Repay Holdings Corporation: Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
Repay is a payments technology company providing integrated electronic payment processing solutions to industry-specific markets. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. The filing was signed on May 10, 2022.
Management identified approximately $6.4 billion of card payment volume in the quarter, representing approximately 39% year-over-year growth. Revenue growth included organic expansion, newly signed clients, and contributions from the BillingTree, Kontrol, and Payix acquisitions.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $67.6 million | $47.5 million | Up 42.2% |
| Loss from operations | $(6.9) million | $(8.8) million | Improved by $1.9 million |
| Net income (loss) | $12.9 million | $(18.0) million | Improved by $30.9 million |
| Net income (loss) attributable to Repay | $13.7 million | $(15.8) million | Improved by $29.4 million |
| Basic earnings (loss) per share | $0.15 | $(0.21) | Improved |
| Diluted earnings (loss) per share | $0.12 | $(0.21) | Improved |
| Adjusted EBITDA | $29.3 million | $20.5 million | Up 43.3% |
| Adjusted net income | $18.4 million | $15.1 million | Up 21.6% |
| Net cash provided by operating activities | $13.8 million | $4.8 million | Up $9.0 million |
GAAP operating margin was approximately negative 10.2%, compared with negative 18.5% in the prior-year quarter. GAAP net margin was approximately 19.1%, although it benefited substantially from a $24.6 million non-cash gain related to the fair value of the tax receivable agreement liability. Adjusted EBITDA margin was approximately 43.4%, compared with 43.1% in Q1 2021.
Revenue from direct relationships was $63.6 million and revenue from indirect relationships was $3.9 million. Chargebacks remained below 1% of card payment volume.
Cash Flow, Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $65.3 million at March 31, 2022, compared with $50.0 million at December 31, 2021. Restricted cash was $15.5 million.
- Operating activities generated $13.8 million of cash. Investing activities used $7.6 million, principally for software development and property and equipment. Financing activities used $1.7 million, primarily for shares withheld to satisfy employee tax obligations.
- Management reported $165.0 million of available borrowing capacity under the $185.0 million revolving credit facility, with $20.0 million drawn at March 31, 2022.
- Total borrowings under the revolving facility and convertible senior notes had a principal amount of $460.0 million and a carrying value of $449.2 million after debt issuance costs.
- The company had $440.0 million of 0.00% convertible senior notes due February 2026 and $20.0 million drawn on the revolving facility. The revolving facility bears variable interest and had a reported rate of 2.71% at March 31, 2022.
- The company stated that it was in compliance with applicable debt covenants and expected to remain in compliance prospectively.
- The tax receivable agreement liability was $221.2 million, down from $245.8 million at December 31, 2021, primarily because of a change in the discount rate used in valuation.
- Total assets were $1.668 billion and total equity was $927.3 million at March 31, 2022. Goodwill was $824.1 million, and net intangible assets were $556.6 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased $20.1 million, including approximately $17.2 million of incremental revenue from BillingTree, Kontrol, and Payix.
- Costs of services increased 32.8% to $16.6 million, with approximately $3.0 million attributable to the acquired businesses.
- Selling, general and administrative expense increased 37.7% to $32.2 million, primarily due to higher compensation and software and technology costs.
- Depreciation and amortization increased 60.7% to $28.6 million, primarily from acquisition-related intangible assets.
- The company recorded a $2.9 million favorable change in the fair value of contingent consideration, compared with a $2.6 million expense in Q1 2021.
- The prior-year period included a $5.9 million loss on extinguishment of debt and a $9.1 million loss related to settled interest rate swaps; neither item recurred in Q1 2022.
- The tax receivable agreement fair value gain increased to $24.6 million from $1.0 million, materially increasing reported GAAP income.
- Acquisition-related transaction expenses were $2.8 million in Q1 2022, compared with $1.6 million in Q1 2021. Adjusted EBITDA included $4.9 million of transaction expenses and other specified adjustments.
Guidance, Outlook, Commentary and Risks
The filing does not provide specific quantitative revenue, EBITDA, earnings, or volume guidance. Management expects operating cash flow, existing cash, and available revolver capacity to fund operations, planned capital expenditures, and debt service for at least the next twelve months.
Management’s strategy remains focused on expanding in targeted vertical markets, increasing electronic payment adoption, attracting and onboarding clients, developing payment technology, and integrating recent acquisitions. The company expects seasonal fluctuations, with first-quarter payment volumes typically benefiting from tax refunds and increased repayment activity.
- COVID-19 effects and related economic conditions remain uncertain and may affect consumer spending, consumer lending, receivables management, and payment volumes.
- Key risks include failure to integrate acquisitions or realize expected benefits, competitive and technological changes, regulatory developments, data security incidents, dependence on payment ecosystem relationships, and the ability to retain and hire personnel.
- The company is exposed to variable interest rates, including LIBOR-related transition risk. Higher rates could increase borrowing costs.
- The tax receivable agreement may require substantial future payments, which could exceed realized tax benefits and may be difficult to finance.
- Legal proceedings are described as ordinary-course matters and are not expected to have a material adverse effect. The filing reports no material changes to previously disclosed risk factors.
- The company corrected an immaterial prior-period presentation error involving comprehensive income; net income and total equity for Q1 2021 were not affected.
Important Facts for Investors to Verify
- Assess the sustainability of reported GAAP profitability given the $24.6 million non-cash tax receivable agreement fair value gain.
- Reconcile Adjusted EBITDA and adjusted net income to GAAP results, including acquisition costs, stock compensation, contingent consideration, and other adjustments.
- Verify organic growth and the contribution, integration progress, and retention of BillingTree, Kontrol, and Payix revenue and earnings.
- Monitor leverage, the February 2026 maturity of $440.0 million of convertible notes, variable-rate revolver exposure, and covenant compliance.
- Evaluate the magnitude, timing, and funding requirements of the $221.2 million tax receivable agreement liability.
- Consider the substantial goodwill and intangible asset balances and the risk of future impairment or continuing amortization expense.
- Review future card payment volume, chargeback rates, client concentration, seasonal effects, and the effect of economic conditions on targeted vertical markets.