SEC Filing - Repay Holdings Corporation

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

rpay-10q_20220331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-38531

Repay Holdings Corporation

(Exact name of Registrant as specified in its Charter)

Delaware	98-1496050
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3 West Paces Ferry Road, Suite 200 Atlanta, GA	30305
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (404) 504-7472

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share		RPAY		The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 4, 2022, there are 91,308,140 shares of the registrant’s Class A Common Stock, par value $0.0001 per share, outstanding (which number includes 2,419,752 shares of unvested restricted stock that have voting rights) and 100 shares of the registrant’s Class V Common Stock, par value of $0.0001 per share, outstanding. As of May 4, 2022, the holders of such outstanding shares of Class V common stock also hold 7,883,048 units in a subsidiary of the registrant and such units are exchangeable into shares of the registrant’s Class A common stock on a one-for-one basis.

REPAY HOLDINGS CORPORATION

Quarterly Report on Form 10‑Q

For the quarter ended March 31, 2022

TABLE OF CONTENTS


		Page

	PART I – FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

	Signatures	39

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, anticipated benefits from our recent acquisitions, the effects of the COVID-19 pandemic, expected demand on our product offering, including further implementation of electronic payment options and statements regarding our market and growth opportunities, and our business strategy and the plans and objectives of management for future operations. You generally can identify these statements by the use of words such as “outlook,” “potential,” “continue,” “may,” “seek,” “approximately,” “predict,” “believe,” “expect,” “plan,” “intend,” “estimate” or “anticipate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would,” “likely” and “could.” These statements may be found under Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. These risks and uncertainties include, but are not limited to: exposure to economic conditions and political risk affecting the consumer loan market, the receivables management industry and consumer and commercial spending; the impacts of the ongoing COVID-19 coronavirus pandemic and the actions taken to control or mitigate its spread; a delay or failure to integrate and/or realize the benefits of our recent acquisitions; changes in the payment processing market in which we compete, including with respect to its competitive landscape, technology evolution or regulatory changes; changes in the vertical markets that we target, including the regulatory environment applicable to our clients; the ability to retain, develop and hire key personnel; risks relating to our relationships within the payment ecosystem; risk that we may not be able to execute our growth strategies, including identifying and executing acquisitions; risks relating to data security; changes in accounting policies applicable to us; the risk that we may not be able to maintain effective internal controls; and those risks described under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.

PART I

FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

REPAY HOLDINGS CORPORATION

Consolidated Balance Sheets

	March 31, 2022 (Unaudited)			December 31, 2021
Assets
Cash and cash equivalents	$	65,316,018		$	50,048,657
Accounts receivable		34,312,006			33,235,745
Prepaid expenses and other		12,789,275			12,427,032
Total current assets		112,417,299			95,711,434

Property, plant and equipment, net		3,846,999			3,801,199
Restricted cash		15,513,510			26,291,269
Intangible assets, net		556,625,295			577,693,902
Goodwill		824,094,441			824,081,632
Operating lease right-of-use assets, net		11,473,076			10,499,751
Deferred tax assets		141,404,532			145,259,883
Other assets		2,499,996			2,499,996
Total noncurrent assets		1,555,457,849			1,590,127,632
Total assets	$	1,667,875,148		$	1,685,839,066

Liabilities
Accounts payable	$	21,738,214		$	20,082,651
Related party payable		14,324,177			17,394,125
Accrued expenses		19,552,828			26,819,083
Current operating lease liabilities		2,225,407			1,990,416
Current tax receivable agreement		24,454,088			24,495,556
Other current liabilities		1,048,662			1,565,931
Total current liabilities		83,343,376			92,347,762

Long-term debt		449,187,265			448,484,696
Noncurrent operating lease liabilities		9,886,289			9,090,867
Tax receivable agreement, net of current portion		196,754,946			221,332,863
Other liabilities		1,385,704			1,547,087
Total noncurrent liabilities		657,214,204			680,455,513
Total liabilities	$	740,557,580		$	772,803,275

Commitments and contingencies (Note 12)

Stockholders' equity
Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized, and 88,817,111 and 88,502,621 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		8,881			8,850
Class V common stock, $0.0001 par value; 1,000 shares authorized and 100 shares issued and outstanding as of March 31, 2022 and December 31, 2021		—			—
Additional paid-in capital		1,101,431,734			1,100,012,082
Accumulated other comprehensive loss		(2,205	)		(2,205	)
Accumulated deficit		(212,362,342	)		(226,015,886	)
Total Repay stockholders' equity	$	889,076,068		$	874,002,841
Non-controlling interests		38,241,500			39,032,950
Total equity	$	927,317,568		$	913,035,791
Total liabilities and equity	$	1,667,875,148		$	1,685,839,066

See accompanying notes to consolidated financial statements.

