Repay Holdings Corp (RPAY) Q3 2020 Earnings Call Transcript

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Repay Holdings Corp (NASDAQ:RPAY)
Q3 2020 Earnings Call
Nov 9, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to today’s earnings conference call being hosted by Repay. 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. 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 might differ materially from any forward-looking statements that we may make today. The 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 and an explanation of these non-GAAP financial measures as well as reconciliation of these non-GAAP measures to the nearest GAAP financial measures can be found in our earnings available on the Company’s IR site.

I would now like to turn the call over to Mr. Morris. Please go ahead.

John MorrisChief Executive Officer and Co-Founder

Thank you operator, and good afternoon everyone. We hope everyone is doing well and staying healthy. On today’s call, I wanted to first give an update on our business in the third quarter, followed by a review of how we’re executing on our growth strategy with some exciting business announcements. I’ll then turn it over to Tim to discuss our third quarter financials and guidance for the remainder of the year.

As you could see from our results, the value proposition for our business has continued to prove more evidence since COVID-19 pandemic began almost eight months ago. For the third quarter, we reported 44% and 40% growth in card payment volume and gross profit, respectively. Similar to Q2 and in Q3, we experienced increased demand for our offerings in several of our businesses across existing and new clients as our customers have accelerated the implementation of electronic payment capabilities. The pandemic has proven that loan repayments are resilient. Borrowers place a very high priority on staying current on their loan payments. The use of stimulus funds to pay down debt supports this belief.

We’ve also continued to see significant changes to electronic payments over the past few months, which has been and will continue to be a tailwind for our organic growth. Specifically, auto loan repayments have been very strong, which has been driven by an increase in auto lending and positive macro trends in the used car space. There is a lot of demand for used cars from people who are moving out of the cities or more reluctant to use public transportation. Lower interest rates are contributing to the demand as well.

Other lenders are accepting more payments on cards and are seeing increased volumes, which benefits us. Our customers are wanting to use more of our channels and are looking for ways to engage consumers more efficiently. Digital engagement is one such ongoing trend allowing customers to effectively reach consumers, which drives penetration for us in terms of electronic payments for auto loans. In the future, we also look to more actively address the prime lending market, including captives. Therefore our TAM for auto is about $600 billion and is one of the fastest growing parts of our business.

Our mortgage servicing business also performed very well in the quarter due to increased home buying and refinancing activity along with low interest rates. This increased demand and low mortgage rates as part the boom in originations and mortgage service transfers positioning us well to benefit. We’ve seen a similar adoption trends in our B2B vertical. This business is especially enterprise clients we typically serve, have been forced to adopt electronic methods of payments as well as automate their payments. There is a nice catalyst for accelerated growth in the future.

Our instant funding product, which is our product that allows lenders to send directly to borrowers bank accounts through eligible debit and prepaid cards has also continued to see increased adoption as lenders and borrowers shift toward more electronic payments. So overall, a strong quarter with positive trends.

We made progress against all of our growth strategies during the quarter. We continue to execute on our existing business during the quarter by first expanding the usage and adoption of cars with our existing client base as well as acquiring new merchants in existing verticals. To that end, we have some great client wins in the quarter, driven by our direct sales force. These efforts were also aided by software integrations of which we added 12 new partners during the quarter, mostly by acquisitions. This brought our total to 94 integrations at the end of September. When including the integrations from CPS Payments, we now have a total of 119. We signed seven credit unions in Q3 bringing our total to 33, which represents approximately 340,000 collective members.

I wanted to spend a few minutes discussing several of these integrations. In September, we announced the partnership with Advanced Business Computers of America to enhance our Card Payment Acceptance and Processing. ABC LA is a leading provider of software with real-time accounting for consumer finance companies. During the quarter, we also announced a partnership with CU Answers to integrate card processing for credit unions. CU Answers is a 100% credit union owned data processing credit union service organization. They provide combined services to over 270 credit unions nationally, representing over 2 million members.

On the mortgage servicing side, we’re also very excited about our recently announced integration to Ellie Mae, the leading cloud-based loan origination platform provider to the mortgage industry. This partnership will enable mortgage originators with the ability to accept digital payments, enhance the customer experience and drive efficiencies for interim service loans. Ellie Mae 4,000 using their platform. So it could be a very large distribution opportunity for us with a potential to become one of our largest ISV partners. And while we’re on the topic of mortgage processing, we also recently announced a new service offering STX or service transfer exchange to automate loan transfer payments between mortgage servicers. STX automates the process of routing borrower payments from one lender to another when their mortgage servicing right is sold or transfered from one servicer to another. This product solves a real pain point for our target market by eliminating manual and paper intensive processes, standardizing the exchange of payment data and funds flow, reducing errors and costs for services and creating a more seamless borrower experience. We are very excited about this new product as efficiency and accuracy are more important than ever in today’s environment.

Speaking of STX, we also recently announced the formation of the STX Advisory Board and if [Phonetic] they comprise the six mortgage industry experts representing a variety of company leadership levels, who all played a role in the mortgage service transfers between lenders. The goal of the STX Advisory Board is design and promote the implementation of operating standards to ensure consistency, recommend and enhance us to products and services to improve workflows and to remote participation adoption of these standards throughout their networks.

We also completed some important software integrations for our B2B business with Sage 500 and Sage X3. This is adding on to our integrations with the Sage 100 and Sage 300 solutions. This technology integration between Repay and Sage 500 and Sage X3 will allow B2B merchants to easily and affordably accept payments with level 3 processing for B2B transactions to save time and money.

Moving onto our M&A, which continues to be a growth driver for our Company. Our pipeline remains very active. There are many players out there that are a great acquisition candidates for us. Our deal targets for high-growth businesses and large verticals that are underserved from a payment perspective, are integrated with software, have attractive margins and have a need for our technology. On the topic of M&A, we recently closed the acquisition of CPS Payment Services which x all those boxes. CPS is a B2B and accounts payable automation technology provider that facilitates the issuance, execution, reconciliation of virtual card, enhanced ACH in check payments through their integrated software platform, CPS payment portal. CPS has developed a proprietary database of over 20,000 enrolled suppliers and serves an expanding base of over 160 enterprise clients across various sectors, the deepest representation in healthcare, education, media, government and hospitality.

