Repay (RPAY) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and related notes, highlighting a net loss in Q1 2023 despite revenue growth Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2023, including balance sheets, statements of operations, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets | Metric | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Total Assets | 1,581,438 | 1,626,800 | | Total Liabilities | 678,283 | 698,507 | | Total Equity | 903,155 | 928,293 | | Cash and cash equivalents | 91,739 | 64,895 | | Goodwill | 792,543 | 827,813 | Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2023 ($ in thousands) | Three Months Ended March 31, 2022 ($ in thousands) | Change (YoY) | | :----------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :----------- | | Revenue | 74,537 | 67,564 | +10.3% | | Loss from operations | (17,964) | (6,908) | -160.0% | | Net income (loss) | (27,932) | 12,886 | -316.8% | | Diluted EPS | (0.30) | 0.12 | -350.0% | | Loss on business disposition | 9,878 | — | N/A | | Change in fair value of tax receivable liability | (4,538) | 24,619 | -118.4% | Condensed Consolidated Statements of Changes in Equity | Metric | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :----------------------------------- | :------------------------------ | :------------------------------- | | Total Equity | 903,155 | 928,293 | | Net loss attributable to the Company | (26,392) | 13,653 (Q1 2022) | | Stock-based compensation | 4,053 | 3,094 (Q1 2022) | Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2023 ($ in thousands) | Three Months Ended March 31, 2022 ($ in thousands) | | :----------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Net cash provided by operating activities | 20,831 | 13,754 | | Net cash provided by (used in) investing activities | 26,694 | (7,566) | | Net cash used in financing activities | (22,259) | (1,698) | | Increase in cash, cash equivalents and restricted cash | 25,266 | 4,490 | - Net cash provided by investing activities significantly increased in Q1 2023 due to $40,423 thousand in proceeds from the sale of a business[15] - Net cash used in financing activities increased in Q1 2023, primarily due to $20,000 thousand in long-term debt payments and $1,000 thousand for contingent consideration liability[15] Note 1. Organizational Structure and Corporate Information - Repay Holdings Corporation was incorporated on July 11, 2019, following a business combination[17] - On February 15, 2023, the Company sold Blue Cow Software, LLC (BCS) for $41.9 million in cash proceeds, recognizing a $9.9 million loss[19] Note 2. Basis of Presentation and Summary of Significant Accounting Policies - Interim financial statements are unaudited and prepared in accordance with GAAP and SEC Regulation S-X[21] - Effective December 31, 2022, segment reporting was revised to two reportable segments: Consumer Payments and Business Payments[26] - Recently adopted accounting pronouncements (ASU 2020-04, ASU 2021-01, ASU 2022-06, and ASU 2021-08) did not materially impact the financial statements[28][30] Note 3. Revenue Revenue by Relationship Type | Revenue Type | Three Months Ended March 31, 2023 ($ in thousands) | Three Months Ended March 31, 2022 ($ in thousands) | | :----------------- | :------------------------------------------------- | :------------------------------------------------- | | Direct relationships | 70,829 | 63,638 | | Indirect relationships | 3,708 | 3,926 | | Total Revenue | 74,537 | 67,564 | Revenue by Segment | Segment | Three Months Ended March 31, 2023 ($ in thousands) | Three Months Ended March 31, 2022 ($ in thousands) | | :---------------- | :------------------------------------------------- | :------------------------------------------------- | | Consumer Payments | 69,940 | 61,081 | | Business Payments | 8,675 | 8,892 | | Intersegment Eliminations | (4,078) | (2,409) | Note 4. Earnings Per Share - Basic and diluted net loss per common share were both $0.30 for Q1 2023, as potential common stock equivalents were anti-dilutive[35][36] Earnings Per Share Metrics | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) attributable to the Company ($ in thousands) | (26,392) | 13,653 | | Weighted average shares of Class A common stock outstanding - basic | 88,615,760 | 88,607,655 | | Weighted average shares of Class A common stock outstanding - diluted | 88,615,760 | 113,015,159 | - 28,011,911 common stock equivalent shares were excluded from diluted loss per share computation for Q1 2023 