Repay Holdings Corporation — Q3 2022 Form 10-Q Summary
Business context and reporting period
Repay is a payments technology company providing integrated payment processing solutions to vertical markets, including consumer finance and receivables management. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, filed November 9, 2022.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $71.6 million, up 17.1% | $206.6 million, up 31.5% |
| Loss from operations | $(5.4) million; approximately (7.6%) margin | $(28.9) million; approximately (14.0%) margin |
| Net income | $5.4 million | $16.9 million |
| Net income attributable to Repay | $5.8 million; $0.05 diluted EPS | $19.5 million; $0.18 diluted EPS |
| Adjusted EBITDA | $31.7 million; approximately 44.3% margin | $88.7 million; approximately 42.9% margin |
| Adjusted net income | $22.8 million; $0.24 per as-converted share | $58.0 million; $0.60 per as-converted share |
| Operating cash flow | Not separately provided for the quarter | $52.4 million |
Card payment volume was approximately $6.4 billion in the quarter and $19.0 billion year to date, increasing approximately 15% and 28%, respectively, from the comparable 2021 periods. Chargebacks were less than 1% of card payment volume.
At September 30, 2022, cash and cash equivalents were $63.5 million, restricted cash was $23.2 million, and total equity was $934.9 million. Total assets were $1.64 billion, including $523.1 million of net intangible assets and $827.8 million of goodwill.
Gross debt consisted of $440.0 million of 0.00% convertible senior notes due 2026 and $20.0 million drawn under the revolving credit facility. Debt carrying value was $450.6 million after issuance-cost deductions. The company had $165.0 million of available revolving capacity and stated that cash, operating cash flow and available capacity should fund operations, planned capital expenditures and debt service for the next twelve months.
Material changes versus the prior comparable period
- Revenue increased $10.4 million, or 17.1%, in the quarter and $49.5 million, or 31.5%, for the first nine months. Management attributed growth to new and existing clients and acquisitions, including Payix, BillingTree and Kontrol.
- For the nine-month period, approximately $34.6 million of incremental revenue and $6.5 million of incremental costs of services were attributable to BillingTree, Kontrol and Payix.
- Net income attributable to Repay improved from a $6.3 million loss to $5.8 million of income in the quarter, and from a $34.3 million loss to $19.5 million of income for the nine-month period.
- Operating losses continued despite revenue growth because of costs of services, selling and administrative expenses, and significant acquisition-related amortization. Nine-month depreciation and amortization increased 30.1% to $82.4 million.
- Adjusted EBITDA increased 29.5% in the quarter and 35.7% year to date. Adjusted net income increased 33.0% and 24.6%, respectively.
- Operating cash flow increased to $52.4 million from $31.5 million. Investing cash use declined to $28.9 million from $296.6 million, largely because the prior-year period included the BillingTree and Kontrol acquisitions.
- The company repurchased 579,745 shares for approximately $5.7 million during the quarter under a $50 million authorization approved in May 2022. Approximately $43.0 million remained available at September 30.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide specific quantitative revenue, earnings or EBITDA guidance. Management expects continued demand for electronic payment solutions and identifies client growth, payment volumes, product development, acquisition integration and economic conditions as key business drivers.
- Results included a $55.5 million nine-month gain from the change in fair value of the tax receivable agreement liability, primarily due to a higher discount rate. The TRA liability was $190.5 million at September 30, 2022.
- Repay remains exposed to inflation, rising interest rates, slower growth or recession, consumer finance trends, COVID-19 developments, payment-industry competition and regulation, data security risks, personnel retention and acquisition integration.
- The revolving facility bears variable interest, and the company is exposed to higher interest expense. The filing also identifies uncertainty associated with the transition from LIBOR to successor reference rates.
- Management stated that recent acquisitions remain subject to integration risk and that acquisition-related amortization and transaction costs will continue to affect GAAP results.
- Contingent consideration liabilities declined to $10,000 at September 30, 2022, after payments and fair-value adjustments. The filing states that the fair value of the Payix and Kontrol earnouts was zero.
- The company stated that pending legal matters are not expected to have a material adverse effect and that there were no material changes to previously disclosed risk factors.
- Disclosure controls and procedures were deemed effective as of September 30, 2022. On November 3, 2022, the company announced that the Chief Operating Officer role would be eliminated effective November 25, 2022, with a potential transitional consulting arrangement.
Important facts for investors to verify
- Reconcile strong revenue, card-volume and adjusted EBITDA growth with continuing GAAP operating losses and substantial acquisition-related amortization.
- Assess the sustainability of earnings excluding the noncash $55.5 million TRA fair-value gain and other adjustments used in non-GAAP measures.
- Review the $460.0 million of gross debt due in 2026, variable-rate revolver exposure and the potential dilution or cash settlement associated with the convertible notes.
- Evaluate the $190.5 million TRA liability, its payment timing and whether future tax benefits will be sufficient to fund required payments.
- Monitor acquisition integration, recurring transaction and restructuring costs, goodwill and intangible-asset recoverability, and the effect of macroeconomic conditions on payment volumes.