Additionally, CPS has integrations with over 25 ERP and accounting software platforms. CPS also has the opportunity to unlock significant growth potential by cross selling its new TotalPay solution to capture greater wallet share across its existing client base. We are very excited about the acquisition as it immediately expands us into new verticals and greatly enhances our current B2B offering. Our ultimate goal for our B2B offering is to truly be a one-stop shop for our clients. We set ourselves up to do that over the past 12 months having capabilities on both the accounts receivable and accounts payable side. Taking that solution to the market in a comprehensive one stop way, it’s something that not a lot of folks are doing.

From a competitive standpoint, the B2B market is less competitive than some of our other markets. Over two-thirds of the opportunities that we win in this space are greenfield opportunities and in that rare case where it’s not a greenfield opportunity, we’re winning because of the quality of our technology and the robustness of our platforms. Our B2B business now includes over 40 software integrations and a supplier network of over 50,000 plus. We expect to process card and enhance the ACH payment volume in excess of 4 billion annually with accelerating growth ahead including cross sell opportunities with other parts of our B2B business. Our total addressable market in the B2B space is now $3.4 trillion, bringing our combined overall TAM to $4.7 trillion. We’re putting a lot of resources by our efforts in this vertical. With every acquisition we make in this vertical, we’ve been fortunate to get B2B payments veterans who are helping us really bring together the strategy, unify the businesses and offerings and will be instrumental in the long-term growth in the development of our larger strategy.

To wrap up, I continue to be incredibly proud of our team for their hard work and dedication to grow in this Company, providing excellent service to our customers throughout this time. Our business has proven resilient and our value has become even more apparent as we move into 2021.

With that, I’ll turn it over to Tim to discuss the financials in greater detail. Tim?

Tim MurphyChief Financial Officer

Thank you, John. Now let’s move on to our Q3 financial results before I review our financial guidance for the remainder of 2020. In the third quarter Repay delivered strong results across all of our key metrics. The third quarter card payment volume was $3.8 billion, an increase of 44% over the prior year’s third quarter. Total revenue was $37.6 million, an increase of 43% over the prior-year third quarter. TriSource, APS, Ventanex and cPayPlus contributed approximately $10.2 million of incremental revenue during the third quarter.

Moving on to expenses in the quarter. Other cost of services were $10.5 million compared to $6.8 million in the third quarter of 2019. The increase was primarily due to the additions of TriSource, APS, Ventanex and cPayPlus. However, when excluding those additions, the amount was down in Q3. Gross profit was $27.1 million, an increase of 40% over the prior year’s third quarter. On an organic basis, we saw gross profit growth in the high-single digits compared to the third quarter of 2019.

Please note that organic growth now includes TriSource. Organic growth was solid in July and September, but August was flat due to the lapping of a very strong August 2019 for personal loan repayments. Also the increased mix shift to auto and the TriSource recovery resulted in — lower gross margin in the third quarter. However, our September organic gross profit growth was in the low teens and volume trends in October was strong, which provides us continued confidence in mid-to high teens organic growth outlook.

SG&A was $28.6 million compared to $55.1 million in the third quarter of 2019. As a reminder, in the third quarter of 2019 we incurred transaction costs related to the business combination with Thunder Bridge. Excluding the impact of those items, expenses were up year-over-year, primarily due to commission restructurings completed during the quarter, increased hiring, share-based compensation and added operating costs from our acquisitions. During the quarter, we modified sales commission plans for certain direct sales reps for making an upfront payment in exchange for the release of future commission rates associated with designated customer accounts. Given our balance sheet strength and a low multiples paid for these ongoing cash flow streams, we felt it was a very good use of capital. We may consider additional commissioner partner residual restructurings in the future as we look to deploy capital in a productive and efficient manner.

Third quarter pro forma net loss was $6.6 million compared to combined loss of $41.4 million in the third quarter of 2019. The increase was mainly the result of general business growth and the impact of the aforementioned business combination expenses to net loss last year. Third quarter adjusted net income was $9.5 million or $0.12 per share compared to adjusted net income of $10.4 million or $0.18 per share in the third quarter of 2019. The decrease was driven primarily by a pro forma tax adjustment in the current period, which we did not include in the prior-year period as well as a higher outstanding share count.

Lastly, third quarter adjusted EBITDA was $15.6 million, an increase of 31% over the prior-year third quarter. Third quarter adjusted EBITDA as a percent of the total revenue is 42% compared to 45% in the prior-year third quarter. This increase in adjusted EBITDA as a result of organic growth and contributions from TriSource, APS, Ventanex and cPayPlus. As a reminder, adjusted EBITDA margins in these acquired companies are slightly below our loan repayment business. However, they are typically growing faster and we want to continue to invest in growth in the future.

In mid-September, we closed an upsized public offering of common stock, where we sold approximately 14.4 million shares of Repay’s Class A common stock at a price to the public at $24 per share. All the net proceeds of this offering were used to acquire an equivalent number of LLC units from entity controlled by Corsair Capital. Accordingly, the offering resulted in an aggregate increase in the Company’s public float of Class A common stock by approximately 14.4 million shares. But there was no increase to the total as converted share count. As a result of this transaction, which included the full exercise of the over-allotment option by the underwriter Morgan Stanley, Corsair and its affiliated funds no longer hold an equity stake in the company. Corsair’s private equity investment in Repay occurred in September 2016. It’s been a great four plus year relationship with the Corsair team. We want to thank them for all their contributions to helping us along the way.

As John mentioned, on November 2, we announced the closing of the acquisition of CPS Payments for up to $93 million, of which $78 million was paid at closing last week. The remaining $15 million may become payable depending upon the achievement of certain growth targets. In closing the acquisition was financed with cash on hand.Our cash and liquidity position remained very strong. As of October 31, pro forma assuming $78 million was paid for CPS. We have $101 million of cash on the balance sheet, $30 million of undrawn revolver capacity and $46 million of undrawn delayed-draw term loan capacity for total liquidity amount of $177 million. Our pro forma net leverage is now only 2.3 times, which is well below our current net leverage covenant level of 5 times. Please note that we recently amended our credit agreement with the only material change being to extend the availability period for the delayed-draw term loan. As of September 30, we had approximately 79.6 million shares outstanding on as-converted basis. Our fully diluted share count, including unvested shares equal approximately 82.2 million shares as of quarter end.

