Tim Murphy: Yes, I mean, we’re obviously very aware of the maturity on that it’s not still not for another two years. But, we’re thinking through different ways to manage that liability. There are a lot of options, it’s very flexible capital. 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, like you said, but we haven’t made any final decisions on that we have a lot of options.
John Morris: I would add that the Convert market appears to open back up, which will give us those additional options if we choose as well.
Andrew Schmidt: Makes sense. Thank you, John. Thank you, Tim.
Operator: Our next question comes from the line of Sanjay Sakhrani with KBW. Please proceed with your question.
Steven Kwok: Hi, this is actually Steven Kwok, filling in for Sanjay. Thanks for taking my question. The first one I had was just around if you could talk about the macro outlook that assume within the guide and anything around like how we should think about the gross profit and EBITDA from a quarterly cadence perspective? Thanks.
Tim Murphy: 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 that those are kind of our planning assumptions based on what’s currently happening in macro. 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 refunds season, but so far, it looks like overall returns will be generally consistent with last year, but the average refund size is seems to be a bit higher, that would be good for us.
And then we see, 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. From a free cash flow perspective, as I mentioned, Q1 will likely look like the full year 2023 profile, and it will build throughout the year. So free cash flow conversion will accelerate throughout the years leading to a full year number were approximately 60%.
Steven Kwok: Got it. That’s very helpful. And just like, following up around the prior comment on the convertible. And just, how should we think about the cash that you have? And if you could talk also about the potential M&A market, because we’ve been hearing, this maybe signs that valuations had been coming down to? So I want to see what you’re seeing out there. And if the right deal comes along does these convertibles on the horizon prohibit you from doing anything? Thanks.
Tim Murphy: Okay, yes, on the convert we — like I said, it’s a really flexible, we have a lot of options, we’re growing cash nicely. Our free cash flow conversion profile should put us over $200 million at the end of 2024. We are looking to maintain flexibility for various capital allocation priorities, the first and foremost being organic growth. And then we have the share repurchase authorization, which we’ve reacted on toward the end of last year. And then the convert is, again, something we’re monitoring at 0% interest. And so we’re just trying to be thoughtful around maintaining flexibility to also continue to reduce net leverage. And from M&A perspective, we do see, 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 any acquisition in over two years. So we’ve been very disciplined, and we’ll continue to be disciplined on valuation.
Steven Kwok: Got it. Thanks for taking my question. And congrats on the good quarter.
Operator: Our next question comes from the line of Joseph Vafi with Canaccord. Please proceed with your question.
Joseph Vafi : Guys, good afternoon, nice results. Could you just go through the reduced CapEx outlook for 2024 remind us, what were some of those investments that were we 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? Then I have a follow up.
Tim Murphy: Yes, we have invested heavily in the business, we’ve invested in growth. A lot of that was focused on our backend, RCS, where we’re just trying, — 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 as a big investment that we don’t think is recurring. From a growth investment standpoint, there’s a lot of work to be 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 over two years.
So in addition to doing work on RCS, we’ve done a lot of work to integrate prior acquisitions that goes on to effectively a single platform, and there’s integration costs associated with that, 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 ’23 and we expect to bring that down to fall to 13% to 14%, of revenue level in ‘24. And even further and even further down beyond ’24. That in addition to just EBITDA growing faster than gross profit combined leads to the free cash flow acceleration.
