Business Context and Reporting Period
Repay Holdings Corporation is a payments technology company providing integrated electronic payment processing and software solutions to industry-focused vertical markets. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021. Prior-year comparative figures were restated for warrant-accounting corrections and should be read as restated amounts.
Repay acquired BillingTree on June 15, 2021 for approximately $506.6 million, funded with approximately $278.3 million of cash and approximately 10 million newly issued Class A shares. It acquired Kontrol on June 22, 2021 for up to $11.0 million, including approximately $7.5 million paid at closing.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $61.1 million | $37.6 million | $157.1 million | $113.6 million |
| Revenue growth | 62.4% | — | 38.3% | — |
| Loss from operations | $(12.2) million | $(13.1) million | $(33.3) million | $(23.2) million |
| Operating margin | (20.0%) | (34.8%) | (21.2%) | (20.4%) |
| Net loss attributable to Repay | $(6.3) million | $(6.8) million | $(34.3) million | $(96.4) million |
| Loss per Class A share | $(0.07) | $(0.12) | $(0.42) | $(2.10) |
| Adjusted EBITDA | $27.0 million | $15.6 million | $67.9 million | $49.2 million |
| Adjusted Net Income | $19.0 million | $10.8 million | $47.9 million | $34.3 million |
Card payment volume was approximately $5.6 billion in the quarter and $14.8 billion year to date, increasing approximately 48% and 32%, respectively, from the comparable 2020 periods. Q3 2021 Adjusted EBITDA margin was approximately 44.2%, compared with 41.4% in Q3 2020; nine-month Adjusted EBITDA margin was approximately 43.2%, compared with 43.3%.
Cash Flow, Liquidity, and Capital Structure
- Net cash provided by operating activities was $31.5 million for the first nine months of 2021, versus $6.7 million in the prior-year period.
- Net cash used in investing activities was $296.6 million, primarily reflecting the BillingTree acquisition, Kontrol acquisition, software investments, and an equity investment.
- Net cash provided by financing activities was $295.7 million, including $440.0 million of convertible-note proceeds and $142.1 million from a Class A equity offering, offset by debt repayments, loan costs, and acquisition-related payments.
- Cash, cash equivalents, and restricted cash totaled $137.1 million at September 30, 2021, including $116.5 million of unrestricted cash and $20.6 million of restricted cash.
- Repay had $125.0 million of available capacity under its senior secured revolving facility and no revolver borrowings outstanding.
- Convertible senior debt had $440.0 million of principal, or $428.6 million net of issuance costs, with a 0.00% coupon and a February 2026 maturity. The initial conversion price was approximately $33.60 per share.
- The tax receivable agreement liability was $231.5 million at September 30, 2021. Management expects future TRA obligations to be substantial and dependent on realized tax benefits and other factors.
Material Changes Versus the Prior Comparable Period
- Revenue increased 62.4% in Q3 and 38.3% for the first nine months, driven by organic growth, new customers, higher existing-customer volumes, and acquisitions. Acquisitions contributed approximately $17.8 million of Q3 revenue and $26.8 million of nine-month revenue.
- Other costs of services increased 45.7% in Q3 and 35.0% year to date. Selling, general and administrative expense increased 17.9% in Q3 and 31.7% year to date.
- Depreciation and amortization increased 68.0% in Q3 and 43.9% year to date, primarily due to acquired intangible assets.
- Interest expense declined 78.9% in Q3 and 74.5% year to date after repayment of the prior term loans and issuance of the 2026 Notes.
- Net loss attributable to Repay improved from $6.8 million to $6.3 million in Q3 and from $96.4 million to $34.3 million year to date. The year-to-date comparison was significantly affected by the prior-year $70.8 million noncash warrant-liability fair-value loss.
- 2021 included a $5.9 million loss on extinguishment of debt and approximately $9.1 million of other loss, principally related to settlement of interest-rate swaps. These items were largely excluded from Adjusted EBITDA and Adjusted Net Income.
- Goodwill increased from $459.0 million at December 31, 2020 to $751.5 million at September 30, 2021, primarily from acquisitions. Management reported no goodwill or intangible-asset impairment.
- The company issued approximately 16.3 million Class A shares during the first nine months, including shares issued in the BillingTree acquisition and the January equity offering, increasing potential dilution.
Outlook, Commentary, Risks, and Unusual Items
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. The filing does not provide specific revenue or earnings guidance.
Management identified acquisition integration, realization of acquisition benefits, competitive and technological changes in payments, regulatory changes affecting targeted verticals, economic and consumer-finance conditions, COVID-19 uncertainty, data security, payment-ecosystem relationships, and execution of future growth strategies as key risks. The company also faces interest-rate and potential LIBOR-transition risk, although its interest-rate swaps had been settled by September 30, 2021.
The 2020 comparative financial statements were restated because SPAC warrants previously classified as equity should have been classified as liabilities. The warrants were redeemed in July 2020, and the restatement did not affect liquidity or cash. Management stated that the related material weakness in internal control was remediated as of September 30, 2021. No material changes were reported to the risk factors in the amended 2020 Form 10-K.
BillingTree and Kontrol purchase-price allocations remained preliminary. BillingTree contributed approximately $17.0 million of revenue and $(0.7) million of net income from acquisition through September 30, while Kontrol contributed approximately $0.9 million of revenue and $0.4 million of net income.
Important Facts for Investors to Verify
- Reconcile reported GAAP results with management’s non-GAAP Adjusted EBITDA and Adjusted Net Income, including the substantial add-backs for amortization, stock compensation, transaction costs, and other items.
- Assess whether the strong payment-volume and revenue growth can continue after acquisition contributions and whether acquired businesses can be integrated effectively.
- Review the terms, conversion provisions, dilution potential, and February 2026 maturity of the $440.0 million convertible notes.
- Evaluate liquidity after the BillingTree acquisition, contingent consideration payments, capitalized software spending, and future acquisition requirements.
- Analyze the $231.5 million TRA liability, potential payment timing, early-termination provisions, and the risk that obligations could exceed realized tax savings.
- Monitor the preliminary BillingTree and Kontrol purchase-price allocations, goodwill concentration, and future impairment risk.
- Confirm remediation of the former material weakness and review the impact of the warrant-accounting restatement on historical comparability.