Repay Holdings Corporation — Q3 2023 Form 10-Q Summary
Business context and reporting period
Repay provides integrated electronic payment processing solutions through two reportable segments: Consumer Payments and Business Payments. The filing covers the quarter and nine months ended September 30, 2023, compared with the corresponding 2022 periods. Consumer Payments represented approximately 87% of consolidated revenue and Business Payments approximately 13%.
The Company processed approximately $6.4 billion of card payment volume in the quarter and $19.2 billion in the nine months. Quarterly volume decreased approximately 0.2% year over year, while nine-month volume increased approximately 1.2%.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $74.3 million | $71.6 million | $220.6 million | $206.6 million |
| Gross profit | $56.7 million | $54.9 million | $168.2 million | $156.6 million |
| Gross margin | 76% | 77% | 76% | 76% |
| Operating loss | $(5.1) million | $(5.4) million | $(32.9) million | $(28.9) million |
| Net income (loss) | $(6.5) million | $5.4 million | $(39.7) million | $16.9 million |
| Net loss attributable to Repay | $(6.2) million | $5.8 million | $(37.2) million | $19.5 million |
| Adjusted EBITDA | $31.9 million | $31.7 million | $93.3 million | $88.6 million |
| Adjusted net income | $19.9 million | $22.8 million | $58.6 million | $58.0 million |
| Adjusted net income per share | $0.21 | $0.24 | $0.61 | $0.60 |
Q3 revenue increased 3.9% and nine-month revenue increased 6.8%. Adjusted EBITDA increased 0.6% in Q3 and 5.3% for the nine months. GAAP results remained unprofitable, partly because of amortization, share-based compensation, the BCS disposition, and changes in the fair value of the tax receivable agreement liability.
Net cash provided by operating activities was $68.8 million for the nine months, compared with $52.4 million in the prior-year period. Investing activities provided $2.5 million, including proceeds from the BCS sale, offset by $36.7 million of capitalized software development costs. Financing activities used $23.5 million, primarily reflecting repayment of the revolving credit facility.
Balance sheet, debt, and liquidity
- Cash and cash equivalents were $117.7 million at September 30, 2023, compared with $64.9 million at December 31, 2022.
- Restricted cash was $23.7 million, resulting in total cash, cash equivalents, and restricted cash of $141.4 million.
- The Company had $185.0 million of available capacity and no outstanding balance under its revolving credit facility after repaying $20.0 million in February 2023.
- Convertible senior debt had $440.0 million of principal outstanding and a carrying value of $433.5 million, net of issuance costs. The 0.00% notes mature February 1, 2026.
- The tax receivable agreement liability was $185.9 million, up from $179.1 million at December 31, 2022.
- Management stated that operating cash flow, cash on hand, and available borrowing capacity are expected to fund operations, planned capital expenditures, and debt obligations for the next twelve months and the following five years.
Material changes versus the prior comparable period
- Segment mix: Consumer Payments revenue increased 9.1% in Q3 and 11.3% for the nine months. Business Payments revenue declined 15.2% in Q3 and 6.9% for the nine months.
- Seasonal media comparison: Business Payments was affected by lower media payments activity compared with the prior-year period, which benefited from political media spending associated with the 2022 mid-term elections.
- BCS disposition: Repay sold Blue Cow Software and a related entity on February 15, 2023 for cash proceeds of approximately $41.9 million and recognized a $10.0 million loss. The sale reduced goodwill by $35.3 million and removed approximately $5.4 million of prior-year nine-month revenue from the comparison.
- Tax receivable agreement valuation: Q3 included a $3.2 million expense and nine months included a $3.7 million expense from changes in the TRA liability’s fair value, compared with a $11.4 million gain in Q3 2022 and a $55.5 million gain for the nine months of 2022.
- Operating costs: Q3 selling, general and administrative expense decreased 2.1%, while nine-month expense increased 4.3%, primarily due to higher equity compensation and software and technology integration costs.
- Software investment: Capitalized software development costs increased to $36.7 million from $26.2 million in the prior-year nine-month period.
Guidance, outlook, commentary, and risks
The filing does not provide clear numerical revenue, earnings, or EBITDA guidance. Management expects continued growth from newly signed clients and existing clients, but notes that results may be affected by economic conditions, consumer finance trends, inflation, rising interest rates, recessionary conditions, payment-market competition, regulatory changes, acquisitions, and technology and data-security risks.
Management identified financial institution and sponsor-bank relationships as a heightened risk. Cash balances may exceed FDIC insurance limits, and the failure or disruption of a bank or sponsor bank could affect liquidity, transaction processing, and client relationships. Repay stated that it had no depository or payment-processing relationship with Silicon Valley Bank, Signature Bank, or First Republic Bank.
The Company expects substantial future TRA payments. Actual payments may vary with taxable income, tax rates, exchanges of Post-Merger Repay Units, stock prices, and other factors, and payments could exceed realized tax benefits. The Company also faces a significant 2026 debt maturity and variable-rate exposure under its revolving facility.
Pending legal matters are not expected by management to have a material adverse effect. The Company reported effective disclosure controls as of September 30, 2023 and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether organic payment volume and Consumer Payments growth offset continued weakness or cyclicality in Business Payments and media payments.
- The sustainability and quality of adjusted EBITDA and adjusted net income relative to GAAP losses and the substantial adjustments excluded from non-GAAP measures.
- The Company’s ability to refinance or repay the $440.0 million principal maturity of the 2026 convertible notes.
- The timing and amount of future tax receivable agreement payments and the relationship between payments and realized tax savings.
- Capitalized software spending, amortization requirements, goodwill and intangible-asset valuations, and future impairment risk.
- Exposure to sponsor-bank disruptions, bank failures, payment-network changes, cybersecurity incidents, and evolving regulation.
- Potential dilution from 5.9 million exchangeable Post-Merger Repay Units, 13.1 million shares underlying the 2026 notes, and outstanding equity awards.