due to their anti-dilutive effect[37] Note 5. Business Combinations and Dispositions - The Company sold Blue Cow Software, LLC (BCS) on February 15, 2023, for $41.9 million in cash, recognizing a $9.9 million loss on the sale[38] - The BCS disposition resulted in a $35.3 million reduction in goodwill within the Consumer Payments segment[39] BCS Financial Contribution and Transaction Expenses | Metric | Three Months Ended March 31, 2023 ($ in millions) | Three Months Ended March 31, 2022 ($ in millions) | | :------------------- | :------------------------------------------------ | :------------------------------------------------ | | BCS Revenue Contribution | 1.2 | 2.0 | | Transaction Expenses | 3.4 | 2.8 | Note 6. Fair Value Fair Value of Assets and Liabilities | Item | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :---------------------- | :------------------------------ | :------------------------------- | | Total assets (fair value) | 2,500 | 2,500 | | Total liabilities (fair value) | 514,444 | 524,407 | | Contingent consideration | — | 1,000 | | Tax receivable agreement | 183,696 | 179,127 | - The Tax Receivable Agreement (TRA) liability increased by $4.5 million in Q1 2023, primarily due to a decrease in the discount rate from 6.48% to 6.31%[52][54] - Contingent consideration balance decreased to zero as of March 31, 2023, following $1,000 thousand in payments during the period[47] Note 7. Intangible Assets Intangible Assets Carrying Value and Amortization | Metric | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :---------------------- | :------------------------------ | :------------------------------- | | Net Carrying Value | 473,308 | 500,575 | | Amortization Expense (Q1) | 25,400 | 28,100 | Estimated Future Amortization Expense | Year Ending December 31, | Estimated Future Amortization Expense ($ in thousands) | | :----------------------- | :----------------------------------------------------- | | 2023 | 71,714 | | 2024 | 82,931 | | 2025 | 65,752 | | 2026 | 56,047 | | 2027 | 55,941 | | Thereafter | 120,623 | | Total | 11,041 | Note 8. Goodwill Goodwill by Segment | Segment | December 31, 2022 ($ in thousands) | Dispositions ($ in thousands) | March 31, 2023 ($ in thousands) | | :---------------- | :--------------------------------- | :---------------------------- | :------------------------------ | | Consumer Payments | 609,139 | (35,270) | 573,869 | | Business Payments | 218,674 | — | 218,674 | | Total | 827,813 | (35,270) | 792,543 | - The Company recognized a $35.3 million reduction in goodwill related to the BCS disposition in the Consumer Payments segment[58] - Goodwill was not impaired for either the Consumer Payments or Business Payments segment as of March 31, 2023[59] Note 9. Borrowings - The Amended Credit Agreement's revolving credit facility increased to $185.0 million on December 29, 2021, with the interest rate benchmark changing from LIBOR to SOFR on February 9, 2023[61][62] - On February 28, 2023, the Company repaid $20.0 million of the revolving credit facility, resulting in $185.0 million of undrawn capacity[62] Debt Balances | Debt Type | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :---------------------- | :------------------------------ | :------------------------------- | | Revolving Credit Facility | — | 20,000 | | Convertible Senior Debt | 440,000 | 440,000 | | Total non-current borrowings | 432,031 | 451,319 | - The $440.0 million 0.00% Convertible Senior Notes due 2026 will mature on February 1, 2026[64][66] Note 10. Commitments and Contingencies - The Company does not expect any currently pending legal matters to materially affect its financial position, liquidity, results of operations, or cash flows[67] Lease Metrics | Lease Metric | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Operating lease ROU assets | 9,302 | 9,847 | | Total lease liabilities | 10,001 | 10,558 | | Weighted-average remaining lease term (years) | 3.7 | 4.7 | Total Undiscounted Lease Payments | Year | Total Undiscounted Lease Payments ($ in thousands) | | :--- | :------------------------------------------------- | | 2023 | 2,011 | | 2024 | 2,499 | | 2025 | 2,328 | | 2026 | 2,232 | | 2027 | 1,410 | | Thereafter | 561 | | Total | 11,041 | Note 11. Related Party Transactions Related Party Payables | Related Party Payable | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :-------------------- | :------------------------------ | :------------------------------- | | CPS accrued earnout liability | — | 1,000 | | Other