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REPAY Reports Third Quarter 2022 Financial Results

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Q3 2022 Gross Profit Growth of 20% Year-over-Year with Continued Solid Margins

Reaffirms Full Year 2022 Guidance

ATLANTA--(BUSINESS WIRE)--Nov. 9, 2022-- Repay Holdings Corporation (NASDAQ: RPAY) (“REPAY” or the “Company”), a leading provider of vertically-integrated payment solutions, today reported financial results for its third quarter ended September 30, 2022.

 
 

“REPAY delivered strong results in the third quarter across both the top and bottom lines, with accelerated growth and expanding margins,” said John Morris, CEO of REPAY. “We remain encouraged by our addressable market opportunity, as the B2B and Consumer payment verticals we target represent over $5 trillion of combined annual payment volume. We also remain very encouraged by the continued tailwinds in our business, including the ongoing secular trends away from cash and check towards digital, embedded payments. We believe those opportunities – along with our unique offering, technology platform, and our exceptional team - position us well for long term, sustainable growth.”

Third Quarter 2022 Business Highlights

The Company's achievements in the quarter, including those highlighted below, reinforce management's belief in the ability of the Company to drive durable and sustained growth across REPAY's diversified business model.

  • 15% year-over-year organic gross profit growth1
  • B2B AP/AR volumes grew approximately 30% year-over-year and represented 20%+ of total volume in the third quarter
  • Added six new integrated software partners to bring the total to 236 ISVs as of the end of the third quarter
  • Expanded AP supplier network to 147,000, an increase of 40% year-over-year
  • Increased instant funding volume by 50% versus the same period last year

1

 

Organic gross profit growth is a non-GAAP financial measure.  See “Non-GAAP Financial Measures” and the reconciliation to its most comparable GAAP measure provided below for additional information.

2022 Outlook

REPAY reiterates its previously provided guidance for full year 2022, as shown below.

 

Full Year 2022 Outlook

Card Payment Volume

$25.0 - 26.3 billion

Revenue

$268 - 286 million

Gross Profit

$204 - 216 million

Adjusted EBITDA

$118 - 126 million

REPAY does not provide quantitative reconciliation of forward-looking, non-GAAP financial measures, such as forecasted 2022 Adjusted EBITDA, to the most directly comparable GAAP financial measure, because it is difficult to reliably predict or estimate the relevant components without unreasonable effort due to future uncertainties that may potentially have significant impact on such calculations, and providing them may imply a degree of precision that would be confusing or potentially misleading.

Conference Call

REPAY will host a conference call to discuss third quarter 2022 financial results today, November 9, 2022 at 5:00 pm ET. Hosting the call will be John Morris, CEO, and Tim Murphy, CFO. The call will be webcast live from REPAY’s investor relations website at https://investors.repay.com/investor-relations. The conference call can also be accessed live over the phone by dialing (877) 407-3982, or for international callers (201) 493-6780. A replay will be available one hour after the call and can be accessed by dialing (844) 512-2921 or (412) 317-6671 for international callers; the conference ID is 13732595. The replay will be available at https://investors.repay.com/investor-relations.

Non-GAAP Financial Measures

This report includes certain non-GAAP financial measures that management uses to evaluate the Company’s operating business, measure 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 REPAY excludes amortization from acquisition-related intangibles from its 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 units exchangeable for shares of Class A common stock) for the three and nine months ended September 30, 2022 and 2021 (excluding shares subject to forfeiture). Organic gross profit growth is a non-GAAP financial measure that represents year-on-year gross profit growth that excludes incremental gross profit attributable to acquisitions made in the applicable prior period or any subsequent period. Adjusted Free Cash Flow is a non-GAAP financial measure that represents net cash flow provided by operating activities less total capital expenditures, as adjusted to add back certain charges deemed to not be part of normal operating expenses and/or non-recurring charges, such as transaction expenses, restructuring and other strategic initiative costs and other non-recurring charges. REPAY believes that Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share, organic gross profit growth and Adjusted Free Cash Flow 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, Adjusted Net Income per share, organic gross profit growth and Adjusted Free Cash Flow are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for net income, operating profit, net cash provided by operating activities, or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze REPAY’s 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 REPAY’s industry may report measures titled Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share, organic gross profit growth, Adjusted Free Cash Flow, or similar measures, such non-GAAP financial measures may be calculated differently from how REPAY calculates its non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share, organic gross profit growth, and Adjusted Free Cash Flow alongside other financial performance measures, including net income, net cash provided by operating activities and REPAY’s other financial results presented in accordance with GAAP.

