UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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
(Exact name of Registrant as specified in its Charter)
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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.
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).
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:
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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
As of May 4, 2023, there are
REPAY HOLDINGS CORPORATION
Quarterly Report on Form 10‑Q
For the quarter ended March 31, 2023
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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36 |
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, expected demand on our product offerings, 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, including bank failures or other adverse events affecting financial institutions, inflationary pressures, general economic slowdown or recession; 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, 2022 and under Part II, Item 1A “Risk Factors” herein. 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. Condensed Consolidated Financial Statements
REPAY HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
($ in thousands) |
March 31, 2023 (Unaudited) |
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December 31, 2022 |
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Assets |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable |
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Prepaid expenses and other |
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Total current assets |
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Property, plant and equipment, net |
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Restricted cash |
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Intangible assets, net |
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Goodwill |
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Operating lease right-of-use assets, net |
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Deferred tax assets |
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Other assets |
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Total noncurrent assets |
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Total assets |
$ |
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$ |
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Liabilities |
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Accounts payable |
$ |
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$ |
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Related party payable |
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Accrued expenses |
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Current operating lease liabilities |
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Current tax receivable agreement |
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— |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Noncurrent operating lease liabilities |
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Tax receivable agreement, net of current portion |
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Other liabilities |
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Total noncurrent liabilities |
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Total liabilities |
$ |
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$ |
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Commitments and 10) |
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Stockholders' equity |
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Class A common stock, $ |
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Class V common stock, $ |
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— |
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— |
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Additional paid-in capital |
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Treasury stock, |
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( |
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Accumulated other comprehensive loss |
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( |
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Accumulated deficit |
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( |
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Total Repay stockholders' equity |
$ |
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$ |
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Non-controlling interests |
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Total equity |
$ |
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$ |
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Total liabilities and equity |
$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
1
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended March 31, |
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($ in thousands, except per share data) |
2023 |
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2022 |
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Revenue |
$ |
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$ |
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Operating expenses |
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Costs of services (exclusive of depreciation and amortization shown separately below) |
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Selling, general and administrative |
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Depreciation and amortization |
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Change in fair value of contingent consideration |
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— |
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( |
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Loss on business disposition |
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— |
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Total operating expenses |
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Loss from operations |
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( |
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Other income (expense) |
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Interest expense |
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( |
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( |
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Change in fair value of tax receivable liability |
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Other income |
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Total other income (expense) |
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( |
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Income (loss) before income tax expense |
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( |
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Income tax expense |
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( |
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( |
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Net income (loss) |
$ |
( |
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$ |
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Less: Net loss attributable to |
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( |
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Net income (loss) attributable to the Company |
$ |
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$ |
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Income (loss) per Class A share attributable to the Company: |
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Basic |
$ |
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$ |
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Diluted |
$ |
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$ |
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Weighted-average shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to condensed consolidated financial statements.
2
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
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Repay Stockholders |
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Class A Common |
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Class V Common |
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Additional |
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Treasury |
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Accumulated |
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Accumulated Other Comprehensive |
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Non-controlling |
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Total |
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($ in thousands) |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Stock |
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Deficit |
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Loss |
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Interests |
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Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
- |
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$ |
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$ |
- |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Release of share awards vested under Incentive Plan |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Shares repurchased under Incentive Plan |
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( |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Net income (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
- |
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$ |
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$ |
- |
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$ |
( |
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$ |
( |
) |
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$ |
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$ |
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Balance at December 31, 2022 |
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$ |
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$ |
- |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Exchange of Post-Merger Repay Units |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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Release of share awards vested under Incentive Plan |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Shares repurchased under Incentive Plan |
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( |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
) |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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Tax distribution from Hawk Parent |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
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( |
) |
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Balance at March 31, 2023 |
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$ |
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$ |
- |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
3
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31, |
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($ in thousands) |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net income (loss) |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock based compensation |
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Amortization of debt issuance costs |
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Loss on business disposition |
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— |
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Fair value change in tax receivable agreement liability |
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( |
) |
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Fair value change in contingent consideration |
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— |
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( |
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Deferred tax expense |
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Change in accounts receivable |
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( |
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( |
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Change in prepaid expenses and other |
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( |
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Change in operating lease ROU assets |
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( |
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Change in accounts payable |
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( |
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Change in related party payable |
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( |
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Change in accrued expenses and other |
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( |
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( |
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Change in operating lease liabilities |
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( |
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Change in other liabilities |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Purchases of property and equipment |
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( |
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( |
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Purchases of intangible assets |
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( |
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( |
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Proceeds from sale of business, net of cash retained |
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— |
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Net cash provided by (used in) investing activities |
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( |
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Cash flows from financing activities |
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Payments on long-term debt |
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( |
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— |
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Shares repurchased under Incentive Plan |
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( |
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( |
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Distributions to Members |
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( |
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— |
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Payment of contingent consideration liability up to acquisition-date fair value |
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( |
) |
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— |
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Net cash used in financing activities |
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( |
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( |
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Increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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$ |
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$ |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash paid during the year for: |
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Interest |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
4
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Condensed 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 to Repay Holdings Corporation and its consolidated subsidiaries.
The Company is headquartered in Atlanta, Georgia.
On February 15, 2023, the Company sold Blue Cow Software, LLC and a related entity (“BCS”) for cash proceeds of $
2. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Statements
These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited condensed consolidated financial statements and accompanying notes, which are included in the Annual Report on Form 10-K for the year ended December 31, 2022.
The accompanying unaudited condensed 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 condensed 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 condensed 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 condensed consolidated financial statements include the accounts of Repay Holdings Corporation and its (i) wholly owned subsidiary, BT Intermediate, LLC, and (ii) majority-owned subsidiary, Hawk Parent Holdings LLC, along with Hawk Parent Holdings LLC's 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, Electronic Payment Providers, 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.
Basis of Financial Statement Presentation
The accompanying interim condensed 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.
5
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
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 Condensed Consolidated Statements of Operations during the reporting period. Actual results could differ materially from those estimates.
Segment Reporting
Effective December 31, 2022, the Company revised the presentation of segment information to reflect changes in the way the Company manages and evaluates the business. Therefore, the Company reports operating results through
Recently Adopted Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”)”, which provides optional expedients and exceptions to contracts, hedging relationships and other transactions affected by the transition away from LIBOR to alternative reference rates. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope”, to expand the scope of this guidance to include derivatives. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022, to December 31, 2024.
The Company adopted these ASUs as of February 9, 2023. The adoption of these standards does not have a material impact on the Company’s Consolidated Financial Statements.
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 2021-08”). ASU 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 2021-08 are required to be applied prospectively to business combinations occurring on or after the effective date of the amendments.
The Company adopted ASU 2021-08 as of January 1, 2023. The adoption of this standard does not have a material impact on the Company’s Consolidated Financial Statements.
3. Revenue
Disaggregation of revenue
The Company’s revenue is from two types of relationships: (i) direct relationships and (ii) indirect relationships.
6
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
|
|
Three Months Ended March 31, 2023 |
|
|||||||||||||
($ in thousands) |
|
Consumer Payments |
|
|
Business Payments |
|
|
Elimination of intersegment revenues |
|
|
Total |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Direct relationships |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Indirect relationships |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
Three Months Ended March 31, 2022 |
|
|||||||||||||
($ in thousands) |
|
Consumer Payments |
|
|
Business Payments |
|
|
Elimination of intersegment revenues |
|
|
Total |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Direct relationships |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Indirect relationships |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
4. Earnings Per Share
During the three months ended March 31, 2023, basic and diluted net loss per common share are the same since the inclusion of the assumed exchange of all limited liability company interests of Hawk Parent (“Post-Merger Repay Units”), unvested share-based awards, outstanding stock options and the Company’s Convertible Senior Notes due 2026 (“2026 Notes”) would have been anti-dilutive.