Finally, moving on to our outlook for the remainder of the year. As I mentioned earlier, October volume trends have remained strong, providing us continued confidence in our mid-to high teens organic growth outlook. However, we have continued to see increased mix shift to auto and recovery of our TriSource business, which is resulting in slightly lower margins. Our personal loan business, which typically has higher margins has experienced some volatility over the past few months due to the introduction and then lack of stimulus benefits. We expect this volatility may continue while we’re in this period of uncertainty around the economy in pandemic. Due to all these factors, we expect our gross profit margin in the fourth quarter to be more so much of the first quarter of this year. In addition, we expect adjusted EBITDA margins to be down slightly in the fourth quarter due to investments we are making in sales, product and technology to set us up for continued growth in 2021.

We have also added two months of contribution from CPS. However please note that there are seasonality in this business as it has some concentration in the media and education sectors, which means contributions in Q4 may not be equivalent to prior quarters. Finally, with only a quarter left to report, we thought it was best to narrow our guidance range to the following; card payment volume to be between $14.75 billion and $15 billion, total revenue to be between $148 million and $153 million, gross profit will between $110 million and $130 million and adjusted EBITDA to be between $63 million and $65 million. As with prior quarters, this range assumed no further unforeseen COVID-related impacts, which could create substantial economic duress in the fourth quarter.

Looking forward, with our several recent acquisitions, additional software integrations, new team members and expanding addressable market, we continue to enhance our key growth levers and have significant momentum heading into 2021.

I’ll now turn the call back over to the operator to take your questions. Operator?

Questions and Answers:

Operator

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]Our first question is from Craig Maurer with Autonomous Research. Please proceed with your question.

Craig MaurerAutonomous Research — Analyst

Yeah, hi, John. Tim, thanks. So first, what was the composition of your business in terms of revenue or EBITDA, however you want to present between the different segments within your business. And as we head into 2021, I wanted to get some additional color on how you’re thinking about the personal loan vertical obviously, stimulus is not a guarantee and the volatility there. Should we expect that margins should continue to be under pressure if that vertical, does not improve? Yeah I’ll leave it there. Thanks.

Tim MurphyChief Financial Officer

Thanks Craig. It’s Tim. So — our the mix of the business was about 65% loan repayment, 20% B2B and 15% other. However that now with the CPS acquisition that mix is shifting more toward B2B. So we expect that to be more like 65% loan repayment, — excuse me, 60% loan repayment, 30% B2B and 10% other going forward heading into next year. And then personal loans the — what happened this quarter is really a result of reduced originations in Q2. And we just saw less volume coming out of other — those, that origination dynamic. We have seen really positive trends in October where we’ve seen some of our larger personal lenders with more volume. And so we feel good about that and we’re just monitoring it closely and that’s part of the commentary around where we expect to see margins in Q4, just given some of that lack of visibility with personal loans. But the trend in October’s been positive and it’s something we’re keeping a close eye on going into next year.

Craig MaurerAutonomous Research — Analyst

All right, thank you.

Operator

And our next question is from Ramsey El-Assal with Barclays. Please proceed with your question.

Ramsey El-AssalBarclays — Analyst

Hi, thanks for taking my questions. Evening. You mentioned some cross-sell opportunities with CPS. So maybe specific to CPS, but also just in terms of all the recent acquisitions you’ve done. Can you sort of rank order for us or give us more color on the cross-sell opportunities and kind of maybe help us dimensionalize the degree to which that could have a noticable impact next year?

Tim MurphyChief Financial Officer

Sure. Hey. So the first one is both CPP and CPS, we can take their AP solution and sell it to our customers within APS on the AR side. So there’s been a lot of demand for that over time and APS has not be able to deliver an AP solution to their customers with their facilitating acceptance of card payments. And now those conversations are happening where they are offering both acceptance and AP. And similarly for example with some of CPS’s customers, maybe a large hospital system, for example, we could offer acceptance services and acquiring services. So I think it definitely goes both way and we’re actually starting to have some of those discussions on both fronts and getting more organized internally around how we want to roll that initiative out in a cohesive way going into next year. So it’s still fairly early with both of those, but we’re starting to see dialog happening within the sales force.

Ramsey El-AssalBarclays — Analyst

Okay. And I also wanted to ask you about if you kind of, it’s a bit of a higher elevation question if you fast forward a few years, say, five years, how do you think Repay’s business mix look, I guess it’s another way of asking, are you with all the M&A you’re doing, are you solving for a particular end state, are you looking to drive diversification in certain direction or do you have just sort of a target areas that you can basically acquire and you’re just you’re chasing kind of more opportunistic deals that makes sense?

Tim MurphyChief Financial Officer

Yeah, I mean I don’t think we have a specific percentage we’re solving for. We certainly have diversified quite a bit in the last 12 to 15 months where loan repayments have come down as a percentage of the mix and B2B has increased for example. And then with the even within loan repayments we’ve seen auto become a much part of that, — a bigger part of that mix, and now we see credit unions and mortgage increasing as well. And so that, like I mentioned previously prior to CPS and CPP it was probably 65 in 2015 in terms of loan repayments B2B and other today pro forma with what we know now, it’s probably 65, 25 and 10. And then into next year that becomes — that looks more like 60, 30 and 10, the 30 being B2B. So as we see it shifting to B2B it’s just a very large addressable market with a lot of room to grow, but we’re not necessarily solving for a specific percentage.

