Repay Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 29, 2024

Key Takeaways

  • Repay delivered 14% normalized organic revenue growth and 13% gross profit growth in Q4, both ahead of management’s expectations.
  • For full-year 2023, the company achieved 12% organic revenue growth and 13% gross profit growth while improving free cash flow generation.
  • In Consumer Payments, organic gross profit rose 13% in Q4, with the addition of four new software partners (bringing the total to 165), ten new credit unions (totaling 276), and a 45% year-over-year increase in instant funding transactions.
  • Business Payments gross profit climbed 25% (excluding 2022 political media), driven by software partner sales penetration, a 60% expansion in the supplier network to 261,000 vendors, and integrations with 97 partners including Blackbaud, PDI Technologies and Sage.
  • For 2024, Repay forecasts revenue of $314–320 million, gross profit of $245–250 million, and adjusted EBITDA of $139–142 million (≈44% margin), targeting ~60% free cash flow conversion with reduced CapEx.
AI Generated. May Contain Errors.
Earnings Conference Call
Repay Q4 2023
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good afternoon. I'd like to welcome everyone to Repay's 4th Quarter 2023 Earnings Conference Call. This call is being recorded today, February 29, 2024. I'd like to turn the session over to Stuart Grisanti, Head of Investor Relations at Repay. Stuart, you may proceed.

Speaker 1

Good afternoon, and welcome to our Q4 2023 earnings conference call. With us today are John Morris, Co Founder and Chief Executive Officer and Tim Murphy, 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 filings related to today's results and in our most recent Form 10 ks. Actual results may differ materially from any forward looking statements that we make today.

Speaker 1

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 reference 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

Speaker 2

would now like to turn the call over to John. Thanks, Stuart. Good afternoon, everyone. Thank you for joining us. I wanted to cover 3 main topics today.

Speaker 2

1st, a review of the Q4 second, a recap of our accomplishments in 2023. And lastly, go over our strategic initiatives that will drive growth in 2024 and beyond. First, on Q4, on a normalized organic basis, we reported revenue growth of 14% and gross profit growth of 13%, with both metrics performing ahead of our expectations. We closed out the year seeing the continued demand from existing clients adopting more payment capabilities. And new clients demonstrating the need for our powerful technology.

Speaker 2

Prepay has become a leading expert within the consumer payments and business payment verticals we serve. We have become a one stop platform to optimize payment streams and are constantly working to capture new payment flows while enhancing client relationships with many value added services. In Q4, our consumer payments organic gross profit growth was 13%. This was primarily driven by the ongoing secular tailwinds within the consumer payments verticals we serve and the continued ramp of recent large client implementations. We added many new partners and clients to our network in Q4, including 4 new software partners, bringing us to a total of 165 partners in the Consumer Payments segment.

Speaker 2

One example was our launch with Acuvo, a leading provider of cloud based software that elevates how financial institutions collect and manage their portfolios. Through the integration with Akuvo's collection management software, we enable financial institutions to accept digital payments, while utilizing a secure real time data in exchange for streamlined operations, robust reporting and simpler reconciliation. We also recently announced an integration with Lexop, a self-service software for credit unions, financial institutions and other financing companies that optimizes the repayment journey for past due consumers. Repayment integration with Lexstock Collections Management Software enables their clients to collect late payments more efficiently, receive real time payment updates and increase engagement and minimize loan servicing costs. We added 10 new credit unions to repay bringing our total credit union clients to 276.

Speaker 2

Repay's vertical expertise and software integrations are a differentiated solution leading to a healthy sales pipeline. As an example, a new Credit Union client was evaluating multiple processors to solve all their payment processing needs before selecting Repay. We believe we are the only market participant that has a combination of integrations with our clients' core platform, home banking platform and collection platform to fit their unique needs. In addition to credit unions, we're also addressing a similar client base in community banks and winning new clients through our existing software integrations. These new wins continue to give us the confidence that our investments towards creating software partnerships and further embedding our payment technology within existing integrations are leading to a strong sales pipeline with positive returns across Repay.