The following table summarizes net income (loss) attributable to the Company and the weighted average basic and diluted shares outstanding:
|
|
Three Months Ended March 31, |
|
|||||
($ in thousands, except per share data) |
|
2023 |
|
|
2022 |
|
||
Income (loss) before income tax expense |
|
$ |
( |
) |
|
$ |
|
|
Less: Net loss attributable to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Income tax expense |
|
|
( |
) |
|
|
( |
) |
Net income (loss) attributable to the Company |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Weighted average shares of Class A common stock outstanding - basic |
|
|
|
|
|
|
||
Add weighted average effect of dilutive common stock equivalent shares: |
|
|
|
|
|
|
||
Post-Merger Repay Units exchangeable for Class A common stock |
|
|
|
|
|
|
||
Unvested share-based awards of Class A common stock |
|
|
|
|
|
|
||
2026 Notes convertible into Class A common stock |
|
|
|
|
|
|
||
Weighted average shares of Class A common stock outstanding - diluted |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Income (loss) per share of Class A common stock outstanding - basic |
|
$ |
( |
) |
|
$ |
|
|
Income (loss) per share of Class A common stock outstanding - diluted |
|
$ |
( |
) |
|
$ |
|
|
7
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
For the three months ended March 31, 2023, the following common stock equivalent shares were excluded from the computation of the diluted loss per share, since their inclusion would have been anti-dilutive:
|
|
Three Months Ended March 31, |
|
|
|
|
2023 |
|
|
Post-Merger Repay Units exchangeable for Class A common stock |
|
|
|
|
Unvested share-based awards of Class A common stock |
|
|
|
|
Outstanding stock options for Class A common stock |
|
|
|
|
2026 Notes convertible into Class A common stock |
|
|
|
|
Share equivalents excluded from earnings (loss) per share |
|
|
|
|
|
|
|
|
|
Shares of the Company’s Class V common stock do not participate in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class V common stock under the two-class method has not been presented.
5. Business Combinations and Dispositions
On February 15, 2023, the Company sold Blue Cow Software, LLC and a related entity (“BCS”) within the Consumer Payments segment for cash proceeds of $
The Company recognized a reduction of $
Transaction Expenses
The Company incurred transaction expenses of $
8
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
6. Fair Value
The following table summarizes, by level within the fair value hierarchy, estimated fair values of the Company’s assets and liabilities measured at fair value on a recurring or nonrecurring basis or disclosed, but not carried, at fair value in the Condensed Consolidated Balance Sheets as of the dates presented. There were no transfers into, out of, or between levels within the fair value hierarchy during any of the periods presented.
|
|
March 31, 2023 |
|
|||||||||||||
($ in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Borrowings |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Tax receivable agreement |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total liabilities |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Borrowings |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Tax receivable agreement |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total liabilities |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets
Other assets contain a minority equity investment in a privately-held company. The Company elected a measurement alternative for measuring this investment, in which the carrying amount is adjusted based on any observable price changes in orderly transactions. The investment is classified as Level 2 as observable adjustments to value are infrequent and occur in an inactive market.
Contingent consideration
Contingent consideration relates to potential payments that the Company may be required to make associated with acquisitions. The contingent consideration is recorded at fair value based on actuals or estimates of discounted future cash flows associated with the acquired businesses. To the extent that the valuation of these liabilities is based on inputs that are less observable or not observable in the market, the determination of fair value requires more judgment. Accordingly, the fair value of contingent consideration is classified within Level 3 of the fair value hierarchy, under ASC 820. The change in fair value is re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805, Business Combinations (“ASC 805”).
As of March 31, 2023 and December 31, 2022, the present value of contingent consideration reflects the actual anticipated payments.
The following table provides a rollforward of the contingent consideration related to previous business acquisitions.
|
|
Three Months Ended March 31, |
|
|||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Purchases |
|
|
— |
|
|
|
— |
|
Payments |
|
|
( |
) |
|
|
— |
|
Valuation adjustment |
|
|
— |
|
|
|
( |
) |
Balance at end of period |
|
$ |
— |
|
|
$ |
|
|
9
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Borrowings
The revolving credit facility and 2026 Notes are measured at amortized cost, which the carrying value is unpaid principal net of unamortized debt discount and debt issuance costs. The carrying value of the revolving credit facility approximates fair value because its interest rate approximates market interest rates. The estimated fair value of the 2026 Notes is determined using the quoted prices from over-the-counter markets. The estimated fair value of the Company’s borrowings is classified within Level 2 of the fair value hierarchy, as the market interest rates and quoted prices are generally observable and do not contain a high level of subjectivity.
The following table provides the carrying value and estimated fair value of borrowings. See Note 9. Borrowings for further discussion on borrowings.
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
($ in thousands) |
|
Carrying value |
|
|
Fair value |
|
|
Carrying value |
|
|
Fair value |
|
||||
Revolving credit facility |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
2026 Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Tax Receivable Agreement
Upon the completion of the Business Combination, the Company entered into the Tax Receivable Agreement (the “TRA”) with holders of Post-Merger Repay Units. As a result of the TRA, the Company established a liability in its condensed consolidated financial statements. The TRA is recorded at fair value based on estimates of discounted future cash flows associated with the estimated payments to the Post-Merger Repay Unit holders. These inputs are not observable in the market; thus, the TRA is classified within Level 3 of the fair value hierarchy, under ASC 820. The change in fair value is re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805.
The Company used a discount rate, also referred to as the Early Termination Rate, as defined in the TRA, to determine the present value, based on a , pursuant to the TRA. A rate of
The following table provides a rollforward of the TRA related to the acquisition and exchanges of Post-Merger Repay Units. See Note 13. Taxation for further discussion on the TRA.
|
|
Three Months Ended March 31, |
|
|||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Purchases |
|
|
|
|
|
— |
|
|
Accretion expense |
|
|
— |
|
|
|
|
|
Valuation adjustment |
|
|
|
|
|
( |
) |
|
Balance at end of period |
|
$ |
|
|
$ |
|
||
10
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
7. Intangible Assets
The Company holds definite and indefinite-lived intangible assets. As of March 31, 2023 and December 31, 2022, the indefinite-lived intangible assets consist of
Intangible assets consisted of the following:
($ in thousands) |
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Weighted Average Useful Life (Years) |
|
||||
Client relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Channel relationships |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Software costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Balance as of March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Channel relationships |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Software costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Balance as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
The Company’s amortization expense for intangible assets was $
The estimated amortization expense for the next five years and thereafter in the aggregate is as follows:
($ in thousands) |
|
Estimated Future |
|
|
Year Ending December 31, |
|
Amortization Expense |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
8. Goodwill
The following table presents changes to goodwill by business segment for the three months ended March 31, 2023.
($ in thousands) |
|
Consumer Payments |
|
|
Business Payments |
|
|
Total |
|
|||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Dispositions |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
During the three months ended March 31, 2023, the Company recognized a reduction in goodwill of $
The Company concluded that goodwill was
11
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
9. Borrowings
Amended Credit Agreement
On February 3, 2021, the Company announced the closing of a new undrawn $
On December 29, 2021, the Company increased its existing senior secured credit facility by $
On February 9, 2023, the Company further amended the Amended Credit Agreement to replace London Inter-bank Offer Rate (“LIBOR”) with term Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark.
On February 28, 2023, the Company repaid in full the entire amount of $
As of March 31, 2023, the Company had $
Convertible Senior Debt
On January 19, 2021, the Company issued $
During the three months ended March 31, 2023, the conversion contingencies of the 2026 Notes were not met, and the conversion terms of the 2026 Notes were not significantly changed.
The following table summarizes the total borrowings under the Amended Credit Agreement and 2026 Notes:
($ in thousands) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Non-current indebtedness: |
|
|
|
|
|
|
||
Revolving Credit Facility (1) |
|
$ |
— |
|
|
$ |
|
|
Convertible Senior Debt |
|
|
|
|
|
|
||
Total borrowings |
|
|
|
|
|
|
||
Less: Long-term loan debt issuance cost (2) |
|
|
|
|
|
|
||
Total non-current borrowings |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
12
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
The following is a summary of principal maturities of long‑term debt for each of the next five years ending December 31 and in the aggregate:
($ in thousands) |
|
|
|
|
2023 |
|
$ |
— |
|
2024 |
|
|
— |
|
2025 |
|
|
— |
|
2026 |
|
|
|
|
2027 |
|
|
— |
|
|
|
$ |
|
|
|
|
|
|
|
10. Commitments and Contingencies
Legal Matters
The Company is a party to various claims and lawsuits incidental to its business. In the Company’s opinion, the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, are not expected to have a material adverse effect on its financial position, liquidity, results of operations or cash flows.