John MorrisChief Executive Officer and Co-Founder

Yeah, Ramsey El, this is John. Good afternoon. I’ll add to that. The opportunity as you for me say before I we have been watching, I have been watching B2B for probably 10 years. And the opportunity was there if you remember, we inorganically bought APS last year way before there was pandemic and obviously pandemic proves some of our theories correct on the acceleration of the shift of payments to digital. And we are seeing more and more of that. So we’ve been fortunate in the last that was a good area for us to go to and it has all the attributes that we talk about. So, the opportunities are there and we’re chasing markets to try to achieve organic growth rate we think is a significant opportunity out there, but our current loan repayment vertical as well as the B2B vertical the organic opportunity is significant. We think it’s got many years of runway left on that. We don’t necessarily have to go to another vertical, if we find the opportunity to be there we will. We look big picture, very long term. We think there is a significant opportunity to drove both of those.

With our inorganic acquisition growth kind of will probably be hard to change the mix. It’s both are really growing well, but obviously with acquisitions it can change that mix. From there it’s just a matter of opportunities we see in the marketplace that really match who we are and what we think we can do if you’re listening to some of the attributes we look for from the software integration and growth projections that we look forward in those opportunities.

Ramsey El-AssalBarclays — Analyst

Great, thanks for the thorough answer.

Operator

And our next question is from Sanjay Sakhrani with KBW. Please proceed with your question.

Sanjay SakhraniKBW — Analyst

Thanks. First question, I guess Tim, you talked about the air pocket as far as like stimulus and its implications to the fourth quarter. I guess, as we look ahead to 2021, how are you planning for the year on that front? What does it mean for growth and investments if there is stimulus or if there isn’t?

Tim MurphyChief Financial Officer

Yeah. So we are trying to focus on what we do best which is provide high quality technology to these underserved verticals and really, really strong direct sales force and customer service. And we’ve been investing from a sales and product perspective in auto. We think it’s a very attractive opportunity. It’s a very large market and that’s been investing in. We’ve also been investing in B2B not only through acquisitions, but now new hires with each of those acquisitions. And so we think that sets us up nicely and we can’t necessarily predict the stimulus or there is stimulus or timing of it, but what we can do is just monitor our top customers very closely and look for trends like we saw in October related to personal lenders for example and try to get a sense, by looking at some market research and also having discussions with those customers, about what’s underlying those trends and if that’s something we should be projecting.

So just trying to get our arms around as much data as possible to inform what scenarios could look like with and without stimulus and the timing of that, but also just we are investing with — the key investments are focused on auto and B2B.

Sanjay SakhraniKBW — Analyst

Okay. And you guys think you can hit your historical growth rates whether, I assume there will be some sort of stimulus. It’s just a matter of how large or how small. I guess as we think about whether it’s small or large, do you guys think you can probably hit the — your long-term growth targets?

Tim MurphyChief Financial Officer

Yes. Yeah, we feels confident, like we talked about in the mid to high teens organic growth longer term outlook. We have a lot of avenues for growth. In addition to auto and B2B, we talked about mortgage. We’ve had a lot of really positive momentum in mortgage-related to the Ellie Mae partnership and then the STX announcement. And so that’s another area and then we’ve had really, really good success this year in credit unions. We signed seven in most recent quarter and we have a lot of targets out there just through our partnerships we’ve announced in that space. We now have three partnerships. So I think what we’re trying to do is either organically or through acquisitions that ourselves set up with a lot of different avenues for growth and if one part of the business is down than other parts of the business will be up and that gives us the confidence in the combined organic growth outlook, I just mentioned.

Sanjay SakhraniKBW — Analyst

Okay, perfect. Just one follow-up for, John, maybe just could you talk to the pipeline of M&A like size and sort of where you’re looking? Thanks. It sounds like B2B is an area, but maybe you could just characterize a little bit more?

John MorrisChief Executive Officer and Co-Founder

Sure. And let me also kind of follow on those Tim’s last comment as well. Listen, we’re trying our best within experience about everything we can see versus just not giving any type of numbers and drawing guidance and things like that, we’re trying our best here. But also what we’re also looking out is to have a complete absolute shut down again that’s something that’s could be significant to everybody, all public companies. Right? So we’re not seeing that but, and we’re hoping praying that doesn’t exist again but that could have an impact on how we see things happening in 2021 obviously. But now on the M&A pipeline, it is reactionable from what we see. We have been blessed to be very acquisitive in the last, since we were public we’ve done five acquisitions. We see some good opportunities out there still. And we obviously, we’ll have to do homework on those from a numbers perspective. We don’t really want to forecast those. We never like to forecast that we have to do an acquisition. We are very particular and very specific about that at the –, as you can see we’re — what we’ve done in the past. And we’re also been measured on how we want to make sure we incorporate those into our organization. So we look for these attributes and we see some and several in the marketplace with those attributes that they’re coming to market. We’re also going to be patient be diligent with our shareholders money. So we are excited though, there can be some opportunities out there.

Sanjay SakhraniKBW — Analyst

Thank you. Appreciate it.

Operator

And our next question is from Andrew Jeffrey with SunTrust. Please proceed with your question.

Andrew JeffreySunTrust — Analyst

Hey, good afternoon guys. Appreciate taking the question. I think the mix conversations is an interesting one, especially as we start to think about mortgage and this Ellie integration. John, can you give us a sense as to when you think you might be able to talk about some pretty significant mortgage payment volume? I assume maybe some of that STX revenues is in the 10% that you talked about, but I’m wondering when you think that’s a vertical for you’re going to be discussing in more detail for payment perspective?

John MorrisChief Executive Officer and Co-Founder

Yeah, sure. So we are very excited about that. If you think about we haven’t seen anything like the exchange that we’re kind of putting together there. We think that’s a long-term very value creation opportunity for us in the entire industry. It just really solves a lot of pain points and eliminates a lot of friction there, but it also allows us with opportunity to gain additional foothold in the solving other payment solutions and needs for those specific lenders. I would not — since to us, that’s a long — longer-term investment, meaning over the next couple of years. So I ask you to be patient with us there because we see significant opportunity and that will create significant shareholder value long-term and integrations as we move in creating and developing that asset over time. So, not an immediate term in on the spot but we do see activity happening and we see conversations happening and we’re looking, as we kind of move through the first part of 2021 we see additional wins out there and also moving into 2022 we think there’s even more opportunity as we build that out.

Our mortgage, especially when it involves large bank will take time as a longer sales cycles and decisions, which is why you kind of hear me say it must be measured and that, but we do think it’s a very wise use of dollars.

