UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
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) (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 May 4, 2022,2023, there are 91,308,14092,745,684 shares of the registrant’s Class A Common Stock, par value $0.0001 per share, outstanding (which number includes 2,419,7524,055,299 shares of unvested restricted stock that have voting rights) and 100 shares of the registrant’s Class V Common Stock, par value of $0.0001 per share, outstanding. As of May 4, 2022,2023, the holders of such outstanding shares of Class V common stock also hold 7,883,0487,861,271 units in a subsidiary of the registrant and such units are exchangeable into shares of the registrant’s Class A common stock on a one-for-one basis.
REPAY HOLDINGS CORPORATION
Quarterly Report on Form 10‑Q
For the quarter ended March 31, 20222023
TABLE OF CONTENTS
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1 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, anticipated benefits from our recent acquisitions, the effects of the COVID-19 pandemic, expected demand on our product offering,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; the impacts of the ongoing COVID-19 coronavirus pandemic and the actions taken to controlspending, including bank failures or mitigate its spread; a delayother adverse events affecting financial institutions, inflationary pressures, general economic slowdown or failure to integrate and/or realize the benefits of our recent acquisitions;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, 2021.2022 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
| March 31, 2022 (Unaudited) |
|
|
| December 31, 2021 |
| |||||||||
($ in thousands) | March 31, 2023 (Unaudited) |
|
| December 31, 2022 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents | $ | 65,316,018 |
|
| $ | 50,048,657 |
| $ | 91,739 |
|
| $ | 64,895 |
| |
Accounts receivable |
| 34,312,006 |
|
|
| 33,235,745 |
|
| 34,572 |
|
|
| 33,544 |
| |
Prepaid expenses and other |
| 12,789,275 |
|
|
| 12,427,032 |
|
| 14,223 |
|
|
| 18,213 |
| |
Total current assets |
| 112,417,299 |
|
|
|
| 95,711,434 |
|
| 140,534 |
|
|
| 116,652 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment, net |
| 3,846,999 |
|
|
|
| 3,801,199 |
|
| 4,117 |
|
|
| 4,375 |
|
Restricted cash |
| 15,513,510 |
|
|
| 26,291,269 |
|
| 27,090 |
|
|
| 28,668 |
| |
Intangible assets, net |
| 556,625,295 |
|
|
| 577,693,902 |
|
| 473,308 |
|
|
| 500,575 |
| |
Goodwill |
| 824,094,441 |
|
|
| 824,081,632 |
|
| 792,543 |
|
|
| 827,813 |
| |
Operating lease right-of-use assets, net |
| 11,473,076 |
|
|
| 10,499,751 |
|
| 9,302 |
|
|
| 9,847 |
| |
Deferred tax assets |
| 141,404,532 |
|
|
| 145,259,883 |
|
| 132,044 |
|
|
| 136,370 |
| |
Other assets |
| 2,499,996 |
|
|
| 2,499,996 |
|
| 2,500 |
|
|
| 2,500 |
| |
Total noncurrent assets |
| 1,555,457,849 |
|
|
| 1,590,127,632 |
|
| 1,440,904 |
|
|
| 1,510,148 |
| |
Total assets | $ | 1,667,875,148 |
|
| $ | 1,685,839,066 |
| $ | 1,581,438 |
|
| $ | 1,626,800 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
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Accounts payable | $ | 21,738,214 |
|
| $ | 20,082,651 |
| $ | 21,303 |
|
| $ | 21,781 |
| |
Related party payable |
| 14,324,177 |
|
|
| 17,394,125 |
|
| 435 |
|
|
| 1,000 |
| |
Accrued expenses |
| 19,552,828 |
|
|
| 26,819,083 |
|
| 27,300 |
|
|
| 29,016 |
| |
Current operating lease liabilities |
| 2,225,407 |
|
|
| 1,990,416 |
|
| 2,264 |
|
|
| 2,263 |
| |
Current tax receivable agreement |
| 24,454,088 |
|
|
| 24,495,556 |
|
| — |
|
|
| 24,454 |
| |
Other current liabilities |
| 1,048,662 |
|
|
| 1,565,931 |
|
| 1,681 |
|
|
| 3,593 |
| |
Total current liabilities |
| 83,343,376 |
|
|
| 92,347,762 |
|
| 52,983 |
|
|
| 82,107 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt |
| 449,187,265 |
|
|
| 448,484,696 |
|
| 432,031 |
|
|
| 451,319 |
| |
Noncurrent operating lease liabilities |
| 9,886,289 |
|
|
| 9,090,867 |
|
| 7,737 |
|
|
| 8,295 |
| |
Tax receivable agreement, net of current portion |
| 196,754,946 |
|
|
| 221,332,863 |
|
| 183,696 |
|
|
| 154,673 |
| |
Other liabilities |
| 1,385,704 |
|
|
| 1,547,087 |
|
| 1,836 |
|
|
| 2,113 |
| |
Total noncurrent liabilities |
| 657,214,204 |
|
|
| 680,455,513 |
|
| 625,300 |
|
|
| 616,400 |
| |
Total liabilities | $ | 740,557,580 |
|
| $ | 772,803,275 |
| $ | 678,283 |
|
| $ | 698,507 |
| |
|
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|
|
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|
|
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|
|
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Commitments and contingencies (Note 12) |
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|
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|
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Commitments and contingencies (Note 10) |
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|
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Stockholders' equity |
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|
|
|
|
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|
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|
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Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized, and 88,817,111 and 88,502,621 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
| 8,881 |
|
|
| 8,850 |
| ||||||||
Class V common stock, $0.0001 par value; 1,000 shares authorized and 100 shares issued and outstanding as of March 31, 2022 and December 31, 2021 |
| — |
|
|
| — |
| ||||||||
Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized; 89,750,330 issued and 88,672,189 outstanding as of March 31, 2023; 89,354,754 issued and 88,276,613 outstanding as of December 31, 2022 |
| 9 |
|
|
| 9 |
| ||||||||
Class V common stock, $0.0001 par value; 1,000 shares authorized and 100 shares issued and outstanding as of March 31, 2023 and December 31, 2022 |
| — |
|
|
| — |
| ||||||||
Additional paid-in capital |
| 1,101,431,734 |
|
|
| 1,100,012,082 |
|
| 1,120,721 |
|
|
| 1,117,736 |
| |
Treasury stock, 1,078,141 shares as of March 31, 2023 and December 31, 2022 |
| (10,000 | ) |
|
| (10,000 | ) | ||||||||
Accumulated other comprehensive loss |
| (2,205 | ) |
|
| (2,205 | ) |
| (3 | ) |
|
| (3 | ) | |
Accumulated deficit |
| (212,362,342 | ) |
|
| (226,015,886 | ) |
| (239,572 | ) |
|
| (213,180 | ) | |
Total Repay stockholders' equity | $ | 889,076,068 |
|
|
| $ | 874,002,841 |
| $ | 871,155 |
|
| $ | 894,562 |
|
Non-controlling interests |
| 38,241,500 |
|
|
|
| 39,032,950 |
|
| 32,000 |
|
|
| 33,731 |
|
Total equity | $ | 927,317,568 |
|
|
| $ | 913,035,791 |
| $ | 903,155 |
|
| $ | 928,293 |
|
Total liabilities and equity | $ | 1,667,875,148 |
|
|
| $ | 1,685,839,066 |
| $ | 1,581,438 |
|
| $ | 1,626,800 |
|
See accompanying notes to condensed consolidated financial statements.
1
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, |
| ||||||||||||
| 2022 |
|
| 2021 |
| Three Months Ended March 31, |
| |||||||
($ in thousands, except per share data) | 2023 |
|
| 2022 |
| |||||||||
Revenue | $ | 67,564,055 |
|
| $ | 47,520,496 |
| $ | 74,537 |
|
| $ | 67,564 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||
Costs of services (exclusive of depreciation and amortization shown separately below) |
| 16,564,956 |
|
|
| 12,474,808 |
|
| 17,965 |
|
|
| 16,565 |
|
Selling, general and administrative |
| 32,217,893 |
|
|
| 23,393,367 |
|
| 38,518 |
|
|
| 32,218 |
|
Depreciation and amortization |
| 28,589,145 |
|
|
| 17,792,994 |
|
| 26,140 |
|
|
| 28,589 |
|
Change in fair value of contingent consideration |
| (2,900,000 | ) |
|
| 2,648,786 |
|
| — |
|
|
| (2,900 | ) |
Loss on business disposition |
| 9,878 |
|
|
| — |
| |||||||
Total operating expenses |
| 74,471,994 |
|
|
| 56,309,955 |
|
| 92,501 |
|
|
| 74,472 |
|
Loss from operations |
| (6,907,939 | ) |
|
| (8,789,459 | ) |
| (17,964 | ) |
|
| (6,908 | ) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest expense |
| (988,589 | ) |
|
| (1,183,357 | ) |
| (1,160 | ) |
|
| (988 | ) |
Loss on extinguishment of debt |
| — |
|
|
| (5,940,600 | ) | |||||||
Change in fair value of tax receivable liability |
| 24,619,385 |
|
|
| 1,042,733 |
|
| (4,538 | ) |
|
| 24,619 |
|
Other income |
| 6,060 |
|
|
| 28,147 |
|
| 87 |
|
|
| 6 |
|
Other loss |
| — |
|
|
| (9,080,410 | ) | |||||||
Total other income (expense) |
| 23,636,856 |
|
|
| (15,133,487 | ) |
| (5,611 | ) |
|
| 23,637 |
|
Income (loss) before income tax (expense) benefit |
| 16,728,917 |
|
|
| (23,922,946 | ) | |||||||
Income tax (expense) benefit |
| (3,842,542 | ) |
|
| 5,941,773 |
| |||||||
Income (loss) before income tax expense |
| (23,575 | ) |
|
| 16,729 |
| |||||||
Income tax expense |
| (4,357 | ) |
|
| (3,843 | ) | |||||||
Net income (loss) | $ | 12,886,375 |
|
| $ | (17,981,173 | ) | $ | (27,932 | ) |
| $ | 12,886 |
|
Less: Net loss attributable to non-controlling interests |
| (767,169 | ) |
|
| (2,187,272 | ) |
| (1,540 | ) |
|
| (767 | ) |
Net income (loss) attributable to the Company | $ | 13,653,544 |
|
| $ | (15,793,901 | ) | $ | (26,392 | ) |
| $ | 13,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Income (loss) per Class A share attributable to the Company: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic | $ | 0.15 |
|
| $ | (0.21 | ) | $ | (0.30 | ) |
| $ | 0.15 |
|
Diluted | $ | 0.12 |
|
| $ | (0.21 | ) | $ | (0.30 | ) |
| $ | 0.12 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic |
| 88,607,655 |
|
|
| 76,602,759 |
|
| 88,615,760 |
|
|
| 88,607,655 |
|
Diluted |
| 113,015,159 |
|
|
| 76,602,759 |
|
| 88,615,760 |
|
|
| 113,015,159 |
|
See accompanying notes to condensed consolidated financial statements.
2
REPAY HOLDINGS CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) |
| $ | 12,886,375 |
|
| $ | (17,981,173 | ) |
Other comprehensive income, before tax |
|
|
|
|
|
|
|
|
Reclassification of net unrealized loss on cash flow hedges to other loss |
|
| — |
|
|
| 9,317,244 |
|
Total other comprehensive income, before tax |
|
| — |
|
|
| 9,317,244 |
|
Income tax related to items of other comprehensive income: |
|
|
|
|
|
|
|
|
Tax expense on reclassification of net unrealized loss on cash flow hedges to other loss |
|
| — |
|
|
| (1,672,743 | ) |
Total income tax expense on related to items of other comprehensive income |
|
| — |
|
|
| (1,672,743 | ) |
Total other comprehensive income, net of tax |
|
| — |
|
|
| 7,644,501 |
|
Total comprehensive income (loss) |
| $ | 12,886,375 |
|
| $ | (10,336,672 | ) |
Less: Comprehensive loss attributable to non-controlling interests |
|
| (767,169 | ) |
|
| (979,534 | ) |
Comprehensive income (loss) attributable to the Company |
| $ | 13,653,544 |
|
| $ | (9,357,138 | ) |
See accompanying notes to consolidated financial statements.
