow. Investing in Blue Cow allows us to follow our capital allocation priorities of investing in organic growth, reducing net leverage and evaluating strategic accretive M&A opportunities. Our balance sheet is well positioned heading into 2023, after just paying down our drawn revolver in February. REPAY’s debt balance of $440 million is convertible with a 0% coupon and 40% conversion premium. This convertible debt does not mature until February 2026. We have approximately $83 million of cash on the balance sheet pro forma for the Blue Cow sale and revolver pay down, to $185 million underrun revolver capacity for total pro forma liquidity amount of $268 million.

During the fourth quarter, we used approximately $8.7 million of cash for share repurchases and onetime settlement payments to certain large clients and partners. As of December 31, we had approximately 100 million shares outstanding on a fully diluted basis. Moving on to our outlook for 2023. Based on current macroeconomic conditions and the impact of the recent Blue Cow sale, we expect the following financial results for 2023. Volume to be between $26 billion and $27.2 billion, revenue to be between $272 million and $288 million, gross profit to be between $216 million and $228 million, adjusted EBITDA to be between $122 million and $130 million. We previously described our growth outlook under three recessionary scenarios, mild, moderate and severe.

The growth implied by our 2023 outlook assumes our verticals will experience a mild to moderate recession. Trends within personal loans are largely similar to what we discussed previously and Auto Finance continues to operate in a recessionary environment. As Darin mentioned, our focus on medium to enterprise-sized clients should allow Business Payments to remain resilient. We will continue to update you on macro trends we are seeing within our verticals, as we report each quarter throughout the year. As we previously disclosed in the Blue Cow Divestiture presentation, Blue Cow’s estimated 2022 contribution was $700 million in card payment volume, $10 million in revenue $9.5 million in gross profit, and $4 million of adjusted EBITDA. Given that it was nonrecurring and thus not receiving additional investment, we expected that business to grow low single digits moving forward under REPAY’s ownership.

Thus in addition to helping us achieve our goals of lower net leverage and greater financial flexibility, this sale is also accretive to longer-term growth. Please note that while our outlook implies lower revenue take rates than in prior periods, this is primarily due to the addition of several enterprise clients at more competitive pricing, Business Payments growing as a percentage of our overall mix in the Blue Cow sale, as that business had higher take rates than the corporate average. We expect organic growth to be slightly higher in the first half of 2023, due to the tough comps in the second half of the year, while we maintain the normal cadence of quarterly contributions. We continue to expect Q1, 2023 to be positively impacted by tax refund season, we are monitoring trends related to total tax refund dollars processed.

Thus far, average refund sizes are lower than our prior periods, which may lead to less seasonal volumes in Q1, 2023. As a reminder we will be lapping strong results in our Business Payments segment through to the political media cycle in 2022. We estimate approximately $6 million benefit from political ad spending in 2022, which is mostly in the second half of the year. For additional details on 2023 organic gross profit growth, please refer to the 2023 outlook bridge on page 11 of our earnings supplement posted to the company’s IR site. Lastly, we expect adjusted free cash flow conversion to remain strong in 2023, accelerating throughout the year into 2024, as we realize the benefits from investments we have been making in sales, product and technology over the past several years.

We’re already off to a strong start in 2023 and look forward to continuing this momentum throughout the remainder of the year. I’ll now turn the call back over to the operator to take your questions. Operator?

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Operator: Thank you. We will now be conducting a question-and-answer session. Our first question is from the line of Bob Napoli with William Blair. Please go ahead.

Bob Napoli: Thank you. Good afternoon. Thank you for taking my question. I really appreciate the additional disclosures on consumer and business payments, super helpful and also the focus on free cash flow conversion. The question on the business payments segment and take it down to the gross margin line. What are your thoughts on the growth of business payments and then the bottom line EBITDA profitability, you’d imagine it would be dilutive EBITDA margins as you’re investing for growth. So just any thoughts on the growth of business payments and the EBITDA margins that you would be targeting from that segment over time?

Tim Murphy: Yeah. Thanks Bob. This is Tim. Yeah, so we feel like it’s — as we’ve said before business payments is one of the fastest growing parts of our business. If you exclude the political media contribution, we still think it’s a business that can grow 25%. We’re investing in that business mainly in go-to-market and product. And it’s also pretty profitable from an adjusted EBITDA standpoint. It’s not as profitable as the consumer payments business. But it’s still pretty healthy margins. It’s not — it’s overall slightly dilutive but of course it’s accretive to growth. And so we will take that trade-off. And so that’s why we’re investing additional dollars there in 2023.