Andrew JeffreySunTrust — Analyst

Okay. Yeah it’s an exciting opportunity. On the personal loan front, which, and please correct me if I missed characterizing this but to the extent that there is current organic revenue growth deceleration, it seems like it’s coming from that line of business which is still 60% pro forma or so. Is it demand or is this an underwriting issue or is it a consumer demand issue.

Tim MurphyChief Financial Officer

Well to clarify within the 60% to 65% loan repayment, personal loans is just a part of that. So it’s probably about 30%. The rest — the balance of that is auto and then there is a small portion still that’s credit unions mortgage and then our Canadian business. So personal loans is just a part probably about half, maybe a little less than half of that total loan repayment business. And I think that when there was a lot of stimulus dollars out there, and when the CARES act really started flowing money out and the enhanced unemployment benefits were happening throughout April and May, and maybe even into June, there was a lot of excess cash. And so, consumers were paying their loans. But there wasn’t a lot of demand and so originations were down and they were down because consumers are flushed with cash and also lenders were tightening credit, tightening underwriting standards. However, when we see we think now that’s becoming a trend in our data is when the stimulus benefits run out at the end of July or early August, demand picks back because there wasn’t as much cash in the system and consumers needed personal loans, and so those originations that has started to occur in August, the September are now resulting in repayments and we think that’s what we started to see at the end of September into October.

And that’s kind of a trend that we have probably need a little bit more time to understand if that truly is a trend and last. So I think that’s how we’ve seen it play out. Certainly the CARES Act direct payments to individuals help full repayment volume but potentially hurt originations and that’s what we felt this quarter. And it’s just, — it’s a little bit higher margin. So even though our volume held strong that was really driven by auto and TriSource recovery but auto is a slightly lower margin than personal loans and then TriSource is lower margin as well.

Andrew JeffreySunTrust — Analyst

Okay. So just so I’m 100% clear, to the extent that demand for these for personal I’ll just come back, you don’t have a strong sense that it’s being blunted in any way by tighter underwriting standards.

Tim MurphyChief Financial Officer

No, I think it’s there may have been a short period where that happened, but I think that they started origin — our lender started originating loans more aggressively like I said in August and September. And we’re starting to see the repayment volume on that now.

Andrew JeffreySunTrust — Analyst

Okay, thanks, that’s helpful.

John MorrisChief Executive Officer and Co-Founder

So what we can understand and again remember, we’re not a lender in that particular piece of our book it’s a demand issue. Right? That’s a good thing overall for consumers. It means they have more cash that we’re spending less cash but we also think that, that it doesn’t take longer term.

Andrew JeffreySunTrust — Analyst

Right. Makes sense. Okay.

Operator

And our next question is from Peter Heckmann with Davidson. Please proceed with your question.

Peter HeckmannDavidson — Analyst

Hey, good afternoon and thanks for taking the question. Just to clarify, trying to back into some numbers here, but I think you’ve lapped TriSource and then within the quarter, you will lap CPS. And so in terms of thinking about just in amount of acquired revenue in the fourth quarter, something in the $5 million, $6 million $7 million or $4 million, $5 million, $6 million, $7 million is that about the right range?

Tim MurphyChief Financial Officer

Yes. In terms of the incremental revenue that sounds about right. But there will be — we’ve included TriSource in our organic growth numbers for Q3, and basically pro forma — I mean, for Q3 of ’19. And then yes, I mean we’ll do the same thing with APS, in Q4. So both be in the Q4 numbers.

Peter HeckmannDavidson — Analyst

Got it, got it. Okay that makes sense. And then just in terms of that opportunity with the captives, can you remind us when Mercedes-Benz was contributing a full quarter and how would you kind of size or think about the rest of the captives. And there are some current prospects you think are relatively higher probability for the next, let’s say couple of quarters.

Tim MurphyChief Financial Officer

That was — we started processing with them in May. And so they have been just continuing to ramp up and add volume each month. And so that’s been going really well. We’re seeing that continue each month. And that the, — we are trying to have discussions with other captives just through our network of relationships in the auto space and our relationship with card brands and others, as you well know those are really long sales cycles. And we have to sort of make sure that we’re in the renewal discussions and they may put out RFPs. We’re trying to get ahead of that make sure in those discussions and so that’s where we are in terms of additional captives. But Mercedes relationships now we’ve been now processing with them for about I guess, four or five months, and it’s going really well.

Peter HeckmannDavidson — Analyst

Okay. Good deal. I appreciate it. Thank you.

Operator

And our next question is from Joseph Vafi with Canaccord. Please proceed with your questions.

Joseph VafiCanaccord — Analyst

Hey guys, good afternoon. I was wondering if we could maybe just kind of switch over to the integration side of the business. Clearly a lot of M&A activity, maybe just some thoughts here on I guess to a certain of cost synergies from here on acquisition activity and I know you’re putting stakes on the ground and from different payment volume areas of the economy, so also just wondering to the extent that that provides or does not provide capability for more kind of highly integrated technology integration on the back end. And then I have a quick follow up.

Tim MurphyChief Financial Officer

Is the question about just integration of acquisitions?

Joseph VafiCanaccord — Analyst

Yeah. Integration, I mean, the business side and if you look across your business and so far kind of integrating the various payment buckets into perhaps a single platform or do you think you’ve got to run a lot of different stacks to address some of these on different payment areas that you’re focused on at this point?

Tim MurphyChief Financial Officer

Yeah.

John MorrisChief Executive Officer and Co-Founder

Yeah, sure. This is John. I will take that. So actually, our integrations in the last 12 months are actually on track and on target. We — starting with the APS, Ventanex, and cPayPlus, the first two have gone well and we’ve integrated most of those through operationally, then there’s few things were changing on APS, on the back-end including some of the pieces related to our TriSource platform, adjusted it more of an acquiring asset that has been successfully done. So we are looking forward to going into 2021 with most of those pieces already integrated in and I think it’s a great point on the technology piece. As we do feature parity, and we do — we actually have — we go in and look from a work stream perspective, we lay out work stream for all of our acquisitions to determine how we integrate them and as I said, they are all on — from that perspective. But on the technology side, we also do work streams around feature parity to understand how we get this top-shelf and ultimately, [Indecipherable].