Leases
The Company has commitments under operating leases for real estate leased from third parties under non-cancelable operating leases. The Company’s leases typically have lease terms between
The components of lease cost are presented in the following table:
|
|
Three Months Ended March 31, |
|
|||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
||
Components of total lease costs: |
|
|
|
|
|
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Short-term lease cost |
|
|
|
|
|
|
||
Variable lease cost |
|
|
— |
|
|
|
— |
|
Total lease cost |
|
$ |
|
|
$ |
|
||
Amounts reported in the Condensed Consolidated Balance Sheets were as follows:
($ in thousands) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Operating leases: |
|
|
|
|
|
|
||
ROU assets |
|
$ |
|
|
$ |
|
||
Lease liability, current |
|
|
|
|
|
|
||
Lease liability, long-term |
|
|
|
|
|
|
||
Total lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|||
Weighted-average discount rate (annualized) |
|
|
% |
|
|
% |
||
13
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Other information related to leases are as follows:
|
|
Three Months Ended March 31, |
|
|||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
ROU assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
||
Operating leases |
|
|
— |
|
|
|
|
|
The following table presents a maturity analysis of the Company’s operating leases liabilities as of March 31, 2023:
($ in thousands) |
|
|
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted lease payments |
|
|
|
|
Less: Imputed interest |
|
|
|
|
Total lease liabilities |
|
$ |
|
|
11. Related Party Transactions
Related party payables consisted of the following:
($ in thousands) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
CPS accrued earnout liability |
|
$ |
— |
|
|
$ |
|
|
Other payables to related parties |
|
|
|
|
|
— |
|
|
|
|
$ |
|
|
$ |
|
||
The Company held receivables from related parties of $
The Company owed $
12. Share Based Compensation
Omnibus Incentive Plan
At the 2019 Annual Shareholders Meeting of Thunder Bridge, the shareholders considered and approved the 2019 Omnibus Incentive Plan (the “Incentive Plan”) which resulted in the reservation of
Under this plan, the Company currently has four types of share-based compensation awards outstanding: performance stock units (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based stock options (“PSOs”).
14
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Share-Based Awards
The following table summarizes share-based compensation expense and the related income tax benefit recognized for the Company’s share-based compensation awards. Share-based compensation expenses are recorded within Selling, general and administrative in the Company’s Condensed Consolidated Statement of Operations.
|
|
Three Months Ended March 31, |
|
|||||
($ in millions) |
|
2023 |
|
|
2022 |
|
||
Share-based compensation expense |
|
$ |
|
|
$ |
|
||
Income tax (expense) benefit |
|
|
|
|
|
|
||
Activities for RSAs for the three months ended March 31, 2023 are as follows:
|
|
Class A Common Stock |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested at December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited (1)(2) |
|
|
|
|
|
|
||
Vested |
|
|
|
|
|
|
||
Unvested at March 31, 2023 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Activities for RSUs for the three months ended March 31, 2023 are as follows:
|
|
Class A Common Stock |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested at December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Vested |
|
|
|
|
|
|
||
Unvested at March 31, 2023 |
|
|
|
|
$ |
|
||
Activities for PSUs for the three months ended March 31, 2023 are as follows:
|
|
Class A Common Stock (3) |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested at December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Unvested at March 31, 2023 |
|
|
|
|
$ |
|
||
Unrecognized compensation expense related to unvested PSUs, RSAs and RSUs was $
15
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Stock Options
Activities for PSOs for the three months ended March 31, 2023 are as follows:
|
|
Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (in years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding at December 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Outstanding at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options vested and exercisable at March 31, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
The Company recognized compensation expense for PSOs of $
The weighted average grant date fair value of PSOs granted during the three months ended March 31, 2023 was $
|
|
Three Months Ended March 31, 2023 |
|
|
Risk-free interest rate |
|
|
% |
|
Expected volatility |
|
|
% |
|
Dividend yield |
|
|
% |
|
Expected term (in years) |
|
|
|
|
The risk-free interest rate was based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the contractual term of seven years. The assumption on expected volatility was based on the average of historical peer group volatilities using daily prices. The dividend yield assumption was determined as
13. Taxation
Repay Holdings Corporation is taxed as a corporation and is subject to paying corporate federal, state and local taxes on the income allocated to it from Hawk Parent, based upon Repay Holding Corporation’s economic interest held in Hawk Parent, as well as any stand-alone income or loss it generates. Hawk Parent is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Hawk Parent is not subject to U.S. federal and certain state and local income taxes. Hawk Parent’s members, including Repay Holdings Corporation, are liable for federal, state and local income taxes based on their allocable share of Hawk Parent’s pass-through taxable income.
The Company’s effective tax rate was (
16
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
disclosed separately in the quarterly financial statements. The effective tax rate of the Company differs from the federal statutory rate of
The Company recognized adjustments of ($
Deferred tax assets, net of $
The Company did not recognize any adjustment to the deferred tax asset (“DTA”) and offsetting deferred tax liability (“DTL”) recorded as a result of the ceiling rule limitation arising under Code Sec. 704(c) for the three months ended March 31, 2023, to account for the portion of the Company’s outside basis in the partnership interest that it will not recover through tax deductions. As the ceiling rule causes taxable income allocations to be in excess of 704(b) book allocations the DTL will unwind, leaving only the DTA, which may only be recovered through the sale of the partnership interest in Hawk Parent. The Company has concluded, based on the weight of all positive and negative evidence, that all of the DTA associated with the ceiling rule limitation is not likely to be realized. As such, a
Tax Receivable Agreement Liability
Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of Hawk Parent when Post-Merger Repay Units are redeemed or exchanged for Class A common stock of Repay Holdings Corporation. The Company intends to treat any redemptions and exchanges of Post-Merger Repay Units as direct purchases for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
On July 11, 2019, the Company entered into a TRA that provides for the payment by the Company of
As of March 31, 2023, the Company had a liability of $
17
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
14. Segments
For performance assessment and resource allocation purposes, the Company’s chief operating decision maker (“CODM”) reviews discrete financial results of
Consumer Payments
The Consumer Payments segment provides payment processing solutions (including debit and credit card processing, ACH processing and other electronic payment acceptance solutions, as well as our loan disbursement product) that enable the Company’s clients to collect payments and disburse funds to consumers and includes the Company’s clearing and settlement solutions (“RCS”). RCS is the Company’s proprietary clearing and settlement platform through which the Company markets customizable payment processing programs to other ISOs and payment facilitators. The strategic vertical markets served by the Consumer Payments segment primarily include personal loans, automotive loans, receivables management, credit unions, mortgage servicing, consumer healthcare and diversified retail. The Consumer Payments segment represented approximately
Business Payments
The Business Payments segment provides payment processing solutions (including accounts payable automation, debit and credit card processing, virtual credit card processing, ACH processing and other electronic payment acceptance solutions) that enable the Company’s clients to collect or send payments to other businesses. The strategic vertical markets served within the Business Payments segment primarily include retail automotive, education, field services, governments and municipalities, healthcare, media, HOA management and hospitality. The Business Payments segment represented approximately
The following table presents revenue and gross profit for each reportable segment.
|
|
Three Months Ended March 31, |
|
|||||
($ in thousand) |
|
2023 |
|
|
2022 |
|
||
Revenue |
|
|
|
|
|
|
||
Consumer Payments |
|
$ |
|
|
$ |
|
||
Business Payments |
|
|
|
|
|
|
||
Elimination of intersegment revenues (1) |
|
|
( |
) |
|
|
( |
) |
Total revenue |
|
$ |
|
|
$ |
|
||
Gross profit (2) |
|
|
|
|
|
|
||
Consumer Payments |
|
$ |
|
|
$ |
|
||
Business Payments |
|
|
|
|
|
|
||
Elimination of intersegment revenues |
|
|
( |
) |
|
|
( |
) |
Total gross profit |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Total other operating expenses (3) |
|
$ |
|
|
$ |
|
||
Total other income (expense) |
|
|
( |
) |
|
|
|
|
Income (loss) before income tax expense |
|
|
( |
) |
|
|
|
|
Income tax expense |
|
|
( |
) |
|
|
( |
) |
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
18
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Revenue and costs of services are attributed directly to each segment. There is no significant concentration of revenue or assets in foreign countries as of March 31, 2023. The CODM reporting package does not include discrete asset details of the operating segments as this information is not considered by the CODM for resource allocation or other segment analysis purposes.
