Repay Holdings Corporation: Q2 2021 Form 10-Q Summary
Business context and reporting period
Repay is a payments technology company providing integrated payment processing and software solutions to industry-specific vertical markets. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021, with comparisons to the restated 2020 periods.
- Card payment volume increased approximately 28% year over year in the quarter and 24% year over year for the six-month period. The filing reports quarterly volume of approximately $4.6 billion and six-month volume of $9.2 million; the six-month figure appears inconsistent with the quarterly figure and should be verified.
- BillingTree was acquired on June 15, 2021 for approximately $506.6 million, funded with $278.3 million of cash and approximately 10 million newly issued shares. Kontrol was acquired on June 22, 2021 for up to $11.0 million, including $7.5 million paid at closing.
Financial performance and key metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $48.4 million | $36.5 million | $95.9 million | $76.0 million |
| Operating loss | $(12.3) million | $(6.7) million | $(21.1) million | $(10.1) million |
| Net loss attributable to Repay | $(12.3) million | $(79.3) million | $(28.1) million | $(89.6) million |
| Loss per Class A share | $(0.15) | $(1.90) | $(0.36) | $(2.26) |
| Adjusted EBITDA | $20.4 million | $16.2 million | $40.9 million | $33.6 million |
| Adjusted net income | $14.0 million | $11.1 million | $29.1 million | $23.4 million |
- Revenue grew 32.6% in the quarter and 26.3% for the six-month period. Management attributed growth to new and expanding customers and acquisitions; acquired businesses contributed approximately $6.0 million of quarterly revenue and $9.0 million of six-month revenue.
- Quarterly operating margin was approximately negative 25.5%; six-month operating margin was approximately negative 22.0%. Adjusted EBITDA margins were approximately 42.1% and 42.6%, respectively.
- Other costs of services rose 45.8% in the quarter and 29.2% for the six-month period. Selling, general and administrative expense increased 55.3% and 42.4%, respectively, while depreciation and amortization increased 33.8% and 31.0%.
- Adjusted EBITDA increased 25.8% in the quarter and 21.7% for the six-month period. Adjusted net income increased 26.2% and 24.0%, respectively.
- GAAP losses improved substantially year over year because the 2020 comparison included non-cash warrant-liability fair-value losses of $66.7 million in the quarter and $73.6 million for the six-month period.
Cash flow, liquidity, debt, and balance sheet
- Six-month operating cash flow was $16.9 million, compared with $9.4 million in the prior-year period.
- Investing cash flow was $(286.5) million, principally reflecting the BillingTree acquisition, the Kontrol acquisition, and $9.7 million of software purchases.
- Financing cash flow was $303.7 million, primarily from $440.0 million of convertible notes and $142.1 million of common-stock issuance, offset by $262.7 million of term-loan repayments and $13.2 million of debt issuance costs.
- Cash and cash equivalents were $120.4 million at June 30, 2021, compared with $91.1 million at December 31, 2020. Restricted cash was $20.1 million, producing total cash, cash equivalents, and restricted cash of $140.5 million.
- Net debt consisted primarily of $440.0 million principal amount of 0.00% convertible senior notes due February 2026, reported at $428.0 million net of issuance costs. The company also had a $125.0 million senior secured revolving facility with no amounts drawn.
- The company reported compliance with applicable debt covenants and expects sufficient operating cash flow, cash on hand, and available revolver capacity to fund operations, planned capital expenditures, and debt obligations for the next twelve months.
- The tax receivable agreement liability was $235.0 million at June 30, 2021. Management expects future TRA payments to be substantial and notes that payments could exceed realized tax benefits.
- Total assets increased to $1.65 billion from $1.11 billion at December 31, 2020, primarily due to the BillingTree acquisition. Goodwill increased to $751.2 million from $459.0 million.
Material changes, unusual items, outlook, and risks
- The company completed a major acquisition program, most significantly BillingTree, which added software revenue and increased goodwill, identifiable intangibles, amortization, and integration requirements.
- Interest expense declined to $0.8 million in the quarter and $2.0 million for the six-month period, following repayment of the prior term loans. The company recognized a $5.9 million debt-extinguishment loss for the six-month period.
- The company settled its interest-rate swaps after repaying the term loans and recognized a $9.1 million loss on the settlement for the six-month period.
- Acquisition-related contingent consideration was $17.8 million at June 30, 2021. The filing identifies potential earnouts for Ventanex, cPayPlus, CPS, BillingTree, and Kontrol.
- Prior-period financial statements were restated because SPAC warrants previously classified as equity should have been classified as liabilities. The restatement was non-cash and did not affect liquidity or cash. The 2020 comparison figures in this filing are restated.
- Disclosure controls were not effective as of June 30, 2021 because of a material weakness in internal control over financial reporting related to accounting for the warrants. Management implemented remediation steps, but the weakness remained disclosed at quarter-end.
- Key risks include COVID-19 and economic uncertainty, consumer lending and spending trends, payment-industry competition and regulatory change, data security, integration and realization of acquisition benefits, dependence on payment-network and sponsor-bank relationships, interest-rate and LIBOR-transition risk, and the company’s ability to fund TRA obligations.
- Management provided no specific quantitative revenue or earnings guidance in the filing. It stated that cash, operating cash flow, and available borrowing capacity are expected to be sufficient for the next twelve months.
Investor verification checklist
- Verify the reported six-month card payment volume of $9.2 million, which appears inconsistent with the reported quarterly volume of $4.6 billion and the stated 24% year-over-year growth.
- Assess BillingTree’s ongoing revenue, profitability, integration progress, and whether acquisition synergies justify the approximately $506.6 million purchase price.
- Reconcile GAAP losses with Adjusted EBITDA and Adjusted Net Income, including the effects of acquisition amortization, stock compensation, transaction expenses, and other adjustments.
- Review the $440.0 million convertible notes, potential share dilution at the approximately $33.60 conversion price, and the February 2026 maturity.
- Evaluate the $235.0 million TRA liability and the potential timing and funding requirements of future payments.
- Monitor remediation of the material weakness and any further accounting or reporting consequences from the warrant restatement.
- Review contingent earnout obligations, acquisition-related integration costs, and the substantial increase in goodwill and intangible assets.