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| Repay Stockholders |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
| Class A Common Stock |
|
| Class V Common Stock |
|
| Additional Paid-In |
|
| Accumulated |
|
| Accumulated Other Comprehensive |
|
| Non-controlling |
|
| Total |
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| (Loss) Income |
|
| Interests |
|
| Equity |
| |||||||||
Balance at December 31, 2020 |
|
| 71,244,682 |
|
| $ | 7,125 |
|
|
| 100 |
|
| $ | - |
|
| $ | 691,675,072 |
|
| $ | (175,931,713 | ) |
| $ | (6,436,763 | ) |
| $ | 46,868,350 |
|
| $ | 556,182,071 |
|
Issuance of new shares |
|
| 6,244,500 |
|
|
| 624 |
|
|
|
|
|
|
| - |
|
|
| 142,411,389 |
|
|
| - |
|
|
| - |
|
|
| (313,652 | ) |
|
| 142,098,361 |
|
Exchange of Post-Merger Repay Units |
|
| 375,000 |
|
|
| 38 |
|
|
|
|
|
|
| - |
|
|
| 2,158,374 |
|
|
| - |
|
|
| - |
|
|
| (2,158,412 | ) |
|
| - |
|
Release of share awards vested under Equity Plan |
|
| 293,081 |
|
|
| 29 |
|
|
|
|
|
|
| - |
|
|
| (29 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares repurchased under Equity Plan |
|
| (72,417 | ) |
|
| (7 | ) |
|
|
|
|
|
| - |
|
|
| (1,821,935 | ) |
|
| - |
|
|
| - |
|
|
| 3,995 |
|
|
| (1,817,947 | ) |
Stock-based compensation |
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 5,171,544 |
|
|
| - |
|
|
| - |
|
|
| (20,945 | ) |
|
| 5,150,599 |
|
Valuation allowance on Ceiling Rule DTA |
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| (5,064 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,064 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| (15,793,901 | ) |
|
| - |
|
|
| (2,187,272 | ) |
|
| (17,981,173 | ) |
Other comprehensive income |
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,436,763 |
|
|
| 1,207,738 |
|
|
| 7,644,501 |
|
Balance at March 31, 2021 |
|
| 78,084,846 |
|
| $ | 7,809 |
|
|
| 100 |
|
| $ | - |
|
| $ | 839,589,351 |
|
| $ | (191,725,614 | ) |
| $ | - |
|
| $ | 43,399,802 |
|
| $ | 691,271,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
| 88,502,621 |
|
| $ | 8,850 |
|
|
| 100 |
|
| $ | - |
|
| $ | 1,100,012,082 |
|
| $ | (226,015,886 | ) |
| $ | (2,205 | ) |
| $ | 39,032,950 |
|
| $ | 913,035,791 |
|
Release of share awards vested under Equity Plan |
|
| 427,755 |
|
|
| 43 |
|
|
|
|
|
|
| - |
|
|
| (43 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares repurchased under Equity Plan |
|
| (113,265 | ) |
|
| (12 | ) |
|
|
|
|
|
| - |
|
|
| (1,702,805 | ) |
|
| - |
|
|
| - |
|
|
| 4,384 |
|
|
| (1,698,433 | ) |
Stock-based compensation |
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 3,122,500 |
|
|
| - |
|
|
| - |
|
|
| (28,665 | ) |
|
| 3,093,835 |
|
Net income (loss) |
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| 13,653,544 |
|
|
| - |
|
|
| (767,169 | ) |
|
| 12,886,375 |
|
Balance at March 31, 2022 |
|
| 88,817,111 |
|
| $ | 8,881 |
|
|
| 100 |
|
| $ | - |
|
| $ | 1,101,431,734 |
|
| $ | (212,362,342 | ) |
| $ | (2,205 | ) |
| $ | 38,241,500 |
|
| $ | 927,317,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Repay Stockholders |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
| Class A Common |
|
| Class V Common |
|
| Additional |
|
| Treasury |
|
| Accumulated |
|
| Accumulated Other Comprehensive |
|
| Non-controlling |
|
| Total |
| |||||||||||||||||
($ in thousands) |
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Stock |
|
| Deficit |
|
| Loss |
|
| Interests |
|
| Equity |
| ||||||||||
Balance at December 31, 2021 |
|
| 88,502,621 |
|
| $ | 9 |
|
|
| 100 |
|
| $ | - |
|
| $ | 1,100,012 |
|
| $ | - |
|
| $ | (226,016 | ) |
| $ | (2 | ) |
| $ | 39,033 |
|
| $ | 913,036 |
|
Release of share awards vested under Incentive Plan |
|
| 427,755 |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Shares repurchased under Incentive Plan |
|
| (113,265 | ) |
|
| - |
|
|
|
|
|
| - |
|
|
| (1,703 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| (1,698 | ) | |
Stock-based compensation |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| 3,123 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (29 | ) |
|
| 3,094 |
| |
Net income (loss) |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,653 |
|
|
| - |
|
|
| (767 | ) |
|
| 12,886 |
| |
Balance at March 31, 2022 |
|
| 88,817,111 |
|
| $ | 9 |
|
|
| 100 |
|
| $ | - |
|
| $ | 1,101,432 |
|
| $ | - |
|
| $ | (212,363 | ) |
| $ | (2 | ) |
| $ | 38,242 |
|
| $ | 927,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at December 31, 2022 |
|
| 88,276,613 |
|
| $ | 9 |
|
|
| 100 |
|
| $ | - |
|
| $ | 1,117,736 |
|
| $ | (10,000 | ) |
| $ | (213,180 | ) |
| $ | (3 | ) |
| $ | 33,731 |
|
| $ | 928,293 |
|
Exchange of Post-Merger Repay Units |
|
| 14,460 |
|
|
| - |
|
|
|
|
|
| - |
|
|
| 61 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (61 | ) |
|
| - |
| |
Release of share awards vested under Incentive Plan |
|
| 528,843 |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Shares repurchased under Incentive Plan |
|
| (147,727 | ) |
|
| - |
|
|
|
|
|
| - |
|
|
| (1,210 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| (1,205 | ) | |
Stock-based compensation |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| 4,134 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (81 | ) |
|
| 4,053 |
| |
Tax distribution from Hawk Parent |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (54 | ) |
|
| (54 | ) | |
Net loss |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26,392 | ) |
|
| - |
|
|
| (1,540 | ) |
|
| (27,932 | ) | |
Balance at March 31, 2023 |
|
| 88,672,189 |
|
| $ | 9 |
|
|
| 100 |
|
| $ | - |
|
| $ | 1,120,721 |
|
| $ | (10,000 | ) |
| $ | (239,572 | ) |
| $ | (3 | ) |
| $ | 32,000 |
|
| $ | 903,155 |
|
See accompanying notes to condensed consolidated financial statements.
3
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Three Months Ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Three Months Ended March 31, |
| |||||||
($ in thousands) |
| 2023 |
|
| 2022 |
| ||||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 12,886,375 |
|
| $ | (17,981,173 | ) |
| $ | (27,932 | ) |
| $ | 12,886 |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation and amortization |
|
| 28,589,145 |
|
|
| 17,792,994 |
|
|
| 26,140 |
|
|
| 28,589 |
|
Stock based compensation |
|
| 3,093,835 |
|
|
| 5,150,599 |
|
|
| 4,054 |
|
|
| 3,094 |
|
Amortization of debt issuance costs |
|
| 702,569 |
|
|
| 535,536 |
|
|
| 712 |
|
|
| 702 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| 5,940,600 |
| ||||||||
Loss on sale of interest rate swaps |
|
| — |
|
|
| 9,317,243 |
| ||||||||
Loss on business disposition |
|
| 9,878 |
|
|
| — |
| ||||||||
Fair value change in tax receivable agreement liability |
|
| (24,619,385 | ) |
|
| (1,042,733 | ) |
|
| 4,538 |
|
|
| (24,619 | ) |
Fair value change in other assets and liabilities |
|
| (2,900,000 | ) |
|
| 2,648,786 |
| ||||||||
Fair value change in contingent consideration |
|
| — |
|
|
| (2,900 | ) | ||||||||
Deferred tax expense |
|
| 3,842,542 |
|
|
| (5,941,773 | ) |
|
| 4,357 |
|
|
| 3,842 |
|
Change in accounts receivable |
|
| (1,076,261 | ) |
|
| (2,586,374 | ) |
|
| (2,541 | ) |
|
| (1,076 | ) |
Change in prepaid expenses and other |
|
| (362,243 | ) |
|
| 846,681 |
|
|
| 3,921 |
|
|
| (362 | ) |
Change in operating lease ROU assets |
|
| (973,325 | ) |
|
| 424,043 |
|
|
| 270 |
|
|
| (973 | ) |
Change in accounts payable |
|
| 1,655,563 |
|
|
| 2,232,774 |
|
|
| (916 | ) |
|
| 1,656 |
|
Change in related party payable |
|
| (169,948 | ) |
|
| (685,568 | ) |
|
| 435 |
|
|
| (170 | ) |
Change in accrued expenses and other |
|
| (7,266,255 | ) |
|
| (1,857,743 | ) |
|
| (1,716 | ) |
|
| (7,266 | ) |
Change in operating lease liabilities |
|
| 1,030,413 |
|
|
| (330,651 | ) |
|
| (264 | ) |
|
| 1,030 |
|
Change in other liabilities |
|
| (678,652 | ) |
|
| (9,693,825 | ) |
|
| (105 | ) |
|
| (679 | ) |
Net cash provided by operating activities |
|
| 13,754,373 |
|
|
| 4,769,416 |
|
|
| 20,831 |
|
|
| 13,754 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (553,223 | ) |
|
| (640,467 | ) |
|
| (528 | ) |
|
| (553 | ) |
Purchases of intangible assets |
|
| (7,013,115 | ) |
|
| (4,576,203 | ) |
|
| (13,201 | ) |
|
| (7,013 | ) |
Acquisition of CPS, net of cash and restricted cash acquired |
|
| — |
|
|
| 10,778 |
| ||||||||
Net cash used in investing activities |
|
| (7,566,338 | ) |
|
| (5,205,892 | ) | ||||||||
Proceeds from sale of business, net of cash retained |
|
| 40,423 |
|
|
| — |
| ||||||||
Net cash provided by (used in) investing activities |
|
| 26,694 |
|
|
| (7,566 | ) | ||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of long-term debt |
|
| — |
|
|
| 440,000,000 |
| ||||||||
Payments on long-term debt |
|
| — |
|
|
| (262,653,996 | ) |
|
| (20,000 | ) |
|
| — |
|
Public issuance of Class A Common Stock |
|
| — |
|
|
| 142,098,361 |
| ||||||||
Shares repurchased under Equity Plan |
|
| (1,698,433 | ) |
|
| (1,817,947 | ) | ||||||||
Payment of loan costs |
|
| — |
|
|
| (13,247,617 | ) | ||||||||
Net cash (used in) provided by financing activities |
|
| (1,698,433 | ) |
|
| 304,378,801 |
| ||||||||
Shares repurchased under Incentive Plan |
|
| (1,205 | ) |
|
| (1,698 | ) | ||||||||
Distributions to Members |
|
| (54 | ) |
|
| — |
| ||||||||
Payment of contingent consideration liability up to acquisition-date fair value |
|
| (1,000 | ) |
|
| — |
| ||||||||
Net cash used in financing activities |
|
| (22,259 | ) |
|
| (1,698 | ) | ||||||||
Increase in cash, cash equivalents and restricted cash |
|
| 4,489,602 |
|
|
| 303,942,325 |
|
|
| 25,266 |
|
|
| 4,490 |
|
Cash, cash equivalents and restricted cash at beginning of period |
| $ | 76,339,926 |
|
| $ | 106,504,734 |
|
| $ | 93,563 |
|
| $ | 76,340 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 80,829,528 |
|
| $ | 410,447,059 |
|
| $ | 118,829 |
|
| $ | 80,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest |
| $ | 286,020 |
|
| $ | 647,821 |
|
| $ | 449 |
|
| $ | 286 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
54
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 (1) before the Business Combination, to Hawk Parent and its consolidated subsidiaries and (2) from and after the Business Combination, to Repay Holdings Corporation and its consolidated subsidiaries. Throughout this section, unless otherwise noted or unless the context otherwise requires, “Thunder Bridge” refers to Thunder Bridge Acquisition. Ltd. prior to the consummation of the Business Combination.
The Company is headquartered in Atlanta, Georgia.
On February 15, 2023, the Company sold Blue Cow Software, LLC and a related entity (“BCS”) for cash proceeds of $41.9 million. The Company recognized a loss of $9.9 million associated with the sale, comprised of the difference between the consideration received and the net carrying amount of the assets and liabilities of the business. See Note 5. Business Combinations and Dispositions for further discussion.
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'sCompany’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, 2021.2022.
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 theand its (i) wholly owned subsidiary, BT Intermediate, LLC, and (ii) majority-owned subsidiary, Hawk Parent Holdings LLC, and itsalong 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, BT Intermediate, LLC, Electronic Payment Providers, LLC, Blue Cow Software, LLC, Hoot Payment Solutions, LLC, Internet Payment Exchange, LLC, Stratus Payment Solutions, LLC, Clear Payment Solutions, LLC, Harbor Acquisition LLC, Payix Holdings Incorporated and Payix Incorporated. All significant intercompany accounts and transactions have been eliminated in consolidation.
6
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
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
Correction of Immaterial Error in Previously Issued Financial Statements
During the preparation of the Company’s Annual Report on Form 10-K for the year endedEffective December 31, 2021,2022, the Company identified an error inrevised the presentation of segment information to reflect changes in the reclassification of net unrealized loss on cash flow hedges to other loss and its related tax expenses within the Consolidated Statements of Comprehensive Income in previous reporting periods beginning the three months ended March 31, 2021, which resulted in a decrease of Comprehensive loss attributable toway the Company from ($15.8) million to ($9.4) millionmanages and evaluates the business. Therefore, the Company reports operating results through two reportable segments: (1) Consumer Payments and (2) Business Payments, as further discussed in Note 14. Segments. Accordingly, segment information for the three months endedcomparable prior year periods has been revised.