payables | 435 | — | - The Company paid a $1.0 million CPS earnout payment in March 2023[72] Note 12. Share Based Compensation - The 2019 Omnibus Incentive Plan was amended in June 2022 to reserve a total of 13,826,728 shares of Class A common stock for issuance[73] Share-Based Compensation Expense | Metric | Three Months Ended March 31, 2023 ($ in millions) | Three Months Ended March 31, 2022 ($ in millions) | | :-------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Share-based compensation expense | 4.1 | 3.1 | - Unrecognized compensation expense for unvested PSUs, RSAs, and RSUs totaled $41.1 million at March 31, 2023, expected to be recognized over 2.9 years[76] - Unrecognized compensation expense for outstanding PSOs was $2.9 million at March 31, 2023, expected over 3.0 years[77] Note 13. Taxation Effective Tax Rate and Income Tax Expense | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Effective Tax Rate | (18%) | 23.0% | | Income Tax Expense ($ in millions) | 4.4 | 3.8 | - The Q1 2023 effective tax rate includes a $2.1 million net tax shortfall from restricted stock awards vesting and a $5.8 million net tax impact from the BCS disposition[80] - The Tax Receivable Agreement (TRA) liability was $183.7 million as of March 31, 2023, increasing by $4.6 million in Q1 2023 due to changes in the Early Termination Rate[89][90] Note 14. Segments - The Company reports two reportable segments: Consumer Payments and Business Payments[91] Segment Revenue and Gross Profit | Segment | Revenue Q1 2023 ($ in thousands) | Revenue Q1 2022 ($ in thousands) | Gross Profit Q1 2023 ($ in thousands) | Gross Profit Q1 2022 ($ in thousands) | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------------ | :------------------------------------ | | Consumer Payments | 69,940 | 61,081 | 54,625 | 47,491 | | Business Payments | 8,675 | 8,892 | 6,025 | 5,917 | | Total Gross Profit | 56,572 | 50,999 | N/A | N/A | - Consumer Payments segment represented approximately 88% of total revenue in Q1 2023, with Business Payments representing approximately 12%[92][93] Note 15. Subsequent events - Management evaluated subsequent events and identified no items requiring adjustment or disclosure in the financial statements[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Q1 2023 financial performance, highlighting revenue growth, a net loss due to disposition and fair value adjustments, and an increase in Adjusted EBITDA Overview - Repay provides integrated payment processing solutions to industry-oriented vertical markets, leveraging its proprietary technology platform[101] - The Company processed approximately $6.6 billion in total card payment volume for Q1 2023, representing approximately 3% year-over-year growth[102] - Financial results are reported across two segments: Consumer Payments and Business Payments[103] Key Factors Affecting Our Business - Key factors include transaction volume, client acquisition, successful integration of acquisitions, new payment technology solutions, and general economic conditions[114] Key Components of Our Revenues and Expenses - Revenue is primarily derived from volume-based payment processing fees ('discount fees') and fixed per transaction fees[109] - Costs of services include commissions to software integration partners and third-party processing costs[110] - Selling, general and administrative expenses encompass salaries, share-based compensation, professional fees, and other operating costs[110] - Interest expense relates to indebtedness under the Amended Credit Agreement, and changes in fair value of tax receivable liability are recognized as other expense[112][113] Results of Operations (Unaudited) Consolidated Results of Operations | Metric | Three Months Ended March 31, 2023 ($ in millions) | Three Months Ended March 31, 2022 ($ in millions) | Change (YoY) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :----------- | | Revenue | 74.5 | 67.6 | +10.3% | | Costs of Services | 18.0 | 16.6 | +8.5% | | Selling, General and Administrative | 38.5 | 32.2 | +19.6% | | Depreciation and Amortization | 26.1 | 28.6 | -8.6% | | Interest Expense | 1.2 | 1.0 | +17.4% | | Change in Fair Value of Tax Receivable Liability | (4.5) | 24.6 | -118.4% | | Net income (loss) | (27.9) | 12.9 | -316.8% | - The increase in Selling, General and Administrative expenses was primarily due to a $2.8 million increase in equity compensation expense[118] - The significant decrease in the change in fair value of tax receivable liability was due to lower