rpay-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2019

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 001-38531

 

Repay Holdings Corporation

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

98-1496050

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3 West Paces Ferry Road,

Suite 200

Atlanta, GA

30305

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

 

RPAY

 

The NASDAQ Stock Market LLC

 

 

 

 

 

 

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

 

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

 

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 


 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of November 8, 2019, there are 39,430,397 shares of the registrant’s Class A Common Stock, par value $0.0001 per share, outstanding and 100 shares of the registrant’s Class V Common Stock, par value of $0.0001 per share, outstanding.

 


 


REPAY HOLDINGS CORPORATION

Quarterly Report on Form 10‑Q

For the quarter ended September 30, 2019

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

38

 

 

 

Item 1A.

Risk Factors

38

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

Item 3.

Defaults Upon Senior Securities

65

 

 

 

Item 4.

Mine Safety Disclosures

65

 

 

 

Item 5.

Other Information

65

 

 

 

Item 6.

Exhibits

65

 

 

 

 

Signatures

67

 

 


 


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, the expected benefits from the Business Combination, the expected benefits of the acquisition of TriSource Solutions, LLC, the expected benefits of the acquisition of APS Payments, our financial performance, 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, those risks described under Part II, Item 1A “Risk Factors" of this Form 10-Q. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.

 

 


 

PART I

FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

REPAY HOLDINGS CORPORATION

CONSOLIDATED BALANCE SHEETS

 

September 30,

2019         (Unaudited)

 

 

 

December 31,

2018

 

 

(Successor)

 

 

 

(Predecessor)

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

45,493,526

 

 

 

$

13,285,357

 

Accounts receivable

 

12,636,396

 

 

 

 

5,979,247

 

Prepaid expenses and other

 

4,075,814

 

 

 

 

817,212

 

Total current assets

 

62,205,736

 

 

 

 

20,081,816

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

1,485,207

 

 

 

 

1,247,149

 

Restricted cash

 

11,555,559

 

 

 

 

9,976,701

 

Customer relationships, net of amortization

 

231,461,182

 

 

 

 

62,528,880

 

Software, net of amortization

 

65,523,119

 

 

 

 

5,170,748

 

Other intangible assets, net of amortization

 

26,659,947

 

 

 

 

523,133

 

Goodwill

 

369,927,511

 

 

 

 

119,529,202

 

Total noncurrent assets

 

706,612,525

 

 

 

 

198,975,813

 

Total assets

$

768,818,261

 

 

 

$

219,057,629

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

$

8,742,117

 

 

 

 

2,909,378

 

Accrued expenses

 

18,638,336

 

 

 

 

12,837,826

 

Current maturities of long-term debt

 

5,250,000

 

 

 

 

4,900,000

 

Current tax receivable agreement

 

2,231,575

 

 

 

 

-

 

Total current liabilities

 

34,862,028

 

 

 

 

20,647,204

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

198,908,296

 

 

 

 

85,815,204

 

Line of credit

 

-

 

 

 

 

3,500,000

 

Tax receivable agreement

 

64,106,048

 

 

 

 

-

 

Deferred tax liability

 

2,858,139

 

 

 

 

-

 

Other liabilities

 

16,863

 

 

 

 

16,864

 

Total noncurrent liabilities

 

265,889,346

 

 

 

 

89,332,068

 

Total liabilities

$

300,751,374

 

 

 

$

109,979,272

 

 

 

 

 

 

 

 

 

 

Commitment and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members' Equity

 

 

 

 

 

$

109,078,357

 

Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized and 35,488,060 issued and outstanding as of September 30, 2019

 

3,549

 

 

 

 

 

 

Class V common stock, $0.0001 par value; 1,000 shares authorized and 100 shares issued and outstanding as of September 30, 2019

 

-

 

 

 

 

 

 

Additional paid-in capital

 

300,342,826

 

 

 

 

 

 

Accumulated deficit

 

(46,137,789

)

 

 

 

 

 

Total stockholders' equity

$

254,208,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity attributable to noncontrolling interests

 

213,858,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity and members' equity

$

768,818,261

 

 

 

$

219,057,629

 

 

See accompanying notes to consolidated financial statements.