Recently Adopted Accounting Pronouncements
Reference Rate Reform
In March 31, 2021. Net income (loss) for2020, the three months ended March 31, 2021 and Total equity as of March 31, 2021 were not impacted. The Company assessed the materiality of the misstatement both quantitatively and qualitatively in accordance withFASB issued Accounting Standards CodificationUpdate (“ASC”ASU”) 250, Accounting Changes and Error Corrections, as well as SEC Staff Accounting Bulletins No. 99, Materiality, and No. 108, Considering2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Prior Year Misstatements when Quantifying Misstatements in Current YearReference Rate Reform on Financial Statements,Reporting (“ASU 2020-04”)”, which provides optional expedients and concluded thatexceptions to contracts, hedging relationships and other transactions affected by the misstatementtransition 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 toimpact on the Company’s previously issued unaudited interim consolidated financial statements for the prior periods and that amendments of previously filed reports were not required.
Recently Issued Accounting Pronouncements not yet AdoptedConsolidated 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 No. 2021-08”). ASU No. 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue (Topic 606), and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. Amendments within ASU No. 2021-08 are required to be applied prospectively to business combinations occurring on or after the effective date of the amendments.
3. Revenue
ForThe 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 accounting policies for recognizing revenue and contract costs, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note Consolidated Financial Statements.
3. Revenue to
Disaggregation of revenue
The Company’s revenue is from two types of relationships: (i) direct relationships and (ii) indirect relationships. The following table presents the Company’s Notes to Consolidated Financial Statements in Part II, Item 8revenue disaggregated by segment and by the type of the Annual Report on Form 10-Krelationship for the year ended December 31, 2021.periods indicated.
76
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Disaggregation of revenue
The table below presents a disaggregation of revenue by direct and indirect relationships for the periods indicated:
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenue |
|
|
|
|
|
|
|
|
Direct relationships |
| $ | 63,637,758 |
|
| $ | 46,971,894 |
|
Indirect relationships |
|
| 3,926,297 |
|
|
| 548,602 |
|
Total Revenue |
| $ | 67,564,055 |
|
| $ | 47,520,496 |
|
|
| Three Months Ended March 31, 2023 |
| |||||||||||||
($ in thousands) |
| Consumer Payments |
|
| Business Payments |
|
| Elimination of intersegment revenues |
|
| Total |
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct relationships |
| $ | 66,473 |
|
| $ | 8,434 |
|
| $ | (4,078 | ) |
| $ | 70,829 |
|
Indirect relationships |
|
| 3,467 |
|
|
| 241 |
|
|
| — |
|
|
| 3,708 |
|
Total Revenue |
| $ | 69,940 |
|
| $ | 8,675 |
|
| $ | (4,078 | ) |
| $ | 74,537 |
|
| Three Months Ended March 31, 2022 |
| ||||||||||||||
($ in thousands) |
| Consumer Payments |
|
| Business Payments |
|
| Elimination of intersegment revenues |
|
| Total |
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct relationships |
| $ | 57,436 |
|
| $ | 8,611 |
|
| $ | (2,409 | ) |
| $ | 63,638 |
|
Indirect relationships |
|
| 3,645 |
|
|
| 281 |
|
|
| — |
|
|
| 3,926 |
|
Total Revenue |
| $ | 61,081 |
|
| $ | 8,892 |
|
| $ | (2,409 | ) |
| $ | 67,564 |
|
4. Earnings Per Share
During the three months ended March 31, 2021,2023, 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 restricted shareshare-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, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Three Months Ended March 31, |
| |||||||
($ in thousands, except per share data) |
| 2023 |
|
| 2022 |
| ||||||||||
Income (loss) before income tax expense |
| $ | 16,728,917 |
|
| $ | (23,922,946 | ) |
| $ | (23,575 | ) |
| $ | 16,729 |
|
Less: Net loss attributable to non-controlling interests |
|
| (767,169 | ) |
|
| (2,187,272 | ) |
|
| (1,540 | ) |
|
| (767 | ) |
Income tax (expense) benefit |
|
| (3,842,542 | ) |
|
| 5,941,773 |
| ||||||||
Income tax expense |
|
| (4,357 | ) |
|
| (3,843 | ) | ||||||||
Net income (loss) attributable to the Company |
| $ | 13,653,544 |
|
| $ | (15,793,901 | ) |
| $ | (26,392 | ) |
| $ | 13,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average shares of Class A common stock outstanding - basic |
|
| 88,607,655 |
|
|
| 76,602,759 |
|
|
| 88,615,760 |
|
|
| 88,607,655 |
|
Add dilutive common stock equivalent shares: |
|
|
|
|
|
|
|
| ||||||||
Add weighted average effect of dilutive common stock equivalent shares: |
|
|
|
|
| |||||||||||
Post-Merger Repay Units exchangeable for Class A common stock |
|
| 7,926,576 |
|
|
|
|
|
|
|
|
| 7,926,576 |
| ||
Unvested restricted share awards of Class A common stock |
|
| 3,385,690 |
|
|
|
|
| ||||||||
Unvested share-based awards of Class A common stock |
|
|
|
| 3,385,690 |
| ||||||||||
2026 Notes convertible into Class A common stock |
|
| 13,095,238 |
|
|
|
|
|
|
|
|
|
| 13,095,238 |
| |
Weighted average shares of Class A common stock outstanding - diluted |
|
| 113,015,159 |
|
|
|
|
|
|
| 88,615,760 |
|
|
| 113,015,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Income (loss) per share of Class A common stock outstanding - basic |
| $ | 0.15 |
|
| $ | (0.21 | ) |
| $ | (0.30 | ) |
| $ | 0.15 |
|
Income (loss) per share of Class A common stock outstanding - diluted |
| $ | 0.12 |
|
| $ | (0.21 | ) |
| $ | (0.30 | ) |
| $ | 0.12 |
|
|
|
|
|
|
|
|
|
|
7
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
For the three months ended March 31, 2021,2023, 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, | ||||
| ||||
Post-Merger Repay Units exchangeable for Class A common stock |
| |||
Unvested |
| |||
Outstanding stock options for Class A common stock | 1,148,822 | |||
2026 Notes convertible into Class A common stock | 13,095,238 | |||
Share equivalents excluded from earnings (loss) per share |
| |||
8
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
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
BillingTree
On JuneFebruary 15, 2021,2023, the Company acquired BT Intermediate,sold Blue Cow Software, LLC (togetherand a related entity (“BCS”) within the Consumer Payments segment for cash proceeds of $41.9 million. During the three months ended March 31, 2023, the Company recognized a loss of $9.9 million associated with its subsidiaries, “BillingTree”). Under the termssale, comprised of the agreement and plan of mergerdifference between BT Intermediate, LLC, the Company, two newly formed subsidiaries of the Companyconsideration received and the owner of BT Intermediate, LLC (“BillingTree Merger Agreement”), the aggregate consideration paid at closing by the Company was approximately $505.8 million, consisting of approximately $277.5 million in cash and approximately 10 million shares of Class A common stock. The BillingTree Merger Agreement contains customary representations, warranties and covenants by Repay and the former owner of BillingTree, as well as a customary post-closing adjustment provision relating to working capital and similar items.
The following summarizes the preliminary purchase consideration paid to the seller of BillingTree:
Cash consideration |
| $ | 277,521,139 |
|
Class A common stock issued |
|
| 228,250,000 |
|
Total purchase price |
| $ | 505,771,139 |
|
The Company recorded a preliminary allocation of the purchase price to BillingTree’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the June 15, 2021 closing date. The preliminary purchase price allocation is as follows:
Cash and cash equivalents |
| $ | 8,243,570 |
|
Accounts receivable |
|
| 3,623,894 |
|
Prepaid expenses and other current assets |
|
| 1,601,854 |
|
Total current assets |
|
| 13,469,318 |
|
Property, plant and equipment, net |
|
| 541,244 |
|
Restricted cash |
|
| 274,954 |
|
Other assets |
|
| 1,782,489 |
|
Identifiable intangible assets |
|
| 236,810,000 |
|
Total identifiable assets acquired |
|
| 252,878,005 |
|
Accounts payable |
|
| (2,552,251 | ) |
Accrued expenses |
|
| (6,982,919 | ) |
Deferred tax liability |
|
| (31,384,399 | ) |
Net identifiable assets acquired |
|
| 211,958,436 |
|
Goodwill |
|
| 293,812,704 |
|
Total purchase price |
| $ | 505,771,140 |
|
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
|
| Fair Value |
|
| Useful life | |
Identifiable intangible assets |
| (in millions) |
|
| (in years) | |
Non-compete agreements |
| $ | 0.3 |
|
| 2 |
Trade names |
|
| 7.8 |
|
| Indefinite |
Developed technology |
|
| 26.2 |
|
| 3 |
Merchant relationships |
|
| 202.5 |
|
| 10 |
|
| $ | 236.8 |
|
|
|
9
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Goodwill of $293.8 million represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable intangible assets acquired, of which $47.7 million is expected to be deductible for tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market position and the assembled workforce of BillingTree.
Kontrol
On June 22, 2021, the Company acquired substantially allcarrying amount of the assets of Kontrol LLC (“Kontrol”). Under the termsand liabilities of the asset purchase agreement betweenbusiness within Loss on business disposition in the Company’s Condensed Consolidated Statement of Operations.
The Company recognized a newly formed subsidiaryreduction of Repay Holdings, LLC and the owner of Kontrol (“Kontrol Purchase Agreement”), the aggregate consideration paid at closing by the Company was up to $10.5$35.3 million in cash, ofgoodwill which $7.4 million was paid at closing. The Kontrol Purchase Agreement contains customary representations, warranties and covenants by Repay and the former owner of Kontrol, as well as a customary post-closing adjustment provision relating to working capital and similar items.
The following summarizes the preliminary purchase consideration paidrelated to the ownerdisposition of Kontrol:
Cash consideration |
| $ | 7,439,373 |
|
Contingent consideration (1) |
|
| 500,000 |
|
Total purchase price |
| $ | 7,939,373 |
|
| 1.2 million and $2.0 |
The Company recorded a preliminary allocation of the purchase price to Kontrol’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the June 22, 2021 closing date. The preliminary purchase price allocation is as follows:
Accounts receivable |
| $ | 67,510 |
|
Prepaid expenses and other current assets |
|
| 5,572 |
|
Total current assets |
|
| 73,082 |
|
Identifiable intangible assets |
|
| 6,940,000 |
|
Total identifiable assets acquired |
|
| 7,013,082 |
|
Accounts payable |
|
| (664,932 | ) |
Net identifiable assets acquired |
|
| 6,348,150 |
|
Goodwill |
|
| 1,591,223 |
|
Total purchase price |
| $ | 7,939,373 |
|
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
|
| Fair Value |
|
| Useful life | |
Identifiable intangible assets |
| (in millions) |
|
| (in years) | |
Trade names |
| $ | 0.0 |
|
| Indefinite |
Merchant relationships |
|
| 6.9 |
|
| 8 |
|
| $ | 6.9 |
|
|
|
Goodwill of $1.6 million represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable intangible assets acquired, of which $1.1 million on a gross basis is expected to be deductible for tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain
10Consumer Payments segment revenue, respectively.
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Transaction Expenses
intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market position and the assembled workforce of Kontrol.
Payix
On December 29, 2021, the Company acquired Payix Holdings Incorporated (together with its subsidiary, “Payix”). Under the terms of the merger agreement with Payix (“Payix Purchase Agreement”), the aggregate consideration paid at closing by the Company was approximately $95.6 million in cash. In addition to the closing consideration, the Payix Purchase Agreement contains a performance-based earnout (the “Payix Earnout Payment”), which was based on future results of the acquired business and could result in an additional payment to the former owners of Payix of up to $20.0 million. The Payix acquisition was financed with cash on hand and available revolver capacity.The Payix Purchase Agreement contains customary representations, warranties and covenants by Repay and the former owners of Payix, as well as a customary post-closing adjustment provision relating to working capital and similar items.
The following summarizes the preliminary purchase consideration paid to the sellers of Payix:
Cash consideration |
| $ | 95,627,972 |
|
Contingent consideration (1) |
|
| 2,850,000 |
|
Total purchase price |
| $ | 98,477,972 |
|
|
|
The Company recorded a preliminary allocation of the purchase price to Payix’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the December 29, 2021 closing date. The preliminary purchase price allocation is as follows:
Cash and cash equivalents |
| $ | 702,575 |
|
Accounts receivable |
|
| 1,715,292 |
|
Prepaid expenses and other current assets |
|
| 93,891 |
|
Total current assets |
|
| 2,511,758 |
|
Property, plant and equipment, net |
|
| 83,449 |
|
Restricted cash |
|
| 27,177 |
|
Other assets |
|
| 655,588 |
|
Identifiable intangible assets |
|
| 33,150,000 |
|
Total identifiable assets acquired |
|
| 36,427,972 |
|
Accounts payable |
|
| (214,195 | ) |
Accrued expenses and other liabilities |
|
| (2,022,846 | ) |
Deferred tax liability |
|
| (6,943,998 | ) |
Net identifiable assets acquired |
|
| 27,246,933 |
|
Goodwill |
|
| 71,231,039 |
|
Total purchase price |
| $ | 98,477,972 |
|
11
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
|
| Fair Value |
|
| Useful life | |
Identifiable intangible assets |
| (in millions) |
|
| (in years) | |
Trade names |
| $ | 0.3 |
|
| Indefinite |
Developed technology |
|
| 12.4 |
|
| 3 |
Merchant relationships |
|
| 20.5 |
|
| 10 |
|
| $ | 33.2 |
|
|
|
Goodwill recognized of $71.2 million represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable intangible assets acquired, 0ne of which is expected to be deductible for tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market position and the assembled workforce of Payix.