REPAY HOLDINGS CORPORATION

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Revenue	$	67,564,055		$	47,520,496
Operating expenses
Costs of services (exclusive of depreciation and amortization shown separately below)		16,564,956			12,474,808
Selling, general and administrative		32,217,893			23,393,367
Depreciation and amortization		28,589,145			17,792,994
Change in fair value of contingent consideration		(2,900,000	)		2,648,786
Total operating expenses		74,471,994			56,309,955
Loss from operations		(6,907,939	)		(8,789,459	)
Other income (expense)
Interest expense		(988,589	)		(1,183,357	)
Loss on extinguishment of debt		—			(5,940,600	)
Change in fair value of tax receivable liability		24,619,385			1,042,733
Other income		6,060			28,147
Other loss		—			(9,080,410	)
Total other income (expense)		23,636,856			(15,133,487	)
Income (loss) before income tax (expense) benefit		16,728,917			(23,922,946	)
Income tax (expense) benefit		(3,842,542	)		5,941,773
Net income (loss)	$	12,886,375		$	(17,981,173	)
Less: Net loss attributable to non-controlling interests		(767,169	)		(2,187,272	)
Net income (loss) attributable to the Company	$	13,653,544		$	(15,793,901	)

Income (loss) per Class A share attributable to the Company:
Basic	$	0.15		$	(0.21	)
Diluted	$	0.12		$	(0.21	)
Weighted-average shares outstanding:
Basic		88,607,655			76,602,759
Diluted		113,015,159			76,602,759

See accompanying notes to consolidated financial statements.

REPAY HOLDINGS CORPORATION

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Net income (loss)	$	12,886,375		$	(17,981,173	)
Other comprehensive income, before tax
Reclassification of net unrealized loss on cash flow hedges to other loss		—			9,317,244
Total other comprehensive income, before tax		—			9,317,244
Income tax related to items of other comprehensive income:
Tax expense on reclassification of net unrealized loss on cash flow hedges to other loss		—			(1,672,743	)
Total income tax expense on related to items of other comprehensive income		—			(1,672,743	)
Total other comprehensive income, net of tax		—			7,644,501
Total comprehensive income (loss)	$	12,886,375		$	(10,336,672	)
Less: Comprehensive loss attributable to non-controlling interests		(767,169	)		(979,534	)
Comprehensive income (loss) attributable to the Company	$	13,653,544		$	(9,357,138	)

See accompanying notes to consolidated financial statements.

REPAY HOLDINGS CORPORATION

Consolidated Statements of Changes in Equity

(Unaudited)

	Repay Stockholders
	Class A Common Stock						Class V Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Non-controlling			Total
	Shares			Amount			Shares		Amount		Capital			Deficit			(Loss) Income			Interests			Equity
Balance at December 31, 2020		71,244,682		$	7,125			100	$	-	$	691,675,072		$	(175,931,713	)	$	(6,436,763	)	$	46,868,350		$	556,182,071
Issuance of new shares		6,244,500			624					-		142,411,389			-			-			(313,652	)		142,098,361
Exchange of Post-Merger Repay Units		375,000			38					-		2,158,374			-			-			(2,158,412	)		-
Release of share awards vested under Equity Plan		293,081			29					-		(29	)		-			-			-			-
Shares repurchased under Equity Plan		(72,417	)		(7	)				-		(1,821,935	)		-			-			3,995			(1,817,947	)
Stock-based compensation		-			-					-		5,171,544			-			-			(20,945	)		5,150,599
Valuation allowance on Ceiling Rule DTA		-			-					-		(5,064	)		-			-			-			(5,064	)
Net loss		-			-					-		-			(15,793,901	)		-			(2,187,272	)		(17,981,173	)
Other comprehensive income		-			-					-		-			-			6,436,763			1,207,738			7,644,501
Balance at March 31, 2021		78,084,846		$	7,809			100	$	-	$	839,589,351		$	(191,725,614	)	$	-		$	43,399,802		$	691,271,348