 


 

REPAY HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

From

July 11, 2019 to

September 30,

2019

 

 

 

From July 1, 2019

to July 10, 2019

 

 

From

January 1, 2019

to July 10, 2019

 

 

Three Months

Ended

September 30,

2018

 

 

Nine Months

Ended

September 30,

2018

 

 

(Successor)

 

 

 

(Predecessor)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing and service fees

$

24,609,417

 

 

 

$

2,431,239

 

 

$

49,401,082

 

 

$

20,316,928

 

 

$

60,785,117

 

Interchange and network fees

 

12,546,350

 

 

 

 

1,475,928

 

 

 

29,988,744

 

 

 

11,974,980

 

 

 

35,369,642

 

Total Revenue

 

37,155,767

 

 

 

 

3,907,167

 

 

 

79,389,826

 

 

 

32,291,908

 

 

 

96,154,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interchange and network fees

$

12,546,350

 

 

 

 

1,475,928

 

 

 

29,988,744

 

 

 

11,974,980

 

 

 

35,369,642

 

Other costs of services

 

7,050,567

 

 

 

 

565,276

 

 

 

12,574,244

 

 

 

6,332,224

 

 

 

20,302,152

 

Selling general and administrative

 

21,002,624

 

 

 

 

34,069,143

 

 

 

51,201,322

 

 

 

6,103,913

 

 

 

21,008,801

 

Depreciation and amortization

 

10,702,840

 

 

 

 

333,290

 

 

 

6,222,917

 

 

 

2,665,925

 

 

 

7,580,345

 

Change in fair value of contingent

   consideration

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000,000

)

Total operating expenses

 

51,302,381

 

 

 

 

36,443,637

 

 

 

99,987,227

 

 

 

27,077,042

 

 

 

83,260,940

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

(14,146,614

)

 

 

 

(32,536,470

)

 

 

(20,597,401

)

 

 

5,214,866

 

 

 

12,893,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,685,998

)

 

 

 

(226,539

)

 

 

(3,145,167

)

 

 

(1,487,551

)

 

 

(4,500,929

)

Change in fair value of tax receivable liability

 

(450,922

)

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other income (expense)

 

(1,315,932

)

 

 

 

-

 

 

 

38

 

 

 

23

 

 

 

(1,127

)

Total other income (expenses)

 

(4,452,852

)

 

 

 

(226,539

)

 

 

(3,145,129

)

 

 

(1,487,528

)

 

 

(4,502,056

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income tax expense

 

(18,599,466

)

 

 

 

(32,763,009

)

 

 

(23,742,530

)

 

 

3,727,338

 

 

 

8,391,763

 

Income tax benefit (expense)

 

2,719,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(15,880,064

)

 

 

$

(32,763,009

)

 

$

(23,742,530

)

 

$

3,727,338

 

 

$

8,391,763

 

Less: Net income (loss) attributable to

   noncontrolling interests

$

(7,399,303

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to the Company

$

(8,480,761

)

 

 

$

(32,763,009

)

 

$

(23,742,530

)

 

$

3,727,338

 

 

$

8,391,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per Class A share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

$

(0.25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

34,326,127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

2


 

REPAY HOLDINGS CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

Total Equity

 

 

 

(Predecessor)

 

Balance at December 31, 2017

 

$

104,051,883

 

Net income

 

 

4,664,425

 

Contributions by members

 

 

-

 

Stock based compensation

 

 

431,721

 

Distribution to members

 

 

(1,360,159

)

Balance at June 30, 2018

 

$

107,787,870

 

Net income

 

 

3,727,338

 

Contributions by members

 

 

-

 

Stock based compensation

 

 

198,501

 

Distribution to members

 

 

(2,383,667

)

Balance at September 30, 2018

 

$

109,330,042

 

 

 

 

 

 

Balance at December 31, 2018

 

$

109,078,357

 

Net income

 

 

9,020,479

 

Contributions by members

 

 

-

 

Stock based compensation

 

 

250,783

 

Distribution to members

 

 

(6,904,991

)

Balance at June 30, 2019

 

$

111,444,628

 

Net loss

 

 

(32,763,009

)

Contributions by members

 

 

-

 

Stock based compensation

 

 

658,195

 

Distribution to members

 

 

-

 