Measurement Period
The preliminary purchase price allocations for the acquisitions of BillingTree, Kontrol, and Payix are based on initial estimates and provisional amounts. For the acquisitions completed during the year ended December 31, 2021, the Company continues to refine its inputs and estimates inherent in the valuation of intangible assets, deferred income taxes, realization of tangible assets and the accuracy and completeness of liabilities within the measurement period.
Transaction Expenses
The Company incurred transaction expenses of $2.8$3.4 million for the three months ended March 31, 2023, related to the disposition of BCS. The Company incurred transaction expenses of $2.8 million for the three months ended March 31, 2022, related to the acquisitions of BillingTree, Kontrol and Payix acquisitions.The Company incurred transactionPayix. Transaction expenses are included within Selling, general and administrative expenses in the Condensed Consolidated Statements of $1.6 million for the three months ended March 31, 2021, related to the acquisitions of Ventanex, cPayPlus and CPS Payment Services, LLC (together with its affiliated companies, “CPS”).Operations.
Pro Forma Financial Information (Unaudited)
The supplemental condensed consolidated results of the Company on an unaudited pro forma basis give effect to the BillingTree, Kontrol, and Payix acquisitions as if the transactions had occurred on January 1, 2021. The unaudited pro forma information reflects adjustments for the issuance of the Company’s common stock, debt incurred in connection with the transactions, the impact of the fair value of intangible assets acquired and related amortization and other adjustments the Company believes are reasonable for the pro forma presentation. In addition, the pro forma earnings exclude acquisition-related costs.
|
| Pro Forma Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenue |
| $ | 67,564,055 |
|
| $ | 63,679,085 |
|
Net income (loss) |
|
| 12,886,375 |
|
|
| (15,610,922 | ) |
Net loss attributable to non-controlling interests |
|
| (767,169 | ) |
|
| (1,970,560 | ) |
Net income (loss) attributable to the Company |
|
| 13,653,544 |
|
|
| (13,640,362 | ) |
|
|
|
|
|
|
|
|
|
Income (loss) per Class A share - basic |
| $ | 0.15 |
|
| $ | (0.18 | ) |
Income (loss) per Class A share - diluted |
| $ | 0.12 |
|
| $ | (0.18 | ) |
128
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
6. Fair Value
The following table summarizes, by level within the fair value hierarchy, the carrying amounts and 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, 2022 |
| |||||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| March 31, 2023 |
| |||||||||||||||||
($ in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other assets |
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,500 |
|
| $ | — |
|
| $ | 2,500 |
|
Total assets |
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,500 |
|
| $ | — |
|
| $ | 2,500 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration |
| $ | — |
|
| $ | — |
|
| $ | 14,146,840 |
|
| $ | 14,146,840 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Borrowings |
|
| — |
|
|
| 449,187,265 |
|
|
| — |
|
|
| 449,187,265 |
|
|
| — |
|
|
| 330,748 |
|
|
| — |
|
|
| 330,748 |
|
Tax receivable agreement |
|
| — |
|
|
| — |
|
|
| 221,209,034 |
|
|
| 221,209,034 |
|
|
| — |
|
|
| — |
|
|
| 183,696 |
|
|
| 183,696 |
|
Total liabilities |
| $ | — |
|
| $ | 449,187,265 |
|
| $ | 235,355,874 |
|
| $ | 684,543,139 |
|
| $ | — |
|
| $ | 330,748 |
|
| $ | 183,696 |
|
| $ | 514,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| December 31, 2021 |
|
| December 31, 2022 |
| ||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other assets |
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,500 |
|
| $ | — |
|
| $ | 2,500 |
|
Total assets |
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,499,996 |
|
| $ | — |
|
| $ | 2,500 |
|
| $ | — |
|
| $ | 2,500 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration |
| $ | — |
|
| $ | — | �� |
| $ | 17,046,840 |
|
| $ | 17,046,840 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,000 |
|
| $ | 1,000 |
|
Borrowings |
|
| — |
|
|
| 448,484,696 |
|
|
| — |
|
|
| 448,484,696 |
|
|
| — |
|
|
| 344,280 |
|
|
| — |
|
|
| 344,280 |
|
Tax receivable agreement |
|
| — |
|
|
| — |
|
|
| 245,828,419 |
|
|
| 245,828,419 |
|
|
| — |
|
|
| — |
|
|
| 179,127 |
|
|
| 179,127 |
|
Total liabilities |
| $ | — |
|
| $ | 448,484,696 |
|
| $ | 262,875,259 |
|
| $ | 711,359,955 |
|
| $ | — |
|
| $ | 344,280 |
|
| $ | 180,127 |
|
| $ | 524,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 within Related party payable in the Consolidated Balance Sheets.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, Fair Value Measurement (“ASC 820”).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”).
The Company used a discount rate to determineAs of March 31, 2023 and December 31, 2022, the present value based on a risk-free rate adjusted for a credit spread, of the contingent consideration inreflects the simulation approach. A range of 4.4% to 4.5% and weighted average of 4.46% was applied to the simulated contingent consideration payments, in order to determine the fair value. A significant increase or decrease in the discount rate could have resulted in a lower or higher balance, respectively, as of the measurement date.
13actual anticipated payments.
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
The following table provides a rollforward of the contingent consideration related to previous business acquisitions. Refer
| Three Months Ended March 31, |
| ||||||
($ in thousands) |
| 2023 |
|
| 2022 |
| ||
Balance at beginning of period |
| $ | 1,000 |
|
| $ | 17,047 |
|
Purchases |
|
| — |
|
|
| — |
|
Payments |
|
| (1,000 | ) |
|
| — |
|
Valuation adjustment |
|
| — |
|
|
| (2,900 | ) |
Balance at end of period |
| $ | — |
|
| $ | 14,147 |
|
9
REPAY HOLDINGS CORPORATION
Notes to Note 5 for more details.the Unaudited Consolidated Financial Statements
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Balance at beginning of period |
| $ | 17,046,840 |
|
| $ | 15,800,000 |
|
Payments |
|
| — |
|
|
| (948,786 | ) |
Valuation adjustment |
|
| (2,900,000 | ) |
|
| 2,648,786 |
|
Balance at end of period |
| $ | 14,146,840 |
|
| $ | 17,500,000 |
|
Borrowings
The carrying value of the Company’s 2026 Notes, revolving credit facility and term loan2026 Notes are measured at amortized cost, which the carrying value is unpaid principal net of unamortized debt discount and debt issuance costs. The carrying amountvalue of the Company’s borrowingsrevolving credit facility approximates fair value because its interest rates on these instruments approximaterate 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 109. 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 |
| $ | — |
|
| $ | — |
|
| $ | 18,177 |
|
| $ | 20,000 |
|
2026 Notes |
|
| 432,031 |
|
|
| 330,748 |
|
|
| 433,142 |
|
|
| 324,280 |
|
Total |
| $ | 432,031 |
|
| $ | 330,748 |
|
| $ | 451,319 |
|
| $ | 344,280 |
|
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 risk-free rate plus a spread, pursuant to the TRA. A rate of 3.1%6.31% was applied to the forecasted TRA payments at March 31, 2022,2023, in order to determine the fair value. A significant increase or decrease in the discount rate could have resulted in a lower or higher balance, respectively, as of the measurement date. The TRA balance was adjusted by $24.6$4.5 million through accretion expense and a valuation adjustment, related to an increasea decrease in the discount rate, which was 1.58%6.48% as of December 31, 2021.2022.
The following table provides a rollforward of the TRA related to the Business Combination and subsequent acquisition and exchanges of Post-Merger Repay Units. See Note 1513. Taxation for further discussion on the TRA.
|
| Three Months Ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Three Months Ended March 31, |
| |||||||
($ in thousands) |
| 2023 |
|
| 2022 |
| ||||||||||
Balance at beginning of period |
| $ | 245,828,419 |
|
| $ | 229,228,105 |
|
| $ | 179,127 |
|
| $ | 245,828 |
|
Purchases |
|
| — |
|
|
| 2,198,111 |
|
|
| 31 |
|
|
| — |
|
Accretion expense |
|
| 960,866 |
|
|
| 806,375 |
|
|
| — |
|
|
| 961 |
|
Valuation adjustment |
|
| (25,580,251 | ) |
|
| (1,849,108 | ) |
|
| 4,538 |
|
|
| (25,580 | ) |
Balance at end of period |
| $ | 221,209,034 |
|
| $ | 230,383,483 |
|
| $ | 183,696 |
|
| $ | 221,209 |
|
14
10
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
7. Property and Equipment
Property and equipment consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Furniture, fixtures, and office equipment |
| $ | 2,923,703 |
|
| $ | 2,763,380 |
|
Computers |
|
| 3,774,768 |
|
|
| 3,408,336 |
|
Leasehold improvements |
|
| 516,982 |
|
|
| 430,894 |
|
Total |
|
| 7,215,453 |
|
|
| 6,602,610 |
|
Less: Accumulated depreciation and amortization |
|
| 3,368,454 |
|
|
| 2,801,411 |
|
|
| $ | 3,846,999 |
|
| $ | 3,801,199 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense for property and equipment was $0.5 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively.
8.7. Intangible Assets
The Company holds definite and indefinite-lived intangible assets. As of March 31, 20222023 and December 31, 2021,2022, the indefinite-lived intangible assets consist of 5two trade names, arising from the acquisitions of Hawk Parent MPI, BillingTree, Kontrol and Payix.MPI.
Intangible assets consisted of the following:
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Carrying Value |
|
| Weighted Average Useful Life (Years) |
| ||||||||||||||||||||
($ in thousands) |
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Carrying Value |
|
| Weighted Average Useful Life (Years) |
| ||||||||||||||||||||
Client relationships |
| $ | 539,850,000 |
|
| $ | 96,664,304 |
|
| $ | 443,185,696 |
|
|
| 8.15 |
|
| $ | 523,850 |
|
| $ | 148,498 |
|
| $ | 375,352 |
|
|
| 7.37 |
|
Channel relationships |
|
| 13,490,000 |
|
|
| 1,401,352 |
|
|
| 12,088,648 |
|
|
| 8.50 |
|
|
| 16,240 |
|
|
| 3,580 |
|
|
| 12,660 |
|
|
| 7.81 |
|
Software costs |
|
| 170,030,678 |
|
|
| 97,160,222 |
|
|
| 72,870,456 |
|
|
| 1.29 |
|
|
| 206,009 |
|
|
| 141,464 |
|
|
| 64,545 |
|
|
| 0.96 |
|
Non-compete agreements |
|
| 4,580,000 |
|
|
| 4,239,505 |
|
|
| 340,495 |
|
|
| 0.79 |
|
|
| 4,580 |
|
|
| 4,129 |
|
|
| 451 |
|
|
| 0.45 |
|
Trade name |
|
| 28,140,000 |
|
|
| — |
|
|
| 28,140,000 |
|
|
| — |
|
|
| 20,300 |
|
|
| — |
|
|
| 20,300 |
|
|
| — |
|
Balance as of March 31, 2022 |
| $ | 756,090,678 |
|
| $ | 199,465,383 |
|
| $ | 556,625,295 |
|
|
| 6.51 |
| ||||||||||||||||
Balance as of March 31, 2023 |
| $ | 770,979 |
|
| $ | 297,671 |
|
| $ | 473,308 |
|
|
| 5.58 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Customer relationships |
| $ | 539,850 |
|
| $ | 137,515 |
|
| $ | 402,335 |
|
|
| 7.40 |
| ||||||||||||||||
Channel relationships |
|
| 16,240 |
|
|
| 3,168 |
|
|
| 13,072 |
|
|
| 8.06 |
| ||||||||||||||||
Software costs |
|
| 196,890 |
|
|
| 132,322 |
|
|
| 64,568 |
|
|
| 0.99 |
| ||||||||||||||||
Non-compete agreements |
|
| 4,580 |
|
|
| 4,030 |
|
|
| 550 |
|
|
| 0.54 |
| ||||||||||||||||
Trade name |
|
| 20,050 |
|
|
| — |
|
|
| 20,050 |
|
|
| — |
| ||||||||||||||||
Balance as of December 31, 2022 |
| $ | 777,610 |
|
| $ | 277,035 |
|
| $ | 500,575 |
|
|
| 5.71 |
|
Customer relationships |
| $ | 539,850,000 |
|
| $ | 83,014,231 |
|
| $ | 456,835,769 |
|
|
| 8.40 |
|
Channel relationships |
|
| 12,550,000 |
|
|
| 1,146,935 |
|
|
| 11,403,065 |
|
|
| 8.65 |
|
Software costs |
|
| 163,957,560 |
|
|
| 83,162,612 |
|
|
| 80,794,948 |
|
|
| 1.48 |
|
Non-compete agreements |
|
| 4,580,000 |
|
|
| 4,059,880 |
|
|
| 520,120 |
|
|
| 0.88 |
|
Trade name |
|
| 28,140,000 |
|
|
| — |
|
|
| 28,140,000 |
|
|
| — |
|
Balance as of December 31, 2021 |
| $ | 749,077,560 |
|
| $ | 171,383,658 |
|
| $ | 577,693,902 |
|
|
| 6.79 |
|
The Company’s amortization expense for intangible assets was $28.1$25.4 millionand $17.5$28.1 million for the three months ended March 31, 2023 and 2022, and 2021, respectively.