We are on track with all of those assets. Sometimes, some of those were picking up really good, really good technology and then we’re also picking up some key integrations. So integrations will be as important as you — even with technology, you have to work through your integrations. Those are critical to the whole seamless piece of the payment piece that we do. So those were things that are going well, as well. We, in the B2B on the AP automation side, we think there’s opportunity to [Technical Issues] technology there. And then as you heard me say on as well to come together with a kind of one-stop shop and put those pieces together, that will take us a little while to put the one-stop shop piece together as there’s integrations around some of that, but we see demand. We talked about earlier on this call, the cross-sell opportunity between the AR and the AP side and on the B2B side. So we’re seeing that.

And our Ventanex acquisition as you heard us talk about there, some of the mortgage, the intelligent routing, some of the platform pieces of that, it’s merely are going to be additional features, that’s a plug into our overall technology because it does double great things that we needed the ability to do that, so very complementary. That becomes a part of our entire technology stack, so we continue to work all our work streams there and we — our overall goal is to consolidate technology that makes sense. That ad technology that we buy is superior or complements well and then obviously sense that technology that possibly duplicates what we already did.

What’s unique about us I want to reiterate this is we are a payment processors that also has superior financial technology integrated into these ERP systems. We have the ability to move settle funds, we own our clearing and settlement engine on the core side as well as we own our clearing and settlement engine on ACH side and our ability to even print mail as well as checks. So we have a total end-to-end solution there as we continue to put our pieces and parts together with some of our acquisitions. We’ll continue to build — finished that out and build those out in ’21. But overall, everything looks very good and we’re excited about the people as much as the technology assets in this.

I want to stress that we’ve said before we don’t always have opex synergies when we are acquiring fast growing companies and we are a fast-growing company. We acquire great people who help us continue to accelerate growth there. So this is why you’re suddenly able to see us forecast any kind of opex synergies. Most of the time, it will be some type of processing synergy on that side and you’ll obviously continue to see us invest in technology, as we think that’s part of the winning formula of the moat that we’ll build around our business and provide excellent solutions there.

Joseph VafiCanaccord — Analyst

Sure. That’s helpful. Thanks, John. And then just quickly, kind of the outlook for, let’s call it, organic integrations if you’re looking into next year, some commentary around that and then I guess, penetration — end user penetration in some of your existing integrations and the opportunity there. Thanks.

Tim MurphyChief Financial Officer

In terms of software integration…

John MorrisChief Executive Officer and Co-Founder

Yeah.

Tim MurphyChief Financial Officer

We now have — you see that we have been able to accelerate those in recent quarters just because we have a lot more verticals to address and then each of those verticals has their own unique software partners. And so, that’s something we placed a lot of focus on recently and putting resources toward that. And so, we think that’s going to really benefit us longer term and a lot of those now are coming from our acquisitions because we’re helping them with resources. There — oftentimes, we find during diligence that as partners that they want to have, but just have not been able to get them across the finish line or for various reasons not been able to actually sign them up and we’re now helping them do that. And so, we think that’s just one other example of being able to accelerate growth with these businesses for acquiring. And so, there is — in terms of the penetration question, a lot of them offer electronic payments within their customer base. There is a provider or several providers, but maybe not as focused on the particular vertical or not providing all the different channels we have from a payment perspective, for example, mobile or web or IVR may just be a simple web-based or own transaction without the other channels. That’s how we see ourselves gaining share and increasing penetration, not lose certain partnerships. So, that’s definitely a key distribution avenue for us and it’s something that we’re very focused on.

John MorrisChief Executive Officer and Co-Founder

Yeah, I want to add to that, that we’ve — all of you, most of you, since you’ve known us, we’ve almost — we probably over doubled that software integration partner list. With CPS, we’re now at 119. Obviously, some of those will do acquisitions, but we think that’s substantial. As we continue to build that out, that represents lots of prospective customers inside of each one of those integrations and I also want to emphasize, we continue to build out our supplier network. We’ve now over 50,000 of those with our recent acquisitions. We think that’s going to be a great opportunity over time as we look to continue to build those out that will have some long-term benefits to it as that network builds over time, that will create some maturities with the cross-sell opportunities as much as it creates some opportunity to — we need to enhance existing customers or future customers as we bring them on if we already have a supplier network that services many of those.

Joseph VafiCanaccord — Analyst

Great, guys. Thanks very much for that color.

Operator

And our next question is from Bob Napoli with William Blair. Please proceed with your question.

Bob NapoliWilliam Blair — Analyst

Hi. Thank you, good afternoon. Question on the mortgage business. Can you give a little more color on exactly what that — the servicing, the transfer of servicing and the revenue stream, the recurring nature of the revenue stream and the opportunity that you see with the likes of Ellie Mae? I mean, are you competing with Black Knight in that business? A little bit color would be helpful.

Tim MurphyChief Financial Officer

Sure. So Black Knight is actually a software partner of us. So, they provide software to mortgage servicers and so they like [Technical Issues] software partner [Technical Issues] just like Ellie Mae is more focused on originations. So, those would all be partners of us, not necessarily competitors. And right now that’s — there’s a lot of ACH payments happening there. It’s become electronic, but it’s still pretty heavy ACH. We are — one of our initiatives is to convert some of that to card and increase card penetration, which would be a opportunity for us. And so, it’s a per-transaction based revenue model. We want to convert it to more of a volume revenue model. And then, we would pay a referral fee to — for example to a partner like an Ellie Mae or Black Knight. So, Ellie Mae has about 4,000 mortgage originators using our platform. We get involved in the kind of initial closing of the mortgage where there’s maybe escrow fees or appraisal fees. There is the first payment. We will be involved in processing for that and then there would be that — that would be transferred to a servicer most likely and we could be processing the ongoing recurring payments with that servicer if they were our customer. And so, oftentimes we’re involved in that kind of complex refinancing activity, service transfer-related activity where if it’s not done correctly, it can create a lot of errors and that’s why we’re trying to automate it and make it more efficient and we get processing fees for that.