Bob Napoli: Thank you. That’s very helpful. On the consumer side, can you give any color on — I mean you talked about auto being in a recession on the growth of the auto remind us of the percentage of consumer that auto might be. So just the trends in auto consumer broadly different verticals what you’re seeing into so far into 2023?

Tim Murphy: Yeah. So for personal loans, similar trends that we talked about in our last call and end of last year coming into this year have been pretty consistent. That personal loans is about 20%. Auto is also about 20%. Again we’ve been talking about the dynamics within auto finance now since last quarter and I think the trends are pretty similar. In auto, the durations are so long though that if there’s delinquency increases, which we have seen that doesn’t flow through to us quickly because we’re processing for the back book and the durations can be five to seven years. We might not feel that for a few more quarters. That’s about 20% as well. We’re seeing a lot of strength in credit unions. I think credit unions have benefited from some of these other verticals being down a little bit.

I think our mortgage servicing business has done very well. Most of our growth is coming from existing clients in mortgage servicing. And then in ARM, which is about 10%, we think there’s potential for increased volumes in the latter half of this year given some of the delinquency trends and the other sub-verticals within consumer payments and that could benefit us in the second part of the year. So there’s some moving pieces here. But generally we feel good about it and that’s also a very nice pronged business for us.

Bob Napoli: Thank you. Appreciate it.

Operator: Thank you. Our next question is from the line of Ramsey El-Assal with Barclays. Please go ahead.

Ramsey El-Assal: Hi. Thanks for taking my question. I’ll also echo really appreciate the incremental disclosure around segmentation. It’s very, very helpful. I wanted to ask about the margin cadence in the year and how we should think about it from sort of a modeling perspective?

Tim Murphy: Yeah. So — hey, Ramsey, thanks for the question. I think as we’ve mentioned, if you think about take rates, you’ll see that take rates are a little bit lower in 2023 than 2022. The first part of the year they’ll be similar and they’ll kind of tick down a little bit that’s primarily driven by enterprise wins at more competitive pricing, mix shift to B2B which is a slightly lower take rate, which again we’ll get the incremental dollars from the larger enterprise wins and we like the incremental growth from B2B. So those are — we feel fine about those, but they will show a take rate coming down a little bit throughout the year. And then gross profit margins should stay pretty consistent throughout the year. We’re showing a higher gross profit margin in 2023 than we had in 2022.

That expansion is due to our continued focus on optimizing processing costs the full year benefit of having BillingTree on our back end. And that’s something we’ll continue to focus on. And then adjusted EBITDA margin should be a little bit lower in the back half of the year because of just hiring we’re doing in the first part of the year and then some of the hiring we did in the second part of 2022.

Ramsey El-Assal: Okay. That’s super helpful. And then following up on the BillingTree back-end conversion. Obviously, as you mentioned gross profit — that benefited gross profit in the quarter. Are there other material sort of acquisition synergies and acquisition-related projects that have yet to occur that we should expect in terms of flowing in, or is this back-end conversion kind of the end of the larger integration pieces of the recent acquisitions?

Tim Murphy: I think it’s probably the end of anything material. The other flow-throughs I guess I would say are just — we’ve worked on renegotiating terms with some of our large referral partners. Those renegotiated terms lead to better more favorable cost of services and higher gross profit margins. And there’s opportunities like that to increase margins which is what we’re projecting versus just anything related to prior acquisitions.

Ramsey El-Assal: Okay. Perfect. Thanks so much.

Operator: Thank you. Our next question is from the line of Tim Chiodo with Credit Suisse. Please go ahead.

Tim Chiodo: Great. Thanks a lot. Appreciate taking the question. So the 8% to 14% the normalized organic gross profit growth on Slide 11 and really appreciate that bridge. It’s extremely helpful along with the additional disclosures. So thank you. I just want to reconcile the comments to make sure that I was following correctly. I think you were saying that actually the personal loan originations remain relatively strong. Also Payix is coming in and that contributes to stronger organic growth smaller, but faster growth. And you also mentioned the counter-cyclicality of the ARM segment. But was the guidance implying given those comments around the personal loans being strong now a slight degree of macro deterioration or to circle back to the company? Is it actually implying that things stay relatively stable as they are now?

Tim Murphy: Tim, thanks for the question. It’s Tim. We — like we said we’re kind of planning for a mild to moderate recession. There’s already some of that happening in our verticals and that’s the commentary we mentioned on the call. There may be — the planning assumes there may be a little bit more of that. But of course we’re not — we don’t know for sure when and if that will happen. But that’s kind of the underlying assumption is mild to moderate. And when we talked about that last quarter we gave those scenarios and we felt like it made sense to talk about our guidance in that context.