Speaker 2

Additionally, in value added services, our instant funding product continues to see significant growth with transactions up approximately 45% year over year. We had a very productive quarter for our business payment segment, which grew gross profit by 25% when excluding the impact of political media during 2022. Our normalized gross profit growth was driven by sales penetration within software partners and a strong implementation pipeline for enterprise and mid market companies within our healthcare, property management, auto and municipality verticals. Within AR, we remain focused on deepening our client bases within existing ERP systems and optimizing payment acceptance. And on the AP side, we increased our supplier network to over 261,000 suppliers during the quarter.

Speaker 2

Our real time vendor enablement continues to drive the number of suppliers within our network, which drives the monetization of digital payment flows and deeper virtual card penetration. We signed many new clients across our verticals during the quarter and we also continue to grow with our existing clients. A great example of this is Baywood Hotels, whose management portfolio spans many well known brands as one of the fastest growing hotel management and development companies in the United States. We signed and began implementing for Baywood Hotels earlier this year and they have continued to expand on our AP platform by adding many new hotel hotel properties each month. We are now integrated with 97 software partners in the Business Payment segment.

Speaker 2

A few new and expanded partnerships to highlight include Blackbaud, PDI Technologies and Sage. Repay's enhanced integration with Sage Intacct will supplement our existing integrations across Sage's product suite. Software providers are selecting Repay to directly embed our payment technology into software as they strive to enhance their users' experience by providing value added services to their customers. And now on to the next topic, a review of full year 2023. From a financial perspective, we demonstrated normalized organic revenue growth of 12% and gross profit growth of 13%, while improving our free cash flow generation throughout the year.

Speaker 2

From a commercial perspective, we made great progress as well, including the continued focus on our sales and distribution resources. We now have over 262 software partners, from 240 at the end of 2022. In addition, we aligned our internal sales, implementation and support teams to focus on specific verticals and software partners as well as strengthen the customer experience. And throughout the year, we added talented team members in select areas of our organization, while reducing overall net headcount and maintaining our margin profile. We increased our supplier network 60% year over year to 261,000 vendors.

Speaker 2

On the product side, we rolled out additional payment modalities such as PayPal, Venmo, also enhancing our e cash solution. We also made progress on our mortgage debit exceptions initiatives with Black Knight. In addition, we made key hires to ensure our product team can support the rollout of future products and services to support our customer needs. From a capital allocation standpoint, we started the year streamlining the organization with the divestiture of Blue Cow Software, which helps us remain focused on investments towards organic growth. And during Q4, we utilized our share repurchase program to buy back shares in a disciplined way.

Speaker 2

The work we put in this past year positions us well to execute towards Refay's mission of helping businesses make and receive payments, so they can focus on what matters most to them. This effort involves meshing together a vast ecosystem of payment flows with many moving pieces over the past decade plus. It involves the connectivity of all various networks that allow us to move money, including our card payment rails, RTP or instant funding via Visa Direct and Mastercard SIN. It means that we need to provide omni modality and omni channel. It includes a software network of embedding payments directly within enterprise software workflows.

Speaker 2

These integrations open up large verticals with critical mass and allows us to create a network within our end markets. On the business payment side, we have developed a vertically rich supplier network to create a flywheel for the future and eventually expand capabilities to enhance our vendor enablement process. This means we are a full service processor providing value added services like instant funding and communication solutions, also working on various strategic initiatives and opportunities to expand over time. The value created is the digitalization of payment flows, while also optimizing transaction routing to deliver the best payment experiences to our clients and their customers. While we are relatively early in this continuous mission, we are starting to see improved growth, which we believe will drive higher returns over time.

Speaker 2

As we turn to 2024, we will align our strategic initiatives with this mission while driving growth this year and beyond. As we continue to take advantage of the secular trends towards frictionless digital payments, we will be squarely focused on 1st, go to market efficiency. We will continue to expand our services and to leverage our now 262 integrated software partners finding ways to further penetrate these relationships. We look to add new software partners to help fill our expanding sales pipelines. And we will selectively add enterprise sales team members to specific verticals within consumer payments and business payments.