Bob NapoliWilliam Blair — Analyst

Okay. Thank you. Then a question on the B2B payments business and the kind of the revenue and profit models between — the difference between the revenue streams on the AR business versus the AP automation business, like, how much of that is — is there a software revenue on the AR side, the pure transaction on the AP side? How much difference is there in the revenue models for those each in the AR and AP side of the business?

Tim MurphyChief Financial Officer

So on the AR side, it’s a typical merchant discount rate. So, we’re doing merchant acquiring for businesses in a business to business card-based transaction. So, very similar model where we’re charging basis points on volume and then maybe a per-transaction fee as well. And then on the AP side, we are also getting bps on volume, but it’s on the interchange. And so, we’re basically on issuing side, where interchange is our revenue and then we pay processing partners and then have — there’s also rebates involved. We might pay rebates for virtual card usage and that’s the model there. So it’s also similar in the sense that it’s basis points on volume. It’s not subscription based or a flat fee per month, but it’s the interchange part of the transaction where we’re getting the revenue versus on the merchant acquiring side for changes that cost us.

Bob NapoliWilliam Blair — Analyst

Great. Okay, just a…

John MorrisChief Executive Officer and Co-Founder

And then also — there’s also the concept of enhanced ACH on the AP automation side which would be a percentage of volume and all that’s designed to for seamless automation reconciliation and data transfers. So, that’s a version of that on the AP side. There’s some of that as well on the AR side. And then, there’s normal, just ACH transfers. We may have large file transfers and even potentially the mailing of checks, which is automated as well. But predominantly, it’s the first…

Bob NapoliWilliam Blair — Analyst

And then, John, the instant funding piece, I think you’re launching, what kind of penetration rate do you expect and what’s the pricing on the instant funding piece?

John MorrisChief Executive Officer and Co-Founder

Yeah. Yeah, that’s a per-transaction. So, that’s going to fuel something like an ACH, but that’s a per-transaction fee. So it’s good margins for transaction but it’s not — it would not be bps as a percent of the transaction there. We’re seeing from our users that are using it. We’re starting to see really strong activity there. We’re still early on, Bob, just can’t predict an exact penetration rate. But for our specific lenders that are using it, we are seeing really — we’re seeing month-over-month growth and their penetration rate there. So, don’t want to quote one just yet as we wanted to see a little more — see how it’s going, but we’re seeing uptake and we’re seeing also more people using it and just the automation piece as you can just come into sense as that’s way more efficient and so we’re seeing that.

Bob NapoliWilliam Blair — Analyst

Thank you. Appreciate it.

Operator

And our next question is from Timothy Chiodo with Credit Suisse. Please proceed with your question.

Timothy ChiodoCredit Suisse — Analyst

Great. Thanks a lot. I want to dig a little bit more into the automotive captive opportunity. I know that last quarter and earlier on this call you mentioned as well you’ve increased your addressable market, the analysis you’ve provided in the slides to better account for this opportunity. You mentioned also earlier some of the RFP processes and renewal timing that you want to get ahead of. In that light, maybe you could just give us and I am not mentioning any specific, but when we look at the Top 15 or so automotive captives, what’s the status quo? What are they offering now to their consumers to repay the loans? Is it set up an ACH, just one payment method? Is it not multi-channel, omni-channel etc.? Maybe just give us a sense of what the status quo is?

John MorrisChief Executive Officer and Co-Founder

Sure. So, very large addressable market and I don’t want to give you quoted names or anything like that because it is various different cycles, but you hear me smiling. So, it is longer sales cycles. So again, be patient here. But specifically across the board, there are some captives that merely if it — you mail the payment in or it’s an ACH — it’s kind of what we consider an ACH automatic draft, and then maybe an ACH if they have an online presence. But those who would not be using many of the omni-channels, there won’t be a need for the omni-channel, meaning an complete IVR solution or — and maybe even a tech solution or a mobile solution as well. So, we think there is — web presence is generally the first presence there, but the concept of 24/7 being able to take a payment, that still exists in some of those players. Definitely, the ability to take a debit card is — there’s — that exists with a few that don’t even take debit card. Now, there are several who are — have been taking debit card. In that case, that would be a competitive win. But we have built certain features and functionalities to the auto relending space that we think can create winners for us. It’s just a matter of timing and we have to get there and win. And then — and tell our story — we don’t win everything, but there’s plenty there. If we get our fair share, we should do well.

Timothy ChiodoCredit Suisse — Analyst

That sounds good. Thanks, John. A quick follow-up. You’ve mentioned this just a couple of minutes back. I just want to dig into it a little bit. The enhanced ACH offering came over a little bit from CPS and it’s for use in accounts payable. Fully recognize that it allows you to send your immense [Phonetic] data as part of the workflow in the process, reconciliation very important than the accounts payable. Maybe you could just give us what the good use case is there or what’s the good example — sorry, a good use case for that relative to traditional ACH or virtual card? In other words, when’s a good time to use enhanced ACH?

Tim MurphyChief Financial Officer

I think if they’re cost conscious about virtual card fees, but want more data and want a more efficient workflow, the balanced product is enhanced ACH where it’s not a straight ACH so it doesn’t — the cost isn’t as low, but you’re also getting much better data quality and data transfer, so it costs a little bit more than a traditional ACH, but not the same virtual card. And so, there’s this certain players out there that want that product and want that kind of balance in between, which is — hence why that product exists. And so — but you look also from our perspective can price it in a way that probably is more similar to our card transaction and make the economics a little bit better for us because the cost to us is lower. And so, that’s why it’s become — I think, more popular and something that CPS has done a really good job with and we’ll continue to and we can now bring that to the cPayPlus customers as well.

John MorrisChief Executive Officer and Co-Founder

Yeah, that’s…

Timothy ChiodoCredit Suisse — Analyst

Very good.