15
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
The estimated amortization expense for the next five years and thereafter in the aggregate is as follows:
($ in thousands) |
| Estimated Future |
| |
Year Ending December 31, |
| Amortization Expense |
| |
2023 |
| $ | 71,714 |
|
2024 |
|
| 82,931 |
|
2025 |
|
| 65,752 |
|
2026 |
|
| 56,047 |
|
2027 |
|
| 55,941 |
|
Thereafter |
|
| 120,623 |
|
Year Ending December 31, |
| Estimated Future Amortization Expense |
| |
2022 |
| $ | 73,678,172 |
|
2023 |
|
| 83,652,958 |
|
2024 |
|
| 69,630,251 |
|
2025 |
|
| 55,580,308 |
|
2026 |
|
| 55,665,944 |
|
Thereafter |
|
| 190,277,660 |
|
8. Goodwill
9. Goodwill
The following table presents changes to goodwill by business segment for the three months ended March 31, 2022.2023.
|
| Total |
| |
Balance at December 31, 2021 |
| $ | 824,081,632 |
|
Acquisitions |
|
| 0 |
|
Dispositions |
| 0 |
| |
Impairment Loss |
| 0 |
| |
Measurement period adjustment |
|
| 12,809 |
|
Balance at March 31, 2022 |
| $ | 824,094,441 |
|
|
|
|
|
|
($ in thousands) |
| Consumer Payments |
|
| Business Payments |
|
| Total |
| |||
Balance at December 31, 2022 |
| $ | 609,139 |
|
| $ | 218,674 |
|
| $ | 827,813 |
|
Dispositions |
|
| (35,270 | ) |
|
| — |
|
|
| (35,270 | ) |
Balance at March 31, 2023 |
| $ | 573,869 |
|
| $ | 218,674 |
|
| $ | 792,543 |
|
|
|
|
|
|
|
|
|
|
|
TheDuring the three months ended March 31, 2023, the Company has only 1 operating segment and, based onrecognized a reduction in goodwill of $35.3 million related to the criteria outlined in ASC 350,disposition of BCS.
Intangibles – Goodwill and Other (“ASC 350”), only 1 reporting unit that needs to be tested for goodwill impairment. Accordingly, goodwill was reviewed for impairment at the consolidated entity level. The Company concluded that goodwill was 0tnot impaired for either the Consumer Payments or Business Payments segment as of March 31, 2022.2023. As of March 31, 20222023 and December 31, 2021,2022, there were 0no accumulated impairment losses on the Company’s goodwill.
10. Borrowings
Successor Credit Agreement
The Company entered into a Revolving Credit and Term Loan Agreement (asgoodwill for either the “Successor Credit Agreement”) on July 11, 2019, with Truist Bank (formerly SunTrust Bank) and the other lenders party thereto, which provided a revolving credit facility (the “Revolving Credit Facility”), a term loan A (the “Term Loan”), and a delayed draw term loan at a variable interest rate (the “Delayed Draw Term Loan”). The Successor Credit Agreement provided for an aggregate revolving commitment of $20.0 million at a variable interest rate.
On February 10, 2020, as part of the financing for the acquisition of Ventanex, the Company entered into an agreement with Truist Bank and other members of its existing bank group to amend and upsize the Successor Credit Agreement from $230.0million to $346.0million. The Successor Credit Agreement is collateralized by substantially all of the Company’s assets, and includes restrictive qualitative and quantitative covenants, as defined in the Successor Credit Agreement.Consumer Payments or Business Payments segment.
11On January 20, 2021, the Company used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the outstanding Term Loans under the Successor Credit Agreement. The Company also terminated in full all outstanding Delayed Draw Term Loan commitments under such credit facilities.
16
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 $125.0$125.0 million senior secured revolving credit facility through Truist Bank.Bank (the “Amended Credit Agreement”). The Amended Credit Agreement replacesreplaced the Company’s Successor Credit Agreement,prior senior secured credit facility, which included an undrawn $30.0$30.0 million Revolving Credit Facility.revolving credit facility.
On December 29, 2021, the Company increased its existing senior secured credit facilitiesfacility by $60.0$60.0 million to provide for a $185.0$185.0 million revolving credit facility in favor of Hawk Parent pursuant to an amendment to the Amended Credit Agreement. The revolving credit facility is guaranteed by Repay Holdings Corporation and certain of its subsidiaries.
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 $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 Company had $0 drawn against the revolving credit facility. The Company paid $0.1 million and $0.2 million in fees related to unused commitments for the three months ended March 31, 2023 and 2022, respectively. The Company’s interest expense on the revolving credit facility totaled $0.2 million and $0.1 million for three months ended March 31, 2023 and 2022, respectively. The Company was in compliance with its restrictive covenants under the Amended Credit Agreement at March 31, 2022.
As of March 31, 2022, the Companyhad $20.0 million drawn against the revolving credit facility at a variable interest rate of 2.25% plus 1-month LIBOR due 2026. The Company paid $0.2 million and $0.1 million in fees related to unused commitments for the three months ended March 31, 2022 and 2021, respectively. The Company’s interest expense on the revolving credit facility totaled $0.1 million and $0 for the three months ended March 31, 2022 and 2021, respectively.2023.
Convertible Senior Debt
On January 19, 2021, the Company issued $440.0$440.0 million in aggregate principal amount of 0.00%0.00% Convertible Senior Notes due 2026 in a private placement. The conversion rate of any 2026 Notes was 29.7619 shares of Class A common stock per $1,000 principal amount of 2026 Notes (equivalent to an initial conversion price of approximately $33.60$33.60 per share of Class A common stock). Upon conversion of the 2026 Notes, the Company may choose to pay or deliver cash, shares of the Company’s Class A common stock, or a combination of cash and shares of the Company’s Class A common stock. The 2026 Notes will mature on February 1, 2026, unless earlier converted, repurchased or redeemed. Subject to Nasdaq requirements, the Company controls the conversion rights prior to November 3, 2025, unless a fundamental change or an event of default occurs.
During the three months ended March 31, 2022,2023, the conversion contingencies of the 2026 Notes were not met, and the conversion terms of the 2026 Notes were not significantly changed. The shares issuable upon conversion of the 2026 Notes were excluded from the computation of the diluted loss per share, since their inclusion would have been anti-dilutive.
The following table summarizedsummarizes the total borrowings under the Amended Credit Agreement and 2026 Notes:
($ in thousands) |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Non-current indebtedness: |
|
|
|
|
|
| ||
Revolving Credit Facility (1) |
| $ | — |
|
| $ | 20,000 |
|
Convertible Senior Debt |
|
| 440,000 |
|
|
| 440,000 |
|
Total borrowings |
|
| 440,000 |
|
|
| 460,000 |
|
Less: Long-term loan debt issuance cost (2) |
|
| 7,969 |
|
|
| 8,681 |
|
Total non-current borrowings |
| $ | 432,031 |
|
| $ | 451,319 |
|
|
|
|
|
|
|
|
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Non-current indebtedness: |
|
|
|
|
|
|
|
|
Revolving Credit Facility (1) |
| $ | 20,000,000 |
|
| $ | 20,000,000 |
|
Convertible Senior Debt |
|
| 440,000,000 |
|
|
| 440,000,000 |
|
Total borrowings under credit facility and convertible senior debt |
|
| 460,000,000 |
|
|
| 460,000,000 |
|
Less: Long-term loan debt issuance cost (2) |
|
| 10,812,735 |
|
|
| 11,515,304 |
|
Total non-current borrowings |
| $ | 449,187,265 |
|
| $ | 448,484,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1712
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 |
|
| 440,000 |
|
2027 |
|
| — |
|
| $ | 440,000 |
| |
|
|
|
|
2022 |
| $ | — |
|
2023 |
|
| — |
|
2024 |
|
| — |
|
2025 |
|
| — |
|
2026 |
|
| 460,000,000 |
|
|
| $ | 460,000,000 |
|
11. Derivative Instruments
The Company does not hold or use derivative instruments for trading purposes.
Derivative Instruments Designated as Hedges
Interest rate fluctuations expose the Company’s variable-rate term loan to changes in interest expense and cash flows. As part of its risk management strategy, the Company may use interest rate derivatives, such as interest rate swaps, to manage its exposure to interest rate movements.
In October 2019, the Company entered into a $140.0 million notional, five-year interest rate swap agreement, with Regions Bank, to hedge changes in cash flows attributable to interest rate risk on $140.0 million of its variable-rate term loan. This agreement involves the receipt of variable-rate amounts in exchange for fixed interest rate payments over the life of the agreement without an exchange of the underlying notional amount. This interest rate swap was designated for accounting purposes as a cash flow hedge. As such, changes in the interest rate swap’s fair value are deferred in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets and are subsequently reclassified into interest expense in each period that a hedged interest payment is made on the Company’s variable-rate term loan.
On February 21, 2020, the Company entered into a swap transaction with Regions Bank. On a quarterly basis, commencing on March 31, 2020 up to and including the termination date of February 10, 2025, the Company made fixed payments on a beginning notional amount of $30.0 million, then a revised notional amount of $65.0 million beginning on September 30, 2020. On a quarterly basis, commencing on February 21, 2020 up to and including the termination date of February 10, 2025, the counterparty made floating rate payments based on the 3-month LIBOR on the beginning notional amount of $30.0 million, then a revised notional amount of $65.0 million beginning on September 30, 2020.
Both interest rate swaps were settled in January 2021, with a realized loss of $6.4 million, net of taxes of $1.7 million reclassified from Accumulated other comprehensive loss into Other loss in the Consolidated Statements of Operations for the year ended December 31, 2021.
12.10. Commitments and Contingencies
Legal Matters
The Company is a party to various claims and lawsuits incidental to its business. In the Company’s opinion, the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, are not expected to have a material adverse effect on its financial position, liquidity, results of operations or cash flows.
Leases
The Company has commitments under operating leases for real estate leased from third parties under non-cancelable operating leases. The Company’s leases typically have lease terms between three years and ten years, with the longest lease term having an expiration date in 2029. 2029. Most of these leases include one or more renewal options for six years or less, and certain leases also include lessee termination options.options. At lease commencement, the Company assesses whether it is reasonably certain to exercise a renewal option, or reasonably certain not to exercise a termination option, by considering various economic factors. Options that are reasonably certain of being exercised are factored into the
18
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
determination of the lease term, and related payments are included in the calculation of the right-of-use (“ROU”) asset and lease liability.
The components of lease cost are presented in the following table:
|
| Three Months Ended March 31, |
| |||||
($ in thousands) |
| 2023 |
|
| 2022 |
| ||
Components of total lease costs: |
|
|
|
|
|
| ||
Operating lease cost |
| $ | 659 |
|
| $ | 690 |
|
Short-term lease cost |
|
| 5 |
|
|
| 12 |
|
Variable lease cost |
|
| — |
|
|
| — |
|
Total lease cost |
| $ | 664 |
|
| $ | 702 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Components of total lease costs: |
|
|
|
|
|
|
|
|
Operating lease cost |
| $ | 689,806 |
|
| $ | 540,639 |
|
Short-term lease cost |
|
| 12,007 |
|
|
| 12,450 |
|
Variable lease cost |
|
| — |
|
|
| — |
|
Total lease cost |
| $ | 701,813 |
|
| $ | 553,089 |
|
Amounts reported in the Condensed Consolidated Balance Sheets were as follows:
($ in thousands) |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Operating leases: |
|
|
|
|
|
| ||
ROU assets |
| $ | 9,302 |
|
| $ | 9,847 |
|
Lease liability, current |
|
| 2,264 |
|
|
| 2,263 |
|
Lease liability, long-term |
|
| 7,737 |
|
|
| 8,295 |
|
Total lease liabilities |
| $ | 10,001 |
|
| $ | 10,558 |
|
|
|
|
|
|
| |||
Weighted-average remaining lease term (in years) |
|
| 3.7 |
|
| 4.7 |
| |
Weighted-average discount rate (annualized) |
|
| 4.5 | % |
|
| 4.5 | % |
13
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Operating leases: |
|
|
|
|
|
|
|
|
ROU assets |
| $ | 11,473,076 |
|
| $ | 10,499,751 |
|
Lease liability, current |
|
| 2,225,407 |
|
|
| 1,990,416 |
|
Lease liability, long-term |
|
| 9,886,289 |
|
|
| 9,090,867 |
|
Total lease liabilities |
| $ | 12,111,696 |
|
| $ | 11,081,283 |
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (in years) |
|
| 4.5 |
|
| 5.2 |
| |
Weighted-average discount rate (annualized) |
|
| 2.1 | % |
|
| 4.3 | % |
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 |
| $ | 675 |
|
| $ | 645 |
|
ROU assets obtained in exchange for lease liabilities: |
|
|
|
|
|
| ||
Operating leases |
|
| — |
|
|
| 1,532 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 644,726 |
|
| $ | 459,698 |
|
ROU assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
Operating leases |
|
| 1,531,689 |
|
|
| — |
|
The following table presents a maturity analysis of the Company’s operating leases liabilities as of March 31, 2022:2023:
($ in thousands) |
|
|
| |
2023 |
| $ | 2,011 |
|
2024 |
|
| 2,499 |
|
2025 |
|
| 2,328 |
|
2026 |
|
| 2,232 |
|
2027 |
|
| 1,410 |
|
Thereafter |
|
| 561 |
|
Total undiscounted lease payments |
|
| 11,041 |
|
Less: Imputed interest |
|
| 1,040 |
|
Total lease liabilities |
| $ | 10,001 |
|
2022 |
| $ | 2,004,007 |
|
2023 |
|
| 2,714,419 |
|
2024 |
|
| 2,536,885 |
|
2025 |
|
| 2,370,722 |
|
2026 |
|
| 2,083,022 |
|
Thereafter |
|
| 1,805,172 |
|
Total undiscounted lease payments |
|
| 13,514,227 |
|
Less: Imputed interest |
|
| 1,402,531 |
|
Total lease liabilities |
| $ | 12,111,696 |
|
19
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
13.11. Related Party Transactions
Related party payables consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Ventanex accrued earnout liability |
| $ | 12,746,840 |
|
| $ | 12,746,840 |
|
CPS accrued earnout liability |
|
| 650,000 |
|
|
| 600,000 |
|
Kontrol accrued earnout liability |
|
| 250,000 |
|
|
| 850,000 |
|
Payix accrued earnout liability |
|
| 500,000 |
|
|
| 2,850,000 |
|
Other payables to related parties |
|
| 177,337 |
|
|
| 347,285 |
|
|
| $ | 14,324,177 |
|
| $ | 17,394,125 |
|
($ in thousands) |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
CPS accrued earnout liability |
| $ | — |
|
| $ | 1,000 |
|
Other payables to related parties |
|
| 435 |
|
|
| — |
|
| $ | 435 |
|
| $ | 1,000 |
|
The Company incurred transaction costs on behalf of related parties of $3.2 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively. These costs consist of retention bonuses and other compensation to employees, associated with the costs resulting from the integration of new businesses.