15. Subsequent events
Management has evaluated subsequent events and their potential effects on these unaudited condensed consolidated financial statements. Based upon the review, management did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this section, "Repay", the “Company", "we", or "our" refer to Repay Holdings Corporation and its subsidiaries, unless the context otherwise requires. Certain figures have been rounded for ease of presentation and may not sum due to rounding.
Cautionary Note Regarding Forward-Looking Statements
Statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
We provide integrated payment processing solutions to industry-oriented markets in which clients have specific transaction processing needs. We refer to these markets as “vertical markets” or “verticals.” Our proprietary, integrated payment technology platform reduces the complexity of the electronic payments process for businesses, while enhancing their consumers’ overall experience. We are a payments innovator, differentiated by our proprietary, integrated payment technology platform and our ability to reduce the complexity of the electronic payments for businesses. We intend to continue to strategically target verticals where we believe our ability to tailor payment solutions to our client needs, our deep knowledge of our vertical markets and the embedded nature of our integrated payment solutions will drive strong growth by attracting new clients and fostering long-term client relationships.
Since a significant portion of our revenue is derived from volume-based payment processing fees, card payment volume is a key operating metric that we use to evaluate our business. We processed approximately $6.6 billion of total card payment volume for the three months ended March 31, 2023, and our card payment volume growth over the same period in 2022 was approximately 3%.
We report our financial results based on two reportable segments.
Consumer Payments – Our Consumer Payments segment provides payment processing solutions (including debit and credit card processing, ACH processing and other electronic payment acceptance solutions, as well as our loan disbursement product) that enable our clients to collect payments and disburse funds to consumers and includes our clearing and settlement solutions (“RCS”). RCS is our proprietary clearing and settlement platform through which we market customizable payment processing programs to other ISOs and payment facilitators. The strategic vertical markets served by our Consumer Payments segment primarily include personal loans, automotive loans, receivables management, credit unions, mortgage servicing, consumer healthcare and diversified retail.
Business Payments – Our Business Payments segment provides payment processing solutions (including accounts payable automation, debit and credit card processing, virtual credit card processing, ACH processing and other electronic payment acceptance solutions) that enable our clients to collect or send payments to other businesses. The strategic vertical markets served within our Business Payments segment primarily include retail automotive, education, field services, governments and municipalities, healthcare, HOA management and hospitality.
Macroeconomic Conditions
We have been monitoring the current economic environment in the U.S. and globally – characterized by heightened inflation (including changes in wages), rising interest rates, supply chain issues, slower growth and recent banking system volatility. Such macroeconomic conditions may continue to evolve in ways that are difficult to fully anticipate and may also include increased levels of unemployment and/or a recession. Some or all of these market factors have and could continue to adversely affect our payment volumes from the consumer loan market, the receivables management industry and consumer and commercial spending. The effect of these events on our financial condition, results of operations and cash flows is uncertain and cannot be predicted at this time. Finally, the impact of all of these
20
various events on our results in the first three months of 2023 may not be necessarily indicative of their impact on our results for the remainder of 2023.
Business Combination
The Company was formed upon closing of the merger of Hawk Parent with a subsidiary of Thunder Bridge, a special purpose acquisition company, on July 11, 2019. On the closing of the Business Combination, Thunder Bridge changed its name to “Repay Holdings Corporation.”
Key Factors Affecting Our Business
Key factors that we believe impact our business, results of operations and financial condition include, but are not limited to, the following:
Key Components of Our Revenues and Expenses
Revenues
Revenue. As our clients process increased volumes of payments, our revenues increase as a result of the fees we charge for processing these payments. Most of our revenues are derived from volume-based payment processing fees (“discount fees”) and other related fixed per transaction fees. Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed and include fees relating to processing and services that we provide. The transaction price for such processing services is determined, based on the judgment of management, considering factors such as margin objectives, pricing practices and controls, client segment pricing strategies, the product life cycle and the observable price of the service charged to similarly situated clients. During the three months ended March 31, 2023 and 2022, our chargeback rate was less than 1% of our card payment volume.
Expenses
Costs of services. Costs of services primarily include commissions to our software integration partners and other third-party processing costs, such as front and back-end processing costs and sponsor bank fees.
Selling, general and administrative. Selling, general and administrative expenses include salaries, share-based compensation and other employment costs, professional service fees, rent and utilities, and other operating costs.
Depreciation and amortization. Depreciation expense consists of depreciation on our investments in property, equipment and computer hardware. Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset. Amortization expense for software development costs and purchased software is recognized on the straight-line method over a three-year estimated useful life, between eight to ten years estimated useful life for client relationships and channel relationships, and between two to five years estimated useful life for non-compete agreements.
Interest expense. Interest expense consists of interest in respect of our indebtedness under the Amended Credit Agreement.
Change in fair value of tax receivable liability. This amount represents the change in fair value of the tax receivable agreement liability. The TRA liability is carried at fair value; so, any change to the valuation of this liability is recognized through this line in other expense. The change in fair value can result from the redemption or exchange of Post-Merger Repay Units for Class A common stock of Repay Holdings Corporation, or through accretion of the discounted fair value of the expected future cash payments.
21
Results of Operations (Unaudited)
|
|
Three Months ended March 31, |
|
|||||
(in $ thousands, except per share data) |
|
2023 |
|
|
2022 |
|
||
Revenue |
|
$ |
74,537 |
|
|
$ |
67,564 |
|
Operating expenses |
|
|
|
|
|
|
||
Costs of services (exclusive of depreciation and amortization shown separately below) |
|
|
17,965 |
|
|
|
16,565 |
|
Selling, general and administrative |
|
|
38,518 |
|
|
|
32,218 |
|
Depreciation and amortization |
|
|
26,140 |
|
|
|
28,589 |
|
Change in fair value of contingent consideration |
|
|
— |
|
|
|
(2,900 |
) |
Loss on business disposition |
|
|
9,878 |
|
|
|
— |
|
Total operating expenses |
|
|
92,501 |
|
|
|
74,472 |
|
Loss from operations |
|
|
(17,964 |
) |
|
|
(6,908 |
) |
Other income (expense) |
|
|
|
|
|
|
||
Interest expense |
|
|
(1,160 |
) |
|
|
(988 |
) |
Change in fair value of tax receivable liability |
|
|
(4,538 |
) |
|
|
24,619 |
|
Other income |
|
|
87 |
|
|
|
6 |
|
Total other income (expense) |
|
|
(5,611 |
) |
|
|
23,637 |
|
Income (loss) before income tax expense |
|
|
(23,575 |
) |
|
|
16,729 |
|
Income tax expense |
|
|
(4,357 |
) |
|
|
(3,843 |
) |
Net income (loss) |
|
$ |
(27,932 |
) |
|
$ |
12,886 |
|
Net loss attributable to non-controlling interest |
|
|
(1,540 |
) |
|
|
(767 |
) |
Net income (loss) attributable to the Company |
|
$ |
(26,392 |
) |
|
$ |
13,653 |
|
|
|
|
|
|
|
|
||
Weighted-average shares of Class A common stock outstanding - basic |
|
|
88,615,760 |
|
|
|
88,607,655 |
|
Weighted-average shares of Class A common stock outstanding - diluted |
|
|
88,615,760 |
|
|
|
113,015,159 |
|
|
|
|
|
|
|
|
||
Income (loss) per Class A share - basic |
|
$ |
(0.30 |
) |
|
$ |
0.15 |
|
Income (loss) per Class A share - diluted |
|
$ |
(0.30 |
) |
|
$ |
0.12 |
|
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Revenue
Total revenue was $74.5 million for the three months ended March 31, 2023 and $67.6 million for the three months ended March 31, 2022, an increase of $7.0 million or 10.3%. This increase was the result of newly signed clients and the growth of our existing clients. For the three months ended March 31, 2022, incremental revenues of approximately $0.9 million are attributable to BCS.