fair value adjustments, primarily from changes to the discount rate[121] Segments (Unaudited) Segment Revenue and Gross Profit | Segment | Revenue Q1 2023 ($ in thousands) | Revenue Q1 2022 ($ in thousands) | Gross Profit Q1 2023 ($ in thousands) | Gross Profit Q1 2022 ($ in thousands) | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------------ | :------------------------------------ | | Consumer Payments | 69,940 | 61,081 | 54,625 | 47,491 | | Business Payments | 8,675 | 8,892 | 6,025 | 5,917 | | Total Gross Profit | 56,572 | 50,999 | N/A | N/A | - Consumer Payments revenue increased by 14.5% year-over-year due to newly signed and existing clients[127] - Business Payments revenue decreased by 2.4% year-over-year, primarily due to declines in media payments business and a large client reducing volumes after being acquired[129] Non-GAAP Financial Measures Adjusted EBITDA and Adjusted Net Income | Metric | Three Months Ended March 31, 2023 ($ in millions) | Three Months Ended March 31, 2022 ($ in millions) | Change (YoY) | | :-------------------------- | :------------------------------------------------ | :------------------------------------------------ | :----------- | | Adjusted EBITDA | 31.2 | 29.3 | +6.3% | | Adjusted Net Income | 19.2 | 18.6 | +3.5% | | Net income (loss) attributable to the Company | (26.4) | 13.7 | -293.3% | - Increases in Adjusted EBITDA and Adjusted Net Income were primarily due to organic business growth, partially offset by the disposition of BCS[146] - The decrease in GAAP net income (loss) attributable to the Company was primarily due to the BCS disposition and a loss in fair value adjustment of the tax receivable liability[147] Seasonality - The Company experiences seasonal fluctuations, with volumes and revenues typically increasing in the first quarter due to consumer tax refunds and repayment activity[148] Liquidity and Capital Resources - As of March 31, 2023, the Company had $91.7 million in cash and cash equivalents and $185.0 million in available borrowing capacity under the Amended Credit Agreement[149] - The Company expects its cash flow from operations, current cash, and available borrowing capacity to be sufficient to fund operations and debt obligations for the next five years[149] - A share repurchase program, approved on May 16, 2022, allows for repurchases of up to $50 million of Class A common stock[151] Cash Flows Cash Flow Activities | Cash Flow Activity | Three Months Ended March 31, 2023 ($ in thousands) | Three Months Ended March 31, 2022 ($ in thousands) | | :-------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Net cash provided by operating activities | 20,831 | 13,754 | | Net cash provided by (used in) investing activities | 26,694 | (7,566) | | Net cash used in financing activities | (22,259) | (1,698) | - Net cash provided by investing activities significantly increased in Q1 2023 due to cash received from the disposition of BCS[154] - Net cash used in financing activities increased in Q1 2023 due to the repayment of the outstanding revolving credit facility balance and the CPS earnout payment[156] Indebtedness - The Amended Credit Agreement provides for a $185.0 million revolving credit facility, with $0 drawn as of March 31, 2023, following a $20.0 million repayment[159][160] - The Company has $432.0 million in convertible senior debt outstanding (net of deferred issuance costs) under the 0.00% Convertible Senior Notes due 2026[162] - The Tax Receivable Agreement (TRA) liability represents 100% of estimated future tax benefits, with substantial payment obligations expected to be funded by cash tax savings[163][164] Critical Accounting Policies and Recently Issued Accounting Pronouncements - There have been no significant changes to critical accounting policies and estimates for the three months ended March 31, 2023[165] - Information on recent accounting pronouncements is provided in Note 2 to the Condensed Consolidated Financial Statements[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, including inflation, interest rate fluctuations on variable-rate debt, and foreign currency exchange rates Effects of Inflation - The effects of inflation on the Company's results of operations and financial condition have not been significant to date, but future impacts cannot be assured[167] Interest Rate Risk - The Company is exposed to market risk from changes in interest rates on its floating-rate debt, such as the Amended Credit Agreement, which bears interest at variable rates (e.g., SOFR)[168] - Increases in interest rates may reduce net income by increasing the cost of debt[168] - As of March 31, 2023, the Company had $432.0 million in convertible senior debt outstanding, net of deferred issuance costs[168] Foreign Currency Exchange Rate Risk - Invoices for services are denominated in U.S. dollars and Canadian dollars, and the Company does not expect significant effects from foreign currency transaction risk[170] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2023, with no material changes in internal control over financial reporting Controls and Procedures (General) - The Company maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information required under the Securities Exchange Act of 1934[171] Evaluation of Disclosure Controls and Procedures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023[172] Changes in Internal Control over Financial Reporting - There were no material changes in the Company's internal control over financial reporting during the quarter ended March 31, 2023[173] PART II – OTHER INFORMATION This section covers other information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The Company is involved in various legal actions incidental to its business, with no anticipated material adverse effect on its financial position or operations - The Company is a party to various claims and lawsuits arising from normal business activities[175] - No currently pending legal proceeding is expected to have a material adverse effect on the Company's financial position, liquidity, results of operations, or cash flows[175] Item 1A. Risk Factors This section updates risk factors, emphasizing the potential material adverse impact of developments affecting financial institutions on the company's business and liquidity - No material changes to risk factors disclosed in the 2022 Annual Report on Form 10-K, except for new disclosure regarding financial institutions[176] - Actual or perceived adverse developments affecting financial institutions could have a material and adverse impact on the Company's business, financial condition, or results of operations[177] - The Company relies on financial institutions for depository accounts and as sponsor banks for electronic payment transactions, with potential issues affecting liquidity, processing ability, or client relationships[177][179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes the Company's Class A common stock purchases during Q1 2023, including shares withheld for tax obligations and the ongoing $50 million share repurchase program Class A Common Stock Purchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Share Repurchase Program | | :------------------ | :------------------------------- | :--------------------------- | :---------------------------------------------------------------- | | 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 | - The total shares purchased include 147,727 shares withheld to satisfy employees' tax withholding obligations related to restricted stock awards[181] - The Company's board of directors approved a $50 million Share Repurchase Program on May 16, 2022, with no expiration date[181] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[182] Item 4. Mine Safety Disclosures The Company reported no mine safety disclosures - No mine safety disclosures were reported[183] Item 5. Other Information The Company reported no other information requiring disclosure - No other information was reported[184] Item 6. Exhibits This section provides an index of exhibits filed as part of the Form 10-Q, including corporate governance documents, employment agreements, certifications, and financial statements - Exhibits include corporate documents such as the Certificate of Corporate Domestication, Certificate of Incorporation, and Amended and Restated Bylaws[188] - Employment agreements and various share-based award agreements are listed[188] - Certifications of the Principal Executive Officer and Principal Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) are included[188] - The financial statements are provided in Inline XBRL format[188] SIGNATURES This section contains the official signatures for the report Signatures The report is duly signed on May 10, 2023, by the Chief Executive Officer and Chief Financial Officer of Repay Holdings Corporation - The report was signed by John Morris, Chief Executive Officer, and Timothy J. Murphy, Chief Financial Officer[192] - The signing date for the report was May 10, 2023[192]