The Company held receivables from related parties of $0.3$0.3 million as of both March 31, 20222023 and December 31, 2021.2022. These amounts were due from employees, related to tax withholding on vesting of equity compensation. See Note 14.12. Share based compensationBased Compensation for more detail on these restricted share awards. Further, the Company owed employees $0.0 million for amounts paid on behalf of the Company as of both March 31, 2023 and December 31, 2022.
The Company owed $14.3 million$0 and $17.4$1.0 million to related parties, in the form of contingent consideration payable to the sellers of Ventanex, CPS, BillingTree, Kontrol and Payix, who were employees of REPAY,Repay, as of March 31, 20222023 and December 31, 2021,2022, respectively. Further,In March 2023, the Company owed employees $0.0 million for amounts paid on behalfthe CPS earnout payment of the Company as of both March 31, 2022 and December 31, 2021.$1.0 million.
14.12. Share Based Compensation
Omnibus Incentive Plan
At the 2019 Annual Shareholders Meeting of Thunder Bridge, the shareholders considered and approved the 2019 Omnibus Incentive Plan (the “Incentive Plan”) which resulted in the reservation of 7,326,728 shares of Class A common stock for issuance thereunder. The Incentive Plan initially became effective immediately upon the closing of the Business Combination. In June 2022, the Incentive Plan was amended and restated to reserve a total of 13,826,728 shares of Class A common stock for issuance thereunder.
Under this plan, the Company currently has threefour types of share-based compensation awards outstanding: performance stock units (“PSUs”), restricted stock awards (“RSAs”) and, restricted stock units (“RSUs”) and performance-based stock options (“PSOs”).
14
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Share-Based Awards
The following table summarizedsummarizes share-based compensation expense and the related income tax benefit recognized for the Company’s share-based compensation awards:awards. Share-based compensation expenses are recorded within Selling, general and administrative in the Company’s Condensed Consolidated Statement of Operations.
|
| Three Months Ended March 31, |
| |||||
($ in millions) |
| 2022 |
|
| 2021 |
| ||
Share-based compensation expense |
| $ | 3.1 |
|
| $ | 5.2 |
|
Income tax benefit |
|
| 1.2 |
|
|
| 1.6 |
|
20
| Three Months Ended March 31, |
| ||||||
($ in millions) |
| 2023 |
|
| 2022 |
| ||
Share-based compensation expense |
| $ | 4.1 |
|
| $ | 3.1 |
|
Income tax (expense) benefit |
|
| 1.1 |
|
|
| 1.2 |
|
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Activities for RSAs for the three months ended March 31, 20222023 are as follows:
|
| Class A Common Stock |
|
| Weighted Average Grant Date Fair Value |
| ||||||||||
Unvested at December 31, 2021 |
|
| 1,971,245 |
|
| $ | 17.80 |
| ||||||||
| Class A Common Stock |
|
| Weighted Average Grant Date Fair Value |
| |||||||||||
Unvested at December 31, 2022 |
|
| 2,111,635 |
|
| $ | 16.23 |
| ||||||||
Granted |
|
| 916,137 |
|
|
| 16.51 |
|
|
| 2,519,355 |
|
|
| 6.16 |
|
Forfeited (1)(2) |
|
| 129,927 |
|
|
| 18.13 |
|
|
| 179,419 |
|
|
| 17.53 |
|
Vested |
|
| 314,490 |
|
|
| 16.71 |
|
|
| 381,116 |
|
|
| 17.26 |
|
Unvested at March 31, 2022 |
|
| 2,442,965 |
|
| $ | 17.44 |
| ||||||||
Unvested at March 31, 2023 |
|
| 4,070,455 |
|
| $ | 9.84 |
| ||||||||
|
|
|
|
|
|
Activities for RSUs for the three months ended March 31, 20222023 are as follows:
|
| Class A Common Stock |
|
| Weighted Average Grant Date Fair Value |
| ||||||||||
Unvested at December 31, 2021 |
|
| 46,026 |
|
| $ | 22.16 |
| ||||||||
|
| Class A Common Stock |
|
| Weighted Average Grant Date Fair Value |
| ||||||||||
Unvested at December 31, 2022 |
|
| 108,909 |
|
| $ | 13.22 |
| ||||||||
Granted |
|
| 9,304 |
|
|
| 18.27 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Vested |
|
| — |
|
|
| — |
|
|
| 9,304 |
|
|
| 18.27 |
|
Unvested at March 31, 2022 |
|
| 55,330 |
|
| $ | 21.51 |
| ||||||||
Unvested at March 31, 2023 |
|
| 99,605 |
|
| $ | 12.75 |
|
Activities for PSUs for the three months ended March 31, 20222023 are as follows:
|
| Class A Common Stock (3) |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested at December 31, 2022 |
|
| 634,023 |
|
| $ | 19.19 |
|
Granted |
|
| 1,102,497 |
|
|
| 8.87 |
|
Forfeited |
|
| — |
|
|
| — |
|
Vested |
|
| — |
|
|
| — |
|
Unvested at March 31, 2023 |
|
| 1,736,520 |
|
| $ | 12.64 |
|
|
| Class A Common Stock |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested at December 31, 2021 |
|
| 498,363 |
|
| $ | 20.16 |
|
Granted (3) |
|
| 389,032 |
|
|
| 16.73 |
|
Forfeited |
|
| — |
|
|
| — |
|
Vested |
|
| — |
|
|
| — |
|
Unvested at March 31, 2022 |
|
| 887,395 |
|
| $ | 18.66 |
|
|
|
|
|
|
|
Unrecognized compensation expense related to unvested PSUs, RSAs and RSUs was $38.1$41.1 million at March 31, 2022,2023, which is expected to be recognized as expense over the weighted-average period of 2.282.9 years.
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 |
|
| 1,148,822 |
|
|
| 6.13 |
|
|
|
|
|
|
| ||
Forfeited |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Outstanding at March 31, 2023 |
|
| 1,148,822 |
|
| $ | 6.13 |
|
|
| 7.0 |
|
| $ | 505,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Options vested and exercisable at March 31, 2023 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
The Company recognized compensation expense for PSOs of $0.1 million during the three months ended March 31, 2023. Unrecognized compensation expense related to unvested PSUs, RSAs and RSUsoutstanding PSOs was $34.8$2.9 million at March 31, 2021,2023, which is expected to be recognized as expense over the weighted-average period of 2.643.0 years.
15.The weighted average grant date fair value of PSOs granted during the three months ended March 31, 2023 was $2.61. Fair value was estimated on the date of grant using Monte Carlo simulation with the following weighted average assumptions:
Three Months Ended March 31, 2023 | ||||
Risk-free interest rate | 3.42 | % | ||
Expected volatility | 52.82 | % | ||
Dividend yield | 0 | % | ||
Expected term (in years) | 4.5 |
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 0% since the Company pays no dividends. Expected term was based on the simplified method outlined in Staff Accounting Bulletin No. 14, Share-Based Payment due to the fact that Company does not have sufficient historical data upon which to estimate an expected term. Given that the Company’s Class A common stock has been publicly traded for less than seven years, the Company believes that the simplified method is an applicable methodology to estimate the expected term of the options as of the grant date.
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.
21
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
The Company’s effective tax rate was 23.0%(18%) for the three months ended March 31, 2022.2023. The Company recorded an income tax expense of $3.8$4.4 million for the three months ended March 31, 2022.2023. The effective tax rate for the three months ended March 31, 20222023 includes a stock-based compensation adjustments excessnet tax shortfall of $2.1 million related to restricted stock awards vesting, which is required to be recorded discretely in the interim period in which it occurs. In addition, the effective tax rate includes a net tax impact of $5.8 million related to the disposition of BCS, which is required to be recorded discretely in the interim period in which it occurs due to it being a significant, infrequently occurring item
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 21% primarily due to the tax structure of the Company, the relative weighting of the noncontrolling interest, and lower income from operations over the current relevant period, as well as the aforementioned items required to be reported discretely in the interim period. The Company’s effective tax rate was 24.8%,23.0% for the three months ended March 31, 2021.2022. The Company recorded an income tax benefitexpense of $5.9$3.8 million for the three months ended March 31, 2021.2022. The effective tax rate is dependent on many factors, including the estimated amount of income subject to income tax. As such, the effective tax rate can vary from period to period.
The Company recognized adjustments of ($4.4) million for the three months ended March 31, 2023, of deferred tax assets related to the income tax expense derived from the net operating income generated over the same period. The Company recognized ($3.8)3.8) million for the three months ended March 31, 2022, of deferred tax assets related to the income tax expense derived from the net operating income generated over the same period. The Company recognized $5.9 million for the three months ended March 31, 2021, of deferred tax assets related to the income tax benefit derived from the net operating loss over the same period. The Company did
0t recognize any changes to the valuation allowance as of March 31, 2022, and the facts and circumstances remain unchanged.
Deferred tax assets, net of $141.4$132.0 million as of March 31, 2022,2023, relates primarily to the basis difference in the Company’s investment in Hawk Parent. The basis difference arose primarily as a result of the subsequent purchase of Post-Merger Repay Units by the Company pursuant to the Unit Purchase Agreements entered into in 2020 with CC Payment Holdings, LLC, an entity controlled by Corsair, and the subsequent exchanges of Post-Merger Repay Units for shares of the Company’s Class A common stock in accordance with the Exchange Agreement. In addition, as a result of the merger with BillingTree on June 15, 2021, an estimated opening deferred tax liability net of $31.4$36.1 million, as adjusted, was recorded. The merger was recognized as a Qualified Stock Purchase within the meaning of Internal Revenue Code (the “Code”) Section 338(d)(3). As such, no step up in the tax asset basis was permitted creating an estimated net deferred tax liability related to the tax asset basis difference in the investment in Hawk Parent on the opening balance sheet date.
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, 2022,2023, 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 100%100% valuation allowance was recognized.
NaNNo uncertain tax positions existed as of March 31, 2022.2023.
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 100%100% of the amount of any tax benefits realized, or in some cases are deemed to realize, as a result of (i) increases in its share of the tax basis in the net assets of Hawk Parent resulting from any redemptions or exchanges of Post-Merger Repay Units and from its acquisition of the equity of the selling Hawk Parent members, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”). The TRA Payments are not conditioned upon any continued ownership interest in Hawk Parent or the Company. The rights of each party under the TRA other than the Company are assignable. The timing and amount of
22
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
aggregate payments due under the TRA may vary based on a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors.
As of March 31, 2022,2023, the Company had a liability of $221.2$183.7 million related to its projected obligations under the TRA, which is captioned as tax receivable agreement liability in the Company’s Unaudited Condensed Consolidated
17
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Balance Sheet. The decreaseincrease of $24.6$4.6 million in the TRA liability for the three months ended March 31, 2022,2023, was primarily a result of the change in the Early Termination Rate.
14. Segments
16.For performance assessment and resource allocation purposes, the Company’s chief operating decision maker (“CODM”) reviews discrete financial results of two operating segments as of December 31, 2022: (1) Consumer Payments and (2) Business Payments. These operating segments represent reportable segments based on ASC 280, Segment Reporting. Prior year amounts have been reclassified to conform to the current presentation.
