Repay Holdings Corporation: Q1 2024 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 unaudited three months ended March 31, 2024, compared with the three months ended March 31, 2023.
- Consumer Payments generated $76.1 million of revenue, approximately 88% of consolidated revenue.
- Business Payments generated $9.7 million of revenue, approximately 12% of consolidated revenue.
- Management cited newly signed clients, existing-client growth, cost savings initiatives and technology investment as key operating factors.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $80.7 million | $74.5 million | Up 8.3% |
| Gross profit | $61.5 million | $56.6 million | Up 8.8% |
| Gross margin | 76.3% | 75.9% | Up approximately 40 bps |
| Loss from operations | $(2.5) million | $(18.0) million | Improved $15.5 million |
| Net loss | $(5.4) million | $(27.9) million | Improved $22.6 million |
| Net loss attributable to Repay | $(5.2) million | $(26.4) million | Improved 80.3% |
| Loss per Class A share | $(0.06) | $(0.30) | Improved |
| Adjusted EBITDA | $35.5 million | $30.9 million | Up 14.8% |
| Adjusted net income | $22.4 million | $19.2 million | Up 16.6% |
Reported operating margin was approximately negative 3.1% in Q1 2024, compared with negative 24.1% in the prior-year period. Net margin was approximately negative 6.6%, compared with negative 37.5% in Q1 2023.
- Costs of services increased 6.7% to $19.2 million, below revenue growth.
- Selling, general and administrative expense decreased 3.9% to $37.0 million, primarily because the prior-year period included higher BCS disposition transaction expenses.
- Depreciation and amortization increased 3.4% to $27.0 million, driven by additional amortization of capitalized software.
- Interest income was $1.3 million and interest expense was $0.9 million, producing net interest income of $0.4 million.
- The tax receivable agreement fair-value charge declined to $2.9 million from $4.5 million.
Cash Flow, Debt and Liquidity
| Metric | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Cash and cash equivalents | $128.3 million | $118.1 million |
| Restricted cash | $26.5 million | $26.0 million |
| Long-term debt, net of issuance costs | $434.9 million | $434.2 million |
| Tax receivable agreement liability | $191.2 million | $188.3 million |
- Operating cash flow was $24.8 million, compared with $20.8 million in Q1 2023.
- Investing cash flow was $(11.1) million, primarily reflecting $11.0 million of capitalized software development costs. The prior-year period included $40.4 million of net proceeds from the BCS disposition.
- Financing cash flow was $(3.0) million, principally reflecting $2.4 million of tax withholding payments related to vested equity awards and a $0.6 million TRA payment.
- Cash, cash equivalents and restricted cash increased by $10.7 million to $154.8 million.
- The $185.0 million revolving credit facility was undrawn at March 31, 2024, leaving $185.0 million of stated availability.
- The $440.0 million principal amount of 0.00% convertible senior notes matures February 1, 2026. The filing states that conversion contingencies were not met during the quarter and that the company was in compliance with applicable restrictive financial covenants.
- Management expects operating cash flow, cash on hand and available borrowing capacity 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
- Revenue increased 8.3%, with Consumer Payments up 8.9% and Business Payments up 11.6%.
- Gross profit increased 8.8%, while gross margin remained broadly stable at approximately 76%.
- GAAP losses narrowed substantially, partly because Q1 2023 included a $9.9 million loss on the BCS business disposition and related transaction expenses.
- Adjusted EBITDA and adjusted net income improved despite continued GAAP amortization, stock-based compensation and other adjustments.
- Operating cash flow increased by $4.0 million, but investing cash flow shifted from a $26.7 million inflow in Q1 2023 to an $11.1 million outflow in Q1 2024 because the prior year included BCS sale proceeds.
- Share-based compensation expense increased to $6.3 million from $4.1 million. Class A shares outstanding increased to 91.5 million at March 31, 2024 from 90.8 million at December 31, 2023.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide specific quantitative revenue, earnings or EBITDA guidance. Management expects continued growth from targeted vertical markets, new and existing clients, electronic payment adoption, technology development and potential acquisitions.
- Management identified inflation, higher interest rates, slower growth, potential recession, unemployment, consumer-loan and receivables-management conditions, commercial spending and banking-system volatility as risks to payment volumes and results.
- Other material risks include competition and technology changes, regulatory developments, data security, reliance on payment ecosystem relationships, personnel retention, acquisition execution and internal controls.
- The company has a $191.2 million TRA liability. Payments may vary with taxable income, tax rates, unit exchanges, stock prices and other factors; management cautions that required payments could exceed realized tax benefits.
- Goodwill was not impaired as of March 31, 2024. Goodwill and intangible assets remain significant relative to total assets, with $716.8 million of goodwill and $431.7 million of net intangible assets.
- The company reports seasonal revenue patterns, with first-quarter activity historically benefiting from tax refunds and increased repayment activity.
- Management reported no material changes to previously disclosed risk factors, no material pending legal proceeding, no subsequent event requiring adjustment or disclosure, and effective disclosure controls as of March 31, 2024.
- The filing includes non-GAAP measures. Investors should reconcile Adjusted EBITDA and Adjusted Net Income to GAAP results and assess the recurring nature of the excluded amortization, stock compensation, TRA valuation changes, transaction costs and other items.
Important Facts for Investors to Verify
- Whether revenue and transaction volumes continue to grow across both segments while maintaining approximately 76% gross margins.
- The company’s ability to refinance, repay or otherwise address the $440.0 million convertible notes due in February 2026.
- Actual cash payments and future changes associated with the $191.2 million TRA liability.
- Whether operating cash flow remains sufficient after capitalized software investment, working capital needs, acquisitions and potential TRA obligations.
- The sustainability of adjusted profitability relative to GAAP losses and the magnitude of recurring amortization and other excluded costs.
- Potential goodwill or intangible-asset impairment, particularly given the $1.15 billion combined balance of goodwill and net intangible assets.
- Effects of macroeconomic, regulatory, competitive, cybersecurity and payment-network risks on processing volumes and client retention.
- Progress and cash requirements associated with the company’s technology investments, acquisitions and integration activities.