UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 4, 2022, there are
REPAY HOLDINGS CORPORATION
Quarterly Report on Form 10‑Q
For the quarter ended September 30, 2022
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, anticipated benefits from our recent acquisitions, expected demand on our product offerings, including further implementation of electronic payment options and statements regarding our market and growth opportunities, and our business strategy and the plans and objectives of management for future operations. You generally can identify these statements by the use of words such as “outlook,” “potential,” “continue,” “may,” “seek,” “approximately,” “predict,” “believe,” “expect,” “plan,” “intend,” “estimate” or “anticipate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would,” “likely” and “could.” These statements may be found under Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. These risks and uncertainties include, but are not limited to: exposure to economic conditions and political risk affecting the consumer loan market, the receivables management industry and consumer and commercial spending, including inflationary pressures, general economic slowdown or recession; the impacts of the ongoing COVID-19 pandemic, including the continued emergence of new variants, and the actions taken to control or mitigate its spread; a delay or failure to integrate and/or realize the benefits of our recent acquisitions; changes in the payment processing market in which we compete, including with respect to its competitive landscape, technology evolution or regulatory changes; changes in the vertical markets that we target, including the regulatory environment applicable to our clients; the ability to retain, develop and hire key personnel; risks relating to our relationships within the payment ecosystem; risk that we may not be able to execute our growth strategies, including identifying and executing acquisitions; risks relating to data security; changes in accounting policies applicable to us; the risk that we may not be able to maintain effective internal controls; and those risks described under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.
PART I
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
REPAY HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
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September 30, 2022 (Unaudited) |
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December 31, 2021 |
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Assets |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable |
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Prepaid expenses and other |
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Total current assets |
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Property, plant and equipment, net |
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Restricted cash |
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Intangible assets, net |
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Goodwill |
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Operating lease right-of-use assets, net |
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Deferred tax assets |
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Other assets |
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Total noncurrent assets |
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Total assets |
$ |
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$ |
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Liabilities |
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Accounts payable |
$ |
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$ |
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Related party payable |
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Accrued expenses |
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Current operating lease liabilities |
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Current tax receivable agreement |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Noncurrent operating lease liabilities |
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Tax receivable agreement, net of current portion |
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Other liabilities |
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Total noncurrent liabilities |
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Total liabilities |
$ |
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$ |
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Commitments and ies (e 12) |
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Stockholders' equity |
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Class A common stock, $ |
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Class V common stock, $ |
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— |
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— |
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Additional paid-in capital |
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Treasury stock, |
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— |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total Repay stockholders' equity |
$ |
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$ |
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Non-controlling interests |
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Total equity |
$ |
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$ |
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Total liabilities and equity |
$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
1
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue |
$ |
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$ |
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$ |
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$ |
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Operating expenses |
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Costs of services (exclusive of depreciation and amortization shown separately below) |
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Selling, general and administrative |
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Depreciation and amortization |
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Change in fair value of contingent consideration |
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( |
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( |
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( |
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( |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other income (expense) |
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Interest expense |
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( |
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( |
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( |
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Loss on extinguishment of debt |
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— |
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— |
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— |
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( |
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Change in fair value of tax receivable liability |
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Other income |
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Other loss |
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( |
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( |
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( |
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( |
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Total other income (expense) |
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Income (loss) before income tax (expense) benefit |
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( |
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( |
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Income tax (expense) benefit |
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( |
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Net income (loss) |
$ |
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$ |
( |
) |
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$ |
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$ |
( |
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Less: Net loss attributable to |
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( |
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( |
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( |
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( |
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Net income (loss) attributable to the Company |
$ |
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$ |
( |
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$ |
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$ |
( |
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Income (loss) per Class A share attributable to the Company: |
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Basic |
$ |
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$ |
( |
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$ |
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$ |
( |
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Diluted |
$ |
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$ |
( |
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$ |
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$ |
( |
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Weighted-average shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to condensed consolidated financial statements.
2
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Other comprehensive income, before tax |
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Reclassification of net unrealized loss on cash flow hedges to other loss |
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— |
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— |
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— |
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Total other comprehensive income, before tax |
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— |
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— |
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— |
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Income tax related to items of other comprehensive income: |
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Tax expense on reclassification of net unrealized loss on cash flow hedges to other loss |
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— |
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— |
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— |
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( |
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Total income tax expense on related to items of other comprehensive income |
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— |
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— |
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— |
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( |
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Total other comprehensive income, net of tax |
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— |
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— |
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— |
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Total comprehensive income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Less: Comprehensive loss attributable to non-controlling interests |
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( |
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( |
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( |
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( |
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Comprehensive income (loss) attributable to the Company |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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See accompanying notes to condensed consolidated financial statements.
3
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
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Repay Stockholders |
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Class A Common |
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Class V Common |
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Additional |
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Treasury |
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Accumulated |
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Accumulated Other Comprehensive |
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Non-controlling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Stock |
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Deficit |
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(Loss) Income |
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Interests |
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Equity |
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Balance at June 30, 2021 |
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$ |
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$ |
- |
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$ |
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$ |
- |
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$ |
( |
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$ |
- |
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$ |
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$ |
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Exchange of Post-Merger Repay Units |
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- |
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- |
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- |
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- |
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( |
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- |
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Release of share awards vested under Incentive Plan |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Shares repurchased under Incentive Plan |
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( |
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( |
) |
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- |
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( |
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- |
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- |
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- |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Tax distribution from Hawk Parent |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Valuation allowance on Ceiling Rule DTA |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
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( |
) |
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Balance at September 30, 2021 |
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$ |
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$ |
- |
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$ |
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$ |
- |
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$ |
( |
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$ |
- |
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$ |
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$ |
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Balance at June 30, 2022 |
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$ |
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$ |
- |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
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Release of share awards vested under Incentive Plan |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Shares repurchased under Incentive Plan |
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( |
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( |
) |
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- |
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( |
) |
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- |
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- |
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- |
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( |
) |
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( |
) |
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Treasury shares repurchased |
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( |
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( |
) |
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- |
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- |
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( |
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- |
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- |
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( |
) |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Tax distribution from Hawk Parent |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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Net income (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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Balance at September 30, 2022 |
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$ |
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$ |
- |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
4
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited) (Continued)
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Repay Stockholders |
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|
|||||||||||||||||||||||||||||||
|
|
Class A Common |
|
|
Class V Common |
|
|
Additional |
|
|
Treasury |
|
|
Accumulated |
|
|
Accumulated Other Comprehensive |
|
|
Non-controlling |
|
|
Total |
|
||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
(Loss) Income |
|
|
Interests |
|
|
Equity |
|
||||||||||
Balance at December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Issuance of new shares |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||||
Exchange of Post-Merger Repay Units |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||||
Release of share awards vested under Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Shares repurchased under Incentive Plan |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
||
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||
Tax distribution from Hawk Parent |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Valuation allowance on Ceiling Rule DTA |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
||||
Balance at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Exchange of Post-Merger Repay Units |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
||||
Release of share awards vested under Incentive Plan and shares purchased under ESPP |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Shares repurchased under Incentive Plan and ESPP |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Treasury shares repurchased |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||
Tax distribution from Hawk Parent |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Net income (loss) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||
Balance at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
See accompanying notes to condensed consolidated financial statements.
5
REPAY HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Stock based compensation |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Loss on disposal of property and equipment |
|
|
|
|
|
|
||
Loss on termination of lease |
|
|
|
|
|
— |
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
|
|
Loss on sale of interest rate swaps |
|
|
— |
|
|
|
|
|
Fair value change in tax receivable agreement liability |
|
|
( |
) |
|
|
( |
) |
Fair value change in contingent consideration |
|
|
( |
) |
|
|
( |
) |
Payment of contingent consideration liability in excess of acquisition-date fair value |
|
|
( |
) |
|
|
( |
) |
Deferred tax expense |
|
|
|
|
|
( |
) |
|
Change in accounts receivable |
|
|
( |
) |
|
|
( |
) |
Change in prepaid expenses and other |
|
|
( |
) |
|
|
( |
) |
Change in operating lease ROU assets |
|
|
( |
) |
|
|
|
|
Change in accounts payable |
|
|
|
|
|
|
||
Change in related party payable |
|
|
( |
) |
|
|
|
|
Change in accrued expenses and other |
|
|
( |
) |
|
|
( |
) |
Change in operating lease liabilities |
|
|
|
|
|
( |
) |
|
Change in other liabilities |
|
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of intangible assets |
|
|
( |
) |
|
|
( |
) |
Purchase of equity investment |
|
|
— |
|
|
|
( |
) |
Acquisition of CPS, net of cash and restricted cash acquired |
|
|
— |
|
|
|
|
|
Acquisition of BillingTree, net of cash and restricted cash acquired |
|
|
— |
|
|
|
( |
) |
Acquisition of Kontrol, net of cash and restricted cash acquired |
|
|
— |
|
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Issuance of long-term debt |
|
|
— |
|
|
|
|
|
Payments on long-term debt |
|
|
— |
|
|
|
( |
) |
Public issuance of Class A Common Stock |
|
|
— |
|
|
|
|
|
Shares repurchased under Incentive Plan and ESPP |
|
|
( |
) |
|
|
( |
) |
Treasury shares repurchased |
|
|
( |
) |
|
|
— |
|
Distributions to Members |
|
|
( |
) |
|
|
( |
) |
Payment of loan costs |
|
|
— |
|
|
|
( |
) |
Payment of contingent consideration liability up to acquisition-date fair value |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Increase in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
$ |
|
|
$ |
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
||
Cash paid during the year for: |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
SUPPLEMENTAL SCHEDULE OF NONCASH |
|
|
|
|
|
|
||
INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Acquisition of BillingTree in exchange for Class A Common Stock |
|
$ |
— |
|
|
$ |
|
|
Acquisition of Kontrol in exchange for contingent consideration |
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
||
See accompanying notes to condensed consolidated financial statements.