Tim Chiodo : Tim, you completely follow, I think, everyone appreciated those scenarios completely. I was more just squaring it with the fact that the personal loan originations are currently sound like they’re strong. Last thing on Slide 11. Sorry go ahead, Tim.

Tim Murphy : Yes. I think what we were saying was there’s demand. There’s demand for these loans. And so our customers are originating. At the same time they’re also very mindful of tightening the credit box making sure that they are managing credit and delinquencies. And so I think the comment really from Jake was around the demand we’re seeing. And as we’ve said in the past the most important thing is that there’s demand for these loans and then our customers will choose through their underwriting standards whether or not to loosen up and originate more or tighten up and originate less. And that will flex with the mild to moderate.

Tim Chiodo : Okay. Perfect. That’s really helpful for the full year. And this is just more of a minor kind of one just to clarify. If I remember correctly last year in March, there were larger sized tax refunds. So therefore the — some of the loan repayments came in at larger sizes and therefore the fixed fee component might have been seeing less leverage if you will in terms of a take rate perspective. I think that was a mild headwind in terms of the larger payment sizes last year. If you could just recap that dynamic for us? And if that’s something that you’ll benefit as you comp over that? Because if I remember correctly it was a little bit of a headwind to March of 2022.

Tim Murphy : That’s correct. Yes. The average refund size last year was larger, which within our convenience fee model brought our take rate down, because the convenience fee stayed the same as the payment was larger. And so that was a headwind to take rate. Actually what we’re seeing in the data so far this year is that the average refund size is lower than last year which could potentially help take rate, but we’re monitoring whether that lower refund actually has less of a seasonal impact in terms of total volume because a lower refund may lead to a potential lower payment amount on the loans. So it’s a different dynamic this year than last year, but you’re remembering it correctly.

Tim Chiodo : Thank you so much, Tim for both of those.

Operator: Thank you. Our next question is from the line of Andrew Schmidt with Citi. Please go ahead.

Andrew Schmidt: Hey, guys. Good evening. Thanks for taking my questions. Just wanted to drill down on the — just the macro assumptions a little bit more. I think — if I remember correctly I think in November we were thinking about more mild recession scenario, which would have put the growth a little bit higher. Now obviously we’re thinking mild to moderate. And I just want to be clear whether anything has changed in terms of what’s going on in the various Consumer Payments verticals, or is there an incremental dose of conservatism? Just want to square that up a little bit in terms of what we were seeing back then and what we’re seeing now with the benefit of more information. Thanks a lot.

Tim Murphy : Yes, Andrew, thanks for the question. So we basically are trying to take into account what we know now versus then not much has changed other than Auto Finance has continued to operate in more recessionary environment and that hasn’t changed although that could turn in the future. That’s what we’re seeing today. And so I think we’re comfortable with our planning assumptions here, and in the mild to moderate kind of puts us within the organic and normalized organic GP outlook ranges we show on Slide 11, of the supplement. And then, that’s how we’re thinking about it.

Andrew Schmidt: Got it. That’s, helpful. And then if I could sneak in one on just Business Payments. I appreciate Darin’s commentary on the more verticalized go-to-market approach. I think that makes a lot of sense. Maybe you talk about just vertical expansion. When we think about vertical expansion, is that approach likely to come from organic or inorganic? And that kind of segues into an obvious question, on capital allocation and what the M&A pipe looks like. But first, just a question on just verticalized go-to-market and then expansion to different verticals. Thanks a lot, guys.

John Morris: Yes. Hi, this is John. So from an inorganic perspective, we obviously as you’re aware we have our own M&A team that we have a healthy pipeline of deals that we look at from time to time. And specifically, we would love for an opportunity to continue to build in both our Consumer Payments and Business Payments with the right specific strategic asset. There are fewer — as you’re aware, there are a few of those out there specifically on the B2B side. But we would look to — if it’s complementary, and very strategic that would be something we would be very interested in evaluating. And that €“ generally, acquisitions themselves would come with additional verticals, inside of that Business Payments if it were Business Payments.

As far as the opportunities on adding additional verticals, that can happen and does periodically happen and we would see that happening in our foreseeable future specifically, it would come naturally as part of some type of integration or even some type of our ERP integrations as you’re aware, are not specifically exactly vertically focused. They’re — we find opportunities in multiple different areas, as we — we didn’t exactly start in all the ones we are in today. So, I’ll let maybe Darin, add some additional color to that.