Costs of Services
Costs of services were $18.0 million for the three months ended March 31, 2023 and $16.6 million for the three months ended March 31, 2022, an increase of $1.4 million or 8.5%. This increase was the result of newly signed clients and the growth of our existing clients. For the three months ended March 31, 2022, incremental costs of services of less than $0.1 million are attributable to BCS.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $38.5 million for the three months ended March 31, 2023 and $32.2 million for the three months ended March 31, 2022, an increase of $6.3 million or 19.6%, primarily due to a $2.8 million increase in equity compensation expense related to restricted shares and stock options granted and a $1.8 million increase in software and technological services expenses related to the integration of acquired businesses.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $26.1 million for the three months ended March 31, 2023 and $28.6 million for the three months ended March 31, 2022, a decrease of $2.4 million or 8.6%, primarily due to a $2.8 million decrease in the amortization of software, offset by a $0.2 million increase in the depreciation of computers.
22
Interest Expense
Interest expense was $1.2 million for the three months ended March 31, 2023 and $1.0 million for the three months ended March 31, 2022, an increase of $0.2 million or 17.4%. This increase was due to a higher interest rate on the outstanding principal balance under our Amended Credit Agreement.
Change in Fair Value of Tax Receivable Liability
We incurred a loss, related to accretion expense and fair value adjustment of the tax receivable liability of $4.5 million for the three months ended March 31, 2023, compared to a $24.6 million net gain for the three months ended March 31, 2022, a decrease of $29.2 million. This decrease was due to lower fair value adjustments related to the tax receivable liability, primarily as a result of changes to the discount rate, or Early Termination rate, used to determine the fair value of the liability.
Income Tax Expense
The income tax expense was $4.4 million for the three months ended March 31, 2023. This was a result of the operating loss incurred by the Company, primarily driven by the change in fair value of the tax receivable liability, stock-based compensation deductions and the amortization of assets acquired in the Business Combination and prior acquisitions, offset by stock-based compensation expense adjustments and the impact of the BCS disposition which are both required to be reported discretely in the interim period in which they occur. The income tax expense was $3.8 million for the three months ended March 31, 2022, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent.
23
Segments (Unaudited)
We provided our services through two reportable segments: (1) Consumer Payments and (2) Business Payments. During the three months ended March 31, 2023, we reclassified the distribution of the legacy Ventanex businesses between the segments. Certain prior year amounts have been reclassified to conform to the current year presentation.
The following table presents our segment revenue and selected performance measures.
|
|
Three Months Ended March 31, |
|
|||||
($ in thousand) |
|
2023 |
|
|
2022 |
|
||
Revenue |
|
|
|
|
|
|
||
Consumer Payments |
|
$ |
69,940 |
|
|
$ |
61,081 |
|
Business Payments |
|
|
8,675 |
|
|
|
8,892 |
|
Elimination of intersegment revenues |
|
|
(4,078 |
) |
|
|
(2,409 |
) |
Total revenue |
|
$ |
74,537 |
|
|
$ |
67,564 |
|
Gross profit (1) |
|
|
|
|
|
|
||
Consumer Payments |
|
$ |
54,625 |
|
|
$ |
47,491 |
|
Business Payments |
|
|
6,025 |
|
|
|
5,917 |
|
Elimination of intersegment revenues |
|
|
(4,078 |
) |
|
|
(2,409 |
) |
Total gross profit |
|
$ |
56,572 |
|
|
$ |
50,999 |
|
|
|
|
|
|
|
|
||
Total gross profit margin (2) |
|
76% |
|
|
75% |
|
||
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Consumer Payments
Revenue for the Consumer Payments segment was $69.9 million for the three months ended March 31, 2023 and $61.1 million for the three months ended March 31, 2022, representing a $8.9 million or 14.5% year-over-year increase. This increase was the result of newly signed clients and the growth of existing clients. For the three months ended March 31, 2022, incremental revenues of approximately $0.9 million are attributable to BCS.
Gross profit for the Consumer Payments segment was $54.6 million for the three months ended March 31, 2023and $47.5 million for three months ended March 31, 2022, representing a $7.1 million or 15.0% year-over-year increase. This increase was the result of newly signed clients and the growth of existing clients. For the three months ended March 31, 2022, incremental gross profit of approximately $0.9 million is attributable to BCS.
Business Payments
Revenue for the Business Payments segment was $8.7 million for the three months ended March 31, 2023 and $8.9 million for the three months ended March 31, 2022, representing a $0.2 million or 2.4% year-over-year decrease. Growth from newly signed clients and existing clients was offset by declines in our media payments business and a large client reducing volumes after being acquired.
Gross profit for the Business Payments segment was $6.0 million for the three months ended March 31, 2023 and $5.9 million for the three months ended March 31, 2022, representing a $0.1 million or 1.8% year-over-year increase. Growth from newly signed clients and existing clients was partially offset by declines in our media payments business and a large client reducing volumes after being acquired.
24
Non-GAAP Financial Measures
This report includes certain non-GAAP financial measures that management uses to evaluate our operating business, measure our performance and make strategic decisions.
Adjusted EBITDA is a non-GAAP financial measure that represents net income prior to interest expense, tax expense, depreciation and amortization, as adjusted to add back certain charges deemed to not be part of normal operating expenses, non-cash charges and/or non-recurring charges, such as loss on business disposition, non-cash change in fair value of contingent consideration, non-cash change in fair value of assets and liabilities, share-based compensation charges, transaction expenses, restructuring and other strategic initiative costs and other non-recurring charges.
Adjusted Net Income is a non-GAAP financial measure that represents net income prior to amortization of acquisition-related intangibles, as adjusted to add back certain charges deemed to not be part of normal operating expenses, non-cash charges and/or non-recurring charges, such as loss on business disposition, non-cash change in fair value of contingent consideration, non-cash change in fair value of assets and liabilities, share-based compensation expense, transaction expenses, restructuring and other strategic initiative costs, other non-recurring charges, non-cash interest expense and net of tax effect associated with these adjustments. Adjusted Net Income is adjusted to exclude amortization of all acquisition-related intangibles as such amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Management believes that the adjustment of acquisition-related intangible amortization supplements GAAP financial measures because it allows for greater comparability of operating performance. Although we exclude amortization from acquisition-related intangibles from our non-GAAP expenses, management believes that it is important for investors to understand that such intangibles were recorded as part of purchase accounting and contribute to revenue generation.
Adjusted Net Income per share is a non-GAAP financial measure that represents Adjusted Net Income divided by the weighted average number of shares of Class A common stock outstanding (on an as-converted basis assuming conversion of the outstanding Post-Merger Repay Units) for the three months ended March 31, 2023 and 2022 (excluding shares subject to forfeiture).
We believe that Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share provide useful information to investors and others in understanding and evaluating its operating results in the same manner as management. However, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for net income, operating profit or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP.
The following tables set forth a reconciliation of our results of operations for the three months ended March 31, 2023 and 2022.