6
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Organizational Structure and Corporate Information
Repay Holdings Corporation was incorporated as a Delaware corporation on July 11, 2019 in connection with the closing of a transaction (the “Business Combination”) pursuant to which Thunder Bridge Acquisition Ltd., a special purpose acquisition company organized under the laws of the Cayman Islands (“Thunder Bridge”), (a) domesticated into a Delaware corporation and changed its name to “Repay Holdings Corporation” and (b) consummated the merger of a wholly owned subsidiary of Thunder Bridge with and into Hawk Parent Holdings, LLC, a Delaware limited liability company (“Hawk Parent”).
Throughout this section, unless otherwise noted or unless the context otherwise requires, the terms “we”, “us”, “Repay” and the “Company” and similar references refer to Repay Holdings Corporation and its consolidated subsidiaries.
The Company is headquartered in Atlanta, Georgia.
2. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Statements
These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company's audited condensed consolidated financial statements and accompanying notes, which are included in the Annual Report on Form 10-K for the year ended December 31, 2021.
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with instructions to Form 10-Q and Rule 10-01 of SEC Regulation S-X as they apply to interim financial information. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading.
The interim condensed consolidated financial statements are unaudited, but in the Company’s opinion include all adjustments of a normal recurring nature or a description of the nature and amount of any adjustments other than normal recurring adjustments, operations and cash flows as of and for the periods presented. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Repay Holdings Corporation and its (i) wholly owned subsidiary, BT Intermediate, LLC, and (ii) majority-owned subsidiary, Hawk Parent Holdings LLC, along with Hawk Parent Holdings LLC's wholly owned subsidiaries: Hawk Intermediate Holdings, LLC, Hawk Buyer Holdings, LLC, Repay Holdings, LLC, M&A Ventures, LLC, Repay Management Holdco Inc., Repay Management Services LLC, Sigma Acquisition, LLC, Wildcat Acquisition, LLC, Marlin Acquirer, LLC, REPAY International LLC, REPAY Canada Solutions ULC, TriSource Solutions, LLC (“TriSource”), Mesa Acquirer, LLC, CDT Technologies LTD (“Ventanex”), Viking GP Holdings, LLC, cPayPlus, LLC (“cPayPlus”), CPS Payment Services, LLC, Media Payments, LLC (“MPI”), Custom Payment Systems, LLC, Electronic Payment Providers, LLC, Blue Cow Software, LLC, Hoot Payment Solutions, LLC, Internet Payment Exchange, LLC, Stratus Payment Solutions, LLC, Clear Payment Solutions, LLC, Harbor Acquisition LLC, Payix Holdings Incorporated and Payix Incorporated. All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Financial Statement Presentation
The accompanying interim condensed consolidated financial statements of the Company were prepared in accordance with GAAP. The Company uses the accrual basis of accounting whereby revenues are recognized when earned, usually upon the date services are rendered, and expenses are recognized at the date services are rendered or goods are received.
7
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported Condensed Consolidated Statements of Operations during the reporting period. Actual results could differ materially from those estimates.
Correction of Immaterial Error in Previously Issued Financial Statements
During the preparation of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company identified an error in the presentation of the reclassification of net unrealized loss on cash flow hedges to other loss and its related tax expenses within the Condensed Consolidated Statements of Comprehensive Income in previous reporting periods beginning the three months ended March 31, 2021, which resulted in a decrease of Comprehensive loss attributable to the Company from ($
Recently Issued Accounting Pronouncements not yet Adopted
Business Combinations
In August 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue (Topic 606), and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. Amendments within ASU No. 2021-08 are required to be applied prospectively to business combinations occurring on or after the effective date of the amendments.
3. Revenue
Disaggregation of revenue
The table below presents a disaggregation of revenue by direct and indirect relationships for the periods indicated:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Direct relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Indirect relationships |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
4. Earnings Per Share
During the three and nine months ended September 30, 2021, basic and diluted net loss per common share are the same since the inclusion of the assumed exchange of all limited liability company interests of Hawk Parent (“Post-Merger Repay Units”), unvested restricted share awards and the Company’s Convertible Senior Notes due 2026 (“2026 Notes”) would have been anti-dilutive.
The following table summarizes net income (loss) attributable to the Company and the weighted average basic and diluted shares outstanding:
8
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Income (loss) before income tax expense |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Less: Net loss attributable to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax (expense) benefit |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Net (loss) income attributable to the Company |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares of Class A common stock outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Add weighted average effect of dilutive common stock equivalent shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Post-Merger Repay Units exchangeable for Class A common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested restricted share awards of Class A common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding ESPP purchase rights for Class A common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2026 Notes convertible into Class A common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares of Class A common stock outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) per share of Class A common stock outstanding - basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Income (loss) per share of Class A common stock outstanding - diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
For the three and nine months ended September 30, 2021, the following common stock equivalent shares were excluded from the computation of the diluted loss per share, since their inclusion would have been anti-dilutive:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||
|
|
2021 |
|
|
2021 |
|
||
Post-Merger Repay Units exchangeable for Class A common stock |
|
|
|
|
|
|
||
Unvested restricted share awards of Class A common stock |
|
|
|
|
|
|
||
2026 Notes convertible into Class A common stock |
|
|
|
|
|
|
||
Share equivalents excluded from earnings (loss) per share |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Shares of the Company’s Class V common stock do not participate in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class V common stock under the two-class method has not been presented.
9
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
5. Business Combinations
BillingTree
On June 15, 2021, the Company acquired BT Intermediate, LLC (together with its subsidiaries, “BillingTree”). Under the terms of the agreement and plan of merger between BT Intermediate, LLC, the Company, two newly formed subsidiaries of the Company and the owner of BT Intermediate, LLC (“BillingTree Merger Agreement”), the aggregate consideration paid at closing by the Company was approximately $
The following summarizes the purchase consideration paid to the seller of BillingTree:
Cash consideration |
|
$ |
|
|
Class A common stock issued |
|
|
|
|
Total purchase price |
|
$ |
|
The Company recorded an allocation of the purchase price to BillingTree’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the June 15, 2021 closing date. The purchase price allocation is as follows:
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Total current assets |
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
Restricted cash |
|
|
|
|
Other assets |
|
|
|
|
Identifiable intangible assets |
|
|
|
|
Total identifiable assets acquired |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
( |
) |
Deferred tax liability |
|
|
( |
) |
Net identifiable assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
$ |
|
|
|
|
|
|
|
The values allocated to identifiable intangible assets and their estimated useful lives are as follows:
|
|
Fair Value |
|
|
Useful life |
|
Identifiable intangible assets |
|
(in millions) |
|
|
(in years) |
|
Non-compete agreements |
|
$ |
|
|
||
Trade names |
|
|
|
|
||
Developed technology |
|
|
|
|
||
Merchant relationships |
|
|
|
|
||
|
|
$ |
|
|
|
|
Goodwill of $
10
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Kontrol
On June 22, 2021, the Company acquired substantially all of the assets of Kontrol LLC (“Kontrol”). Under the terms of the asset purchase agreement between a newly formed subsidiary of Repay Holdings, LLC and the owner of Kontrol (“Kontrol Purchase Agreement”), the aggregate consideration paid at closing by the Company was up to $
The following summarizes the purchase consideration paid to the owner of Kontrol:
Cash consideration |
|
$ |
|
|
Contingent consideration (1) |
|
|
|
|
Total purchase price |
|
$ |
|
|
|
|
|
|
|
The Company recorded an allocation of the purchase price to Kontrol’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the June 22, 2021 closing date.
Accounts receivable |
|
$ |
|
|
Prepaid expenses and other current assets |
|
|
|
|
Total current assets |
|
|
|
|
Identifiable intangible assets |
|
|
|
|
Total identifiable assets acquired |
|
|
|
|
Accounts payable |
|
|
( |
) |
Net identifiable assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
$ |
|
|
|
|
|
|
|
The values allocated to identifiable intangible assets and their estimated useful lives are as follows:
|
|
Fair Value |
|
|
Useful life |
|
Identifiable intangible assets |
|
(in millions) |
|
|
(in years) |
|
Trade names |
|
$ |
|
|
||
Merchant relationships |
|
|
|
|
||
|
|
$ |
|
|
|
|
Goodwill of $
Payix
On December 29, 2021, the Company acquired Payix Holdings Incorporated (together with its subsidiary, “Payix”). Under the terms of the merger agreement with Payix (“Payix Purchase Agreement”), the aggregate consideration
11
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
paid at closing by the Company was approximately $
The following summarizes the preliminary purchase consideration paid to the sellers of Payix:
Cash consideration |
|
$ |
|
|
Contingent consideration (1) |
|
|
|
|
Total purchase price |
|
$ |
|
The Company recorded a preliminary allocation of the purchase price to Payix’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the December 29, 2021 closing date. The preliminary purchase price allocation is as follows:
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Total current assets |
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
Restricted cash |
|
|
|
|
Other assets |
|
|
|
|
Identifiable intangible assets |
|
|
|
|
Total identifiable assets acquired |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
( |
) |
Deferred tax liability |
|
|
( |
) |
Net identifiable assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
$ |
|
|
|
|
|
|
|
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
|
|
Fair Value |
|
|
Useful life |
|
Identifiable intangible assets |
|
(in millions) |
|
|
(in years) |
|
Trade names |
|
$ |
|
|
||
Developed technology |
|
|
|
|
||
Merchant relationships |
|
|
|
|
||
|
|
$ |
|
|
|
|
Goodwill recognized of $
12
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Measurement Period
The preliminary purchase price allocation for the acquisition of Payix is based on initial estimates and provisional amounts. The Company continues to refine its inputs and estimates inherent in the valuation of intangible assets, deferred income taxes, property and equipment and the accuracy and completeness of liabilities within the measurement period.