Forward-Looking Statements

This communication contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, REPAY’s plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “guidance,” “will likely result,” “are expected to,” “will continue,” “should,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “projection,” “outlook” or words of similar meaning. These forward-looking statements include, but are not limited to, REPAY’s 2022 outlook and other financial guidance, expected demand on REPAY’s product offering, including further implementation of electronic payment options and statements regarding REPAY’s market and growth opportunities, and REPAY’s business strategy and the plans and objectives of management for future operations. Such forward-looking statements are based upon the current beliefs and expectations of REPAY’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond REPAY’s control.

In addition to factors disclosed in REPAY’s reports filed with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2021, and those identified elsewhere in this communication, the following factors, among others, could cause actual results and the timing of events to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: 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 the Company’s recent acquisitions; changes in the payment processing market in which REPAY competes, including with respect to its competitive landscape, technology evolution or regulatory changes; changes in the vertical markets that REPAY targets, including the regulatory environment applicable to REPAY’s clients; the ability to retain, develop and hire key personnel; risks relating to REPAY’s relationships within the payment ecosystem; risk that REPAY may not be able to execute its growth strategies, including identifying and executing acquisitions; risks relating to data security; changes in accounting policies applicable to REPAY; and the risk that REPAY may not be able to maintain effective internal controls.

Actual results, performance or achievements may differ materially, and potentially adversely, from any projections and forward-looking statements and the assumptions on which those forward-looking statements are based. There can be no assurance that the data contained herein is reflective of future performance to any degree. You are cautioned not to place undue reliance on forward-looking statements as a predictor of future performance. All information set forth herein speaks only as of the date hereof in the case of information about REPAY or the date of such information in the case of information from persons other than REPAY, and REPAY disclaims any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication. Forecasts and estimates regarding REPAY’s industry and end markets are based on sources it believes to be reliable, however there can be no assurance these forecasts and estimates will prove accurate in whole or in part. Pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.

About REPAY

REPAY provides integrated payment processing solutions to verticals that have specific transaction processing needs. REPAY’s proprietary, integrated payment technology platform reduces the complexity of electronic payments for clients, while enhancing the overall experience for consumers and businesses.

Condensed Consolidated Statement 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

)

Condensed Consolidated Balance Sheets

             

(in $ thousands)

 

September 30,
2022
(Unaudited)

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,547

 

 

$

50,049

 

Accounts receivable

 

 

34,485

 

 

 

33,236

 

Prepaid expenses and other

 

 

15,483

 

 

 

12,427

 

Total current assets

 

 

113,515

 

 

 

95,712

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

4,703

 

 

 

3,801

 

Restricted cash

 

 

23,179

 

 

 

26,291

 

Intangible assets, net

 

 

523,148

 

 

 

577,694

 

Goodwill

 

 

827,802

 

 

 

824,082

 

Operating lease right-of-use assets, net

 

 

10,775

 

 

 

10,500

 

Deferred tax assets

 

 

134,275

 

 

 

145,260

 

Other assets

 

 

2,500

 

 

 

2,500

 

Total noncurrent assets

 

 

1,526,382

 

 

 

1,590,128

 

Total assets

 

$

1,639,897

 

 

$

1,685,840

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

$

23,251

 

 

$

20,083

 

Related party payable

 

 

100

 

 

 

17,394

 

Accrued expenses

 

 

24,715

 

 

 

26,819

 

Current operating lease liabilities

 

 

2,307

 

 

 

1,990

 

Current tax receivable agreement

 

 

24,454

 

 

 

24,496

 

Other current liabilities

 

 

4

 

 

 

1,566

 

Total current liabilities

 

 

74,831

 

 

 

92,348

 

 

 

 

 

 

 

 

Long-term debt

 

 

450,608

 

 

 

448,485

 

Noncurrent operating lease liabilities

 

 

9,169

 

 

 

9,091

 

Tax receivable agreement, net of current portion

 

 

166,047

 

 

 

221,333

 

Other liabilities

 

 

4,335

 

 

 

1,547

 

Total noncurrent liabilities

 

 

630,159

 

 

 

680,456

 

Total liabilities

 

$

704,990

 

 

$

772,804

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized, 89,078,338 issued and 88,397,790 outstanding as of September 30, 2022; 2,000,000,000 shares authorized, and 88,502,621 issued and outstanding as of December 31, 2021

 

 

9

 

 

 

9

 

Class V common stock, $0.0001 par value; 1,000 shares authorized and 100 shares issued and outstanding as of September 30, 2022 and December 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

1,112,546

 

 

 

1,100,012

 

Treasury stock, 680,548 and 0 shares as of September 30, 2022 and December 31, 2021, respectively

 

 

(6,824

)

 

 

 

Accumulated other comprehensive loss

 

 