Speaker 2

2nd, client implementations. We remain focused on making sure we guide our clients through a seamless onboarding process while providing ongoing and first class support throughout the entire client experience. And third, product. Our tech platform is constantly evolving as we have developed a best in class clearing and settlement engine while expanding our payment modalities. As we look into the future, our platform continues to scale as we automate manual processes.

Speaker 2

Lastly, our capital allocation priorities remain focused on creating values to our shareholders by investing in organic growth opportunities. I'll continue to be open to accretive strategic M and A as well as buying back shares in a disciplined way. We exited 2023 with a solid execution that has continued into January with consistent trends and strong growth. With that, I'll turn it over to Tim to go over our financials and our outlook for 2024. Tim?

Speaker 3

Thank you, John. Now let's go over our Q4 financial results before I review our financial guidance for 2024. As a reminder, Q4 normalized organic growth is calculated by excluding contributions attributable to the divested Bluekow Software Business and the contribution attributable to political media in the Q4 of 2022. In the Q4, Repay delivered solid results across all of our key metrics. Card payment volume was $6,400,000,000 revenue was $76,000,000 an increase of 14% on a normalized organic basis over the prior year Q4.

Speaker 3

Our business continues to benefit from strong performance in both card based payment revenue as well as other value added services such as communication solutions and fundings along with higher yields and business payments. Revenue attributable to Bluekow and Political Media in Q4 2022 was approximately 3,300,000 dollars 2,800,000 respectively. In Q4 normalized organic gross profit grew by 13% year over year. This normalized organic gross profit growth removes approximately $3,200,000 $2,500,000 of gross profit attributable to Blue Cow and Political Media in Q4 2022 respectively. Our Consumer Payments segment reported organic gross profit growth of 13% in Q4.

Speaker 3

Our Business Payments segment gross profit grew 25% when excluding the impact of political media during Q4 2022. 4th quarter adjusted EBITDA was $33,500,000 representing 44% margins. Importantly, Q4 adjusted EBITDA margins improved sequentially as we have maintained relatively stable SG and A costs on a quarter over quarter basis, while simultaneously working to align our sales implementation and support teams throughout the year. Lastly, 4th quarter adjusted net income was 26,300,000 dollars or $0.27 per share. Our pro form a net leverage is now approximately 2.6 times.

Speaker 3

We expect net leverage to naturally decline throughout this year from our strong profitability and cash flow generation, excluding any potential M and A. As of December 31, we had approximately $118,000,000 of cash on the balance sheet with access to $185,000,000 of undrawn revolver capacity for total liquidity amount of $303,000,000 Repay's total outstanding debt of $440,000,000 is comprised of a 0% coupon convertible note that does not mature until February 2026. During the Q4, we used $13,500,000 of cash for a software partner residual buyout and $2,500,000 of cash for share repurchases. As of December 31, we have $37,500,000 remaining available under our current share repurchase authorization. Moving on to our thoughts for 2024.

Speaker 3

Our full year 2024 outlook demonstrates our consistent growth algorithm of growth with existing clients, the full year contribution from clients that began ramping during the prior year and growth from signed new clients. We expect revenue to be between $314,000,000 $320,000,000 We will no longer be providing guidance for CPV. Our company has evolved over the years to now have over 20% of revenue attributable to value added services that are non card volume tied revenue streams. We expect gross profit to be between $245,000,000 $250,000,000 and adjusted EBITDA to be between $139,000,000 $142,000,000 We expect roughly 44 percent adjusted EBITDA margins. As we expect adjusted EBITDA to grow faster than revenue and gross profit during the year, leading to an acceleration of cash conversion, we're introducing a free cash flow conversion target of approximately 60% for full year 2024.

Speaker 3

Free cash flow conversion is calculated by dividing free cash flow by adjusted EBITDA. We plan to reduce overall CapEx spending, giving us the confidence to accelerate our free cash flow conversion throughout 2024, leading to free cash flow growth of approximately 60% year over year and sustained mid to high teens growth thereafter. We continue to execute on our strategic priorities and while we have more work to do, we are seeing the sales pipeline develop, giving us confidence in our multiyear growth opportunity. Planning assumptions around our 2020 4 outlook involve a measured ramp of the previously announced auto captive win, while lapping strong growth from enterprise clients during 2023. Due to the uncertainty around volume timing, our 2024 outlook does not incorporate significant second half contributions from the mortgage debit acceptance opportunity in the recently announced business payments enterprise software integration such as Blackwood.