Transaction Expenses
The Company incurred transaction expenses of $
Pro Forma Financial Information (Unaudited)
The supplemental condensed consolidated results of the Company on an unaudited pro forma basis give effect to the BillingTree, Kontrol, and Payix acquisitions as if the transactions had occurred on January 1, 2021. The unaudited pro forma information reflects adjustments for the issuance of the Company’s common stock, debt incurred in connection with the transactions, the impact of the fair value of intangible assets acquired and related amortization and other adjustments the Company believes are reasonable for the pro forma presentation. In addition, the pro forma earnings exclude acquisition-related costs.
|
|
Pro Forma Three Months Ended September 30, |
|
|
Pro Forma Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net loss attributable to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income (loss) attributable to the Company |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) per Class A share - basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Income (loss) per Class A share - diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
13
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
6. Fair Value
The following table summarizes, by level within the fair value hierarchy, the carrying amounts and estimated fair values of the Company’s assets and liabilities measured at fair value on a recurring or nonrecurring basis or disclosed, but not carried, at fair value in the Condensed Consolidated Balance Sheets as of the dates presented. There were no transfers into, out of, or between levels within the fair value hierarchy during any of the periods presented.
|
|
September 30, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Borrowings |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Tax receivable agreement |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total liabilities |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Borrowings |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Tax receivable agreement |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total liabilities |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets
Other assets contain a minority equity investment in a privately-held company. The Company elected a measurement alternative for measuring this investment, in which the carrying amount is adjusted based on any observable price changes in orderly transactions. The investment is classified as Level 2 as observable adjustments to value are infrequent and occur in an inactive market.
Contingent consideration
Contingent consideration relates to potential payments that the Company may be required to make associated with acquisitions. The contingent consideration is recorded at fair value based on estimates of discounted future cash flows associated with the acquired businesses within Related party payable in the Condensed Consolidated Balance Sheets. To the extent that the valuation of these liabilities is based on inputs that are less observable or not observable in the market, the determination of fair value requires more judgment. Accordingly, the fair value of contingent consideration is classified within Level 3 of the fair value hierarchy, under ASC 820, Fair Value Measurement (“ASC 820”). The change in fair value is re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805, Business Combinations (“ASC 805”).
The Company used a to determine the present value, based on a risk-free rate adjusted for a credit spread, of the contingent consideration in the simulation approach. A range of
The following table provides a rollforward of the contingent consideration related to previous business acquisitions. Refer to Note 5 for more details.
14
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Purchases |
|
|
— |
|
|
|
|
|
Payments |
|
|
( |
) |
|
|
( |
) |
Valuation adjustment |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
$ |
|
|
$ |
|
||
Borrowings
The revolving credit facility, 2026 Notes and term loan are measured at amortized cost, which the carrying value is unpaid principal net of unamortized debt discount and debt issuance costs. The carrying value of the revolving credit facility approximates fair value because its interest rate approximates market interest rates. The estimated fair value of the 2026 Notes is determined using the quoted prices from over-the-counter markets. The estimated fair value of the Company’s borrowings is classified within Level 2 of the fair value hierarchy, as the market interest rates and quoted prices are generally observable and do not contain a high level of subjectivity.
The following table provides the carrying value and estimated fair value of borrowings. See Note 10 for further discussion on borrowings.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
Carrying value |
|
|
Fair value |
|
|
Carrying value |
|
|
Fair value |
|
||||
Revolving credit facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
2026 Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Tax Receivable Agreement
Upon the completion of the Business Combination, the Company entered into the Tax Receivable Agreement (the “TRA”) with holders of Post-Merger Repay Units. As a result of the TRA, the Company established a liability in its condensed consolidated financial statements. The TRA is recorded at fair value based on estimates of discounted future cash flows associated with the estimated payments to the Post-Merger Repay Unit holders. These inputs are not observable in the market; thus, the TRA is classified within Level 3 of the fair value hierarchy, under ASC 820. The change in fair value is re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805.
The Company used a discount rate, also referred to as the Early Termination Rate, as defined in the TRA, to determine the present value, based on a , pursuant to the TRA. A rate of
The following table provides a rollforward of the TRA related to the acquisition and exchanges of Post-Merger Repay Units. See Note 15 for further discussion on the TRA.
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Purchases |
|
|
|
|
|
|
||
Accretion expense |
|
|
|
|
|
|
||
Valuation adjustment |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
$ |
|
|
$ |
|
||
15
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
7. Property and Equipment
Property and equipment consisted of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Furniture, fixtures, and office equipment |
|
$ |
|
|
$ |
|
||
Computers |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less: Accumulated depreciation and amortization |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Depreciation expense for property and equipment was $
8. Intangible Assets
The Company holds definite and indefinite-lived intangible assets. As of September 30, 2022 and December 31, 2021, the indefinite-lived intangible assets consist of
Intangible assets consisted of the following:
|
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Weighted Average Useful Life (Years) |
|
||||
Client relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Channel relationships |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Software costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Balance as of September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Channel relationships |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Software costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Balance as of December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
The Company’s amortization expense for intangible assets was $
The estimated amortization expense for the next five years and thereafter in the aggregate is as follows:
Year Ending December 31, |
|
Estimated Future Amortization Expense |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
16
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
9. Goodwill
The following table presents changes to goodwill for the nine months ended September 30, 2022.
|
|
Total |
|
|
Balance at December 31, 2021 |
|
$ |
|
|
Acquisitions |
|
|
|
|
Dispositions |
|
|
||
Impairment Loss |
|
|
||
Measurement period adjustment |
|
|
|
|
Balance at September 30, 2022 |
|
$ |
|
|
|
|
|
|
|
During the nine months ended September 30, 2022, the Company recognized a $
The Company has only
10. Borrowings
Successor Credit Agreement
The Company entered into a Revolving Credit and Term Loan Agreement (as the “Successor Credit Agreement”) on July 11, 2019, with Truist Bank (formerly SunTrust Bank) and the other lenders party thereto, which provided a revolving credit facility (the “Revolving Credit Facility”), a term loan A (the “Term Loan”), and a delayed draw term loan at a variable interest rate (the “Delayed Draw Term Loan”). The Successor Credit Agreement provided for an aggregate revolving commitment of $
On February 10, 2020, as part of the financing for the acquisition of Ventanex, the Company entered into an agreement with Truist Bank and other members of its existing bank group to amend and upsize the Successor Credit Agreement from $
On January 20, 2021, the Company used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the outstanding Term Loans under the Successor Credit Agreement. The Company also terminated in full all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement.
Amended Credit Agreement
On February 3, 2021, the Company announced the closing of a new undrawn $
On December 29, 2021, the Company increased its existing senior secured credit facility by $
17
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
As of September 30, 2022, the Company had $
Convertible Senior Debt
On January 19, 2021, the Company issued $
During the nine months ended September 30, 2022, the conversion contingencies of the 2026 Notes were not met, and the conversion terms of the 2026 Notes were not significantly changed.
The following table summarizes the total borrowings under the Amended Credit Agreement and 2026 Notes:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Non-current indebtedness: |
|
|
|
|
|
|
||
Revolving Credit Facility (1) |
|
$ |
|
|
$ |
|
||
Convertible Senior Debt |
|
|
|
|
|
|
||
Total borrowings under credit facility and convertible senior debt |
|
|
|
|
|
|
||
Less: Long-term loan debt issuance cost (2) |
|
|
|
|
|
|
||
Total non-current borrowings |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
The following is a summary of principal maturities of long‑term debt for each of the next five years ending December 31 and in the aggregate:
2022 |
|
$ |
— |
|
2023 |
|
|
— |
|
2024 |
|
|
— |
|
2025 |
|
|
— |
|
2026 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
18
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
11. Derivative Instruments
The Company does not hold or use derivative instruments for trading purposes.
Derivative Instruments Designated as Hedges
Interest rate fluctuations expose the Company’s variable-rate term loan to changes in interest expense and cash flows. As part of its risk management strategy, the Company may use interest rate derivatives, such as interest rate swaps, to manage its exposure to interest rate movements.
In October 2019, the Company entered into a $
On February 21, 2020, the Company entered into a swap transaction with Regions Bank. On a quarterly basis, commencing on
Both interest rate swaps were settled in January 2021, with a realized loss of $
12. Commitments and Contingencies
Legal Matters
The Company is a party to various claims and lawsuits incidental to its business. In the Company’s opinion, the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, are not expected to have a material adverse effect on its financial position, liquidity, results of operations or cash flows.
Leases
The Company has commitments under operating leases for real estate leased from third parties under non-cancelable operating leases. The Company’s leases typically have lease terms between
19
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
The components of lease cost are presented in the following table:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Components of total lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amounts reported in the Condensed Consolidated Balance Sheets were as follows:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Operating leases: |
|
|
|
|
|
|
||
ROU assets |
|
$ |
|
|
$ |
|
||
Lease liability, current |
|
|
|
|
|
|
||
Lease liability, long-term |
|
|
|
|
|
|
||
Total lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|||
Weighted-average discount rate (annualized) |
|
|
% |
|
|
% |
||
Other information related to leases are as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
ROU assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating leases |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
The following table presents a maturity analysis of the Company’s operating leases liabilities as of September 30, 2022:
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted lease payments |
|
|
|
|
Less: Imputed interest |
|
|
|
|
Total lease liabilities |
|
$ |
|
20
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
13. Related Party Transactions
Related party payables consisted of the following:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Ventanex accrued earnout liability |
|
$ |
— |
|
|
$ |
|
|
CPS accrued earnout liability |
|
|
|
|
|
|
||
Kontrol accrued earnout liability |
|
|
— |
|
|
|
|
|
Payix accrued earnout liability |
|
|
— |
|
|
|
|
|
Other payables to related parties |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The Company incurred transaction costs on behalf of related parties of $
The Company held receivables from related parties of $
The Company owed $
14. Share Based Compensation
Omnibus Incentive Plan
At the 2019 Annual Shareholders Meeting of Thunder Bridge, the shareholders considered and approved the 2019 Omnibus Incentive Plan (the “Incentive Plan”) which resulted in the reservation of
Under this plan, the Company currently has three types of share-based compensation awards outstanding: performance stock units (“PSUs”), restricted stock awards (“RSAs”) and restricted stock units (“RSUs”).