Balance at July 10, 2019

 

$

79,339,814

 

 

 

 

Class A Common

Stock

 

 

Class V Common

Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

 

Noncontrolling

Interests

 

Balance at July 11, 2019

 

 

33,430,259

 

 

$

3,343

 

 

 

100

 

 

$

0

 

 

$

290,592,210

 

 

$

(37,657,028

)

 

$

252,938,525

 

 

$

221,443,561

 

Release of Founder Shares

 

 

1,482,500

 

 

 

148

 

 

 

 

 

 

 

-

 

 

 

(148

)

 

 

-

 

 

 

-

 

 

 

-

 

Release of share awards vested under 2019 Plan

 

 

575,301

 

 

 

58

 

 

 

 

 

 

 

-

 

 

 

(58

)

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

 

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

9,750,822

 

 

 

-

 

 

 

9,750,822

 

 

 

-

 

Tax distribution from Hawk Parent

 

 

 

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(185,957

)

Net loss

 

 

 

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

(8,480,761

)

 

 

(8,480,761

)

 

 

(7,399,303

)

Balance at September 30, 2019 (Successor)

 

 

35,488,060

 

 

$

3,549

 

 

 

100

 

 

$

0

 

 

$

300,342,826

 

 

$

(46,137,789

)

 

$

254,208,586

 

 

$

213,858,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

3


 

REPAY HOLDINGS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

 

 

July 11, 2019 to

September 30,

2019

 

 

 

January 1, 2019

to July 10, 2019

 

 

Period Ended

September 30,

2018

 

 

 

(Successor)

 

 

 

(Predecessor)

 

 

(Predecessor)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(15,880,064

)

 

 

$

(23,742,530

)

 

$

8,391,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash

   provided (used) by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,702,840

 

 

 

 

6,222,917

 

 

 

7,580,345

 

Stock based compensation

 

 

9,750,822

 

 

 

 

908,978

 

 

 

630,222

 

Amortization of debt issuance costs

 

 

223,761

 

 

 

 

215,658

 

 

 

305,552

 

Fair value change in tax receivable liability

 

 

450,922

 

 

 

 

-

 

 

 

-

 

Deferred tax expense

 

 

(2,719,402

)

 

 

 

-

 

 

 

-

 

Change in accounts receivable

 

 

247,912

 

 

 

 

(4,614,620

)

 

 

(1,157,087

)

Change in prepaid expenses and other

 

 

(3,089,306

)

 

 

 

(73,533

)

 

 

1,781

 

Change in accounts payable

 

 

2,914,452

 

 

 

 

1,297,035

 

 

 

233,108

 

Change in accrued expenses and other

 

 

2,335,150

 

 

 

 

28,136,310

 

 

 

(1,190,237

)

Net cash provided by operating activities

 

 

4,937,087

 

 

 

 

8,350,215

 

 

 

14,795,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(265,720

)

 

 

 

(203,026

)

 

 

(659,343

)

Purchases of software

 

 

(1,682,965

)

 

 

 

(3,842,744

)

 

 

(3,635,741

)

Acquisition of Hawk Parent, net of cash and restricted cash acquired

 

 

(242,599,551

)

 

 

 

-

 

 

 

-

 

Acquisition of TriSource, net of cash and restricted cash acquired

 

 

(58,958,915

)

 

 

 

-

 

 

 

-

 

Net cash used in investing activities

 

 

(303,507,151

)

 

 

 

(4,045,770

)

 

 

(4,295,084

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in line of credit

 

 

(3,500,000

)

 

 

 

-

 

 

 

3,000,000

 

Issuance of long-term debt

 

 

210,000,000

 

 

 

 

-

 

 

 

-

 

Payments on long-term debt

 

 

(89,800,000

)

 

 

 

(2,450,000

)

 

 

(3,675,000

)

Private placement issuance of Class A Common Stock

 

 

135,000,000

 

 

 

 

-

 

 

 

-

 

Repurchase of outstanding warrants

 

 

(38,700,000

)

 

 

 

-

 

 

 

-

 

Conversion of Thunder Bridge Class A ordinary shares to Class A Common Stock

 

 

148,870,571

 

 

 

 

-

 

 

 

-

 

Distributions to Members

 

 