Speaker 3

Our quarterly cadence for of Q1 being positively impacted from the seasonality of tax refunds, while Q3 and Q4 will benefit from the incremental contributions of our political media business in the business payments segment. Our tax refund season began later this year. Early data suggests the total refunds will be consistent with last year. And the average refund size may be up slightly compared to prior year. Q1 free cash flow conversion is expected to be closer to the full year 2023 profile due to quarterly timing around net working capital and is expected to accelerate throughout the year.

Speaker 3

As you can see from our results and outlook, we expect free cash flow conversion to improve throughout 2024 as we reduce CapEx, but also realize the benefits from investments we've made in sales, product and technology over the past several years. We've always focused on profitable growth, refining processes across the business where we can scale through automation, while also maintaining investments towards innovation. I'll now turn the call back over to the operator to take your questions. Operator?

Speaker 4

Thank you.

Operator

Our first question comes from the line of Ramsey El Assul from Barclays. Please proceed with your question.

Speaker 5

Hi, this is Ryan Campbell on for Ramsey. Thanks for taking my question today. And what are the biggest levers when it comes to improving free cash flow conversion this year? And given the 60% rate you provided, is that how we should think about the longer term normalized conversion rate for repay? Thank you.

Speaker 3

Absolutely. So we're very excited about that and feel confident in rolling out that new metric. The biggest drivers would be adjusted EBITDA growing faster than gross profit, so increased profitability, reduced CapEx down to the levels we've said previously, which are around, call it, 13% to 14% of revenue. Those factors combined lead to the cash flow conversion outlook of 60%. And like we said on the call, we think that can grow sustainably mid to high teens going forward.

Speaker 3

So that should lead to an even higher free cash flow conversion percentage in future years.

Speaker 2

Great. Thank you.

Operator

Our next question comes from the line of Peter Heckmann with D. A. Davidson. Please proceed with your question.

Speaker 6

Good afternoon, everyone. Thanks for taking the question. Can you comment a little bit about your expectations for the growth in revenue related to political media spend over 2022? And then a little bit about how you're thinking about the underlying growth of the business segment as we go into 2025 or growth in 2024, excluding political media spend?

Speaker 3

Yes. So, we feel good about the how we're set up for this year's presidential cycle. As we've said previously, the 2022 cycle, we had about $6,000,000 of gross profit and we think that'll grow about 20% this year. So we're expecting strong growth and that's generally related to just the digital payment shift to digital payment trend and then just a lot of the industry research we've done. So that's how we're thinking about the contribution for this year.

Speaker 3

And we think underlying business payments growth excluding political media can still be mid to high teens. So we think it's a mid to high teen growth business in the near term.

Speaker 6

That's great to hear. And then what would can you talk a little bit about the expected margin benefit from the software partner residual buyout? Is that where we will see it show up in the gross margins?

Speaker 3

Yes. Yes, you'll see it show up there. And I'd say our outlook assumes that impact. And so you can see a little bit of expansion in the outlook. And that's not solely related to that, but a decent chunk of it is.

Speaker 3

And that's something we've done in the past, and we have opportunities still to do that in the future. We think that's a good use of capital given the multiples we pay for those portfolios and you do see that show up in really both gross profit margin expansion and adjusted EBITDA margin expansion.

Speaker 6

Great. Thank you.

Operator

Our next question comes from the line of Andrew Schmidt with Citi. Please proceed with your question.

Speaker 4

Hey, John. Hey, Tim. Good evening. Thanks for taking my questions. I just want to dig into Slide 12, the existing client growth bucket.

Speaker 4

Maybe you could just drill down that a little bit. I know historically this has been driven by increased penetration of your existing clients. Wondering if that's still the case here. Are there other factors? And maybe just definitional question whether this includes clients signed in 2023 that are ramping in 2024.