The following table summarizes share-based compensation expense and the related income tax benefit recognized for the Company’s share-based compensation awards:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Share-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
21
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Activities for RSAs for the nine months ended September 30, 2022 are as follows:
|
|
Class A Common Stock |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested at December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited (1)(2) |
|
|
|
|
|
|
||
Vested |
|
|
|
|
|
|
||
Unvested at September 30, 2022 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Activities for RSUs for the nine months ended September 30, 2022 are as follows:
|
|
Class A Common Stock |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested at December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
Vested |
|
|
|
|
|
|
||
Unvested at September 30, 2022 |
|
|
|
|
$ |
|
||
Activities for PSUs for the nine months ended September 30, 2022 are as follows:
|
|
Class A Common Stock (3) |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested at December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Unvested at September 30, 2022 |
|
|
|
|
$ |
|
||
Unrecognized compensation expense related to unvested PSUs, RSAs and RSUs was $
Employee Stock Purchase Plan
On August 18, 2021, the Company’s stockholders approved the Repay Holdings Corporation 2021 Employee Stock Purchase Plan (the “ESPP”). The purpose of the ESPP is to provide eligible employees with the opportunity to purchase the Company’s Class A common stock through accumulated payroll deductions. A total of
15. Taxation
Repay Holdings Corporation is taxed as a corporation and is subject to paying corporate federal, state and local taxes on the income allocated to it from Hawk Parent, based upon Repay Holding Corporation’s economic interest held in
22
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Hawk Parent, as well as any stand-alone income or loss it generates. Hawk Parent is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Hawk Parent is not subject to U.S. federal and certain state and local income taxes. Hawk Parent’s members, including Repay Holdings Corporation, are liable for federal, state and local income taxes based on their allocable share of Hawk Parent’s pass-through taxable income.
The Company’s effective tax rate was (
The Company recognized adjustments of $
Deferred tax assets, net of $
The Company did not recognize any adjustment to the deferred tax asset (“DTA”) and offsetting deferred tax liability (“DTL”) recorded as a result of the ceiling rule limitation arising under Code Sec. 704(c) for the nine months ended September 30, 2022, to account for the portion of the Company’s outside basis in the partnership interest that it will not recover through tax deductions. As the ceiling rule causes taxable income allocations to be in excess of 704(b) book allocations the DTL will unwind, leaving only the DTA, which may only be recovered through the sale of the partnership interest in Hawk Parent. The Company has concluded, based on the weight of all positive and negative evidence, that all of the DTA associated with the ceiling rule limitation is not likely to be realized. As such, a
Tax Receivable Agreement Liability
Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of Hawk Parent when Post-Merger Repay Units are redeemed or exchanged for Class A common stock of Repay Holdings Corporation. The Company intends to treat any redemptions and exchanges of Post-Merger Repay Units as direct purchases for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
On July 11, 2019, the Company entered into a TRA that provides for the payment by the Company of
23
REPAY HOLDINGS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
and from its acquisition of the equity of the selling Hawk Parent members, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”). The TRA Payments are not conditioned upon any continued ownership interest in Hawk Parent or the Company. The rights of each party under the TRA other than the Company are assignable. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors.
16. Subsequent events
Management has evaluated subsequent events and their potential effects on these unaudited condensed consolidated financial statements. Based upon the review, management did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this section, "Repay", the “Company", "we", or "our" refer to Repay Holdings Corporation and its subsidiaries, unless the context otherwise requires. Certain figures have been rounded for ease of presentation and may not sum due to rounding.
Cautionary Note Regarding Forward-Looking Statements
Statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Overview
We are a leading payments technology company. We provide integrated payment processing solutions to industry-oriented markets in which clients have specific transaction processing needs. We refer to these markets as “vertical markets” or “verticals.”
Our proprietary, integrated payment technology platform reduces the complexity of the electronic payments process for businesses, while enhancing their consumers’ overall experience. We are a payments innovator, differentiated by our proprietary, integrated payment technology platform and our ability to reduce the complexity of the electronic payments for businesses. We intend to continue to strategically target verticals where we believe our ability to tailor payment solutions to our client needs, our deep knowledge of our vertical markets and the embedded nature of our integrated payment solutions will drive strong growth by attracting new clients and fostering long-term client relationships.
Since a significant portion of our revenue is derived from volume-based payment processing fees, card payment volume is a key operating metric that we use to evaluate our business. We processed approximately $6.4 billion and $19.0 billion of total card payment volume for the three and nine months ended September 30, 2022, respectively, and our card payment volume growth over the same periods in 2021 was approximately 15% and 28%, respectively.
Macroeconomic Conditions and COVID-19
We have been monitoring the current economic environment in the U.S. and globally – characterized by heightened inflation (including changes in wages), rising interest rates, supply chain issues and slower growth. Such macroeconomic conditions may continue to evolve in ways that are difficult to fully anticipate and may also include increased levels of unemployment and/or a recession. Some or all of these market factors have and could continue to adversely affect our payment volumes from the consumer loan market, the receivables management industry and consumer and commercial spending. The effect of these events on our financial condition, results of operations and cash flows is uncertain and cannot be predicted at this time.
In addition, the ultimate impact of the COVID-19 pandemic on our results remains uncertain. Although our operations have continued effectively despite social distancing and other measures taken in response to the pandemic, it is possible that we could be adversely affected if the COVID-19 pandemic (including the continued emergence of new variants) results in new or additional mitigation efforts (including actions which could cause or exacerbate economic conditions described in the preceding paragraph).
Finally, the impact of all of these various events on our results in the first nine months of 2022 may not be necessarily indicative of their impact on our results for the remainder of 2022.
25
Business Combination
The Company was formed upon closing of the merger of Hawk Parent with a subsidiary of Thunder Bridge, a special purpose acquisition company, on July 11, 2019. On the closing of the Business Combination, Thunder Bridge changed its name to “Repay Holdings Corporation.”
Key Factors Affecting Our Business
Key factors that we believe impact our business, results of operations and financial condition include, but are not limited to, the following:
Key Components of Our Revenues and Expenses
Revenues
Revenue. As our clients process increased volumes of payments, our revenues increase as a result of the fees we charge for processing these payments. Most of our revenues are derived from volume-based payment processing fees (“discount fees”) and other related fixed per transaction fees. Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed and include fees relating to processing and services that we provide. The transaction price for such processing services is determined, based on the judgment of management, considering factors such as margin objectives, pricing practices and controls, client segment pricing strategies, the product life cycle and the observable price of the service charged to similarly situated clients. During the three and nine months ended September 30, 2022 and 2021, our chargeback rate was less than 1% of our card payment volume.
Expenses
Costs of services. Costs of services primarily include commissions to our software integration partners and other third-party processing costs, such as front and back-end processing costs and sponsor bank fees.
Selling, general and administrative. Selling, general and administrative expenses include salaries, share-based compensation and other employment costs, professional service fees, rent and utilities, and other operating costs.
Depreciation and amortization. Depreciation expense consists of depreciation on our investments in property, equipment and computer hardware. Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset. Amortization expense for software development costs and purchased software is recognized on the straight-line method over a three-year estimated useful life, between eight to ten years estimated useful life for client relationships and channel relationships, and between two to five years estimated useful life for non-compete agreements.
Interest expense. Interest expense consists of interest in respect of our indebtedness under the Successor Credit Agreement, which was entered into in connection with the Business Combination and amended in February 2020, and the Amended Credit Agreement, which replaced the Successor Credit Agreement in February 2021.
Change in fair value of tax receivable liability. This amount represents the change in fair value of the tax receivable agreement liability. The TRA liability is carried at fair value; so, any change to the valuation of this liability is recognized through this line in other expense. The change in fair value can result from the redemption or exchange of Post-Merger Repay Units for Class A common stock of Repay Holdings Corporation, or through accretion of the discounted fair value of the expected future cash payments.