Darin Horrocks: Yes. Thanks, John. So a perfect example of vertical expansion this past year, has really been us further penetrating and focusing on the hospitality management space. And that really came pretty organically, through an integration partner, wanting to use our technology platform and connect to us via APIs. And we’ve made several announcements this past year, of hospitality management systems that wanted to really be able to offer payments as a service, as part of their software offering and they’ve been able to do that by leveraging our technology and expanding. And because of our success there right, we’ve really focused on that vertical to expand. And so that’s, an example. And I think there’s more opportunities like that, as we look at further expanding into additional integration partners.

Andrew Schmidt: Thank you, John. Thank you, Darin. Appreciate the comments.

Operator: Thank you. Our next question is from the line of Andrew Jeffrey with Truist Securities. Please go ahead.

Andrew Jeffrey: Hi, good afternoon, everybody. Thank you for entertaining the question. Question on RCS. Can you characterize the type of business that your partners are bringing you in that channel or to that — to your back end. I assume that all that volume is very nicely incrementally profitable. I just wonder about sort of the characteristics of growth at RCS. Does it kind of match the rest of the company? Maybe just frame it up vis-à-vis the sort of — I’ll think about it as the front-end business that you’re driving through your Consumer and B2B business segments?

John Morris: Yes. Hi Andrew, good afternoon and thanks for joining us. So, this is John. So, it is specifically on RCS, as you are obviously aware, Repay, we’re actually — its largest client, right? And — but also, we find that especially as we’ve invested in modernization we’re really excited about our new launch of that modern platform this year. We have found specifically in our industry as you — as it’s called RCS it’s our Repay Clearing & Settlement engine, IT’S a real strategic advantage for us and we have found in the marketplace that people have recognized that. It turns out to be a small world after all. As you can see at times in our business and our expertise and our ability to extrapolate that out into the future we think that’s a really positive for us.

But we’re very selective. And as we partner with the specific processing partners, it’s — mostly it’s going to be someone of meaningful size. That’s very strategic for us that we have long relationships or existing relationships out in the marketplace that we’re aware of. That is incremental to us. We are just a processing partner for them. And I’ll let Tim kind of talk about the dynamics around that part of it. But very strategic for us. As you’re aware Shaler, one of the co-Founders has led that effort for us. And we will be strategic about it, but also a reminder that Repay is its largest client and we’ll always — we and ourselves will continue to expand and grow with that as well.

Tim Murphy: Yes. Thanks John. So, we have about 30 customers in that part of the business, Andrew like what we would refer to as ISOs and they are typically medium to enterprise, some of them can be quite large and some of them are recent wins have been from the larger kind of legacy processors where these customers are coming to us saying they want a more customized solution. They want to get things done more quickly. They want sponsor bank support all of which we bring to them. And we’re winning business there because of that. And like John said we’ve now modernized the back-end solution itself. And so — those are the type of customers we’re winning. We have about 30 today. We’re adding by several each quarter and that business in the last year actually grew very nicely prior in the mid-teens.

Andrew Jeffrey: Okay, helpful. Thank you. And then if I might on the sales and customer support growth. I think — Tim, I think you called out the addition of or maybe John as you — I don’t remember, sorry, about 30% growth in the sales and support team. I wonder does that — I guess how much of that is sales? And does it kind of skew Repay more toward direct sales than you’ve been in the past? I’m just thinking about go-to-market motion and whether — and sales force productivity and whether the way you’re going to market is changing and how that might influence profitability or LTV to CAC or economic metrics like that?

John Morris: Yes. So, we’ve always been direct. And obviously we partner with our software integrated software partners. But we are continuing to just grow and scale that which we think is a great investment for our direct organic growth. So, it’s a similar pattern that we’ve always had. We continue to just invest in that which that should then obviously continue to deliver us long-term organic growth.

Tim Murphy: And also I’d say, to your question about the 30%, most of that 30% are direct sales roles. And a lot of them now on the consumer side specifically are focused on enterprise accounts. We just want an enterprise account that we’re rolling out that’s pretty meaningful to us. And so a lot of those resources are focused on enterprise and then, we’re adding a lot vertical specific on the B2B side, as Darin mentioned. So a good amount of that 30% is direct sales and the rest would be more support roles.

Andrew Jeffrey: Okay. Thank you.

Operator: Thank you. Our next question is from the line of James Faucette with Morgan Stanley. Please go ahead.

Jeff Goldstein: Hey guys. This is Jeff Goldstein on for James. Thanks for taking my questions. Can you expand a little bit on recent trends you’re seeing in your ARM business? Just curious if you’re starting to benefit from increasing consumer debt there or if that’s yet to come and how we should think about growth in 2023 for that business?