Speaker 4

Maybe just a little bit around that existing client growth bucket would be helpful and your visibility there. Thanks a lot.

Speaker 3

We do have a lot of visibility there. I mean, our business is highly recurring. It's typically tied to longer term payment streams. And so we see a lot of growth from existing clients just adopting more of our payment modalities and our payment channels, which drives typically drives higher debit acceptance and debit penetration, which leads to a lot of the existing client growth. And like you said, I mean, there's also some embedded growth from clients that have been signed in prior periods that haven't fully ramped.

Speaker 3

And usually the ramp is around additional adoption as well. So it's a combination of those things. And then just the underlying clients themselves growing helps support existing customer growth.

Speaker 7

Yes, Andrew. Good evening. I would also point you to our investor supplement which we you'll see a bridge on new client growth as well as existing client growth in there. And also I'll give you a couple additional points. If you look at the 45% year over year growth in our value added services, which includes our instant funding, those are kind of leading indicators of existing client growth.

Speaker 7

And then the network effect we get off of some of our supplier network, the growth in our 60% growth in our supplier network. That in itself drives additional growth as well. Yes. It's a good point.

Speaker 3

I mean in the business payment side, we have a total pay solution. So we do we outsource the entire payables function. And so oftentimes we're taking payments from say check or ACH to virtual card and driving enhanced virtual card penetration in the way we do supplier enablement and vendor enablement. And some of that could lead to existing client growth as well on the business payment side.

Speaker 4

Got it. That's very helpful. And yes, good point about the value add services. I know that's been an increasing part of the story over the last couple of years. So that's well added.

Speaker 4

If I could just ask on the for my follow-up, just I gave a lot of questions on the convert. Obviously, it's out there in 2026. What's the philosophy around handling that? Are there opportunities to chip away at that in the interim or opportunistically? Or is it sort of wait till we get closer maturity and then determine of course there?

Speaker 4

Anything around just the strategy there would be helpful. Thanks a lot.

Speaker 3

Yes. I mean, we're obviously very aware of the maturity on that. It's still not for another 2 years, but we're thinking through different ways to manage that liability. There are a lot of options. It's very flexible capital.

Speaker 3

And we would we're growing cash, and one of our capital allocation priorities could be to address the convert. And it likely would be in the form of chipping away at it like you said, but we haven't made any final decisions on that. We have a lot of options.

Speaker 7

I would add that the convert market appears to have opened back up, which will give us those additional options if we choose as well.

Speaker 4

Makes sense. Thank you, John. Thank you, Tim.

Speaker 7

Thank you.

Operator

Our next question comes from the line of Sanjay Sakhrani with KBW. Please proceed with your question.

Speaker 8

Hi, this is actually Steven Fox filling in for Sanjay. Thanks for taking my questions. The first one I have was just around if you could talk about the macro outlook that's assumed within the guide and anything around like how we should think about the gross profit and EBITDA from a quarterly cadence perspective? Thanks.

Speaker 3

Yes. I mean, our guidance philosophy is generally based on just looking at current run rate trends in our business and utilizing what we know about the business, what we have either from existing client growth. Like I said, we have a lot of visibility into that and then new signed clients. So a lot of it is just based on those recent run rate trends in our own business and then what's going on the most recent trends from a macro perspective. So those are kind of our planning assumptions based on what's currently happening in macro.

Speaker 3

And then we as I mentioned on the call, I mean, the quarterly cadence is that Q1 will benefit from tax refunds. And I mentioned it's still early days, this tax refund season, but so far it looks like overall returns will be generally consistent with last year, but the average refund sizes seems to be a bit higher. That would be good for us. And then we see it because this year is a presidential cycle, we see an uptick in Q3 and Q4 related to political media volumes and political media spend. So that's generally how we think about the cadence of our overall business.

Speaker 3

From a free cash flow perspective, as I mentioned, Q1 will likely look like the full year 2023 profile, it will build throughout the year. So free cash flow conversion will accelerate throughout the year leading to a full year number of approximately 60%.