(185,957

)

 

 

 

(6,904,991

)

 

 

(3,743,826

)

Payment of loan costs

 

 

(6,065,465

)

 

 

 

-

 

 

 

-

 

Net cash provided (used) by financing activities

 

 

355,619,149

 

 

 

 

(9,354,991

)

 

 

(4,418,826

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in cash, cash equivalents and restricted cash

 

 

57,049,085

 

 

 

 

(5,050,546

)

 

 

6,081,537

 

Cash, cash equivalents and restricted cash at beginning of period

 

$

-

 

 

 

$

23,262,058

 

 

$

13,091,172

 

Cash, cash equivalents and restricted cash at end of period

 

$

57,049,085

 

 

 

$

18,211,512

 

 

$

19,172,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

1,907,283

 

 

 

$

2,929,509

 

 

$

4,195,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NONCASH

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Hawk Parent in exchange for Class A Common Stock

 

$

220,056,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Hawk Parent in exchange for amounts payable under Tax Receivable Agreement

 

$

65,886,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Hawk Parent in exchange for contingent consideration

 

$

12,300,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of TriSource in exchange for contingent consideration

 

$

2,250,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

4


REPAY HOLDINGS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Nature of Operations

Repay Holdings Corporation and its consolidated subsidiaries (“REPAY” or the “Company”) is a full‑service provider of electronic transaction processing services.  The Company targets its marketing efforts to certain industries that have specific transaction processing needs.

On July 11, 2019, Thunder Bridge Acquisition, Ltd. (“Thunder Bridge”) domesticated into a Delaware corporation (the “Domestication”) and consummated the merger (the “Merger”) of a wholly-owned subsidiary of Thunder Bridge with and into Hawk Parent Holdings LLC (together with its subsidiaries “Hawk Parent”), pursuant to a Second Amended and Restated Agreement and Plan of Merger dated effective as of January 21, 2019 (as amended or supplemented from time to time, the “Merger Agreement”) among Thunder Bridge, Hawk Parent and certain other parties thereto (the Domestication, the Merger and other transactions contemplated by the Merger Agreement, collectively, the “Business Combination”), following the approval at the extraordinary general meeting of the shareholders of Thunder Bridge held on July 10, 2019 (the “Shareholders Meeting”). In connection with the closing of the Business Combination (the “Closing”), the registrant changed its name from Thunder Bridge Acquisition, Ltd. to Repay Holdings Corporation and its trading symbols on NASDAQ from “TBRGU”, “TBRG” and “TBRGW” to “RPAY” and “RPAYW”.

Pursuant to the Business Combination, Thunder Bridge’s then issued and outstanding Class A ordinary shares and Class B ordinary shares automatically converted, on a one-for-one basis, into shares of Class A common stock of Repay Holdings Corporation, and each issued and outstanding warrant to purchase Class A ordinary shares of Thunder Bridge became, after giving effect to the Warrant Amendment (as defined below), exercisable by its terms to purchase an equal number of shares of Class A common stock. In addition, pre-Business Combination members of Hawk Parent received as consideration for their existing limited liability company interests of Hawk Parent an amount of cash and a number of units representing limited liability company interests of Hawk Parent as the surviving company following the Merger (the “Post-Merger Repay Units”, and holders of such Post-Merger Repay Units, the “Repay Unitholders”). In connection with the issuance of such Post-Merger Repay Units, the Company issued to Hawk Parent, as the surviving company following the Merger, 100 shares of Class V common stock of the Company, and Hawk Parent distributed one share of Class V common stock to each holder of Post-Merger Repay Units. The rights of holders of the Company’s common stock and warrants are governed by its certificate of incorporation, its bylaws and the Delaware General Corporation Law (the “DGCL”), and in the case of the warrants, the Warrant Agreement, dated June 18, 2018, between Thunder Bridge and the Continental Stock Transfer & Trust Company, as amended by the Warrant Amendment (the “Warrant Amendment”), dated July 11, 2019 (as amended, the “Warrant Agreement”).

As a result of the Business Combination, for accounting purposes, Repay Holdings Corporation is the acquirer and Hawk Parent is the acquired party and accounting predecessor. Our financial statement presentation includes the financial statements of Hawk Parent as “Predecessor” for periods prior to the completion of the Business Combination and of Repay Holdings Corporation, including the consolidation of Hawk Parent, for periods from and after the Closing (referred to as the “Successor”).

