Repay Holdings Corporation 2019 Form 10-K Summary
Business context and reporting period
Repay is an integrated payments technology company serving personal lending, automotive finance, receivables management and business-to-business verticals. It processed approximately $10.7 billion of card payment volume in 2019, up approximately 44% year over year, and had more than 14,000 customers and approximately 70 software integrations at December 31, 2019.
The filing covers the fiscal year ended December 31, 2019. Comparability is affected by the July 11, 2019 Business Combination with Thunder Bridge Acquisition, which created the public company and resulted in separate Predecessor and Successor reporting periods. The combined 2019 figures are an arithmetic combination of those periods and are not a single comparable GAAP reporting period.
Financial performance and key metrics
| Metric | 2019 | 2018 | Change/comment |
|---|---|---|---|
| Combined revenue | $104.6 million | $130.0 million | Down 19.5%; primarily reflects ASC 606 net presentation of interchange and network fees |
| Revenue excluding ASC 606 presentation impact | $165.8 million | Not clearly provided on a comparable basis | 2019 reported revenue was reduced by approximately $61.2 million from gross-to-net presentation changes |
| Net loss attributable to the Company | $(40.0) million | $10.5 million net income | Driven largely by Business Combination expenses, stock compensation and higher amortization |
| Adjusted EBITDA | $48.4 million | $36.8 million | Up 31.7%; non-GAAP |
| Adjusted net income | $39.5 million | $28.0 million | Up 41.0%; non-GAAP |
| Card payment volume | Approximately $10.7 billion | Not clearly provided in the filing excerpt | Volume growth approximately 44% |
Reported 2019 operating expenses were $152.8 million on a combined basis, including $97.0 million of selling, general and administrative expense and $30.0 million of depreciation and amortization. The company reported a combined operating loss of $48.2 million and net loss of $55.3 million before allocation of $15.3 million of net loss to noncontrolling interests and a $5.0 million income tax benefit.
Successor-period GAAP results from July 11 through December 31, 2019 included revenue of $57.6 million, net loss of $31.6 million, net loss attributable to the Company of $16.3 million and basic and diluted loss per Class A share of $0.46. Fourth-quarter revenue was $33.6 million, with a net loss attributable to the Company of $7.8 million.
Cash flow, liquidity and capital structure
- Cash provided by operating activities was $21.3 million on a combined 2019 basis: $12.9 million in the Successor period and $8.4 million in the Predecessor period, compared with $24.2 million in 2018.
- Successor-period investing cash outflow was $335.1 million, primarily for the Business Combination, TriSource and APS acquisitions, and software development.
- Cash and cash equivalents were $24.6 million at December 31, 2019, with $13.3 million of restricted cash. Available revolving borrowing capacity was $10.0 million.
- Debt included approximately $208.9 million of term loan principal and $10.0 million drawn on the revolving facility, before debt issuance cost adjustments. The credit facility matured in 2024 and carried variable interest rates; the reported rate was approximately 5.26% at year-end.
- The company entered into a $140.0 million interest-rate swap, fixed at 1.598%, through July 2024, covering a portion of variable-rate debt.
- The tax receivable agreement liability was $67.2 million at December 31, 2019. Future payments could be substantial and are not included in the contractual-obligations table.
- Management stated that operating cash flow, cash on hand and available borrowing capacity were expected to fund operations, planned capital expenditures and debt service for the next twelve months.
Material changes versus prior comparable period
- ASC 606 was adopted on January 1, 2019 using the modified retrospective method. Interchange and network fees previously presented gross were generally presented net, materially reducing reported revenue and related expenses without changing operating income from those transactions.
- The July 2019 Business Combination changed the accounting basis, ownership structure and public-company reporting profile. It also created significant purchase-accounting amortization, goodwill and a tax receivable agreement liability.
- TriSource was acquired in August 2019 for approximately $60.2 million in cash, with an earnout of up to $5.0 million. APS Payments was acquired in October 2019 for $30.0 million in cash, with potential earnouts of up to $30.0 million.
- Combined 2019 adjusted results improved despite GAAP losses: Adjusted EBITDA increased 31.7% and Adjusted Net Income increased 41.0%, supported by payment-volume growth, new customers and acquisitions.
- Stock-based compensation increased materially, including approximately $22.0 million in the Successor period, and transaction expenses were approximately $40.1 million on a combined 2019 basis.
Outlook, risks, contingencies and unusual items
Management expects to pursue organic growth in existing verticals, expansion into new verticals and geographies, continued technology investment, operating leverage and selective acquisitions. No formal quantitative revenue or earnings guidance is provided in the filing.
- Key risks include intense competition, pricing and margin pressure, reliance on sponsor banks, third-party processors and software integration partners, payment-network rule changes, chargebacks, fraud, cybersecurity incidents and system outages.
- The company is exposed to regulatory developments affecting payments, consumer finance, privacy, data security, anti-money laundering and unfair or deceptive practices. The California Consumer Privacy Act became effective January 1, 2020.
- Variable-rate debt creates interest-rate risk, although the company has hedged $140.0 million of borrowings. LIBOR transition risk was also identified.
- Acquisition integration, retention of acquired customers and personnel, achievement of earnouts and realization of expected synergies remain material contingencies.
- Potential cash payments under the tax receivable agreement could exceed realized tax benefits or accelerate upon specified events, including certain changes of control or early termination.
- Subsequent to year-end, the company announced the Ventanex acquisition for up to $50.0 million, including a $14.0 million earnout, and upsized its credit facility to $345.0 million in February 2020.
- The filing states that no legal proceedings were expected to have a material adverse effect and that management concluded internal control over financial reporting was effective at December 31, 2019. The external auditor did not provide an internal-control attestation because of the company’s emerging growth company status.
Most important facts for investors to verify
- Reconcile reported 2019 revenue with the ASC 606 gross-to-net presentation change before assessing growth or margins.
- Separate recurring operating performance from Business Combination costs, acquisition expenses, purchase-accounting amortization and approximately $22.0 million of Successor-period stock compensation.
- Assess leverage, 2024 debt maturities, variable-rate exposure and the adequacy of the $10.0 million remaining revolver capacity.
- Quantify potential tax receivable agreement payments and the effect of future exchanges of Post-Merger Repay Units.
- Monitor TriSource and APS integration, earnout obligations, customer retention and contribution to organic growth.
- Review the company’s reliance on sponsor banks, processors and software partners, as well as cybersecurity, chargeback and regulatory compliance exposures.
- Compare GAAP results with Adjusted EBITDA and Adjusted Net Income while reviewing the company’s reconciliation and the recurring nature of excluded costs.