26
Results of Operations (Unaudited)
|
|
Three Months ended September 30, |
|
|
Nine Months ended September 30, |
|
||||||||||
(in $ thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
$ |
71,555 |
|
|
$ |
61,125 |
|
|
$ |
206,554 |
|
|
$ |
157,058 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Costs of services (exclusive of depreciation and amortization shown separately below) |
|
|
16,634 |
|
|
|
15,288 |
|
|
|
49,930 |
|
|
|
40,483 |
|
Selling, general and administrative |
|
|
36,032 |
|
|
|
33,696 |
|
|
|
107,379 |
|
|
|
86,632 |
|
Depreciation and amortization |
|
|
24,662 |
|
|
|
25,907 |
|
|
|
82,442 |
|
|
|
63,379 |
|
Change in fair value of contingent consideration |
|
|
(340 |
) |
|
|
(1,550 |
) |
|
|
(4,290 |
) |
|
|
(101 |
) |
Total operating expenses |
|
$ |
76,988 |
|
|
$ |
73,341 |
|
|
$ |
235,461 |
|
|
$ |
190,393 |
|
Loss from operations |
|
$ |
(5,433 |
) |
|
$ |
(12,216 |
) |
|
$ |
(28,907 |
) |
|
$ |
(33,335 |
) |
Interest expense |
|
|
(1,130 |
) |
|
|
(764 |
) |
|
|
(3,170 |
) |
|
|
(2,764 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,941 |
) |
Change in fair value of tax receivable liability |
|
|
11,411 |
|
|
|
3,411 |
|
|
|
55,481 |
|
|
|
99 |
|
Other income |
|
|
54 |
|
|
|
19 |
|
|
|
70 |
|
|
|
81 |
|
Other loss |
|
|
(4 |
) |
|
|
(19 |
) |
|
|
(154 |
) |
|
|
(9,099 |
) |
Total other income (expense) |
|
|
10,331 |
|
|
|
2,647 |
|
|
|
52,227 |
|
|
|
(17,624 |
) |
Income (loss) before income tax (expense) benefit |
|
|
4,898 |
|
|
|
(9,569 |
) |
|
|
23,320 |
|
|
|
(50,959 |
) |
Income tax (expense) benefit |
|
|
474 |
|
|
|
2,261 |
|
|
|
(6,414 |
) |
|
|
12,320 |
|
Net income (loss) |
|
$ |
5,372 |
|
|
$ |
(7,308 |
) |
|
$ |
16,906 |
|
|
$ |
(38,639 |
) |
Net loss attributable to non-controlling interest |
|
|
(473 |
) |
|
|
(1,042 |
) |
|
|
(2,602 |
) |
|
|
(4,310 |
) |
Net income (loss) attributable to the Company |
|
$ |
5,845 |
|
|
$ |
(6,266 |
) |
|
$ |
19,508 |
|
|
$ |
(34,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Class A common stock outstanding - basic |
|
|
88,735,518 |
|
|
|
88,273,194 |
|
|
|
88,749,417 |
|
|
|
81,595,128 |
|
Weighted-average shares of Class A common stock outstanding - diluted |
|
|
110,114,054 |
|
|
|
88,273,194 |
|
|
|
110,789,646 |
|
|
|
81,595,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) per Class A share - basic |
|
$ |
0.07 |
|
|
$ |
(0.07 |
) |
|
$ |
0.22 |
|
|
$ |
(0.42 |
) |
Income (loss) per Class A share - diluted |
|
$ |
0.05 |
|
|
$ |
(0.07 |
) |
|
$ |
0.18 |
|
|
$ |
(0.42 |
) |
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Revenue
Total revenue was $71.6 million for the three months ended September 30, 2022 and $61.1 million for the three months ended September 30, 2021, an increase of $10.4 million or 17.1%. This increase was the result of newly signed clients, the growth of our existing clients, as well as the acquisition of Payix. For the three months ended September 30, 2022, incremental revenues of approximately $3.2 million are attributable to Payix.
Costs of Services
Costs of services were $16.6 million for the three months ended September 30, 2022 and $15.3 million for the three months ended September 30, 2021, an increase of $1.3 million or 8.8%. This increase was primarily the result of the acquisition of Payix. For the three months ended September 30, 2022, incremental costs of services of approximately $0.9 million are attributable to Payix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $36.0 million for the three months ended September 30, 2022 and $33.7 million for the three months ended September 30, 2021, an increase of $2.3 million or 6.9%, primarily due to a $1.1 million increase in software and technological services expenses related to the integration of acquired businesses and a $0.7 million increase in compensation expenses related to general business growth and increased employees related to acquisitions.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $24.7 million for the three months ended September 30, 2022 and $25.9 million for the three months ended September 30, 2021, a decrease of $1.2 million or 4.8%, primarily due to a $1.8 million decrease in the amortization of software, offset by a $0.5 million increase in the amortization of client relationships.
27
Change in the Fair Value of Contingent Consideration
Change in the fair value of contingent consideration was ($0.3) million for the three months ended September 30, 2022, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of CPS and Kontrol.
Interest Expense
Interest expense was $1.1 million for the three months ended September 30, 2022 and $0.8 million for the three months ended September 30, 2021, an increase of $0.4 million or 47.9%. This increase was due to a higher average outstanding principal balance under our Amended Credit Agreement.
Change in Fair Value of Tax Receivable Liability
We incurred a gain, related to accretion expense and fair value adjustment of the tax receivable liability of $11.4 million for the three months ended September 30, 2022 compared to a $3.4 million net gain for the three months ended September 30, 2021, an increase of $8.0 million. This increase was due to lower fair value adjustments related to the tax receivable liability, primarily as a result of changes to the discount rate, or Early Termination rate, used to determine the fair value of the liability.
Income Tax (Expense) Benefit
The income tax benefit was $0.5 million for the three months ended September 30, 2022, reflecting the expected income tax benefit on the income generated over the same period. This was a result of the operating income incurred by the Company, primarily driven by the change in fair value of the tax receivable liability and contingent consideration, offset by stock-based compensation deductions and the amortization of assets acquired in the Business Combination and prior acquisitions. In addition, the income tax benefit for the three months ended September 30, 2022, is also a result of the change in the effective tax rate for the quarter, which is dependent on many factors, including the estimated amount of income subject to income tax. As such, the effective tax rate can vary from period to period. The income tax benefit was $2.3 million for the three months ended September 30, 2021, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Revenue
Total revenue was $206.6 million for the nine months ended September 30, 2022 and $157.1 million for the nine months ended September 30, 2021, an increase of $49.5 million or 31.5%. This increase was the result of newly signed clients, the growth of our existing clients, as well as the acquisitions of BillingTree, Kontrol, and Payix. For the nine months ended September 30, 2022, incremental revenues of approximately $34.6 million are attributable to BillingTree, Kontrol, and Payix.
Costs of Services
Costs of services were $49.9 million for the nine months ended September 30, 2022 and $40.5 million for the nine months ended September 30, 2021, an increase of $9.4 million or 23.3%. This increase was the result of the acquisitions of BillingTree, Kontrol, and Payix. For the nine months ended September 30, 2022, incremental costs of services of approximately $6.5 million are attributable to BillingTree, Kontrol, and Payix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $107.4 million for the nine months ended September 30, 2022 and $86.6 million for the nine months ended September 30, 2021, an increase of $20.7 million or 23.9%, primarily due to a $16.0 million increase in compensation expenses with general business growth and increased employees related to acquisitions, and a $4.7 million increase in software and technological services expenses related to the integration of acquired businesses.
28
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $82.4 million for the nine months ended September 30, 2022 and $63.4 million for the nine months ended September 30, 2021, an increase of $19.1 million or 30.1%, primarily due to a $19.3 million increase in depreciation and amortization of fixed assets and intangibles from the acquisitions of BillingTree, Kontrol and Payix.
Change in the Fair Value of Contingent Consideration
Change in the fair value of contingent consideration was ($4.3) million for the nine months ended September 30, 2022, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of CPS, Kontrol and Payix.
Interest Expense
Interest expense was $3.2 million for the nine months ended September 30, 2022 and $2.8 million for the nine months ended September 30, 2021, an increase of $0.4 million or 14.7%. This increase was due to a higher average outstanding principal balance under our Amended Credit Agreement.
Loss on Extinguishment of Debt
We incurred a loss of $5.9 million on extinguishment of debt for the nine months ended September 30, 2021, due to the termination in full of all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement.
Change in Fair Value of Tax Receivable Liability
We incurred a gain, related to accretion expense and fair value adjustment of the tax receivable liability of $55.5 million for the nine months ended September 30, 2022 compared to a $0.1 million net gain for the nine months ended September 30, 2021, an increase of $55.4 million. This increase was due to lower fair value adjustments related to the tax receivable liability, primarily as a result of changes to the discount rate, or Early Termination Rate, used to determine the fair value of the liability.
Other Loss
We incurred a loss of $9.1 million on the settlement of interest rate swaps for the nine months ended September 30, 2021.
Income Tax (Expense) Benefit
The income tax expense was $6.4 million for the nine months ended September 30, 2022, reflecting the expected income tax expense on the income generated over the same period. This was a result of the operating income incurred by the Company, primarily driven by the change in fair value of the tax receivable liability and contingent consideration, offset by stock-based compensation deductions and the amortization of assets acquired in the Business Combination and prior acquisitions. The income tax benefit was $12.3 million for the nine months ended September 30, 2021, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent.
29
Non-GAAP Financial Measures
This report includes certain non-GAAP financial measures that management uses to evaluate our operating business, measure our performance and make strategic decisions.
Adjusted EBITDA is a non-GAAP financial measure that represents net income prior to interest expense, tax expense, depreciation and amortization, as adjusted to add back certain charges deemed to not be part of normal operating expenses, non-cash charges and/or non-recurring charges, such as loss on extinguishment of debt, loss on termination of interest rate hedge, non-cash change in fair value of contingent consideration, non-cash change in fair value of assets and liabilities, share-based compensation charges, transaction expenses, restructuring and other strategic initiative costs and other non-recurring charges.
Adjusted Net Income is a non-GAAP financial measure that represents net income prior to amortization of acquisition-related intangibles, as adjusted to add back certain charges deemed to not be part of normal operating expenses, non-cash charges and/or non-recurring charges, such as loss on extinguishment of debt, loss on termination of interest rate hedge, non-cash change in fair value of contingent consideration, non-cash change in fair value of assets and liabilities, share-based compensation expense, transaction expenses, restructuring and other strategic initiative costs, other non-recurring charges, non-cash interest expense and net of tax effect associated with these adjustments. Adjusted Net Income is adjusted to exclude amortization of all acquisition-related intangibles as such amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Management believes that the adjustment of acquisition-related intangible amortization supplements GAAP financial measures because it allows for greater comparability of operating performance. Although we exclude amortization from acquisition-related intangibles from our non-GAAP expenses, management believes that it is important for investors to understand that such intangibles were recorded as part of purchase accounting and contribute to revenue generation.
