Repay Holdings Corporation — Q1 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. This unaudited quarterly filing covers the three months ended March 31, 2023, compared primarily with the three months ended March 31, 2022.
The Company processed approximately $6.6 billion of card payment volume, representing approximately 3% year-over-year growth. Consumer Payments generated approximately 88% of consolidated revenue and Business Payments approximately 12%.
Financial Performance and Position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $74.5 million | $67.6 million | Up 10.3% |
| Gross profit | $56.6 million | $51.0 million | Up 10.9% |
| Gross margin | 75.9% | 75.5% | Up approximately 40 bps |
| Loss from operations | $(18.0) million | $(6.9) million | Higher loss |
| Net income (loss) | $(27.9) million | $12.9 million | Declined |
| Net income (loss) attributable to Repay | $(26.4) million | $13.7 million | Declined |
| Basic loss per Class A share | $(0.30) | $0.15 | Declined |
| Adjusted EBITDA | $31.2 million | $29.3 million | Up 6.3% |
| Adjusted net income | $19.2 million | $18.6 million | Up 3.5% |
Gross profit margin was approximately 76%. The GAAP operating margin was approximately negative 24%, and the net loss attributable to the Company was approximately 35% of revenue. Adjusted EBITDA margin was approximately 42%.
- Consumer Payments revenue increased 14.5% to $69.9 million; gross profit increased 15.0% to $54.6 million.
- Business Payments revenue decreased 2.4% to $8.7 million, while gross profit increased 1.8% to $6.0 million. The filing attributes the revenue decline to weakness in media payments and reduced volumes from a large client.
- Operating expenses increased to $92.5 million from $74.5 million, primarily reflecting a $9.9 million loss on the Blue Cow Software disposition, higher stock-based compensation, technology and integration costs, and transaction expenses.
- Cash provided by operating activities was $20.8 million, compared with $13.8 million in the prior-year quarter.
- Investing activities provided $26.7 million, including $40.4 million of net proceeds from the Blue Cow Software sale, partially offset by $13.2 million of purchases of intangible assets.
- Financing activities used $22.3 million, including repayment of $20.0 million drawn under the revolving credit facility.
- Cash, cash equivalents and restricted cash increased to $118.8 million from $93.6 million at December 31, 2022. Unrestricted cash and cash equivalents were $91.7 million, and restricted cash was $27.1 million.
- Total assets were $1.58 billion and total equity was $903.2 million at March 31, 2023.
Debt, Liquidity and Capital Resources
- The revolving credit facility has total capacity of $185.0 million, with no amount drawn at March 31, 2023. The Company repaid the entire $20.0 million outstanding balance on February 28, 2023.
- Convertible senior notes due February 2026 had $440.0 million of principal outstanding and a $432.0 million carrying value net of issuance costs. The notes bear 0% stated interest and are convertible at an initial conversion price of approximately $33.60 per share, subject to the terms of the notes.
- Principal debt maturities are concentrated in 2026, when the $440.0 million convertible notes mature unless earlier converted, repurchased or redeemed.
- Management stated that cash from operations, cash on hand and available revolver capacity should be sufficient to fund operations, planned capital expenditures and debt obligations for the next twelve months and the following five years.
- The Tax Receivable Agreement liability was $183.7 million at March 31, 2023. The Company expects future payments under the agreement to be substantial, although timing and amount depend on taxable income, tax rates, unit exchanges and other factors.
Material Changes and Unusual Items
- On February 15, 2023, Repay sold Blue Cow Software and a related entity for cash proceeds of $41.9 million and recorded a $9.9 million loss. Goodwill decreased by $35.3 million in connection with the disposition.
- The Blue Cow Software business contributed approximately $1.2 million of Consumer Payments revenue in Q1 2023, compared with approximately $2.0 million in Q1 2022.
- The change in fair value of the Tax Receivable Agreement liability produced a $4.5 million expense in Q1 2023, compared with a $24.6 million gain in Q1 2022. The change was primarily driven by a change in the discount rate used to value the liability.
- Selling, general and administrative expense increased 19.6% to $38.5 million, including higher equity compensation and software and technology service costs.
- Depreciation and amortization decreased 8.6% to $26.1 million, primarily because of lower software amortization.
- The Company adopted reference-rate-reform guidance and business-combination accounting guidance during 2023; management reported no material effect on the financial statements.
Guidance, Outlook, Commentary and Risks
The filing does not provide specific quantitative revenue, earnings or adjusted EBITDA guidance. Management expects continued growth from newly signed clients, existing-client expansion, tailored payment solutions and electronic payment adoption, but notes that the disposition of Blue Cow Software will affect comparisons.
- Macroeconomic risks include inflation, rising interest rates, slower growth, recession, unemployment, consumer finance weakness, reduced payment volumes and commercial spending pressure.
- Recent banking-system volatility could affect liquidity, sponsor-bank relationships, transaction processing, client relationships and payment volumes. The Company stated that it did not use Silicon Valley Bank, Signature Bank or First Republic Bank for deposit, investment or payment-processing relationships.
- Other material risks include competition and technology changes, regulatory developments, data security, dependence on sponsor banks and other payment-ecosystem participants, acquisition integration, retention of key personnel and internal-control effectiveness.
- The Company was in compliance with its restrictive debt covenants as of March 31, 2023 and stated that it expects to remain compliant.
- Pending legal matters are described as ordinary-course matters that management does not expect to have a material adverse effect. No material subsequent events were identified.
- Disclosure controls and procedures were determined to be effective, with no material changes to internal control over financial reporting during the quarter.
Most Important Facts to Verify
- Whether organic payment-volume and revenue growth remains positive after the Blue Cow Software disposition.
- The sustainability of the approximately 76% gross margin and the extent to which elevated stock compensation, integration and transaction costs persist.
- Repay’s ability to refinance or repay the $440.0 million convertible notes due in 2026.
- The timing, amount and cash-funding requirements of the $183.7 million Tax Receivable Agreement liability.
- Business Payments recovery, including media-payment trends and the effect of the large client’s volume reduction.
- Exposure to bank failures, sponsor-bank disruptions, payment-processing outages, cybersecurity events and regulatory changes.
- Reconciliation of non-GAAP Adjusted EBITDA and Adjusted Net Income to GAAP results, particularly the recurring nature of acquisition-related amortization and other excluded costs.