Balance at December 31, 2021		88,502,621		$	8,850			100	$	-	$	1,100,012,082		$	(226,015,886	)	$	(2,205	)	$	39,032,950		$	913,035,791
Release of share awards vested under Equity Plan		427,755			43					-		(43	)		-			-			-			-
Shares repurchased under Equity Plan		(113,265	)		(12	)				-		(1,702,805	)		-			-			4,384			(1,698,433	)
Stock-based compensation		-			-					-		3,122,500			-			-			(28,665	)		3,093,835
Net income (loss)		-			-					-		-			13,653,544			-			(767,169	)		12,886,375
Balance at March 31, 2022		88,817,111		$	8,881			100	$	-	$	1,101,431,734		$	(212,362,342	)	$	(2,205	)	$	38,241,500		$	927,317,568

See accompanying notes to consolidated financial statements.

REPAY HOLDINGS CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities
Net income (loss)	$	12,886,375		$	(17,981,173	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		28,589,145			17,792,994
Stock based compensation		3,093,835			5,150,599
Amortization of debt issuance costs		702,569			535,536
Loss on extinguishment of debt		—			5,940,600
Loss on sale of interest rate swaps		—			9,317,243
Fair value change in tax receivable agreement liability		(24,619,385	)		(1,042,733	)
Fair value change in other assets and liabilities		(2,900,000	)		2,648,786
Deferred tax expense		3,842,542			(5,941,773	)
Change in accounts receivable		(1,076,261	)		(2,586,374	)
Change in prepaid expenses and other		(362,243	)		846,681
Change in operating lease ROU assets		(973,325	)		424,043
Change in accounts payable		1,655,563			2,232,774
Change in related party payable		(169,948	)		(685,568	)
Change in accrued expenses and other		(7,266,255	)		(1,857,743	)
Change in operating lease liabilities		1,030,413			(330,651	)
Change in other liabilities		(678,652	)		(9,693,825	)
Net cash provided by operating activities		13,754,373			4,769,416
Cash flows from investing activities
Purchases of property and equipment		(553,223	)		(640,467	)
Purchases of intangible assets		(7,013,115	)		(4,576,203	)
Acquisition of CPS, net of cash and restricted cash acquired		—			10,778
Net cash used in investing activities		(7,566,338	)		(5,205,892	)
Cash flows from financing activities
Issuance of long-term debt		—			440,000,000
Payments on long-term debt		—			(262,653,996	)
Public issuance of Class A Common Stock		—			142,098,361
Shares repurchased under Equity Plan		(1,698,433	)		(1,817,947	)
Payment of loan costs		—			(13,247,617	)
Net cash (used in) provided by financing activities		(1,698,433	)		304,378,801
Increase in cash, cash equivalents and restricted cash		4,489,602			303,942,325
Cash, cash equivalents and restricted cash at beginning of period	$	76,339,926		$	106,504,734
Cash, cash equivalents and restricted cash at end of period	$	80,829,528		$	410,447,059

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	286,020		$	647,821

See accompanying notes to consolidated financial statements.

REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

1. Organizational Structure and Corporate Information

Repay Holdings Corporation was incorporated as a Delaware corporation on July 11, 2019 in connection with the closing of a transaction (the “Business Combination”) pursuant to which Thunder Bridge Acquisition Ltd., a special purpose acquisition company organized under the laws of the Cayman Islands (“Thunder Bridge”), (a) domesticated into a Delaware corporation and changed its name to “Repay Holdings Corporation” and (b) consummated the merger of a wholly owned subsidiary of Thunder Bridge with and into Hawk Parent Holdings, LLC, a Delaware limited liability company (“Hawk Parent”).