Adjusted Net Income per share is a non-GAAP financial measure that represents Adjusted Net Income divided by the weighted average number of shares of Class A common stock outstanding (on an as-converted basis assuming conversion of the outstanding Post-Merger Repay Units) for the three and nine months ended September 30, 2022 and 2021 (excluding shares subject to forfeiture).
We believe that Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share provide useful information to investors and others in understanding and evaluating its operating results in the same manner as management. However, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for net income, operating profit or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP.
The following tables set forth a reconciliation of our results of operations for the three and nine months ended September 30, 2022 and 2021.
30
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
For the three months ended September 30, 2022 and 2021
(Unaudited)
|
|
|
|
|
|
|
||
|
Three Months ended September 30, |
|
|
|||||
(in $ thousands) |
2022 |
|
|
2021 |
|
|
||
Revenue |
$ |
71,555 |
|
|
$ |
61,125 |
|
|
Operating expenses |
|
|
|
|
|
|
||
Costs of services (exclusive of depreciation and amortization shown separately below) |
$ |
16,634 |
|
|
$ |
15,288 |
|
|
Selling, general and administrative |
|
36,032 |
|
|
|
33,696 |
|
|
Depreciation and amortization |
|
24,662 |
|
|
|
25,907 |
|
|
Change in fair value of contingent consideration |
|
(340 |
) |
|
|
(1,550 |
) |
|
Total operating expenses |
$ |
76,988 |
|
|
$ |
73,341 |
|
|
Loss from operations |
$ |
(5,433 |
) |
|
$ |
(12,216 |
) |
|
Interest expense |
|
(1,130 |
) |
|
|
(764 |
) |
|
Change in fair value of tax receivable liability |
|
11,411 |
|
|
|
3,411 |
|
|
Other income |
|
54 |
|
|
|
19 |
|
|
Other loss |
|
(4 |
) |
|
|
(19 |
) |
|
Total other income (expense) |
|
10,331 |
|
|
|
2,647 |
|
|
Income (loss) before income tax (expense) benefit |
|
4,898 |
|
|
|
(9,569 |
) |
|
Income tax (expense) benefit |
|
474 |
|
|
|
2,261 |
|
|
Net income (loss) |
$ |
5,372 |
|
|
$ |
(7,308 |
) |
|
|
|
|
|
|
|
|
||
Add: |
|
|
|
|
|
|
||
Interest expense |
|
1,130 |
|
|
|
764 |
|
|
Depreciation and amortization (a) |
|
24,662 |
|
|
|
25,907 |
|
|
Income tax expense (benefit) |
|
(474 |
) |
|
|
(2,261 |
) |
|
EBITDA |
$ |
30,690 |
|
|
$ |
17,102 |
|
|
|
|
|
|
|
|
|
||
Non-cash change in fair value of contingent consideration (b) |
|
(340 |
) |
|
|
(1,550 |
) |
|
Non-cash change in fair value of assets and liabilities (c) |
|
(11,411 |
) |
|
|
(3,411 |
) |
|
Share-based compensation expense (d) |
|
5,250 |
|
|
|
5,573 |
|
|
Transaction expenses (e) |
|
4,117 |
|
|
|
4,425 |
|
|
Restructuring and other strategic initiative costs (f) |
|
1,484 |
|
|
|
1,362 |
|
|
Other non-recurring charges (g) |
|
1,927 |
|
|
|
989 |
|
|
Adjusted EBITDA |
$ |
31,717 |
|
|
$ |
24,490 |
|
|
|
|
|
|
|
|
|
||
31
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
For the nine months ended September 30, 2022 and 2021
(Unaudited)
|
Nine Months ended September 30, |
|
|
|||||
(in $ thousands) |
2022 |
|
|
2021 |
|
|
||
Revenue |
$ |
206,554 |
|
|
$ |
157,058 |
|
|
Operating expenses |
|
|
|
|
|
|
||
Costs of services (exclusive of depreciation and amortization shown separately below) |
$ |
49,930 |
|
|
$ |
40,483 |
|
|
Selling, general and administrative |
|
107,379 |
|
|
|
86,632 |
|
|
Depreciation and amortization |
|
82,442 |
|
|
|
63,379 |
|
|
Change in fair value of contingent consideration |
|
(4,290 |
) |
|
|
(101 |
) |
|
Total operating expenses |
$ |
235,461 |
|
|
$ |
190,393 |
|
|
Loss from operations |
$ |
(28,907 |
) |
|
$ |
(33,335 |
) |
|
Interest expense |
|
(3,170 |
) |
|
|
(2,764 |
) |
|
Loss on extinguishment of debt |
|
— |
|
|
|
(5,941 |
) |
|
Change in fair value of tax receivable liability |
|
55,481 |
|
|
|
99 |
|
|
Other income |
|
70 |
|
|
|
81 |
|
|
Other loss |
|
(154 |
) |
|
|
(9,099 |
) |
|
Total other income (expense) |
|
52,227 |
|
|
|
(17,624 |
) |
|
Income (loss) before income tax (expense) benefit |
|
23,320 |
|
|
|
(50,959 |
) |
|
Income tax (expense) benefit |
|
(6,414 |
) |
|
|
12,320 |
|
|
Net income (loss) |
$ |
16,906 |
|
|
$ |
(38,639 |
) |
|
|
|
|
|
|
|
|
||
Add: |
|
|
|
|
|
|
||
Interest expense |
|
3,170 |
|
|
|
2,764 |
|
|
Depreciation and amortization (a) |
|
82,442 |
|
|
|
63,379 |
|
|
Income tax expense (benefit) |
|
6,414 |
|
|
|
(12,320 |
) |
|
EBITDA |
$ |
108,932 |
|
|
$ |
15,184 |
|
|
|
|
|
|
|
|
|
||
Loss on extinguishment of debt (h) |
|
— |
|
|
|
5,941 |
|
|
Loss on termination of interest rate hedge (i) |
|
— |
|
|
|
9,080 |
|
|
Non-cash change in fair value of contingent consideration (b) |
|
(4,290 |
) |
|
|
(101 |
) |
|
Non-cash change in fair value of assets and liabilities (c) |
|
(55,481 |
) |
|
|
(99 |
) |
|
Share-based compensation expense (d) |
|
14,542 |
|
|
|
16,229 |
|
|
Transaction expenses (e) |
|
16,116 |
|
|
|
13,743 |
|
|
Restructuring and other strategic initiative costs (f) |
|
4,165 |
|
|
|
2,935 |
|
|
Other non-recurring charges (g) |
|
4,699 |
|
|
|
2,442 |
|
|
Adjusted EBITDA |
$ |
88,683 |
|
|
$ |
65,354 |
|
|
|
|
|
|
|
|
|
||
32
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income
For the three months ended September 30, 2022 and 2021
(Unaudited)
|
Three Months ended September 30, |
|
|
|||||
(in $ thousands) |
2022 |
|
|
2021 |
|
|
||
Revenue |
$ |
71,555 |
|
|
$ |
61,125 |
|
|
Operating expenses |
|
|
|
|
|
|
||
Costs of services (exclusive of depreciation and amortization shown separately below) |
$ |
16,634 |
|
|
$ |
15,288 |
|
|
Selling, general and administrative |
|
36,032 |
|
|
|
33,696 |
|
|
Depreciation and amortization |
|
24,662 |
|
|
|
25,907 |
|
|
Change in fair value of contingent consideration |
|
(340 |
) |
|
|
(1,550 |
) |
|
Total operating expenses |
$ |
76,988 |
|
|
$ |
73,341 |
|
|
Loss from operations |
$ |
(5,433 |
) |
|
$ |
(12,216 |
) |
|
Interest expense |
|
(1,130 |
) |
|
|
(764 |
) |
|
Change in fair value of tax receivable liability |
|
11,411 |
|
|
|
3,411 |
|
|
Other income |
|
54 |
|
|
|
19 |
|
|
Other loss |
|
(4 |
) |
|
|
(19 |
) |
|
Total other income (expense) |
|
10,331 |
|
|
|
2,647 |
|
|
Income (loss) before income tax (expense) benefit |
|
4,898 |
|
|
|
(9,569 |
) |
|
Income tax (expense) benefit |
|
474 |
|
|
|
2,261 |
|
|
Net income (loss) |
$ |
5,372 |
|
|
$ |
(7,308 |
) |
|
|
|
|
|
|
|
|
||
Add: |
|
|
|
|
|
|
||
Amortization of acquisition-related intangibles (j) |
|
20,847 |
|
|
|
23,449 |
|
|
Non-cash change in fair value of contingent consideration (b) |
|
(340 |
) |
|
|
(1,550 |
) |
|
Non-cash change in fair value of assets and liabilities (c) |
|
(11,411 |
) |
|
|
(3,411 |
) |
|
Share-based compensation expense (d) |
|
5,250 |
|
|
|
5,573 |
|
|
Transaction expenses (e) |
|
4,117 |
|
|
|
4,425 |
|
|
Restructuring and other strategic initiative costs (f) |
|
1,484 |
|
|
|
1,362 |
|
|
Other non-recurring charges (g) |
|
1,927 |
|
|
|
989 |
|
|
Non-cash interest expense (k) |
|
712 |
|
|
|
662 |
|
|
Pro forma taxes at effective rate (l) |
|
(5,152 |
) |
|
|
(7,048 |
) |
|
Adjusted Net Income |
$ |
22,806 |
|
|
$ |
17,143 |
|
|
|
|
|
|
|
|
|
||
Shares of Class A common stock outstanding (on an as-converted basis) (m) |
|
96,618,566 |
|
|
|
92,581,752 |
|
|
Adjusted Net Income per share |
$ |
0.24 |
|
|
$ |
0.19 |
|
|
33
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income
For the nine months ended September 30, 2022 and 2021
(Unaudited)
|
Nine Months ended September 30, |
|
|
|||||
(in $ thousands) |
2022 |
|
|
2021 |
|
|
||
Revenue |
$ |
206,554 |
|
|
$ |
157,058 |
|
|
Operating expenses |
|
|
|
|
|
|
||
Costs of services (exclusive of depreciation and amortization shown separately below) |
$ |
49,930 |
|
|
$ |
40,483 |
|
|
Selling, general and administrative |
|
107,379 |
|
|
|
86,632 |
|
|
Depreciation and amortization |
|
82,442 |
|
|
|
63,379 |
|
|
Change in fair value of contingent consideration |
|
(4,290 |
) |
|
|
(101 |
) |
|
Total operating expenses |
$ |
235,461 |
|
|
$ |
190,393 |
|
|
Loss from operations |
$ |
(28,907 |
) |
|
$ |
(33,335 |
) |
|
Interest expense |
|
(3,170 |
) |
|
|
(2,764 |
) |
|
Loss on extinguishment of debt |