Speaker 8

Got it. That's very helpful. And just like following up around the prior comment on the warrant the convertible and just how should we think about the cash that you have? And if you could talk also about the potential M and A market, because we've been hearing this may be signs that valuations have been coming down. Just I want to see what you're seeing out there.

Speaker 8

And if the right deal comes along, does these convertibles on the horizon prohibit you from doing anything? Thanks.

Speaker 3

Okay. Yes, I mean, on the convert, we like I said, it's really flexible. We have a lot of options. We're growing cash nicely. Our free cash flow conversion profile should put us over $200,000,000 at the end of 2024.

Speaker 3

We are looking to maintain flexibility for various capital allocation priorities, 1st and foremost being organic growth. And then we have the share repurchase authorization, which we acted on toward the end of last year. And then the convert is again something we're monitoring. It's 0% interest. And so we're just trying to be thoughtful around maintaining flexibility to also continue to reduce net leverage.

Speaker 3

And then from an M and A perspective, we do see the pipeline building. We do see more activity picking up coming into this year. I think sellers probably have become more rational on valuation. So the spread between private and public markets is probably compressing. But we haven't done an acquisition in over 2 years.

Speaker 3

So we've been very disciplined and we'll continue to be disciplined on valuation.

Speaker 8

Got it. Thanks for taking my question and congrats on the good quarter. Thank you.

Operator

Our next question comes from the line of Joseph Vafi with Canaccord. Please proceed with your question.

Speaker 9

Hey, guys. Good afternoon. Nice results. Just could you just go through the reduced CapEx outlook for 2024? Remind us what were some of those investments that were being invested in higher run rates and are those projects just completed or how should we think about CapEx reduction relative to forward investment and the opportunities coming from?

Speaker 9

And I have a follow-up.

Speaker 3

Yes. We have invested heavily in the business. We've invested in growth. A lot of that was focused on our back end RCS, where we're just that is we as repay are the largest user of that platform and so we want that to be as robust and as modern as it can be. So it's a big investment that we don't think is recurring.

Speaker 3

From a growth investment standpoint, there's a lot of work done on large client implementations and also large software partner implementations and then upgrades. We've been doing a lot to put ourselves in a position to further penetrate existing software relationships in addition to implementing new relationships. And we've also done a lot of work. We haven't done an acquisition in over 2 years. So in addition to doing work on RCS, we've done a lot of work to integrate prior acquisitions and then moves on to effectively a single platform.

Speaker 3

And there's integration costs associated with that and that can sometimes show up in the form of CapEx. So there's some of that work behind us. And so like I said, we there was CapEx was a bit elevated in 2023 and we expect to bring that down to, call it, to 13% to 14% of revenue level in 20 24 percent and even further down beyond 24%. That in addition to just EBITDA growing adjusted EBITDA growing faster than gross profit combined leads to the free cash flow acceleration.

Speaker 7

Yes. Joe, let me add just a little color there. Obviously, that continues our our investments in technology go with our embedded payment solutions inside of our software partners and our ability to do it via networks all networks that move funds. So omni modality as we drive our product features throughout our solutions, we've added many of those this year. So very complementary to what we're looking at.

Speaker 7

We think we're set up well and we've made some of those investments, our ability to drive those processing features. And then and we would expect to as Tim indicated, we would expect to scale some of that back as it's not those projects begin to end.

Speaker 9

Fair enough. Thanks for those comments guys. And if we look at this, some of the stuff like Instant Funding and your other value services growing really fast, just trying to get a feel for kind of how penetrated in the market you might be with some of these services. I mean, clearly it's a small base, but just kind of wondering how you're thinking about the TAMs in some of these fast growth areas? Thanks a lot.

Speaker 3

The value added services are certainly a nice grower for us. There's a couple of different revenue streams there. We called out instant funding and communication solutions. Instant funding today, the primary use case is in personal loans. It's funding loans directly onto the consumer's debit card, which we actually think leads to higher debit acceptance because oftentimes when you fund the loan on a debit card, it becomes a default repayment mechanism for automatic recurring payments.

