Repay Holdings Corporation — Form 10-Q Summary
Business Context and Reporting Period
Repay Holdings Corporation is a payments technology company providing integrated electronic payment processing solutions to targeted vertical markets. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Card payment volume was approximately $6.2 billion in the second quarter and $12.6 billion for the first six months, representing year-over-year growth of approximately 34% and 37%, respectively. Acquisitions of BillingTree, Kontrol and Payix contributed materially to reported growth.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $67.4 million | $48.4 million | $135.0 million | $95.9 million |
| Revenue growth | 39.3% | — | 40.7% | — |
| Loss from operations | $(16.6) million | $(12.3) million | $(23.5) million | $(21.1) million |
| Operating margin | (24.6)% | (25.5)% | (17.4)% | (22.0)% |
| Net income (loss) | $(1.4) million | $(13.3) million | $11.5 million | $(31.3) million |
| Net income (loss) attributable to Repay | $9 thousand | $(12.3) million | $13.7 million | $(28.1) million |
| Adjusted EBITDA | $27.6 million | $20.4 million | $57.0 million | $40.9 million |
| Adjusted EBITDA margin | 41.0% | 42.1% | 42.2% | 42.6% |
| Adjusted net income | $16.1 million | $14.0 million | $34.5 million | $29.1 million |
| Adjusted net income per share | $0.17 | $0.16 | $0.36 | $0.34 |
Operating expenses increased faster in absolute terms than revenue, primarily because of acquisition-related amortization, compensation, technology and integration costs. Depreciation and amortization was $29.2 million in the quarter and $57.8 million year to date, up from $19.7 million and $37.5 million, respectively.
The reported six-month net income was significantly affected by a $44.1 million gain from the change in fair value of the tax receivable agreement liability. The TRA liability was $201.9 million at June 30, 2022. The company reported a 181% effective tax rate for the quarter and 37.4% for the six-month period, reflecting the impact of discrete stock-based compensation tax items and the company’s tax structure.
Cash Flow, Liquidity and Capital Structure
- Net cash provided by operating activities was $27.1 million for the six months ended June 30, 2022, compared with $16.9 million in the prior-year period.
- Net cash used in investing activities was $16.6 million, primarily reflecting $14.8 million of intangible asset purchases and $1.8 million of capital expenditures. The prior-year period included significant acquisition spending.
- Net cash used in financing activities was $7.2 million, including share repurchases, employee-related share withholding, distributions and contingent consideration payments.
- Cash, cash equivalents and restricted cash totaled $79.5 million at June 30, 2022, including $60.4 million of unrestricted cash and $19.2 million of restricted cash.
- The company reported $165.0 million of available borrowing capacity under its $185.0 million senior secured revolving credit facility, with $20.0 million drawn at June 30, 2022.
- Total borrowings were $460.0 million before debt issuance costs, consisting of $440.0 million of 0.00% convertible senior notes due 2026 and $20.0 million drawn under the revolving facility. Long-term debt was $449.9 million net of issuance costs.
- The company was in compliance with its restrictive debt covenants and stated that it expects to remain in compliance prospectively.
- On May 16, 2022, the board authorized a share repurchase program of up to $50 million. The company repurchased 100,803 shares for approximately $1.15 million during the quarter, leaving approximately $49.0 million available under the program.
Material Changes Versus the Prior Comparable Period
- Revenue increased 39.3% in the second quarter and 40.7% for the first six months, driven by organic client and volume growth and contributions from BillingTree, Kontrol and Payix.
- Acquired businesses contributed approximately $14.2 million of second-quarter revenue and $31.4 million of first-half revenue.
- Adjusted EBITDA increased 35.5% in the quarter and 39.4% year to date; adjusted net income increased 15.0% and 18.6%, respectively.
- GAAP net income attributable to the company improved from a loss of $12.3 million to approximately breakeven in the quarter, and from a loss of $28.1 million to income of $13.7 million for the first half.
- The improvement in GAAP results was substantially influenced by the $44.1 million year-to-date favorable change in the TRA liability, compared with a $3.3 million unfavorable change in the prior-year period.
- Costs of services increased 31.5% in the quarter and 32.1% year to date, while selling, general and administrative expense increased 32.5% and 34.8%, respectively.
- Interest expense was broadly stable year to date, while the prior-year period included a $5.9 million loss on debt extinguishment and a $9.1 million loss on settlement of interest-rate swaps.
- Contingent consideration liabilities declined to $0.35 million at June 30, 2022 from $17.0 million at December 31, 2021, following payments and fair-value adjustments.
Guidance, Outlook, Commentary and Risks
The filing does not provide specific quantitative revenue, earnings or EBITDA guidance. Management expects operating cash flow, existing cash and available revolver capacity to fund operations, planned capital expenditures and debt obligations for at least the next twelve months.
Management identified inflation, rising interest rates, supply-chain pressures, slower economic growth, possible recession, unemployment, consumer spending trends and the continuing COVID-19 pandemic as factors that could reduce payment volumes. Additional risks include acquisition integration and realization of expected benefits, competition and technology changes, regulatory developments, data security, dependence on payment ecosystem relationships, employee retention and the ability to execute future acquisitions.
The company is a holding company dependent on distributions from subsidiaries, which may be limited by law or debt agreements. TRA payments may be substantial, can vary with taxable income, tax rates and equity-unit exchanges, and could exceed the tax benefits actually realized. The company may also face higher interest expense from its variable-rate borrowings and uncertainty related to the transition from LIBOR.
Legal proceedings are described as ordinary-course matters that management does not expect to have a material adverse effect. The filing states that there were no material changes to the risk factors previously disclosed in the 2021 Form 10-K. Goodwill was reviewed and no impairment was identified as of June 30, 2022.
Important Facts for Investors to Verify
- Whether strong card-volume and revenue growth continues after acquisition-related comparisons normalize.
- The sustainability of adjusted EBITDA and adjusted net income after excluding substantial amortization, stock compensation, transaction costs and fair-value adjustments.
- The extent to which GAAP earnings depend on noncash changes in the TRA liability and contingent consideration.
- Progress integrating BillingTree, Kontrol and Payix and the related recurring technology, compensation and amortization costs.
- Cash generation and liquidity relative to the $460.0 million of debt maturing or becoming payable in 2026 and potential TRA obligations.
- Exposure to rising interest rates on the $20.0 million variable-rate revolver and any future borrowings.
- The effect of inflation, recessionary conditions, consumer finance trends and COVID-19 developments on transaction volumes.
- The accounting and dilution implications of the 7.9 million exchangeable Post-Merger Repay Units and the potential conversion of the 2026 Notes.