Repay Holdings Corporation: FY2020 Form 10-K Summary
Business context and reporting period
Repay is an integrated payments technology company serving personal lending, automotive lending, receivables management, healthcare and business-to-business markets. It processed approximately $15.2 billion of card payment volume in 2020, up approximately 42% year over year, and had more than 15,000 customers and approximately 124 software integrations as of December 31, 2020.
This Form 10-K covers the fiscal year ended December 31, 2020. Comparisons with 2019 generally use a combined predecessor and successor period because the July 2019 Business Combination created different accounting bases.
Key financial metrics
| Metric | FY2020 | 2019 comparable period |
|---|---|---|
| Total revenue | $155.0 million | $104.6 million |
| Revenue growth | 48.2% | — |
| Operating loss | $32.0 million | $48.2 million |
| Operating margin | (20.6%) | (46.1%) |
| Net loss attributable to Repay | $34.8 million | $40.0 million |
| Loss per Class A share | $0.67 | Not clearly provided on a combined basis |
| Adjusted EBITDA | $68.2 million | $48.4 million |
| Adjusted EBITDA margin | 44.0% | 46.3% |
| Adjusted net income | $43.7 million | $39.5 million |
| Cash flow from operations | $28.5 million | $21.3 million combined |
| Cash and cash equivalents | $91.1 million | $24.6 million |
| Restricted cash | $15.4 million | $13.3 million |
Other costs of services were $41.4 million, selling, general and administrative expense was $87.3 million, and depreciation and amortization was $60.8 million. The reported net loss was affected by $12.4 million of tax receivable agreement fair-value expense, $60.8 million of depreciation and amortization, $19.4 million of share-based compensation and other acquisition-related and non-recurring items.
Liquidity, debt and commitments
- At December 31, 2020, term loan borrowings were approximately $262.7 million before debt issuance costs; the revolver had no outstanding balance.
- Available borrowing capacity under the then-existing credit agreement was $75.6 million. The company reported compliance with its financial covenants.
- Total contractual obligations were $332.4 million, including $302.7 million of credit facility principal and estimated interest, $12.0 million of operating leases, $15.8 million of contingent consideration and $1.8 million of processing minimums.
- The tax receivable agreement liability was $229.2 million at year-end, compared with $67.2 million at December 31, 2019. Payments generally equal 100% of specified realized or deemed tax benefits and may be substantial or accelerated.
- In January 2021, Repay issued $440.0 million of 0.00% convertible senior notes due 2026 and used proceeds to repay the outstanding term loans. In February 2021, it replaced the prior facilities with an undrawn $125.0 million senior secured revolving facility.
Material changes versus the prior comparable period
- Revenue increased $50.4 million, driven by new customers, organic growth and acquisitions. Approximately $40.4 million of 2020 revenue was attributed to TriSource, APS, Ventanex, cPayPlus and CPS.
- Adjusted EBITDA increased 40.7% to $68.2 million, while adjusted net income increased 10.8% to $43.7 million.
- GAAP net loss attributable to Repay improved from approximately $40.0 million to $34.8 million, primarily because 2019 included substantial one-time Business Combination expenses.
- Operating expenses increased in several areas, particularly depreciation and amortization, which more than doubled because of purchase-accounting fair-value adjustments and additional acquired intangible assets.
- Repay completed acquisitions of Ventanex, cPayPlus and CPS for aggregate upfront cash consideration of approximately $122 million, excluding potential earnouts. Aggregate contingent consideration recorded at year-end was $15.8 million.
- Financing activities provided $186.1 million of cash, including approximately $509.9 million from Class A stock issuance and $86.8 million from warrant exercises, partly offset by $435.3 million of Post-Merger Repay Unit redemptions and debt repayments.
- The company adopted lease accounting and credit-loss standards in 2020. It also became a large accelerated filer and no longer qualified as an emerging growth company.
Outlook, management commentary and risks
Management expects continued growth from the shift from cash and checks to electronic payments, deeper penetration of existing verticals, new vertical and geographic expansion, product innovation, operating leverage and selective acquisitions. The filing does not provide specific 2021 revenue, earnings or margin guidance.
COVID-19 accelerated electronic-payment adoption but also created risks of lower loan originations, reduced debt-collection activity, weaker business-to-business payments, healthcare-payment disruption and lower consumer and commercial spending. Management stated that current cash, operating cash flow and available borrowing capacity were expected to fund operations, planned capital expenditures and debt service for the next twelve months.
- Key risks include intense competition and pricing pressure, dependence on sponsor banks and software integration partners, fraud and chargebacks, cybersecurity and system outages, payment-network compliance, regulatory changes affecting consumer lenders and electronic payments, and the potential requirement to obtain money-transmitter licenses.
- Chargebacks were reported at less than 1% of payment volume in 2020, but Repay can be liable when customers cannot fund chargebacks or fraud losses.
- Variable-rate debt exposed the company to interest-rate risk; interest-rate swaps hedged $205.0 million of term debt. A 1% rate change was estimated to affect annual cash interest expense by approximately $1.0 million.
- The company identified a material weakness in contract-maintenance system access controls during 2020 and stated that it remediated the weakness in the fourth quarter. Management and Grant Thornton concluded that internal control over financial reporting was effective as of December 31, 2020.
- Auditors issued unqualified opinions. Critical audit matters included the valuation of acquired intangible assets and the tax receivable agreement liability.
Important facts for investors to verify
- Reconcile reported GAAP losses with management’s Adjusted EBITDA and Adjusted Net Income, including the recurring nature of amortization, share-based compensation and acquisition-related costs.
- Assess whether acquired businesses, particularly CPS, cPayPlus and Ventanex, achieve the growth and earnout targets assumed in purchase accounting.
- Review post-year-end leverage, liquidity and conversion or repurchase risks associated with the $440.0 million convertible notes and the new $125.0 million revolving facility.
- Quantify potential future tax receivable agreement payments and test whether projected taxable income supports realization of the related tax benefits.
- Monitor organic payment-volume growth separately from acquisition-driven growth and evaluate margin trends as integration costs and amortization continue.
- Review cybersecurity, sponsor-bank, payment-network and regulatory developments, particularly those affecting consumer lending and data privacy.