Tim Murphy: Yeah. So thanks for the question. It’s — we’re not seeing it yet. I mean we will see a benefit in ARM in Q1 related to tax refund season just like we see a benefit to the lending verticals. There will just be more payments made in outstanding receivables. So there’ll be a benefit there. In terms of the overall macro though, I think the credit balances are starting — credit card balance is starting to really increase. And I think that will ultimately flow through to collection placements and volumes, but probably not until Q3 or Q4. Some of the bigger public names in that space, if you look at some of the data they’ve put out that suggests that they’re building that supply but it will likely flow through to us in the second half.

Jeff Goldstein: Okay. Got it. And then, for my follow-up, I know you’re primarily focused on medium-sized enterprise customers, but can you just remind us of your SMB exposure? And what type of trends you’re seeing in that business?

Tim Murphy: On the B2B side we have very little SMB exposure probably, I would say. I can’t say none but very, very little. The focus truly is on medium to enterprise. And so that business should be more resilient. We’re not seeing the spend impact yet that maybe is being seen in the SMB space. And that’s one of the reasons we focus there.

Jeff Goldstein: Got it. Thank you.

Operator: Thank you. Our next question is from the line of Charles Nabhan with Stephens. Please go ahead.

Charles Nabhan: Hi. Good afternoon and thank you for taking my question. So just going back to your comment on your lenders tightening standards, I wanted to get a sense for, whether the securitization markets had any bearing if any on the ability of your lenders to meet demand as well as what kind of assumptions around securitization market liquidity are you assuming for 2023?

Tim Murphy: From our understanding, our larger customers have more stable funding sources. They’re not reliant upon the securitization market to fund new originations. So we feel good about that. That’s something we have looked at from the larger customers. We can’t say that definitively across our entire business, but we’re not hearing that securitization challenges have resulted in not being able to meet demand.

Charles Nabhan: Got it. And just as a quick follow-up. I know political spend is going lower and I appreciate the disclosure around the 3% impact in 2022. But is there — should we assume that that 3% goes away completely, or is there any revenue coming out of that in the coming year that we should take into consideration?

Tim Murphy: I think pretty much, yes. I mean the political media really is every other year during election cycles. I mean, we’re — as we mentioned previously we’re building a non-political media business but that will take some time, but the political media spend is truly every other year.

Charles Nabhan: Got it. Appreciate the color, guys. Thank you.

Operator: Thank you. Our next question is from the line of Joe Vafi with Canaccord. Please go ahead.

Unidentified Analyst: Thank you. This is on for Joe. Thanks for taking our questions. On the last quarterly update you noted some tractions in cross-selling opportunities on the AP side potentially some large ones in the world. Any update on how those cross-selling efforts are progressing?

Tim Murphy: Darin, do you want to take that one?

Darin Horrocks: Yes. Yes. Thanks for the question. Appreciate that. So, yes, on the cross-sell efforts, we’re really focused on a couple of different initiatives there. As I mentioned, we’ve got the unique opportunity to where we offer both AR and AP. AR really being the traditional acquiring business that’s an integrated customer through one of our EPR solutions. And so over the last year to two years, we’ve been working to make sure that we’ve got the payables capabilities in those ERP capabilities to cross-sell for that existing client base. And we’ve had a good deal of success there as we’ve rolled out that functionality in those integrated ERPs to be able to cross-sell. And so that’s actually one of the areas that have led us into additional hospitality management with some partners there.

So that’s been very successful. And then when we look at the additional cross-sell, the CPS business that was acquired in 2020 was largely a portfolio of virtual card only clients. And so one of the things that we’ve been working on there is to cross-sell our TotalPay solution into their client base so that those customers have the ability to utilize our full capabilities of delivering all their vendor payment solutions. So really an upsell initiative if you will on the payable side. And we’ve seen a good deal of success there as well. But I would say, we’re just getting started and we expect more of that to come for 2023.

Unidentified Analyst: That’s very clear. Thank you. And just a follow-up on your direct sales force. Do you feel that you’re now operating at the optimal level, or should we expect to see more hires there? Thank you.

John Morris: Yes. I think we will — this is John. I expect us to continue to invest organically out into the future. We see the opportunity. What we have seen and what we know is we just need more of that. We think there’s more home runs out there. .

Unidentified Analyst: Thanks.

Operator: Thank you. As there are no further questions at this time, I would like to turn the floor back over to John Morris for closing comments.

John Morris: Thank you, everyone for joining us today. We are very pleased with our — fourth quarter results and we’re excited about 2023. Our business is now aligned to prioritize our investments and resources towards the Consumer Payments and the Business Payments segments that we outlined. And we’re very excited about the long-term opportunities and the growth opportunities we have for 2023 and beyond. Thanks for joining us.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.