|
— |
|
|
|
(5,941 |
) |
|
Change in fair value of tax receivable liability |
|
55,481 |
|
|
|
99 |
|
|
Other income |
|
70 |
|
|
|
81 |
|
|
Other loss |
|
(154 |
) |
|
|
(9,099 |
) |
|
Total other income (expense) |
|
52,227 |
|
|
|
(17,624 |
) |
|
Income (loss) before income tax (expense) benefit |
|
23,320 |
|
|
|
(50,959 |
) |
|
Income tax (expense) benefit |
|
(6,414 |
) |
|
|
12,320 |
|
|
Net income (loss) |
$ |
16,906 |
|
|
$ |
(38,639 |
) |
|
|
|
|
|
|
|
|
||
Add: |
|
|
|
|
|
|
||
Amortization of acquisition-related intangibles(j) |
|
69,924 |
|
|
|
56,758 |
|
|
Loss on extinguishment of debt (h) |
|
— |
|
|
|
5,941 |
|
|
Loss on termination of interest rate hedge (i) |
|
— |
|
|
|
9,080 |
|
|
Non-cash change in fair value of contingent consideration (b) |
|
(4,290 |
) |
|
|
(101 |
) |
|
Non-cash change in fair value of assets and liabilities (c) |
|
(55,481 |
) |
|
|
(99 |
) |
|
Share-based compensation expense (d) |
|
14,542 |
|
|
|
16,229 |
|
|
Transaction expenses (e) |
|
16,116 |
|
|
|
13,743 |
|
|
Restructuring and other strategic initiative costs (f) |
|
4,165 |
|
|
|
2,935 |
|
|
Other non-recurring charges (g) |
|
4,699 |
|
|
|
2,442 |
|
|
Non-cash interest expense (k) |
|
2,123 |
|
|
|
1,860 |
|
|
Pro forma taxes at effective rate (l) |
|
(10,714 |
) |
|
|
(23,600 |
) |
|
Adjusted Net Income |
$ |
57,990 |
|
|
$ |
46,549 |
|
|
|
|
|
|
|
|
|
||
Shares of Class A common stock outstanding (on an as-converted basis) (m) |
|
96,646,974 |
|
|
|
89,548,106 |
|
|
Adjusted Net Income per share |
$ |
0.60 |
|
|
$ |
0.52 |
|
|
34
|
|
Three Months ended September 30, |
|
|
Nine Months ended September 30, |
|
||||||||||
(in $ thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Acquisition-related intangibles |
|
$ |
20,847 |
|
|
$ |
23,449 |
|
|
$ |
69,924 |
|
|
$ |
56,758 |
|
Software |
|
|
3,209 |
|
|
|
2,169 |
|
|
|
10,855 |
|
|
|
5,749 |
|
Amortization |
|
$ |
24,056 |
|
|
$ |
25,618 |
|
|
$ |
80,779 |
|
|
$ |
62,507 |
|
Depreciation |
|
|
606 |
|
|
|
289 |
|
|
|
1,663 |
|
|
|
872 |
|
Total Depreciation and amortization (1) |
|
$ |
24,662 |
|
|
$ |
25,907 |
|
|
$ |
82,442 |
|
|
$ |
63,379 |
|
35
|
|
Three Months ended September 30, |
|
|
Nine Months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Weighted average shares of Class A common stock outstanding - basic |
|
|
88,735,518 |
|
|
|
88,273,194 |
|
|
|
88,749,417 |
|
|
|
81,595,128 |
|
Add: Non-controlling interests |
|
|
7,883,048 |
|
|
|
4,308,558 |
|
|
|
7,897,557 |
|
|
|
7,952,978 |
|
Shares of Class A common stock outstanding (on an as-converted basis) |
|
|
96,618,566 |
|
|
|
92,581,752 |
|
|
|
96,646,974 |
|
|
|
89,548,106 |
|
Adjusted EBITDA for the three months ended September 30, 2022 and 2021 was $31.7 million and $24.5 million, respectively, representing a 29.5% year-over-year increase. Adjusted EBITDA for the nine months ended September 30, 2022 and 2021 was $88.7 million and $65.4 million, respectively, representing a 35.7% year-over-year increase.
Adjusted Net Income for the three months ended September 30, 2022 and 2021 was $22.8 million and $17.1 million, respectively, representing a 33.0% year-over-year increase. Adjusted Net Income for the nine months ended September 30, 2022 and 2021 was $58.0 million and $46.5 million, respectively, representing a 24.6% year-over-year increase.
Our net income (loss) attributable to the Company for the three months ended September 30, 2022 and 2021 was $5.8 million and ($6.3) million, respectively, representing a 193.3% year-over-year increase. Our net income (loss) attributable to the Company for the nine months ended September 30, 2022 and 2021 was $19.5 million and ($34.3) million, respectively, representing a 156.8% year-over-year increase.
These increases in Adjusted EBITDA, Adjusted Net Income and net income (loss) attributable to the Company for the three and nine months ended September 30, 2022 are primarily due to the organic growth of our business, along with contributions from acquisitions.
Seasonality
We have experienced in the past, and may continue to experience, seasonal fluctuations in our volumes and revenues as a result of consumer spending patterns. Volumes and revenues, per each client store, during the first quarter of the calendar year tend to increase in comparison to the remaining three quarters of the calendar year. This increase is due to consumers’ receipt of tax refunds and the increases in repayment activity levels that follow. Operating expenses show less seasonal fluctuation, with the result that net income is subject to the similar seasonal factors as our volumes and revenues.
Liquidity and Capital Resources
We have historically financed our operations and working capital through net cash from operating activities. As of September 30, 2022, we had $63.5 million of cash and cash equivalents and available borrowing capacity of $165.0 million under the Amended Credit Agreement. This balance does not include restricted cash, which reflects cash accounts holding reserves for potential losses and client settlement funds of $23.2 million as of September 30, 2022. Our primary cash needs are to fund working capital requirements, invest in technology development, fund acquisitions and related contingent consideration, make scheduled principal payments and interest payments on our outstanding indebtedness and pay tax distributions to members of Hawk Parent. We expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the Amended Credit Agreement will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for the next twelve months.
We are a holding company with no operations and depend on our subsidiaries for cash to fund all of our consolidated operations, including future dividend payments, if any. We depend on the payment of distributions by our current subsidiaries, including Hawk Parent, which distributions may be restricted by law or contractual agreements, including agreements governing their indebtedness. For a discussion of those considerations and restrictions, refer to Part I, Item 1A “Risk Factors - Risks Related to Our Class A Common Stock” in our Annual Report on Form 10-K for the year ended December 31, 2021.
36
On May 16, 2022, our board of directors approved a share repurchase program under which we may repurchase up to $50 million of our outstanding Class A common stock (the “Share Repurchase Program”). The Share Repurchase Program has no expiration date but may be modified, suspended or discontinued at any time at our discretion. During the three months ended September 30, 2022, we repurchased 579,745 shares for a total of approximately $5.7 million under the Share Repurchase Program.
Cash Flows
The following table presents a summary of cash flows from operating, investing and financing activities for the periods indicated:
|
|
Nine Months ended September 30, |
|
|
|||||
(in $ thousands) |
|
2022 |
|
|
2021 |
|
|
||
Net cash provided by operating activities |
|
$ |
52,392 |
|
|
$ |
31,482 |
|
|
Net cash used in investing activities |
|
|
(28,855 |
) |
|
|
(296,615 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(13,151 |
) |
|
|
295,710 |
|
|
Cash Flow from Operating Activities
Net cash provided by operating activities was $52.4 million and $31.5 million for the nine months ended September 30, 2022 and 2021, respectively, which reflects net income as adjusted for non-cash operating items including depreciation and amortization, share-based compensation, and changes in working capital accounts.
Cash Flow from Investing Activities
Net cash used in investing activities was $28.9 million for the nine months ended September 30, 2022, due to the capitalization of software development activities.
Net cash used in investing activities was $296.6 million for the nine months ended September 30, 2021, due to the acquisitions of BillingTree and Kontrol, as well as the capitalization of software development activities.
Cash Flow from Financing Activities
Net cash used in financing activities was $13.2 million for the nine months ended September 30, 2022, due to the shares repurchased under the Incentive Plan, ESPP and Share Repurchase Program, as well as the Ventanex earnout payment.