25
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
For the three months ended March 31, 2023 and 2022
(Unaudited)
|
|
|
|
|
|
|
||
|
Three Months ended March 31, |
|
|
|||||
(in $ thousands) |
2023 |
|
|
2022 |
|
|
||
Revenue |
$ |
74,537 |
|
|
$ |
67,564 |
|
|
Operating expenses |
|
|
|
|
|
|
||
Costs of services (exclusive of depreciation and amortization shown separately below) |
$ |
17,965 |
|
|
$ |
16,565 |
|
|
Selling, general and administrative |
|
38,518 |
|
|
|
32,218 |
|
|
Depreciation and amortization |
|
26,140 |
|
|
|
28,589 |
|
|
Change in fair value of contingent consideration |
|
— |
|
|
|
(2,900 |
) |
|
Loss on business disposition |
|
9,878 |
|
|
|
— |
|
|
Total operating expenses |
$ |
92,501 |
|
|
$ |
74,472 |
|
|
Loss from operations |
$ |
(17,964 |
) |
|
$ |
(6,908 |
) |
|
Other income (expense) |
|
|
|
|
|
|
||
Interest expense |
|
(1,160 |
) |
|
|
(988 |
) |
|
Change in fair value of tax receivable liability |
|
(4,538 |
) |
|
|
24,619 |
|
|
Other income |
|
87 |
|
|
|
6 |
|
|
Total other income (expense) |
|
(5,611 |
) |
|
|
23,637 |
|
|
Income (loss) before income tax expense |
|
(23,575 |
) |
|
|
16,729 |
|
|
Income tax expense |
|
(4,357 |
) |
|
|
(3,843 |
) |
|
Net income (loss) |
$ |
(27,932 |
) |
|
$ |
12,886 |
|
|
|
|
|
|
|
|
|
||
Add: |
|
|
|
|
|
|
||
Interest expense |
|
1,160 |
|
|
|
988 |
|
|
Depreciation and amortization (a) |
|
26,140 |
|
|
|
28,589 |
|
|
Income tax expense (benefit) |
|
4,357 |
|
|
|
3,843 |
|
|
EBITDA |
$ |
3,725 |
|
|
$ |
46,306 |
|
|
|
|
|
|
|
|
|
||
Loss on business disposition (b) |
|
9,878 |
|
|
|
— |
|
|
Non-cash change in fair value of contingent consideration (c) |
|
— |
|
|
|
(2,900 |
) |
|
Non-cash change in fair value of assets and liabilities (d) |
|
4,538 |
|
|
|
(24,619 |
) |
|
Share-based compensation expense (e) |
|
4,054 |
|
|
|
3,357 |
|
|
Transaction expenses (f) |
|
5,997 |
|
|
|
4,930 |
|
|
Restructuring and other strategic initiative costs (g) |
|
1,411 |
|
|
|
1,246 |
|
|
Other non-recurring charges (h) |
|
1,572 |
|
|
|
1,007 |
|
|
Adjusted EBITDA |
$ |
31,175 |
|
|
$ |
29,327 |
|
|
|
|
|
|
|
|
|
||
26
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income
For the three months ended March 31, 2023 and 2022
(Unaudited)
|
Three Months ended March 31, |
|
|
|||||
(in $ thousands) |
2023 |
|
|
2022 |
|
|
||
Revenue |
$ |
74,537 |
|
|
$ |
67,564 |
|
|
Operating expenses |
|
|
|
|
|
|
||
Costs of services (exclusive of depreciation and amortization shown separately below) |
$ |
17,965 |
|
|
$ |
16,565 |
|
|
Selling, general and administrative |
|
38,518 |
|
|
|
32,218 |
|
|
Depreciation and amortization |
|
26,140 |
|
|
|
28,589 |
|
|
Change in fair value of contingent consideration |
|
— |
|
|
|
(2,900 |
) |
|
Loss on business disposition |
|
9,878 |
|
|
|
— |
|
|
Total operating expenses |
$ |
92,501 |
|
|
$ |
74,472 |
|
|
Loss from operations |
$ |
(17,964 |
) |
|
$ |
(6,908 |
) |
|
Interest expense |
|
(1,160 |
) |
|
|
(988 |
) |
|
Change in fair value of tax receivable liability |
|
(4,538 |
) |
|
|
24,619 |
|
|
Other income |
|
87 |
|
|
|
6 |
|
|
Total other income (expense) |
|
(5,611 |
) |
|
|
23,637 |
|
|
Income (loss) before income tax expense |
|
(23,575 |
) |
|
|
16,729 |
|
|
Income tax expense |
|
(4,357 |
) |
|
|
(3,843 |
) |
|
Net income (loss) |
$ |
(27,932 |
) |
|
$ |
12,886 |
|
|
|
|
|
|
|
|
|
||
Add: |
|
|
|
|
|
|
||
Amortization of acquisition-related intangibles (i) |
|
19,924 |
|
|
|
23,136 |
|
|
Loss on business disposition (b) |
|
9,878 |
|
|
|
— |
|
|
Non-cash change in fair value of contingent consideration (c) |
|
— |
|
|
|
(2,900 |
) |
|
Non-cash change in fair value of assets and liabilities (d) |
|
4,538 |
|
|
|
(24,619 |
) |
|
Share-based compensation expense (e) |
|
4,054 |
|
|
|
3,357 |
|
|
Transaction expenses (f) |
|
5,997 |
|
|
|
4,930 |
|
|
Restructuring and other strategic initiative costs (g) |
|
1,411 |
|
|
|
1,246 |
|
|
Other non-recurring charges (h) |
|
1,572 |
|
|
|
1,007 |
|
|
Non-cash interest expense (j) |
|
712 |
|
|
|
703 |
|
|
Pro forma taxes at effective rate (k) |
|
(961 |
) |
|
|
(1,194 |
) |
|
Adjusted Net Income |
$ |
19,193 |
|
|
$ |
18,552 |
|
|
|
|
|
|
|
|
|
||
Shares of Class A common stock outstanding (on an as-converted basis) (l) |
|
96,481,208 |
|
|
|
96,534,231 |
|
|
Adjusted Net Income per share |
$ |
0.20 |
|
|
$ |
0.19 |
|
|
27
|
|
Three Months ended March 31, |
|
|||||
(in $ thousands) |
|
2023 |
|
|
2022 |
|
||
Acquisition-related intangibles |
|
$ |
19,924 |
|
|
$ |
23,136 |
|
Software |
|
|
5,475 |
|
|
|
4,946 |
|
Amortization |
|
$ |
25,399 |
|
|
$ |
28,082 |
|
Depreciation |
|
|
741 |
|
|
|
507 |
|
Total Depreciation and amortization (1) |
|
$ |
26,140 |
|
|
$ |
28,589 |
|
|
|
Three Months ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Weighted average shares of Class A common stock outstanding - basic |
|
|
88,615,760 |
|
|
|
88,607,655 |
|
Add: Non-controlling interests |
|
|
7,865,448 |
|
|
|
7,926,576 |
|
Shares of Class A common stock outstanding (on an as-converted basis) |
|
|
96,481,208 |
|
|
|
96,534,231 |
|
Adjusted EBITDA for the three months ended March 31, 2023 and 2022 was $31.2 million and $29.3 million, respectively, representing a 6.3% year-over-year increase. Adjusted Net Income for the three months ended March 31, 2023 and 2022 was $19.2 million and $18.6 million, respectively, representing a 3.5% year-over-year increase. Our net income (loss) attributable to the Company for the three months ended March 31, 2023 and 2022 was ($26.4) million and $13.7 million, respectively, representing a 293.3% year-over-year decrease.
The increases in Adjusted EBITDA and Adjusted Net Income for the three months ended March 31, 2023 were primarily due to the organic growth of our business, which was partially offset from the disposition of BCS.
28
The decrease in net income (loss) attributable to the Company for the three months ended March 31, 2023 was primarily due to the disposition of BCS and a loss in fair value adjustment of the tax receivable liability compared to a net gain in prior year.
Seasonality
We have experienced in the past, and may continue to experience, seasonal fluctuations in our volumes and revenues as a result of consumer spending patterns. Volumes and revenues, per each client store, during the first quarter of the calendar year tend to increase in comparison to the remaining three quarters of the calendar year. This increase is due to consumers’ receipt of tax refunds and the increases in repayment activity levels that follow. Operating expenses show less seasonal fluctuation, with the result that net income is subject to the similar seasonal factors as our volumes and revenues.
Liquidity and Capital Resources
We have historically financed our operations and working capital through net cash from operating activities. As of March 31, 2023, we had $91.7 million of cash and cash equivalents and available borrowing capacity of $185.0 million under the Amended Credit Agreement. This balance does not include restricted cash, which reflects cash accounts holding reserves for potential losses and client settlement funds of $27.1 million as of March 31, 2023. Our primary cash needs are to fund working capital requirements, invest in technology development, fund acquisitions and related contingent consideration, make scheduled principal payments and interest payments on our outstanding indebtedness and pay tax distributions to members of Hawk Parent. We expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the Amended Credit Agreement will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for the next twelve months and the following five years.