 

 

On August 13, 2019, the Successor, through its indirect majority owned subsidiary Repay Holdings, LLC, the members of TriSource Solutions, LLC (“TriSource”) and certain other parties entered into a Securities Purchase Agreement dated effective as of August 13, 2019 (as amended or supplemented from time to time, the “TriSource Purchase Agreement”), pursuant to which REPAY acquired TriSource (the “TriSource Acquisition”). TriSource, founded in 2007, provides back-end transaction processing services to independent sales organizations (“ISO’s”) and operates as a direct ISO on behalf of its owned portfolios and external sales agents.

 

2. Basis of Presentation and Summary of Significant Accounting Policies

 

Unaudited Interim Financial Statements

These unaudited consolidated interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for each of the two years ended December 31, 2018 and 2017 and Hawk Parent Holdings LLC audited consolidated financial statements and accompanying notes for each of the two years ended December 31, 2018 and 2017, which are included in the Company’s Form 10-K for the year ended December 31, 2018 and the final prospectus and definitive proxy statement filed with the Securities and Exchange Commission (“SEC”) by Thunder Bridge on June 24, 2019.

 

5


REPAY HOLDINGS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

The interim consolidated financial statements are unaudited, but in the Company’s opinion include all adjustments that are necessary for a fair statement of operations for the periods presented. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

 

Principles of Consolidation

The consolidated financial statements include the accounts of Repay Holdings Corporation, the majority-owned Hawk Parent Holdings LLC and its wholly owned subsidiaries: Hawk Intermediate Holdings, LLC, Hawk Buyer Holdings, LLC, Repay Holdings, LLC, M&A Ventures, LLC, Repay Management Holdco Inc., Repay Management Service LLC, Sigma Acquisition, LLC, Wildcat Acquisition, LLC, Marlin Acquirer, LLC, REPAY International LLC, REPAY Canada ULC, and TriSource Solutions, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Financial Statement Presentation

The balance sheet data as of December 31, 2018 was derived from the audited Consolidated Financial Statements of Hawk Parent included in the final prospectus and definitive proxy statement filed with the SEC on June 24, 2019 by Thunder Bridge. The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements of Hawk Parent for the year ended December 31, 2018 and the final prospectus and definitive proxy statement filed with the SEC by Thunder Bridge on June 24, 2019.

The interim results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future interim periods.

Use of Estimates

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

Earnings per Share

Basic earnings per share of Class A common stock is computed by dividing net income attributable to the Company by the weighted average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income attributable to the Company, adjusted for the assumed exchange of all Post-Merger Repay Units, by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements.  

6


REPAY HOLDINGS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The Predecessor’s LLC membership structure included several different types of LLC interests including ownership interests and profits interests. The Company analyzed the calculation of earnings per unit by using the two‑class method and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, the Predecessor’s earnings per share information has not been presented for any period.

Equity Units Awarded

The Repay Holdings Corporation 2019 Omnibus Incentive Plan (the “2019 Plan”) provides for the grant of various equity-based incentive awards to employees, directors, consultants and advisors to the Company. The types of equity-based awards that may be granted under the 2019 Plan include: stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and other stock-based awards. There are 7,326,728  shares of Class A common stock reserved for issuance under the 2019 Plan.

The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the employee’s requisite or derived service period.

 

The Predecessor accounted for profit units awarded to management based on the fair value of the awards on the date of the grant and recognizes compensation expense for those awards over the requisite service period. The profits units were fully vested as of the Closing.

The fair value of the RSAs and RSUs granted under the 2019 Plan and the profit interests granted under the profit unit plan of the Predecessor is estimated on the grant date using the Black‑Scholes option valuation model. The Black‑Scholes option valuation model incorporates assumptions as to dividend yield, expected volatility, an appropriate risk‑free interest rate, and the expected life of the option. Forfeitures are accounted for as they occur.

 

Taxation

Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to net operating losses, tax credits, and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of the enactment date. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.

 

The Company reports a liability or a reduction of deferred tax assets for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. When applicable, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

 

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not em