Speaker 3

So that's a benefit just through existing client growth in terms of additional debit acceptance. So but we're probably only utilizing that, the instant funding product with maybe a few 100 lenders and we have The primary use case we've seen so far for communication solutions is in mortgage servicing. There's a lot of communication and notifications required around when your payment is due, how your payment can be made and the and then tie a digital payment to the communication itself. So we're also trying to make more of those communications digital and then tie a digital payment to the communication itself. So that's a nicely growing business for us and that drives some of the growth in mortgage servicing.

Speaker 3

Those are the two areas we see where there's just not a lot of penetration today, but a big opportunity to continue to grow those services.

Speaker 7

Let me add as well. The real flywheel effect on the business payment side as you know, we're seeing tremendous amount of opportunities there specifically on the payable side. And for every payable with someone else's receivable, our ability to really turn that crank is there and our ability to just continue to accelerate that. Let me add as well, embedded payments into very large enterprise software platforms such as our example we've been giving is Blackbaud. There's several of those opportunities out there and really help in the monetization of payments, the to and the from, which exist in every platform.

Speaker 7

It's a significant opportunity with many years of growth. As well as we mentioned a few things as well like our mortgage initiative is really not in our 2024 concept, but we think that's a multiyear contributor to organic growth as well.

Speaker 9

Great. Thanks for that extra color, John. Nice quarter again, John and Tim.

Speaker 4

Thank you. Thank you.

Operator

Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.

Speaker 10

Thank you very much. Just a quick question. Obviously, you answered the question around acquisitions and valuations and you guys haven't done anything in a couple of years, you've been disciplined, but maybe that's starting to open up a little bit. How should we think about what kind of appetite you would have? Like what are you looking for either from a capability or size perspective?

Speaker 10

And then in reference to your CapEx questions, I think your comments about like maybe why that was elevated and now coming down makes sense. But if and as you were to do some incremental acquisitions, should we expect CapEx to come back up or is that really hard to say, ahead of time?

Speaker 3

Yes. In terms of M and A priorities, I mean, we look at deals across both consumer payments and business payments. We have a number of attributes we look for and it usually centers around integrated payments because integrated payments to us lead to better retention statistics, typically higher margins. And that's why we focus on those types of businesses. And those exist across consumer payments and business payments.

Speaker 3

We'd like to scale Business Payments. We'd like that to be a bigger part of the overall mix. We see in the Business Payments segment specifically, we see targets in both AR and AP. I would say there's probably more targets in AP. And we would be not only scaling B2B, but we potentially would be buying other capabilities like cross border payments.

Speaker 3

We're really not in cross border payments today. We could be more in the SMB market through acquisition. Right now, we're focused on medium to enterprise. There's some opportunities to potentially participate in the SMB space or just expand the number of verticals we're in, in AP. There's some of our targets are in different end markets and they have their own supplier networks in those end markets.

Speaker 3

So we'd be getting access to new vertical niches, new software integrations and an enhanced supplier network, because we'd like to grow our supplier networks. That would be one of the attributes we'd look for on the AP side. So those are that's how we think about M and A. It's across the board, but we do want to grow the B2B business and scale it. And we've done a lot of work to bring these platforms together.

Speaker 3

And I think we have the right platform and infrastructure in place to absorb additional acquisitions without significantly elevated CapEx to integrate them. I mean there may be some work required initially, but I think we've kind of demonstrated our ability to bring these platforms together, particularly over the last few years when we haven't been doing M and A and been focused more on organic. And I think segmenting the business also sets up to absorb acquisitions more effectively and efficiently going forward, which should limit the need for incremental CapEx.

Speaker 7

James, the thing I would add to that Tim's dead on those comments. And the other thing I would add to that is we have proven our ability to embed payments into these various different software platforms. We would want to add to our scale across the board for our key core competencies of what we do and we think we can add great shareholder value with the right opportunities there.

Operator

Our next question comes from the line of Timothy Chiodo with UBS. Please proceed with your question.