John MorrisChief Executive Officer and Co-Founder

That one-for-one, Tim, that you’re aware of, listen, we have a very large file, thousands of payments, right. And if you need 10 attributes to 15 attributes per payment, if you were to get that file in bulk and it’s all in ACH and you got five of those attributes, but now you’ve got a place you want to go find the other 10 attributes that fits your kind of need or would like to supplement in a world of big data, right, we can do those one-for-one exchanges, completely link it so it’s seamlessly back into the ERP system. There’s a tremendous amount of man hours. It’s about man-hours and it’s about speed and it’s about the whole digital experience. And then, we obviously can move and sell all the funds and understand and let you know exactly where the funds are settling. And when they’re settling, the whole reconciliation of — you could imagine, when there’s a check clear kind of concept, right, we can show how these various different movement are happening. It has tremendous value if you look at the man hours that could be spent in a — and that it eliminates and drives up certainty and reduces errors and then drives down cost.

Timothy ChiodoCredit Suisse — Analyst

Excellent. Really appreciate the overview. Thank you, Tim and John.

Operator

And our next question is from James Faucette with Morgan Stanley. Please proceed with your question.

James FaucetteMorgan Stanley — Analyst

Thank you. Hey, John. Hey, Tim. Hey, I wanted to ask you — you mentioned that you’re looking at some incremental or potential acquisitions, but still work to be done there and you also communicated that you’ve thought that diversification of the revenue stream at least by end market type etc., would most likely come through acquisition. I want to make sure I understood that correctly. But on the topic of acquisitions, how much flexibility do you think you have in your balance sheet right now and in the capital structure to go to do acquisitions? And I’m just wondering if you can achieve that diversification through a single acquisition or are we going to have to look at multiples to — acquisitions within the same area to get to the diversification that you might be thinking about?

Tim MurphyChief Financial Officer

Sure. So, I think the comment around organic versus acquisitions from a diversification standpoint is just that — it just takes more time organically to move the needle. And so, although we have really solid organic opportunities in areas like mortgage and credit unions, that’s just going to take time for those to be large enough to actually shift the mix rather than acquisition can happen right away. And we’re seeing a great example is B2B where about a year ago, we were — our percentage of B2B was 0%. We didn’t have a business there and now it’s up to probably, call it, 25% with — if you include CPS pro forma. And so, we’d be looking for other opportunities on the B2B AP side. We will now look at that like we did in merchant acquiring where we’re just out there acquiring new verticals. It’s one way to look at or go deeper within existing verticals, within AP. And so, that’s something that we would want to focus on and that could bring that percentage of the overall mix up, above 25%. So, I think that was really the point of the comment, but — and then balance sheet wise, we’re at 2.3 times net leverage today. We would feel comfortable going up to, call it, 3.5 times to 4 times range for something very strategic. And so, we have some flexibility there to do deals probably similar in size to what we’ve been doing. And then, if it was something larger, we’d have to tap the equity markets and look at that. So, we have some flexibility to do more M&A, but if it was something larger, it wouldn’t be all debt financed.

James FaucetteMorgan Stanley — Analyst

Great. That makes sense. And then quickly, I guess you made — you provided some color on the adjustments you made this quarter in commissions. I think previously you had mentioned your commissions are maybe a bit lower than industry because you control the merchant relationship. Do you expect that to be the case as you enter new markets or how should we think about that part of the expense group?

Tim MurphyChief Financial Officer

Yeah. So we do — we are very focused on rev shares. Historically, we’ve been able to have, we think, lower than market rev shares to your point. As we enter some of these new markets, it will be more competitive, particularly if there is already an existing payment provider or several payment providers, but we try to structure those in a way that allows us to grow volumes with those partners and make sure they benefit from that, but not destroy our own margins. And so, we’re focused on those deals. And then, we have the ability to restructure some of these commissions like we did this quarter either with direct sales reps or with partners and we can typically do that at very good, attractive multiples and we think that could make a lot of sense too. So, that’s just another tool we could use or we felt like the dollars we’re paying for commissions or residuals to partners who are large enough, we could just look to restructure them and bring more of that cash flow to our P&L.

James FaucetteMorgan Stanley — Analyst

That’s very useful. Thank you.

Operator

And our next question is from Mike Grondahl with Northland Securities. Please proceed with your question.

Mike GrondahlNorthland Securities — Analyst

Yeah, thanks guys. Two quick ones. One, your pipeline of ISVs, does that kind of map the volume of the different verticals in your business or is there an area where maybe your pipeline for [Indecipherable] outsized compared to the volume? And then secondly, just in the personal loan space, have you lost any lender customers kind of through the turmoil this summer?

Tim MurphyChief Financial Officer

So, first question, I don’t know that it maps one-for-one with the addressable market opportunities. It really is just more about where we’re trying to focus resources. So, there’s still a lot of partners to get in auto for example. There’s still some we want in mortgage. There’s a few with [Technical Issues] market. And so, we think of it kind of more strategically of where do we want to be placing resources and where do we want to find a way to accelerate growth and find this in distribution versus just strictly mapping to the largest addressable market size. So it’s — I’d say probably kind of loosely ties to that one-for-one. And then in terms of personal, there’s — we’ve not lost any personal lenders. We’re not aware of any that have been damaged to the point where they would be no longer lending or be out of business. It’s just that some of their volumes have contracted as either they’ve tightened credit or demand was lower in used originations, but the larger ones that we’re aware of and through our own monitoring and underwriting and we think that their balance sheets are still fine and they’ve weathered this pretty well.

Mike GrondahlNorthland Securities — Analyst

Great. Okay. Thanks guys.

Tim MurphyChief Financial Officer

Yeah.

Operator

[Operator Closing Remarks]

John MorrisChief Executive Officer and Co-Founder

Thanks, everyone.

Tim MurphyChief Financial Officer

Thanks, everyone.

Duration: 67 minutes

Call participants:

John MorrisChief Executive Officer and Co-Founder

Tim MurphyChief Financial Officer

Craig MaurerAutonomous Research — Analyst

Ramsey El-AssalBarclays — Analyst

Sanjay SakhraniKBW — Analyst

Andrew JeffreySunTrust — Analyst

Peter HeckmannDavidson — Analyst

Joseph VafiCanaccord — Analyst

Bob NapoliWilliam Blair — Analyst

Timothy ChiodoCredit Suisse — Analyst

James FaucetteMorgan Stanley — Analyst

Mike GrondahlNorthland Securities — Analyst

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