We are a holding company with no operations and depend on our subsidiaries for cash to fund all of our consolidated operations, including future dividend payments, if any. We depend on the payment of distributions by our current subsidiaries, including Hawk Parent, which distributions may be restricted by law or contractual agreements, including agreements governing their indebtedness. For a discussion of those considerations and restrictions, refer to Part I, Item 1A “Risk Factors - Risks Related to Our Class A Common Stock” in our Annual Report on Form 10-K for the year ended December 31, 2022.
On May 16, 2022, our board of directors approved a share repurchase program under which we may repurchase up to $50 million of our outstanding Class A common stock (the “Share Repurchase Program”). The Share Repurchase Program has no expiration date but may be modified, suspended or discontinued at any time at our discretion.
Cash Flows
The following table presents a summary of cash flows from operating, investing and financing activities for the periods indicated:
|
|
Three Months ended March 31, |
|
|
|||||
(in $ thousands) |
|
2023 |
|
|
2022 |
|
|
||
Net cash provided by operating activities |
|
$ |
20,831 |
|
|
$ |
13,754 |
|
|
Net cash provided by (used in) investing activities |
|
|
26,694 |
|
|
|
(7,566 |
) |
|
Net cash used in financing activities |
|
|
(22,259 |
) |
|
|
(1,698 |
) |
|
Cash Flow from Operating Activities
Net cash provided by operating activities was $20.8 million and $13.8 million for the three months ended March 31, 2023 and 2022, respectively, which reflects net income as adjusted for non-cash operating items including depreciation and amortization, share-based compensation, and changes in working capital accounts.
Cash Flow from Investing Activities
Net cash provided by investing activities was $26.7 million for the three months ended March 31, 2023, due to cash received from the disposition of BCS, partially offset by the capitalization of software development activities.
29
Net cash used in investing activities was $7.6 million for the three months ended March 31, 2022, due to the capitalization of software development activities.
Cash Flow from Financing Activities
Net cash used in financing activities was $22.3 million for the three months ended March 31, 2023, due to the repayment of the outstanding revolving credit facility balance and the CPS earnout payment.
Net cash used in financing activities was $1.7 million for the three months ended March 31, 2022, due to the shares repurchased under the Incentive Plan.
Indebtedness
Amended Credit Agreement
On February 3, 2021, the Company announced the closing of a new undrawn $125.0 million senior secured revolving credit facility through Truist Bank. The Amended Credit Agreement replaced the Company’s prior senior secured credit facility, which included an undrawn $30.0 million revolving credit facility.
On December 29, 2021, we increased our existing senior secured credit facilities by $60.0 million to provide for a $185.0 million revolving credit facility pursuant to an amendment to the Amended Credit Agreement.
On February 9, 2023, we further amended the Amended Credit Agreement to replace LIBOR with term SOFR as the interest rate benchmark.
On February 28, 2023, we repaid in full the entire amount of $20.0 million of the outstanding revolving credit facility. The undrawn capacity of the existing revolving credit facility under the Amended Credit Agreement became $185.0 million after the repayment.
As of March 31, 2023, the Amended Credit Agreement provides for a revolving credit facility of $185.0 million. As of March 31, 2023, we had $0 million drawn against the revolving credit facility. We paid $0.1 million and $0.2 million in fees related to unused commitments for the three months ended March 31, 2023 and 2022.
Convertible Senior Debt
On January 19, 2021, we issued $440.0 million in aggregate principal amount of 0.00% Convertible Senior Notes due 2026 in a private placement (the “Notes Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. $40.0 million in aggregate principal amount of such 2026 Notes were sold in the Notes Offering in connection with the full exercise of the initial purchasers’ option to purchase such additional 2026 Notes pursuant to the purchase agreement. Upon conversion, the Company may choose to pay or deliver cash, shares of the Company’s Class A Common Stock, or a combination of cash and shares of the Company’s Class A Common Stock. The 2026 Notes will mature on February 1, 2026, unless earlier converted, repurchased or redeemed.
As of March 31, 2023, we had convertible senior debt outstanding of $432.0 million, net of deferred issuance costs, under the 2026 Notes. We were in compliance with the related restrictive financial covenants. Additionally, we currently expect that we will remain in compliance with the restrictive financial covenants under the 2026 Notes and the Amended Credit Agreement, prospectively.
Tax Receivable Agreement
Upon the completion of the Business Combination, we entered into the TRA with holders of Post-Merger Repay Units. As a result of the TRA, we established a liability in our condensed consolidated financial statements. Such liability, which will increase upon the redemptions or exchanges of Post-Merger Repay Units for the Class A common stock of the Company, generally represents 100% of the estimated future tax benefit, if any, relating to the increase in tax basis that will result from redemptions or exchanges of the Post-Merger Repay Units for shares of Class A common stock pursuant to the Exchange Agreement and certain other tax attributes of the Company and tax benefits of entering into the TRA, including tax benefits attributable to payments under the TRA.
30
Under the terms of the TRA, we may elect to terminate the TRA early but will be required to make an immediate payment equal to the present value of the anticipated future cash tax savings. As a result, the associated liability reported on our condensed consolidated financial statements may be increased. We expect that the payment obligations of the Company required under the TRA will be substantial. The actual increase in tax basis, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of Post-Merger Repay Units, the price of the Class A common stock of the Company at the time of the redemption or exchange, whether such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future, the tax rate then applicable and the portion of our payments under the TRA constituting imputed interest. We expect to fund the payment of the amounts due under the TRA out of the cash savings that we actually realize in respect of the attributes to which TRA relates. However, the payments required to be made could be in excess of the actual tax benefits that we realize and there can be no assurance that we will be able to finance our obligations under the TRA.
Critical Accounting Policies and Recently Issued Accounting Pronouncements
There have been no significant changes to our critical accounting policies and critical accounting estimates for the three months ended March 31, 2023. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, for a complete discussion of critical accounting policies and critical accounting estimates.
For information related to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies, to our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Effects of Inflation
While inflation may impact our revenues and cost of services, we believe the effects of inflation, if any, on our results of operations and financial condition have not been significant. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including U.S. fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. We are exposed to market risk from changes in interest rates on debt, which bears interest at variable rates. Our debt has floating interest rates. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates for its floating rate debt. Our floating rate debt requires payments based on variable interest rates such as the federal funds rate, prime rate, eurocurrency rate, and SOFR. Therefore, increases in interest rates may reduce our net income or loss by increasing the cost of debt. As of March 31, 2023, we had convertible senior debt of $432.0 million, net of deferred issuance costs outstanding under the respective debt agreement. As of December 31, 2022, we had convertible senior debt of $433.1 million, net of deferred issuance costs, and revolving credit facility borrowings of $18.2 million, net of deferred issuance costs, outstanding. The borrowings under the Amended Credit Agreement accrue interest at either base rate, described above under “Liquidity and Capital Resources — Indebtedness,” plus a margin of 1.50% to 2.50% or at an adjusted SOFR rate plus a margin of 2.50% to 3.50% under the Amended Credit Agreement, in each case depending on the total net leverage ratio, as defined in the Amended Credit Agreement.
We may incur additional borrowings from time to time for general corporate purposes, including working capital and capital expenditures.
Foreign Currency Exchange Rate Risk
Invoices for our services are denominated in U.S. dollars and Canadian dollars. We do not expect our future operating results to be significantly affected by foreign currency transaction risk.
31
ITEM 4. CONTROLS AND PROCEDURES
Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2023, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
32
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are named as a defendant in legal actions arising from our normal business activities. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, except as set forth below. The disclosure set forth below supplements and updates, and should be read together with the risk factors in such Form 10-K.
Actual or perceived adverse developments affecting financial institutions could have a material and adverse impact on our business, financial condition or results of operations.
In our business, we maintain relationships with financial institutions in various capacities. Our cash and cash equivalents are held in accounts with banks or other financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). In most cases, the amounts held in these accounts exceed the FDIC insurance limits. We also rely on financial institutions to act as our sponsor banks in order to enable us to process electronic payment transactions for our clients. In this regard, we maintain relationships with multiple sponsor banks in an effort to secure competitive pricing for our clients and to maintain redundancy. In addition, our clients include credit unions, banks and non-bank lenders who utilize our payment technology solutions in exchange for processing fees.
