Repay Holdings Corporation — FY2021 Form 10-K Summary
Business context and reporting period
Repay is a payments technology company providing integrated electronic payment processing, ACH, virtual card, instant funding and related services to vertical markets including personal lending, automotive lending, receivables management and business-to-business payments. The filing covers the fiscal year ended December 31, 2021; it is an annual filing rather than a quarterly filing.
- Processed approximately $20.5 billion of card payment volume, up approximately 35% year over year.
- Served more than 18,000 clients and maintained approximately 222 software integrations as of December 31, 2021.
- Completed the BillingTree, Kontrol and Payix acquisitions during 2021.
Financial performance and key metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $219.3 million | $155.0 million | Up 41.4% |
| Loss from operations | $(54.0) million | $(32.0) million | Loss increased |
| Net loss | $(56.0) million | $(117.4) million | Loss decreased |
| Net loss attributable to Repay | $(50.1) million | $(105.6) million | Loss decreased 52.6% |
| Basic and diluted loss per share | $(0.60) | $(2.02) | Improved |
| Adjusted EBITDA | $93.2 million | $59.6 million | Up 56.5% |
| Adjusted net income | $73.0 million | $36.5 million | Up 100.0% |
| Net cash from operating activities | $53.3 million | $28.5 million | Up 87.2% |
GAAP operating margin was approximately negative 24.6%, and GAAP net margin was approximately negative 25.6%. Adjusted EBITDA margin was approximately 42.5%; this is a non-GAAP measure and should be evaluated alongside GAAP results. Revenue growth reflected organic client and volume growth and approximately $42.7 million of incremental revenue attributed to BillingTree, Kontrol and Payix.
Operating expenses increased to $273.3 million from $187.0 million, including $89.7 million of depreciation and amortization, $120.1 million of selling, general and administrative expense, a $5.8 million increase in contingent consideration, and a $2.2 million trade-name impairment charge. The company also recorded a $5.9 million loss on debt extinguishment, a $9.1 million loss primarily related to settling interest-rate swaps and disposing of property and equipment, and a $30.7 million income tax benefit.
Liquidity, debt and cash flow
- Cash and cash equivalents were $50.0 million at December 31, 2021, compared with $91.1 million at December 31, 2020.
- Restricted cash was $26.3 million, primarily related to reserves and client settlement funds.
- Net cash used in investing activities was $397.3 million, primarily for the BillingTree, Kontrol and Payix acquisitions and software development.
- Net cash provided by financing activities was $313.8 million, including proceeds from equity issuance and the convertible notes offering.
- The company had $165.0 million of available borrowing capacity under its $185.0 million revolving credit facility and $20.0 million drawn at year-end.
- Outstanding debt consisted principally of $440.0 million of 0.00% convertible senior notes due February 2026 and $20.0 million of revolver borrowings; carrying value of total long-term debt was $448.5 million after issuance costs.
- Management stated that operating cash flow, cash on hand and available revolver capacity should fund operations, planned capital expenditures and debt obligations for the next twelve months.
Material changes versus the prior comparable period
- Revenue, card payment volume, operating cash flow and adjusted profitability increased substantially.
- GAAP net loss improved largely because 2020 included a $70.8 million non-cash increase in the fair value of warrant liabilities; all outstanding warrants were redeemed in July 2020.
- Interest expense declined to $3.7 million from $14.4 million after repayment of the prior term loans, although the company incurred a $5.9 million debt-extinguishment loss.
- The company issued $440.0 million of convertible notes and completed a public equity offering of 6,244,500 shares at $24.00 per share in January 2021.
- Total assets increased to $1.69 billion from $1.11 billion, driven primarily by acquisitions, goodwill and acquired intangible assets. Goodwill increased to $824.1 million from $459.0 million.
- Class A shares outstanding increased to 88.5 million at year-end from 71.2 million, and the company issued approximately 10 million shares as part of the BillingTree acquisition.
- The tax receivable agreement liability increased to $245.8 million from $229.2 million. The company expects future payments under the agreement to be substantial.
Outlook, management commentary, risks and unusual items
Management expects continued growth from increased electronic-payment adoption, expansion in existing verticals, new vertical and geographic opportunities, technology development and selective acquisitions. The company identified operating leverage, software integration partners and client payment-volume growth as important drivers. No quantified revenue or earnings guidance was provided in the filing.
- COVID-19 continues to create uncertainty, including possible effects on loan originations, business-to-business spending, healthcare activity and consumer behavior.
- The payments industry is highly competitive, and pricing pressure or higher interchange and network fees could reduce margins.
- The company depends on sponsor banks, third-party processors, software integration partners and technology providers; loss or disruption of these relationships could impair transaction processing.
- Cybersecurity breaches, fraud, chargebacks and system outages could result in liability, fines, reputational harm and loss of processing capability. The reported chargeback rate was below 1% of payment volume.
- The company faces extensive payments, privacy, consumer-protection, money-transmission and other regulation, including regulation affecting its lending and receivables-management clients.
- Acquisition integration, contingent consideration, goodwill and intangible-asset valuations create execution and impairment risks. The BillingTree, Kontrol and Payix purchase-price allocations remained preliminary at year-end.
- The company previously identified a material weakness related to warrant accounting and restated prior financial statements. Management stated that the weakness was remediated by September 30, 2021, and both management and the auditor concluded that internal control over financial reporting was effective at December 31, 2021. The auditor’s assessment excluded the acquired BillingTree, Kontrol and Payix entities.
- The Tax Receivable Agreement could require payments exceeding realized tax savings or accelerated lump-sum payments following specified events, potentially affecting liquidity.
- The company does not currently intend to pay cash dividends.
Important facts for investors to verify
- Reconcile reported revenue and adjusted EBITDA growth with organic growth, acquisition contributions and changes in the company’s non-GAAP definitions.
- Review acquisition integration results and the final purchase-price allocations for BillingTree, Kontrol and Payix.
- Assess leverage, convertible-note settlement or dilution exposure, revolver covenants and the February 2026 debt maturity.
- Evaluate cash conversion after acquisition spending, software capitalization, contingent consideration and tax distributions.
- Review the $245.8 million Tax Receivable Agreement liability and potential future cash payments.
- Monitor goodwill and intangible-asset balances, amortization expense and impairment sensitivity.
- Confirm remediation and ongoing effectiveness of internal controls, including controls over newly acquired subsidiaries and complex transactions.
- Track COVID-19 effects, regulatory developments, sponsor-bank relationships, cybersecurity incidents, fraud and chargeback trends.