Throughout this section, unless otherwise noted or unless the context otherwise requires, the terms “we”, “us”, “Repay” and the “Company” and similar references refer (1) before the Business Combination, to Hawk Parent and its consolidated subsidiaries and (2) from and after the Business Combination, to Repay Holdings Corporation and its consolidated subsidiaries. Throughout this section, unless otherwise noted or unless the context otherwise requires, “Thunder Bridge” refers to Thunder Bridge Acquisition. Ltd. prior to the consummation of the Business Combination.

The Company is headquartered in Atlanta, Georgia.

2. Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Consolidated Financial Statements

These unaudited consolidated interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes, which are included in the Annual Report on Form 10-K for the year ended December 31, 2021.

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with instructions to Form 10-Q and Rule 10-01 of SEC Regulation S-X as they apply to interim financial information. Accordingly, the interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading.

The interim consolidated financial statements are unaudited, but in the Company’s opinion include all adjustments of a normal recurring nature or a description of the nature and amount of any adjustments other than normal recurring adjustments, operations and cash flows as of and for the periods presented. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

Principles of Consolidation

The consolidated financial statements include the accounts of Repay Holdings Corporation, the majority-owned Hawk Parent Holdings LLC and its wholly owned subsidiaries: Hawk Intermediate Holdings, LLC, Hawk Buyer Holdings, LLC, Repay Holdings, LLC, M&A Ventures, LLC, Repay Management Holdco Inc., Repay Management Services LLC, Sigma Acquisition, LLC, Wildcat Acquisition, LLC, Marlin Acquirer, LLC, REPAY International LLC, REPAY Canada Solutions ULC, TriSource Solutions, LLC (“TriSource”), Mesa Acquirer, LLC, CDT Technologies LTD (“Ventanex”), Viking GP Holdings, LLC, cPayPlus, LLC (“cPayPlus”), CPS Payment Services, LLC, Media Payments, LLC (“MPI”), Custom Payment Systems, LLC, BT Intermediate, LLC, Electronic Payment Providers, LLC, Blue Cow Software, LLC, Hoot Payment Solutions, LLC, Internet Payment Exchange, LLC, Stratus Payment Solutions, LLC, Clear Payment Solutions, LLC, Harbor Acquisition LLC, Payix Holdings Incorporated and Payix Incorporated. All significant intercompany accounts and transactions have been eliminated in consolidation.

REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

Basis of Financial Statement Presentation

The accompanying interim consolidated financial statements of the Company were prepared in accordance with GAAP. The Company uses the accrual basis of accounting whereby revenues are recognized when earned, usually upon the date services are rendered, and expenses are recognized at the date services are rendered or goods are received.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported Consolidated Statements of Operations during the reporting period. Actual results could differ materially from those estimates.

Correction of Immaterial Error in Previously Issued Financial Statements

During the preparation of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company identified an error in the presentation of the reclassification of net unrealized loss on cash flow hedges to other loss and its related tax expenses within the Consolidated Statements of Comprehensive Income in previous reporting periods beginning the three months ended March 31, 2021, which resulted in a decrease of Comprehensive loss attributable to the Company from ($15.8) million to ($9.4) million for the three months ended March 31, 2021. Net income (loss) for the three months ended March 31, 2021 and Total equity as of March 31, 2021 were not impacted. The Company assessed the materiality of the misstatement both quantitatively and qualitatively in accordance with Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections, as well as SEC Staff Accounting Bulletins No. 99, Materiality, and No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded that the misstatement was not material to the Company’s previously issued unaudited interim consolidated financial statements for the prior periods and that amendments of previously filed reports were not required.

Recently Issued Accounting Pronouncements not yet Adopted

Business Combinations

In August 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue (Topic 606), and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. Amendments within ASU No. 2021-08 are required to be applied prospectively to business combinations occurring on or after the effective date of the amendments.

3. Revenue

For the Company’s accounting policies for recognizing revenue and contract costs, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 3. Revenue to the Company’s Notes to Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2021.

REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

Disaggregation of revenue

The table below presents a disaggregation of revenue by direct and indirect relationships for the periods indicated:

	Three Months Ended March 31,
	2022		2021
Revenue
Direct relationships	$	63,637,758	$	46,971,894
Indirect relationships		3,926,297