Since March 2023, Silicon Valley Bank, Signature Bank and First Republic Bank were each closed by their applicable regulators and the FDIC was appointed as receiver. We did not use Silicon Valley Bank, Signature Bank or First Republic Bank for any of our depository or investment accounts nor did we have any payment processing relationships with these particular financial institutions. However, we cannot guarantee that there will not be similar issues with any of the financial institutions with whom we maintain relationships.
The failure of or any other adverse development impacting one or more of our financial institution relationships (or rumors or concerns about such events) could adversely affect our liquidity, our ability to process transactions for our clients or our client relationships. Similarly, our clients could be adversely affected by any bank failure or other adverse event involving their financial institution relationships, which could result in a decrease in the amount of payment volume we receive from these clients.
33
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes such purchases of Class A common stock made by the Company or any “affiliate purchaser” (as defined in Rule 10b-18(a)(3) of the Exchange Act) for the three months ended March 31, 2023:
|
|
Total Number of Shares Purchased (1) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
|
|
Approximate Dollar Value of Shares that May yet be Purchased Under the Plans or Programs |
|
||||
January 1 - 31, 2023 |
|
|
18,673 |
|
|
$ |
8.84 |
|
|
|
— |
|
|
$ |
40,000,000 |
|
February 1 - 28, 2023 |
|
|
82,547 |
|
|
|
8.74 |
|
|
|
— |
|
|
|
— |
|
March 1 - 31, 2023 |
|
|
46,507 |
|
|
|
7.05 |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
147,727 |
|
|
$ |
8.22 |
|
|
|
— |
|
|
$ |
40,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
34
ITEM 6. EXHIBITS
The exhibits listed in the following exhibit index are furnished as part of this report.
EXHIBIT INDEX
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
3.1 |
|
|
|
|
|
3.2(a) |
|
|
|
|
|
3.2(b) |
|
|
|
|
|
3.3 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
10.5* |
|
|
|
|
|
10.6* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101* |
|
The following financial statements from the Company’s Form 10‑Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes In Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
REPAY HOLDINGS CORPORATION |
|
|
(Registrant)
|
|
|
|
Date: May 10, 2023 |
By: |
/s/ John Morris |
|
|
John Morris |
|
|
Chief Executive Officer |
|
|
|
Date: May 10, 2023 |
By: |
/s/ Timothy J. Murphy |
|
|
Timothy J. Murphy |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
36
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of January 20, 2022 (the “Effective Date”), by and between Repay Management Services LLC, a Delaware limited liability company (the “Company”), and David Guthrie, a resident of the State of Georgia (“Executive”).
RECITALS:
WHEREAS, the Company is an indirect subsidiary of Repay Holdings Corporation, a Delaware corporation (“Parent”); and
WHEREAS, as of the Effective Date, the Company desires to employ Executive, and Executive desires to be employed by the Company, all in accordance with the terms and subject to the conditions provided herein.
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto, intending to be legally bound hereby, agree as follows:
2
3
4
5
provided, that (A) “Good Reason” shall cease to exist for an event on the ninetieth (90th) day following the later of its occurrence or Executive’s knowledge thereof, unless Executive has given the Company written notice thereof prior to such date; (B) the Company shall have thirty (30) days after receipt of such written notice to cure such breach or event; and (C) Executive must terminate his employment no later than sixty (60) days after the expiration of the period for curing such breach or event without the Company having cured the same.
6
In addition to the foregoing, in the event Executive voluntarily terminates Executive’s employment hereunder for Good Reason or Executive’s employment is terminated by the Company without Cause, (1) Executive shall be vested with respect to that number of Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested based solely on the continued employment of Executive through the Severance Period, effective as of the date the Release becomes effective and irrevocable, (2) Executive’s outstanding unvested options, restricted stock and other equity-based awards that were eligible to vest based on the achievement of certain specified performance objectives and the continued employment of Executive shall remain outstanding and eligible to vest in accordance with the terms of such options, restricted stock and other equity-based awards (notwithstanding the termination of Executive’s employment) through the Severance Period, effective as of the date the Release becomes effective and irrevocable, and (3) all of Executive’s outstanding stock options shall remain outstanding until the earlier of (I) the expiration of the Severance Period or (II) the original expiration date of the options (disregarding any earlier expiration date provided for in any other agreement, including without limitation any related grant agreement, based solely on the termination of Executive’s employment).
7
8
Unless the context otherwise requires, the term “Company” shall mean the Company and its affiliated companies, successors and predecessors for purposes of this Section 5.
An individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (1) files any document containing the trade secret under seal; and (2) does not disclose the trade secret, except pursuant to court order.
9
10
Notwithstanding any other provision of this Agreement, the parties hereto acknowledge and agree that nothing in this Agreement shall prohibit Executive from reporting possible violations of Federal, State or other law or regulation to, or filing a charge or other complaint with, any governmental agency or entity, including but not limited to the Department of Justice, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, Congress, and any Inspector General, or making any other disclosures that are protected under any whistleblower provisions of Federal, State or other law or regulation or assisting in any investigation or proceeding. The parties hereto further acknowledge that nothing herein limits Executive’s ability to communicate with any such governmental agency or entity or otherwise participate in any such investigation or proceeding that may be conducted by any such
11
governmental agency or entity, including providing documents or other information, without notice to the Company. Executive does not need the prior authorization of the Company to make any such reports or disclosures, and Executive is not required to notify the Company that Executive made any such reports or disclosures or is assisting in any such investigation. Additionally, Executive (a) does not waive any rights to any individual monetary recovery or other awards in connection with reporting any such information to any such governmental agency or entity, (b) does not breach any confidentiality or other provision hereunder in connection with any such reporting or disclosures, and (c) will not be prohibited from receiving any amounts hereunder as a result of making any such reports or disclosures or assisting with any such investigation or proceeding.
12
If to the Company:
13
3 West Paces Ferry Road, Suite 200
Atlanta, Georgia 30305
Attention: John A. Morris, CEO
E-mail: jmorris@repay.com
If to Executive:
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
14
[Signature page follows]
IN WITNESS WHEREOF, the parties have signed this Agreement on the date and year first above written.
THE COMPANY:
REPAY MANAGEMENT SERVICES LLC
By: /s/ John Morris
John A. Morris
Chief Executive Officer
EXECUTIVE:
/s/ David M. Guthrie
David Guthrie
[Signature Page to Employment Agreement]
Exhibit 10.6
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
March 20, 2023
This First Amendment (this “Amendment”) to the Employment Agreement (as defined below) is made and entered into as of the date first written above by and between Repay Management Services LLC (the “Company”) and David Guthrie (“Executive”). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Employment Agreement.
WHEREAS, Executive and the Company are parties to that certain Employment Agreement, dated as of January 20, 2022 (the “Employment Agreement”); and
WHEREAS, Executive and the Company now desire to amend the Employment Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in accordance with the terms of the Employment Agreement, the parties hereto, intending to be legally bound, do hereby acknowledge and agree as follows:
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first written above.
COMPANY:
REPAY MANAGEMENT SERVICES LLC
By: /s/ John Morris
Name: John A. Morris
Title: Chief Executive Officer
EXECUTIVE:
/s/ David M. Guthrie
Name: David Guthrie
[Signature Page to First Amendment to Employment Agreement]
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Morris, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 10, 2023 |
|
By: |
/s/ John Morris |
|
|
|
John Morris |
|
|
|
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy J. Murphy, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 10, 2023 |
|
By: |
/s/ Timothy J. Murphy |
|
|
|
Timothy J. Murphy |
|
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Repay Holdings Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Morris, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 10, 2023 |
|
By: |
/s/ John Morris |
|
|
|
John Morris |
|
|
|
Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Repay Holdings Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy J. Murphy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 10, 2023 |
|
By: |
/s/ Timothy J. Murphy |
|
|
|
Timothy J. Murphy |
|
|
|
Chief Financial Officer |