Repay Holdings Corporation — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed March 1, 2023. This is an annual filing rather than a quarterly report. Repay is an integrated payments technology company serving consumer and business verticals through Consumer Payments and Business Payments segments.
Business context
- Processed approximately $25.6 billion of card payment volume in 2022, up approximately 25% year over year; served more than 23,000 clients and maintained approximately 240 software integrations.
- Consumer Payments generated $248.2 million of revenue, or approximately 85% of consolidated revenue. Business Payments generated $42.6 million, or approximately 15%, before intersegment eliminations.
- Growth reflected new and expanding clients and contributions from the BillingTree, Kontrol and Payix acquisitions.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $279.2 million | $219.3 million | Up 27.4% |
| Gross profit | $214.4 million | $163.8 million | Up 30.9% |
| Gross margin | 77% | 75% | Up 2 percentage points |
| Loss from operations | $(47.2) million | $(54.0) million | Improved by $6.8 million |
| Net income | $8.7 million | $(56.0) million | Improved by $64.8 million |
| Net income attributable to Repay | $12.8 million | $(50.1) million | Improved by $62.9 million |
| Basic earnings per share | $0.14 | $(0.60) | Improved |
| Adjusted EBITDA | $124.6 million | $93.2 million | Up 33.7% |
| Adjusted net income | $79.8 million | $73.8 million | Up 8.2% |
GAAP operating margin was approximately (16.9%), while net income attributable to Repay represented approximately 4.6% of revenue. Adjusted EBITDA margin was approximately 44.6%. Adjusted measures exclude significant items including acquisition-related amortization, share-based compensation, transaction costs, restructuring costs, fair-value changes and other items; they should not be viewed as substitutes for GAAP results.
Cash flow, liquidity and debt
- Net cash provided by operating activities was $74.2 million, compared with $53.3 million in 2021.
- Net cash used in investing activities was $39.5 million, primarily reflecting $36.4 million of capitalized software development and $3.2 million of property and equipment purchases.
- Net cash used in financing activities was $17.5 million, including $10.0 million of share repurchases and contingent consideration payments.
- Cash and cash equivalents were $64.9 million at year-end, with an additional $28.7 million of restricted cash. Available borrowing capacity was reported at $165.0 million at December 31, 2022.
- Total debt had a carrying value of $451.3 million, consisting primarily of $440.0 million principal amount of 0.00% convertible senior notes due February 2026 and $20.0 million drawn under the revolving credit facility, net of debt issuance costs.
- The revolving facility had total commitments of $185.0 million and carried a variable interest rate; the year-end rate was reported as 2.25% plus one-month LIBOR. The facility was amended in February 2023 to replace LIBOR with term SOFR.
- Subsequent to year-end, the Company sold Blue Cow Software for $41.0 million and repaid the $20.0 million revolver balance, restoring undrawn capacity to $185.0 million.
Material changes versus the prior comparable period
- Revenue growth accelerated the scale of both segments, with Consumer Payments revenue up 27.9% and Business Payments revenue up 26.0%.
- Gross margin expanded from 75% to 77%, reflecting revenue growth and operating mix.
- GAAP profitability improved substantially, although the $66.9 million gain from the change in fair value of the tax receivable agreement liability was a major contributor to 2022 net income.
- Operating expenses increased 19.5% to $326.4 million. Selling, general and administrative expense increased 24.2%, primarily due to compensation and technology costs; depreciation and amortization increased 20.1% due largely to acquired intangible assets.
- The Company recorded an $8.1 million impairment charge for trade names associated with BillingTree, Kontrol and Payix, compared with $2.2 million in 2021.
- Contingent consideration declined to $1.0 million from $17.0 million, following payments and a $3.3 million favorable fair-value adjustment.
- The Company repurchased 1,078,141 shares for approximately $10.0 million during 2022 under its $50 million share repurchase authorization.
Outlook, commentary, risks and unusual items
- Management expects operating cash flow, cash on hand and available revolver capacity to fund operations, planned capital expenditures and debt service for at least the next twelve months.
- Growth priorities include deeper penetration of existing verticals, expansion into new verticals and geographies, product innovation, operational efficiencies and selective acquisitions.
- Management highlighted inflation, rising interest rates, supply-chain disruption, slower growth and potential recessionary conditions as factors that could reduce consumer-loan, receivables-management and business-to-business payment volumes.
- The Company remains exposed to COVID-19-related economic effects, although the shift toward electronic payments may support demand.
- Key operating risks include intense competition, cybersecurity and data-breach exposure, system outages, fraud and chargebacks, reliance on sponsor banks and third-party processors, software integration partners, regulatory changes and the ability to integrate acquisitions.
- The Company depends on distributions from subsidiaries to fund corporate obligations. The Tax Receivable Agreement requires payments equal to 100% of certain realized or deemed tax benefits and had a reported liability of $179.1 million at year-end. Payments may exceed realized tax savings or accelerate upon specified events.
- The 2026 Notes may require cash settlement upon conversion or repurchase in certain circumstances, creating potential liquidity and dilution risk. The notes had an estimated fair value of $324.3 million versus a $433.1 million carrying value at year-end.
- Grant Thornton issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Revenue recognition was identified as the critical audit matter because of the volume of automated transactions and reliance on multiple information systems and third parties.
Investor verification checklist
- Reconcile the reported $124.6 million of Adjusted EBITDA and $79.8 million of Adjusted Net Income to GAAP results, focusing on recurring versus non-recurring adjustments.
- Assess the sustainability of growth and margin performance excluding the impact of BillingTree, Kontrol and Payix acquisitions.
- Review liquidity available for the $440.0 million convertible notes maturity in 2026, including potential conversion or fundamental-change obligations.
- Evaluate the cash timing and potential acceleration of the $179.1 million Tax Receivable Agreement liability.
- Monitor the effect of the February 2023 SOFR transition and higher variable-rate borrowing costs.
- Confirm the financial and strategic impact of the February 2023 Blue Cow sale and the use of the $41.0 million proceeds.
- Review cybersecurity, sponsor-bank, payment-network, regulatory and chargeback exposures, including the Company’s stated chargeback rate of less than 1% of payment volume.
- Consider potential dilution from 7,861,271 exchangeable Post-Merger Repay Units, equity awards and the 2026 Notes.