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 88% of the Company’s total revenue after any intersegment eliminations for the three months ended March 31, 2023.
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 12% of the Company’s total revenue after any intersegment eliminations for the three months ended March 31, 2023.
The following table presents revenue and gross profit for each reportable segment.
|
| 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 (1) |
|
| (4,078 | ) |
|
| (2,409 | ) |
Total revenue |
| $ | 74,537 |
|
| $ | 67,564 |
|
Gross profit (2) |
|
|
|
|
|
| ||
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 other operating expenses (3) |
| $ | 74,536 |
|
| $ | 57,907 |
|
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 |
|
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.
2319
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, 20212022.
Overview
We are a leading payments technology company. 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 $6.4$6.6 billion of total card payment volume for the three months ended March 31, 2022,2023, and our card payment volume growth over the same period in 20212022 was approximately 39%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 ultimate impacts ofstrategic 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 COVID-19 pandemiccurrent economic environment in the U.S. and related economicglobally – characterized by heightened inflation (including changes in wages), rising interest rates, supply chain issues, slower growth and recent banking system volatility. Such macroeconomic conditions on our results remain uncertain. The scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemicmay continue to evolve and in ways that are difficult to fully anticipate. Atanticipate 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, we cannot reasonably estimate the full impact of the pandemic on the Company, given the uncertainty over the duration and severity of the economic crisis. In addition,time. Finally, the impact of COVID-19all of these
20
various events on our results in the first quarterthree months of 20222023 may not be necessarily indicative of itstheir impact on our results for the remainder of 2022.2023.
Business Combination
The Company was formed upon closing of the merger (the “Business Combination”) of Hawk Parent Holdings LLC (together with Repay Holdings, LLC and its other subsidiaries, “Hawk Parent”) with a subsidiary of Thunder Bridge, Acquisition, Ltd, (“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:
• the dollar amount volume and the number of transactions that are processed by the clients that we currently serve; • our ability to attract new clients and onboard them as active processing clients; • our ability to (i) successfully integrate recent acquisitions and (ii) complete future acquisitions; • our ability to offer new and competitive payment technology solutions to our clients; and • general economic conditions and consumer finance trends.
|
|
|
|
|
|
|
|
|
|
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, 20222023 and 2021,2022, 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 Successor Credit Agreement, which was entered into in connection with the Business Combination and amended in February 2020, and the Amended Credit Agreement, which replaced the Successor Credit Agreement in February 2021.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) |
| 2022 |
|
| 2021 |
| ||||||||||
|
| Three Months ended March 31, |
| |||||||||||||
(in $ thousands, except per share data) |
| 2023 |
|
| 2022 |
| ||||||||||
Revenue |
| $ | 67,564 |
|
| $ | 47,520 |
|
| $ | 74,537 |
|
| $ | 67,564 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Costs of services (exclusive of depreciation and amortization shown separately below) |
| $ | 16,565 |
|
| $ | 12,475 |
|
|
| 17,965 |
|
|
| 16,565 |
|
Selling, general and administrative |
|
| 32,218 |
|
|
| 23,393 |
|
|
| 38,518 |
|
|
| 32,218 |
|
Depreciation and amortization |
|
| 28,589 |
|
|
| 17,793 |
|
|
| 26,140 |
|
|
| 28,589 |
|
Change in fair value of contingent consideration |
|
| (2,900 | ) |
|
| 2,649 |
|
|
| — |
|
|
| (2,900 | ) |
Loss on business disposition |
|
| 9,878 |
|
|
| — |
| ||||||||
Total operating expenses |
| $ | 74,472 |
|
| $ | 56,310 |
|
|
| 92,501 |
|
|
| 74,472 |
|
Loss from operations |
| $ | (6,908 | ) |
| $ | (8,790 | ) |
|
| (17,964 | ) |
|
| (6,908 | ) |
Other income (expense) |
|
|
|
|
|
| ||||||||||
Interest expense |
|
| (989 | ) |
|
| (1,183 | ) |
|
| (1,160 | ) |
|
| (988 | ) |
Loss on extinguishment of debt |
|
| — |
|
|
| (5,941 | ) | ||||||||
Change in fair value of tax receivable liability |
|
| 24,619 |
|
|
| 1,043 |
|
|
| (4,538 | ) |
|
| 24,619 |
|
Other income |
|
| 6 |
|
|
| 28 |
|
|
| 87 |
|
|
| 6 |
|
Other loss |
|
| — |
|
|
| (9,080 | ) | ||||||||
Total other income (expense) |
|
| 23,636 |
|
|
| (15,133 | ) |
|
| (5,611 | ) |
|
| 23,637 |
|
Income (loss) before income tax (expense) benefit |
|
| 16,728 |
|
|
| (23,923 | ) | ||||||||
Income tax (expense) benefit |
|
| (3,843 | ) |
|
| 5,942 |
| ||||||||
Income (loss) before income tax expense |
|
| (23,575 | ) |
|
| 16,729 |
| ||||||||
Income tax expense |
|
| (4,357 | ) |
|
| (3,843 | ) | ||||||||
Net income (loss) |
| $ | 12,885 |
|
| $ | (17,981 | ) |
| $ | (27,932 | ) |
| $ | 12,886 |
|
Net loss attributable to non-controlling interest |
|
| (767 | ) |
|
| (2,187 | ) |
|
| (1,540 | ) |
|
| (767 | ) |
Net income (loss) attributable to the Company |
| $ | 13,652 |
|
| $ | (15,794 | ) |
| $ | (26,392 | ) |
| $ | 13,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Weighted-average shares of Class A common stock outstanding - basic |
|
| 88,607,655 |
|
|
| 76,602,759 |
|
|
| 88,615,760 |
|
|
| 88,607,655 |
|
Weighted-average shares of Class A common stock outstanding - diluted |
|
| 113,015,159 |
|
|
| 76,602,759 |
|
|
| 88,615,760 |
|
|
| 113,015,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Income (loss) per Class A share - basic |
| $ | 0.15 |
|
| $ | (0.21 | ) |
| $ | (0.30 | ) |
| $ | 0.15 |
|
Income (loss) per Class A share - diluted |
| $ | 0.12 |
|
| $ | (0.21 | ) |
| $ | (0.30 | ) |
| $ | 0.12 |
|
Three Months Ended March 31, 20222023 Compared to Three Months Ended March 31, 20212022
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, and $47.5 million for the three months ended March 31, 2021, an increase of $20.1$7.0 million or 42.2%10.3%. This increase was the result of newly signed clients and the growth of our existing clients, as well as the acquisitions of BillingTree, Kontrol, and Payix.clients. For the three months ended March 31, 2022, incremental revenues of approximately $17.2$0.9 million are attributable to BillingTree, Kontrol and Payix.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, and $12.5 million for the three months ended March 31, 2021, an increase of $4.1$1.4 million or 32.8%8.5%. This increase was the result of newly signed clients and the acquisitionsgrowth of BillingTree, Kontrol, and Payix.our existing clients. For the three months ended March 31, 2022, incremental costs of services of approximately $3.0less than $0.1 million are attributable to BillingTree, Kontrol and Payix.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 $23.4stock 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, 2021, an increase of $8.8 million or 37.7%, primarily due to a $6.2 million increase in compensation expenses with general business growth2023 and a $1.6 million increase in expenses relating to software and technological services.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $28.6 million for the three months ended March 31, 2022, and $17.8a 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, 2021, an increase of $10.8 million or 60.7%, primarily due to a $9.4 million increase in depreciation2023 and amortization of fixed assets and intangibles from the acquisitions of BillingTree, Kontrol and Payix.
Change in the Fair Value of Contingent Consideration
Change in the fair value of contingent consideration was $2.9 million for the three months ended March 31, 2022, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of CPS, Kontrol and Payix.
Interest Expense
Interest expense was $1.0 million for the three months ended March 31, 2022, and $1.2 million for the three months ended March 31, 2021, a decreasean increase of $0.2 million or 16.4%17.4%. This decreaseincrease was due to a lower averagehigher interest rate on the outstanding principal balance under our Amended Credit Agreement.
Loss on Extinguishment of Debt
We incurred a loss of $5.9 million on extinguishment of debt for the three months ended March 31, 2021, due to the termination in full of all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement.
Change in Fair Value of Tax Receivable Liability
We incurred a gain,loss, related to accretion expense and fair value adjustment of the tax receivable liability of $24.6$4.5 million for the three months ended March 31, 20222023, compared to a $1.0$24.6 million net gain for the three months ended March 31, 2021, an increase2022, a decrease of $23.6$29.2 million. This increasedecrease 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.
Other Loss
We incurred a loss of $9.1 million on the settlement of interest rate swaps for the three months ended March 31, 2021.
Income Tax (Expense) BenefitExpense
The income tax expense was $3.8$4.4 million for the three months ended March 31, 2022, reflecting the expected income tax expense on the income generated over the same period.2023. This was a result of the operating incomeloss incurred by the Company, primarily driven by the change in fair value of the tax receivable liability, and contingent consideration, offset by stock-based compensation deductions and the amortization of assets acquired in the Business Combination and prior acquisitions.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 benefitexpense was $5.9$3.8 million for the three months ended March 31, 2021,2022, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent.
23
Segments (Unaudited)
We provided our services through two reportable segments: (1) Consumer Payments and (2) Business Payments. During the three months ended March 31, 2023, we reclassified the distribution of the legacy Ventanex businesses between the segments. Certain prior year amounts have been reclassified to conform to the current year presentation.
The following table presents our segment revenue and selected performance measures.
|
| Three Months Ended March 31, |
| |||||
($ 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 extinguishment of debt, loss on termination of interest rate hedge,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, employee recruiting costs, other taxes, 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 extinguishment of debt, loss on termination of interest rate hedge,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, employee recruiting costs, 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, 20222023 and 20212022 (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, 20222023 and 2021.2022.
