Repay Holdings Corporation — Q2 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 six months ended June 30, 2023, compared with the corresponding 2022 periods. Card payment volume was approximately $6.3 billion for the quarter and $12.8 billion year to date, increasing approximately 1% and 2%, respectively.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $71.8 million | $67.4 million | $146.3 million | $135.0 million |
| Gross profit | $54.9 million | $50.7 million | $111.5 million | $101.7 million |
| Gross margin | 77% | 75% | 76% | 75% |
| Loss from operations | $(9.9) million | $(16.6) million | $(27.8) million | $(23.5) million |
| Net income (loss) | $(5.3) million | $(1.4) million | $(33.3) million | $11.5 million |
| Net income (loss) attributable to Repay | $(4.6) million | $0.0 million | $(31.0) million | $13.7 million |
| Adjusted EBITDA | $30.3 million | $27.6 million | $61.5 million | $57.0 million |
| Adjusted net income | $18.8 million | $16.6 million | $37.9 million | $35.2 million |
| Adjusted net income per share | $0.19 | $0.17 | $0.39 | $0.36 |
At June 30, 2023, cash and cash equivalents were $103.8 million, restricted cash was $24.1 million, and total cash, cash equivalents and restricted cash were $127.9 million. Six-month operating cash flow was $40.8 million, compared with $27.1 million in the prior-year period. Investing activities provided $16.6 million, primarily from the sale of Blue Cow Software, while financing activities used $23.0 million, including repayment of revolving debt.
Total debt was $432.7 million net of issuance costs, consisting primarily of $440.0 million principal amount of 0.00% convertible senior notes due February 2026. The $185.0 million revolving credit facility was undrawn at quarter-end. The company reported $181.6 million of tax receivable agreement liability and total stockholders’ equity of $903.6 million.
Material changes versus the prior comparable period
- Q2 revenue increased 6.4%; six-month revenue increased 8.4%, driven by new and existing clients.
- Consumer Payments revenue increased 10.2% in Q2 and 12.4% year to date. Business Payments revenue declined 1.1% in Q2 and 1.7% year to date, primarily due to weakness in media payments.
- Gross margin improved to 77% in Q2 and 76% year to date from 75% in both prior-year periods.
- Adjusted EBITDA increased 9.6% in Q2 and 7.9% year to date; adjusted net income increased 12.8% and 7.9%, respectively.
- GAAP profitability deteriorated year to date, principally because the prior-year period included a $44.1 million gain from the change in fair value of the tax receivable liability, while 2023 included a $0.5 million loss.
- The company sold Blue Cow Software on February 15, 2023, for cash proceeds of approximately $41.9 million and recognized a $10.0 million loss, including a $35.3 million reduction in goodwill. BCS contributed approximately $1.2 million of 2023 revenue versus $3.7 million in the first half of 2022.
- Selling, general and administrative expense increased 7.5% year to date, reflecting higher software and technology services costs and equity compensation. Depreciation and amortization declined 8.9% year to date.
- The company repaid $20.0 million drawn under its revolving facility and amended the credit agreement to replace LIBOR with term SOFR.
Outlook, commentary, risks and unusual items
Management stated that existing cash, operating cash flow and available revolver capacity are expected to fund operations, planned capital expenditures and debt obligations for the next twelve months and the following five years. The filing does not provide specific quantitative revenue or earnings guidance.
Management continues to target vertical markets and expects growth from new clients, existing-client expansion and electronic payment adoption. Results may be affected by seasonality, with payment volumes historically stronger in the first quarter because of tax refunds and related repayment activity.
- Key macroeconomic risks include inflation, rising interest rates, slower economic growth, recession, unemployment, consumer finance weakness and reduced consumer or commercial spending.
- The company is exposed to payment-network, sponsor-bank, financial-institution, regulatory, technology, cybersecurity, personnel and acquisition-integration risks.
- Cash balances generally exceed FDIC insurance limits. The company reported no relationships with Silicon Valley Bank, Signature Bank or First Republic Bank, but adverse developments involving other financial institutions could affect liquidity, transaction processing and client relationships.
- The tax receivable agreement liability is based on estimates and may require substantial future payments. Payments can exceed realized tax benefits, and the company may need to finance those obligations.
- The 2026 convertible notes mature in February 2026. The company reported compliance with applicable financial covenants and currently expects continued compliance.
- Pending legal matters are not expected by management to have a material adverse effect. No material subsequent events requiring adjustment or disclosure were identified.
- GAAP results include substantial amortization, share-based compensation, transaction and restructuring costs, the BCS disposition loss and volatile tax receivable agreement fair-value adjustments. Non-GAAP measures should be evaluated alongside GAAP results.
Important facts for investors to verify
- Reconcile the improvement in revenue, gross margin and Adjusted EBITDA with the continued GAAP operating loss and year-to-date net loss.
- Assess the timing, liquidity impact and assumptions underlying the $181.6 million tax receivable agreement liability.
- Evaluate the company’s ability to address the $440.0 million convertible-note maturity in 2026.
- Monitor Consumer Payments growth, continued Business Payments weakness and the effect of the BCS disposition.
- Review the sustainability of operating cash flow after software investment, tax distributions, debt service and potential TRA payments.
- Consider dilution from approximately 6.5 million exchangeable Post-Merger Repay Units, equity awards and up to approximately 13.1 million shares issuable upon conversion of the 2026 notes, subject to applicable terms.
- Review management’s non-GAAP reconciliations and the recurring nature of excluded amortization, compensation, restructuring, transaction and other charges.