Speaker 5

Great. Thank you for taking the question. Of the 262 software partners, if we were just to look at the consumer payment side, just want to get a rough lay of the land update in terms of how would you describe the need for you to sell into those? In other words, I know that for many of them, the sales folks at Repay would be able to contact the underlying merchant working with the software platform. Maybe some of them, if you could just help us, some of them you're kind of the only payment provider and anyone working with them is automatic business to you.

Speaker 5

Maybe just break down the mix there. And then I have a brief follow-up unrelated on RCS.

Speaker 2

Sure. I'll start. Good evening, Tim.

Speaker 7

We are a direct sales force and most all of our software providers are referral partners as you are aware and which in which they're referring new clients to us and we're obviously going directly into capturing the clients we don't already have, which there are several of those inside of every one of those, of those 262. So we're constantly going through our associations, our conferences that in which we are meeting these various new clients. So it's a direct approach where we own the from a referral basis, it's probably a fifty-fifty relationship of us being referred to us. But ultimately, because of the payment expertise knowledge needed, because of the omni modality, omni channel part of this, there's great value in the financial technology

Speaker 3

262. Like I think you were saying, we're often the preferred provider. These software partners don't need more than say 2 or 3 at most payment providers in their platform. And usually our integration is more deeply embedded into the platform. And therefore, we get more of the referrals.

Speaker 3

And then we start calling on the clients directly, which leads to existing penetration opportunities. So we're often the preferred provider and we've had a lot of these relationships for a number of years. And we've gone through an exercise of refreshing the integration, which is some of the CapEx dollars, but that gives us a better opportunity for penetration.

Speaker 5

John, Tim, thank you. Both of those answers are very helpful. That's exactly what I was trying to get at in the fifty-fifty on the 162 and that extra context is great. The follow-up, RCS. So oftentimes we talk about RCS as an acquisition that helped with your gross margins.

Speaker 5

And any time you bring on an acquired property, you can switch the processing over to RCS. It's in house. It helps your existing business. It helps future acquisitions. But what we often or don't as often talk about is just RCS as a standalone business and gaining processing share and signing up new partners on its own outside of repay.

Speaker 5

Is there any just context you could provide around that? How much of a focus is that? How is that going?

Speaker 3

Yes, we can. I mean, you're right. I mean, there is an effort to bring on new processing clients. We would call them on to RCS. We have a dedicated sales team doing that, someone with a lot of experience in the industry and has a lot of relationships with the various processing client prospects.

Speaker 3

And so we do bring on a more basically a more modernized platform. Okay. And then, and a more basically a more modernized platform in terms of onboarding and all the different things we do for them. So that's how we win there. We it's not from a sales and distribution perspective, it's clearly not the number one focus because it's not the largest part of the business.

Speaker 3

But we do have an effort there to bring on new clients each year.

Speaker 5

Excellent. Thank you for both of those.

Operator

Our next question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.

Speaker 4

Hey, guys. Thank you. First question is just how are you feeling about the auto and the personal loan end market? And then secondly, just the pipeline sales pipeline, how are you feeling about that? Or how is that stacking up kind of relative to other years?

Speaker 3

In terms of personal and auto, very similar trends as we said previously in prior quarters. We try to stay close to our clients there, but the trends we're seeing are pretty similar. And in terms of the sales pipeline, I mean, one of the things we like about adding the 4 or 5 new software partners each quarter is it gives us a much larger distribution opportunity and helps us grow the pipeline. And so we feel like we have a really robust pipeline coming to us via referrals from the 262 software partners. And also just with our direct sales force, we've added we reduced overall headcount in 2023.

Speaker 3

But when we did add, we added in areas around go to market like direct sales reps and sales support. So we have a very healthy growing pipeline largely a result of just the growing number of software relationships.

Speaker 4

Got it. Okay. Thank you.

Operator

There are no further questions in the queue at this time. I'd like to hand it back to John Morris for closing remarks.

Speaker 7

Thank you again for joining us today. We capped off 2023 with strong results that we have continued to see in the 1st part of this year. We feel confident in executing on our 2024 plan as we outlined today of profitable growth and accelerating free cash flow conversion. Thanks for joining us.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a

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