25
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
For the three months ended March 31, 20222023 and 20212022
(Unaudited)
|
|
|
|
|
| |||||||||||
| Three Months ended March 31, |
|
| Three Months ended March 31, |
|
| ||||||||||
(in $ thousands) | 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| ||||
Revenue | $ | 67,564 |
|
| $ | 47,520 |
|
| $ | 74,537 |
|
| $ | 67,564 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Costs of services (exclusive of depreciation and amortization shown separately below) | $ | 16,565 |
|
| $ | 12,475 |
|
| $ | 17,965 |
|
| $ | 16,565 |
|
|
Selling, general and administrative |
| 32,218 |
|
|
| 23,393 |
|
|
| 38,518 |
|
|
| 32,218 |
|
|
Depreciation and amortization |
| 28,589 |
|
|
| 17,793 |
|
|
| 26,140 |
|
|
| 28,589 |
|
|
Change in fair value of contingent consideration |
| (2,900 | ) |
|
| 2,649 |
|
|
| — |
|
|
| (2,900 | ) |
|
Loss on business disposition |
| 9,878 |
|
|
| — |
|
| ||||||||
Total operating expenses | $ | 74,472 |
|
| $ | 56,310 |
|
| $ | 92,501 |
|
| $ | 74,472 |
|
|
Loss from operations | $ | (6,908 | ) |
| $ | (8,790 | ) |
| $ | (17,964 | ) |
| $ | (6,908 | ) |
|
Other income (expense) |
|
|
|
|
|
| ||||||||||
Interest expense |
| (989 | ) |
|
| (1,183 | ) |
|
| (1,160 | ) |
|
| (988 | ) |
|
Loss on extinguishment of debt |
| — |
|
|
| (5,941 | ) |
| ||||||||
Change in fair value of tax receivable liability |
| 24,619 |
|
|
| 1,043 |
|
|
| (4,538 | ) |
|
| 24,619 |
|
|
Other income |
| 6 |
|
|
| 28 |
|
|
| 87 |
|
|
| 6 |
|
|
Other loss |
| — |
|
|
| (9,080 | ) |
| ||||||||
Total other income (expense) |
| 23,636 |
|
|
| (15,133 | ) |
|
| (5,611 | ) |
|
| 23,637 |
|
|
Income (loss) before income tax (expense) benefit |
| 16,728 |
|
|
| (23,923 | ) |
| ||||||||
Income tax (expense) benefit |
| (3,843 | ) |
|
| 5,942 |
|
| ||||||||
Income (loss) before income tax expense |
| (23,575 | ) |
|
| 16,729 |
|
| ||||||||
Income tax expense |
| (4,357 | ) |
|
| (3,843 | ) |
| ||||||||
Net income (loss) | $ | 12,885 |
|
| $ | (17,981 | ) |
| $ | (27,932 | ) |
| $ | 12,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest expense |
| 989 |
|
|
| 1,183 |
|
|
| 1,160 |
|
|
| 988 |
|
|
Depreciation and amortization (a) |
| 28,589 |
|
|
| 17,793 |
|
|
| 26,140 |
|
|
| 28,589 |
|
|
Income tax expense (benefit) |
| 3,843 |
|
|
| (5,942 | ) |
|
| 4,357 |
|
|
| 3,843 |
|
|
EBITDA | $ | 46,306 |
|
| $ | (4,947 | ) |
| $ | 3,725 |
|
| $ | 46,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Loss on extinguishment of debt (b) |
| — |
|
|
| 5,941 |
|
| ||||||||
Loss on termination of interest rate hedge (c) |
| — |
|
|
| 9,080 |
|
| ||||||||
Non-cash change in fair value of contingent consideration (d) |
| (2,900 | ) |
|
| 2,649 |
|
| ||||||||
Non-cash change in fair value of assets and liabilities (e) |
| (24,619 | ) |
|
| (1,043 | ) |
| ||||||||
Share-based compensation expense (f) |
| 3,357 |
|
|
| 5,151 |
|
| ||||||||
Transaction expenses (g) |
| 4,930 |
|
|
| 2,340 |
|
| ||||||||
Employee recruiting costs (h) |
| 200 |
|
|
| 136 |
|
| ||||||||
Other taxes (i) |
| 149 |
|
|
| 139 |
|
| ||||||||
Restructuring and other strategic initiative costs (j) |
| 1,246 |
|
|
| 628 |
|
| ||||||||
Other non-recurring charges (k) |
| 658 |
|
|
| 386 |
|
| ||||||||
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 | $ | 29,327 |
|
| $ | 20,460 |
|
| $ | 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
(Unaudited)
| Three Months ended March 31, |
|
| |||||
(in $ thousands) | 2022 |
|
| 2021 |
|
| ||
Revenue | $ | 67,564 |
|
| $ | 47,520 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Costs of services (exclusive of depreciation and amortization shown separately below) | $ | 16,565 |
|
| $ | 12,475 |
|
|
Selling, general and administrative |
| 32,218 |
|
|
| 23,393 |
|
|
Depreciation and amortization |
| 28,589 |
|
|
| 17,793 |
|
|
Change in fair value of contingent consideration |
| (2,900 | ) |
|
| 2,649 |
|
|
Total operating expenses |
| 74,472 |
|
| $ | 56,310 |
|
|
Loss from operations | $ | (6,908 | ) |
| $ | (8,790 | ) |
|
Interest expense |
| (989 | ) |
|
| (1,183 | ) |
|
Loss on extinguishment of debt |
| — |
|
|
| (5,941 | ) |
|
Change in fair value of tax receivable liability |
| 24,619 |
|
|
| 1,043 |
|
|
Other income |
| 6 |
|
|
| 28 |
|
|
Other loss |
| — |
|
|
| (9,080 | ) |
|
Total other income (expense) |
| 23,636 |
|
|
| (15,133 | ) |
|
Income (loss) before income tax (expense) benefit |
| 16,728 |
|
|
| (23,923 | ) |
|
Income tax (expense) benefit |
| (3,843 | ) |
|
| 5,942 |
|
|
Net income (loss) | $ | 12,885 |
|
| $ | (17,981 | ) |
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
Amortization of Acquisition-Related Intangibles(l) |
| 23,136 |
|
|
| 16,039 |
|
|
Loss on extinguishment of debt (b) |
| — |
|
|
| 5,941 |
|
|
Loss on termination of interest rate hedge (c) |
| — |
|
|
| 9,080 |
|
|
Non-cash change in fair value of contingent consideration (d) |
| (2,900 | ) |
|
| 2,649 |
|
|
Non-cash change in fair value of assets and liabilities (e) |
| (24,619 | ) |
|
| (1,043 | ) |
|
Share-based compensation expense (f) |
| 3,357 |
|
|
| 5,151 |
|
|
Transaction expenses (g) |
| 4,930 |
|
|
| 2,340 |
|
|
Employee recruiting costs (h) |
| 200 |
|
|
| 136 |
|
|
Restructuring and other strategic initiative costs (j) |
| 1,246 |
|
|
| 628 |
|
|
Other non-recurring charges (k) |
| 658 |
|
|
| 386 |
|
|
Non-cash interest expense (m) |
| 703 |
|
|
| 536 |
|
|
Pro forma taxes at effective rate (n) |
| (1,194 | ) |
|
| (8,722 | ) |
|
Adjusted Net Income | $ | 18,402 |
|
| $ | 15,140 |
|
|
|
|
|
|
|
|
|
|
|
Shares of Class A common stock outstanding (on an as-converted basis) (o) |
| 96,534,231 |
|
|
| 84,578,585 |
|
|
Adjusted Net income per share | $ | 0.19 |
|
| $ | 0.18 |
|
|
|
| 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 |
|
(j) Represents amortization of non-cash deferred debt issuance costs. (k) Represents pro forma income tax adjustment effect associated with items adjusted above. (l) Represents the weighted average number of shares of Class A common stock outstanding (on an as-converted basis assuming conversion of outstanding Post-Merger Repay Units) for the three months ended March 31, 2023 and 2022. These numbers do not include any shares issuable upon conversion of our 2026 Notes. See the reconciliation of basic weighted average shares outstanding to the non-GAAP Class A common stock outstanding on an as-converted basis for each respective period below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months ended March 31, |
| |||||
(in $ thousands) |
| 2022 |
|
| 2021 |
| ||
Acquisition-related intangibles |
| $ | 23,136 |
|
| $ | 16,039 |
|
Software |
|
| 4,946 |
|
|
| 1,465 |
|
Amortization |
| $ | 28,082 |
|
| $ | 17,504 |
|
Depreciation |
|
| 507 |
|
|
| 289 |
|
Total Depreciation and amortization1 |
| $ | 28,589 |
|
| $ | 17,793 |
|
|
|
|
|
|
|
|
|
|
| Three Months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Weighted average shares of Class A common stock outstanding - basic |
|
| 88,607,655 |
|
|
| 76,602,759 |
|
Add: Non-controlling interests Weighted average Post-Merger Repay Units exchangeable for Class A common stock |
|
| 7,926,576 |
|
|
| 7,975,826 |
|
Shares of Class A common stock outstanding (on an as-converted basis) |
|
| 96,534,231 |
|
|
| 84,578,585 |
|
Adjusted EBITDA for the three months ended March 31, 2023 and 2022 and 2021 was $29.3$31.2 million and $20.5$29.3 million, respectively, representing a 43.3%6.3% year-over-year increase. Adjusted Net Income for the three months ended March 31, 2023 and 2022 and 2021 was $18.4$19.2 million and $15.1$18.6 million, respectively, representing a 21.6%3.5% year-over-year increase. Our net income (loss) attributable to the Company for the three months ended March 31, 2023 and 2022 and 2021 was $13.7($26.4) million and ($15.8)$13.7 million, respectively, representing a 186.4%293.3% year-over-year increase.decrease.
TheseThe increases in Adjusted EBITDA and Adjusted Net Income andfor 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, 2022 are2023 was primarily due to the organic growthdisposition of our business, along with contributions from acquisitions.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, 2022,2023, we had $65.3$91.7 million of cash and cash equivalents and available borrowing capacity of $165.0$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 $15.5$27.1 million atas of March 31, 2022.2023. 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.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, 2021.2022.
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, |
|
|
| Three Months ended March 31, |
|
| ||||||||||
(in $ thousands) |
| 2022 |
|
| 2021 |
|
|
| 2023 |
|
| 2022 |
|
| ||||
Net cash provided by operating activities |
| $ | 13,754 |
|
| $ | 4,769 |
|
|
| $ | 20,831 |
|
| $ | 13,754 |
|
|
Net cash used in investing activities |
|
| (7,566 | ) |
|
| (5,206 | ) |
| |||||||||
Net cash (used in) provided by financing activities |
|
| (1,698 | ) |
|
| 304,379 |
|
| |||||||||
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 $13.8$20.8 million and $4.8$13.8 million for the three months ended March 31, 2023 and 2022, and 2021, 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 and $5.2for 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, 2022 and 2021, respectively,2023, due to the capitalizationrepayment of software development activities.the outstanding revolving credit facility balance and the CPS earnout payment.
Cash Flow from Financing Activities
Net cash used in financing activities was $1.7 million for the three months ended March 31, 2022, due to the shares repurchased under Equitythe Incentive Plan.
Net cash provided by financing activities was $304.4 million for the three months ended March 31, 2021, due to proceeds from the issuance of new shares in the January 2021 equity offering and the 2026 Notes, offset by repayment of the outstanding revolver balance related to the Successor Credit Agreement and repayments of the term loan principal balance under the Successor Credit Agreement.Indebtedness
Indebtedness
Successor Credit Agreement
In connection with the Business Combination, on July 11, 2019, TB Acquisition Merger Sub LLC, Hawk Parent and certain subsidiaries of Hawk Parent, as guarantors, entered into a Revolving Credit and Term Loan Agreement (as amended, the “Successor Credit Agreement”) with certain financial institutions, as lenders, and Truist Bank (formerly SunTrust Bank), as the administrative agent.
On February 10, 2020, we announced the acquisition of Ventanex. The closing of the acquisition was financed partially from new borrowings under our existing credit facility. As part of the financing for the transaction, we entered into an agreement with Truist Bank and other members of its existing bank group to amend and upsize the Successor Credit Agreement.
On January 20, 2021, we used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the outstanding term loans under the Successor Credit Agreement. We also terminated in full all outstanding delayed draw term loan commitments under such credit facilities.
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 Successor Credit Agreement,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, 2022,2023, the Amended Credit Agreement provides for a revolving credit facility of $185.0 million. As of March 31, 2022,2023, we had $20.0$0 million drawn against the revolving credit facility at a variable interest rate of 2.25% plus 1-month LIBOR due 2026.facility. We paid $0.2$0.1 million and $0.1$0.2 million in fees related to unused commitments for the three months ended March 31, 20222023 and 2021, respectively.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, 2022,2023, we had convertible senior debt outstanding of $431.5$432.0 million, net of deferred issuance costs, under the 2026 Notes, and revolving credit facility debt outstanding of $17.7 million, net of deferred issuance costs, under the Amended Credit Agreement.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 Tax Receivable Agreement (the “TRA”)TRA with holders of limited liability company interests of Hawk Parent (the “Post-MergerPost-Merger Repay Units”).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, 2022.2023. 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, 2021,2022, for a complete discussion of critical accounting policies.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 LIBOR.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 $431.5$433.1 million, net of deferred issuance costs, and revolving credit facility borrowings of $17.7 million, net of deferred issuance costs, outstanding under the respective debt agreements. As of December 31, 2021, we had convertible senior debt of $429.3 million, net of deferred issuance costs, and revolving credit facility borrowings of $19.2$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 LIBORSOFR 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 respective agreements governing the Amended Credit Agreement.
In October 2019, we entered into a $140.0 million notional interest rate swap agreement, and in February 2020, we entered into a $30.0 million notional interest rate swap agreement, then a revised notional amount of $65.0 million beginning on September 30, 2020. These interest rate swaps effectively converted $205.0 million of the outstanding term loan into to fixed rate payments for 57 months and 60 months, respectively. A 1.0% increase or decrease in the interest rate applicable to borrowings under the Successor Credit Agreement during the year ended December 31, 2020 would have increased or decreased cash interest expense on our indebtedness by approximately $1.0 million per annum and $1.0 million per annum, respectively. Both interest rate swaps were settled in January 2021.
We may incur additional borrowings from time to time for general corporate purposes, including working capital and capital expenditures.
In July 2017, the U.K. Financial Conduct Authority announced its intention to phase out LIBOR rates by the end of 2021. The deadline has been mostly extended and most U.S. dollar-denominated LIBOR maturity tenors will continue to be published until June 30, 2023. It is not possible to predict the effect of any changes in the methods by which the LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Such developments may cause LIBOR to perform differently than in the past, including sudden or prolonged increases or decreases in LIBOR, or cease to exist, resulting in the application of a successor base rate under the Amended Credit Agreement, which in turn could have unpredictable effects on our interest payment obligations under the Amended Credit Agreement.
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, 2022,2023, 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, 20222023 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. LEGALLEGAL 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.
ITEMITEM 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, 2021.2022, 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
In connection with the vesting of restricted stock awards, shares of Class A common stock are delivered to the Company by employees to satisfy tax withholding obligations. 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, 2022:2023:
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Number of Shares Purchased (1) |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May yet be Purchased Under the Plans or Programs |
| ||||
January 1-31, 2022 |
|
| 3,625 |
|
| $ | 18.15 |
|
|
| - |
|
| $ | - |
|
February 1-28, 2022 |
|
| 36,372 |
|
|
| 17.51 |
|
|
| - |
|
|
| - |
|
March 1-31, 2022 |
|
| 73,268 |
|
|
| 13.61 |
|
|
| - |
|
|
| - |
|
Total |
|
| 113,265 |
|
| $ | 15.01 |
|
|
| - |
|
| $ | - |
|
|
|
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
None.
34
ITEM 6. EXHIBITS
The exhibits listed in the following exhibit index are furnished as part of this report.
EXHIBIT INDEX
Exhibit | ||
| Exhibit Description | |
|
| |
3.1 | ||
| ||
| ||
| ||
| ||
| ||
10.1 | ||
| ||
10.3 | ||
10.4 | ||
10.5* | ||
| ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
| The following financial statements from the Company’s Form 10‑Q for the quarter ended March 31, | |
| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
*Filed herewith.
SIGNATURES35
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, | By: | /s/ John Morris |
John Morris | ||
Chief Executive Officer | ||
Date: May 10, | By: | /s/ Timothy J. Murphy |
Timothy J. Murphy | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
36
39