Repay Holdings Corporation — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Repay is a payments technology company providing integrated electronic payment processing solutions to industry-focused vertical markets. This unaudited Form 10-Q covers the three months ended March 31, 2021, with comparison to the restated three months ended March 31, 2020. The company processed approximately $4.6 billion of card payment volume, up approximately 20% year over year.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $47.5 million | $39.5 million | +20.4% |
| Operating loss | $8.8 million | $3.4 million | Worsened by $5.4 million |
| Operating margin | (18.5%) | (8.6%) | Down approximately 9.9 percentage points |
| Net loss | $18.0 million | $13.2 million | Worsened by $4.8 million |
| Net loss attributable to Repay | $15.8 million | $10.3 million | Worsened by 52.9% |
| Loss per Class A share | $0.21 | $0.27 | Improved; affected by higher share count |
| Adjusted EBITDA | $20.5 million | $17.4 million | +17.9% |
| Adjusted net income | $15.1 million | $12.4 million | Reported figures increased; filing text labels the change inconsistently |
| Net cash from operating activities | $4.8 million | $8.6 million | Down $3.8 million |
| Capitalized investing cash outflow | $5.2 million | $38.3 million | Improved primarily because Q1 2020 included the Ventanex acquisition |
Revenue growth reflected newly signed customers, existing-customer growth, and approximately $4.9 million of incremental revenue from Ventanex, cPayPlus and CPS. Other costs of services increased 15.8% to $12.5 million, while selling, general and administrative expense increased 28.0% to $23.4 million. Depreciation and amortization increased 28.8% to $17.8 million, primarily from acquisition-related intangible assets.
Adjusted EBITDA margin was approximately 43.1% in Q1 2021 compared with 44.0% in Q1 2020. The filing presents Adjusted EBITDA and Adjusted net income as non-GAAP measures that should not be viewed as substitutes for GAAP results.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were $390.9 million at March 31, 2021, compared with $91.1 million at December 31, 2020. Including restricted cash, total cash was $410.4 million.
- The company had $427.3 million of net noncurrent borrowings, consisting primarily of $440.0 million principal amount of 0.00% convertible senior notes due 2026, net of issuance costs.
- The company issued the 2026 Notes in January 2021 and used proceeds to repay its prior term loans. It recognized a $5.9 million loss on extinguishment of debt.
- The new senior secured revolving credit facility provides $125.0 million of capacity; no amounts were drawn at March 31, 2021.
- Financing activities generated $304.4 million, including $440.0 million of debt issuance proceeds and $142.1 million of proceeds from the January equity offering, partially offset by debt repayments and issuance costs.
- The tax receivable agreement liability was $230.4 million. Management expects future TRA payments to be substantial and notes that payments could exceed realized tax benefits.
Material Changes and Unusual Items
- The company completed a public offering of 6,244,500 Class A shares at $24.00 per share in January 2021.
- It issued $440.0 million of convertible senior notes due February 2026, initially convertible at approximately $33.60 per share. The notes could result in significant future dilution; approximately 13.1 million potential shares were excluded from diluted loss per share because they were anti-dilutive.
- Interest rate swaps were settled in Q1 2021, producing a $9.1 million loss. The settlement followed repayment of the variable-rate term loans.
- Acquisition-related contingent consideration increased to $17.5 million at March 31, 2021, with a $2.6 million fair-value expense recorded during the quarter.
- The company restated prior-period financial statements for warrant accounting following the SEC’s April 2021 SPAC warrant guidance. The restatement affected noncash items and increased the reported Q1 2020 net loss, but had no impact on Q1 2021 results, liquidity or cash position.
- Management identified a material weakness in internal control over financial reporting related to review controls for complex, non-routine transactions, specifically SPAC warrant accounting. Remediation efforts have begun, but management provided no assurance that they will be fully effective.
- On May 10, 2021, after quarter-end, the company announced the planned acquisition of BillingTree for approximately $503.0 million, consisting of $275.0 million in cash and $228.0 million in newly issued Class A shares. Closing was expected by the end of Q2 2021, subject to customary conditions.
Outlook, Commentary and Risks
Management expects operating cash flow, cash on hand and available revolving capacity to fund operations, planned capital expenditures and debt obligations for at least the next twelve months. The company expects to remain in compliance with its credit agreement and convertible note covenants.
Key risks include continued uncertainty from COVID-19, economic conditions affecting consumer lending and spending, successful integration of recent and planned acquisitions, competition and technological change in payment processing, regulatory developments, data security, dependence on payment ecosystem relationships, variable-rate debt exposure and the potential phase-out of LIBOR. The company also notes seasonal strength in first-quarter payment volumes and revenue.
Legal proceedings are described as routine and not expected to have a material adverse effect. The filing states that there were no material changes to previously disclosed risk factors.
Important Facts for Investors to Verify
- Assess whether revenue and card-volume growth can outpace rising operating expenses, amortization and acquisition-related costs.
- Review the reconciliation and definitions of Adjusted EBITDA and Adjusted net income; the filing’s narrative contains an apparent inconsistency regarding the year-over-year change in Adjusted net income.
- Evaluate leverage, potential dilution from the 2026 Notes and the company’s ability to refinance or repay the $440.0 million maturity in 2026.
- Quantify future cash obligations under the $230.4 million tax receivable agreement liability and acquisition earnouts.
- Monitor BillingTree closing terms, financing, share issuance and integration risks.
- Confirm remediation of the material weakness and the effectiveness of controls over complex accounting transactions.
- Consider the effect of COVID-19, consumer spending trends, interest rates and future regulatory or LIBOR-related changes on payment volumes and cash flow.