Net cash provided by financing activities was $295.7 million for the nine months ended September 30, 2021, due to proceeds from the issuance of new shares in the January 2021 equity offering and the 2026 Notes, offset by repayment of the outstanding revolver balance related to the Successor Credit Agreement and repayments of the term loan principal balance under the Successor Credit Agreement and the cPayPlus earnout payment.
Indebtedness
Successor Credit Agreement
In connection with the Business Combination, on July 11, 2019, TB Acquisition Merger Sub LLC, Hawk Parent and certain subsidiaries of Hawk Parent, as guarantors, entered into the Successor Credit Agreement with certain financial institutions, as lenders, and Truist Bank (formerly SunTrust Bank), as the administrative agent.
On February 10, 2020, we announced the acquisition of Ventanex. The closing of the acquisition was financed partially from new borrowings under our existing credit facility. As part of the financing for the transaction, we entered into an agreement with Truist Bank and other members of our existing bank group to amend and upsize the Successor Credit Agreement.
On January 20, 2021, we used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the outstanding term loans under the Successor Credit Agreement. We also terminated in full all outstanding delayed draw term loan commitments under such credit facilities.
37
Amended Credit Agreement
On February 3, 2021, the Company announced the closing of a new undrawn $125.0 million senior secured revolving credit facility through Truist Bank. The Amended Credit Agreement replaced the Successor Credit Agreement, which included an undrawn $30.0 million revolving credit facility.
On December 29, 2021, we increased our existing senior secured credit facilities by $60.0 million to provide for a $185.0 million revolving credit facility pursuant to an amendment to the Amended Credit Agreement.
As of September 30, 2022, the Amended Credit Agreement provides for a revolving credit facility of $185.0 million. As of September 30, 2022, we had $20.0 million drawn against the revolving credit facility at a variable interest rate of 2.25% plus 1-month LIBOR due 2026. We paid $0.2 million and $0.5 million in fees related to unused commitments for the three and nine months ended September 30, 2022, respectively. We paid $0.1 million and $0.3 million in fees related to unused commitments for the three and nine months ended September 30, 2021, respectively.
Convertible Senior Debt
On January 19, 2021, we issued $440.0 million in aggregate principal amount of 0.00% Convertible Senior Notes due 2026 in a private placement (the “Notes Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. $40.0 million in aggregate principal amount of such 2026 Notes were sold in the Notes Offering in connection with the full exercise of the initial purchasers’ option to purchase such additional 2026 Notes pursuant to the purchase agreement. Upon conversion, the Company may choose to pay or deliver cash, shares of the Company’s Class A Common Stock, or a combination of cash and shares of the Company’s Class A Common Stock. The 2026 Notes will mature on February 1, 2026, unless earlier converted, repurchased or redeemed.
As of September 30, 2022, we had convertible senior debt outstanding of $432.6 million, net of deferred issuance costs, under the 2026 Notes, and revolving credit facility debt outstanding of $18.0 million, net of deferred issuance costs, under the Amended Credit Agreement. We were in compliance with the related restrictive financial covenants. Additionally, we currently expect that we will remain in compliance with the restrictive financial covenants under the 2026 Notes and the Amended Credit Agreement, prospectively.
Tax Receivable Agreement
Upon the completion of the Business Combination, we entered into the TRA with holders of Post-Merger Repay Units. As a result of the TRA, we established a liability in our condensed consolidated financial statements. Such liability, which will increase upon the redemptions or exchanges of Post-Merger Repay Units for the Class A common stock of the Company, generally represents 100% of the estimated future tax benefit, if any, relating to the increase in tax basis that will result from redemptions or exchanges of the Post-Merger Repay Units for shares of Class A common stock pursuant to the Exchange Agreement and certain other tax attributes of the Company and tax benefits of entering into the TRA, including tax benefits attributable to payments under the TRA.
Under the terms of the TRA, we may elect to terminate the TRA early but will be required to make an immediate payment equal to the present value of the anticipated future cash tax savings. As a result, the associated liability reported on our condensed consolidated financial statements may be increased. We expect that the payment obligations of the Company required under the TRA will be substantial. The actual increase in tax basis, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of Post-Merger Repay Units, the price of the Class A common stock of the Company at the time of the redemption or exchange, whether such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future, the tax rate then applicable and the portion of our payments under the TRA constituting imputed interest. We expect to fund the payment of the amounts due under the TRA out of the cash savings that we actually realize in respect of the attributes to which TRA relates. However, the payments required to be made could be in excess of the actual tax benefits that we realize and there can be no assurance that we will be able to finance our obligations under the TRA.
38
Critical Accounting Policies and Recently Issued Accounting Pronouncements
There have been no significant changes to our critical accounting policies and critical accounting estimates for the nine months ended September 30, 2022. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021, for a complete discussion of critical accounting policies and critical accounting estimates.
For information related to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies, to our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Effects of Inflation
While inflation may impact our revenues and cost of services, we believe the effects of inflation, if any, on our results of operations and financial condition have not been significant. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including U.S. fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. We are exposed to market risk from changes in interest rates on debt, which bears interest at variable rates. Our debt has floating interest rates. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates for its floating rate debt. Our floating rate debt requires payments based on variable interest rates such as the federal funds rate, prime rate, eurocurrency rate, and LIBOR. Therefore, increases in interest rates may reduce our net income or loss by increasing the cost of debt. As of September 30, 2022, we had convertible senior debt of $432.6 million, net of deferred issuance costs, and revolving credit facility borrowings of $18.0 million, net of deferred issuance costs, outstanding under the respective debt agreements. As of December 31, 2021, we had convertible senior debt of $429.3 million, net of deferred issuance costs, and revolving credit facility borrowings of $19.2 million, net of deferred issuance costs, outstanding. The borrowings under the Amended Credit Agreement accrue interest at either base rate, described above under “Liquidity and Capital Resources — Indebtedness,” plus a margin of 1.50% to 2.50% or at an adjusted LIBOR rate plus a margin of 2.50% to 3.50% under the Amended Credit Agreement, in each case depending on the total net leverage ratio, as defined in the Amended Credit Agreement.
In October 2019, we entered into a $140.0 million notional interest rate swap agreement, and in February 2020, we entered into a $30.0 million notional interest rate swap agreement, then a revised notional amount of $65.0 million beginning on September 30, 2020. These interest rate swaps effectively converted $205.0 million of the outstanding term loan into to fixed rate payments for 57 months and 60 months, respectively. Both interest rate swaps were settled in January 2021.
We may incur additional borrowings from time to time for general corporate purposes, including working capital and capital expenditures.
In July 2017, the U.K. Financial Conduct Authority announced its intention to phase out LIBOR rates by the end of 2021. The deadline has been mostly extended and most U.S. dollar-denominated LIBOR maturity tenors will continue to be published until June 30, 2023. It is not possible to predict the effect of any changes in the methods by which the LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Such developments may cause LIBOR to perform differently than in the past, including sudden or prolonged increases or decreases in LIBOR, or cease to exist, resulting in the application of a successor base rate under the Amended Credit Agreement, which in turn could have unpredictable effects on our interest payment obligations under the Amended Credit Agreement.
39
Foreign Currency Exchange Rate Risk
Invoices for our services are denominated in U.S. dollars and Canadian dollars. We do not expect our future operating results to be significantly affected by foreign currency transaction risk.
ITEM 4. CONTROLS AND PROCEDURES
Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2022, as part of our ongoing integration activities following the acquisition of BillingTree, we continued to apply our controls and procedures to the acquired operations of BillingTree and to augment our company-wide controls to address the risks inherent in a business combination of this magnitude.
40
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are named as a defendant in legal actions arising from our normal business activities. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes such purchases of Class A common stock made by the Company or any “affiliate purchaser” (as defined in Rule 10b-18(a)(3) of the Exchange Act) for the three months ended September 30, 2022:
|
|
Total Number of Shares Purchased (1) (2) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
|
|
Approximate Dollar Value of Shares that May yet be Purchased Under the Plans or Programs |
|
||||
July 1 - 31, 2022 |
|
|
3,356 |
|
|
$ |
13.10 |
|
|
|
— |
|
|
$ |
49,000,000 |
|
August 1 - 31, 2022 |
|
|
522,552 |
|
(3) |
|
10.11 |
|
|
|
398,851 |
|
|
|
(2,000,000 |
) |
September 1 - 30, 2022 |
|
|
192,782 |
|
|
|
8.99 |
|
|
|
180,894 |
|
|
|
(4,000,000 |
) |
Total |
|
|
718,690 |
|
|
$ |
9.82 |
|
|
|
579,745 |
|
|
$ |
43,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
41
ITEM 5. OTHER INFORMATION
On November 3, 2022, the Company notified Michael F. Jackson, the Company’s Chief Operating Officer, that, in connection with ongoing internal restructuring initiatives, the Chief Operating Officer role was being eliminated and that the cessation of his employment would be effective November 25, 2022. Mr. Jackson’s separation will constitute a termination without “cause” for purposes of his executive employment agreement. The Company expects to negotiate a transitional consulting agreement with Mr. Jackson pursuant to which Mr. Jackson would provide assistance in connection with the transition of his role.
ITEM 6. EXHIBITS
The exhibits listed in the following exhibit index are furnished as part of this report.
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
3.1 |
|
|
|
|
|
3.2(a) |
|
|
|
|
|
3.2(b) |
|
|
|
|
|
3.3 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101* |
|
The following financial statements from the Company’s Form 10‑Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes In Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document)
|
* Filed herewith.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
REPAY HOLDINGS CORPORATION |
|
|
(Registrant)
|
|
|
|
Date: November 9, 2022 |
By: |
/s/ John Morris |
|
|
John Morris |
|
|
Chief Executive Officer |
|
|
|
Date: November 9, 2022 |
By: |
/s/ Timothy J. Murphy |
|
|
Timothy J. Murphy |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
43