(2

)

 

 

(2

)

Accumulated deficit

 

 

(206,508

)

 

 

(226,016

)

Total Repay stockholders' equity

 

$

899,221

 

 

$

874,003

 

Non-controlling interests

 

 

35,686

 

 

 

39,033

 

Total equity

 

 

934,907

 

 

 

913,036

 

Total liabilities and equity

 

$

1,639,897

 

 

$

1,685,840

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

       

 

 

Nine Months Ended September 30,

 

(in $ thousands)

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

16,906

 

 

$

(38,639

)

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

82,442

 

 

 

63,379

 

Stock based compensation

 

 

14,265

 

 

 

16,229

 

Amortization of debt issuance costs

 

 

2,123

 

 

 

1,860

 

Loss on disposal of property and equipment

 

 

57

 

 

 

19

 

Loss on termination of lease

 

 

96

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

5,941

 

Loss on sale of interest rate swaps

 

 

 

 

 

9,317

 

Fair value change in tax receivable agreement liability

 

 

(55,481

)

 

 

(99

)

Fair value change in contingent consideration

 

 

(4,290

)

 

 

(101

)

Payment of contingent consideration liability in excess of acquisition-date fair value

 

 

(8,896

)

 

 

(1,500

)

Deferred tax expense

 

 

6,414

 

 

 

(12,320

)

Change in accounts receivable

 

 

(246

)

 

 

(5,508

)

Change in prepaid expenses and other

 

 

(3,055

)

 

 

(1,539

)

Change in operating lease ROU assets

 

 

(275

)

 

 

1,488

 

Change in accounts payable

 

 

3,168

 

 

 

2,664

 

Change in related party payable

 

 

(257

)

 

 

1,317

 

Change in accrued expenses and other

 

 

(2,200

)

 

 

(2,465

)

Change in operating lease liabilities

 

 

394

 

 

 

(820

)

Change in other liabilities

 

 

1,227

 

 

 

(7,740

)

Net cash provided by operating activities

 

 

52,392

 

 

 

31,483

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,623

)

 

 

(1,928

)

Purchases of intangible assets

 

 

(26,232

)

 

 

(14,900

)

Purchase of equity investment

 

 

 

 

 

(2,500

)

Acquisition of CPS, net of cash and restricted cash acquired

 

 

 

 

 

11

 

Acquisition of BillingTree, net of cash and restricted cash acquired

 

 

 

 

 

(269,826

)

Acquisition of Kontrol, net of cash and restricted cash acquired

 

 

 

 

 

(7,471

)

Net cash used in investing activities

 

 

(28,855

)

 

 

(296,614

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Issuance of long-term debt

 

 

 

 

 

440,000

 

Payments on long-term debt

 

 

 

 

 

(262,654

)

Public issuance of Class A Common Stock

 

 

 

 

 

142,098

 

Shares repurchased under Incentive Plan and ESPP

 

 

(1,981

)

 

 

(2,976

)

Treasury shares repurchased

 

 

(6,831

)

 

 

 

Distributions to Members

 

 

(488

)

 

 

(62

)

Payment of loan costs

 

 

 

 

 

(13,248

)

Payment of contingent consideration liability up to acquisition-date fair value

 

 

(3,851

)

 

 

(7,449

)

Net cash (used in) provided by financing activities

 

 

(13,151

)

 

 

295,709

 

 

 

 

 

 

 

 

Increase in cash, cash equivalents and restricted cash

 

 

10,386

 

 

 

30,578

 

Cash, cash equivalents and restricted cash at beginning of period

 

$

76,340

 

 

$

106,505

 

Cash, cash equivalents and restricted cash at end of period

 

$

86,726

 

 

$

137,083

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

1,047

 

 

$

903

 

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NONCASH

 

 

 

 

 

 

INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Acquisition of Kontrol in exchange for contingent consideration

 

$

 

 

$

500

 

Key Operating and Non-GAAP Financial Data

Unless otherwise stated, all results compare three and nine month 2022 results to three and nine month 2021 results from continuing operations for the periods ended September 30, respectively.

The following tables and related notes reconcile these non-GAAP measures to GAAP information for the three and nine months ended September 30, 2022 and 2021:

 

 

Three Months ended
September 30,

 

 

 

 

 

Nine Months ended
September 30,

 

 

 

 

(in $ thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Card payment volume

 

$

6,416,827

 

 

$

5,574,656

 

 

 

15

%

 

$

19,027,031

 

 

$

14,812,161

 

 

 

28

%

Gross profit (1)

 

 

54,921

 

 

 

45,837

 

 

 

20

%

 

 

156,624

 

 

 

116,575

 

 

 

34

%

Adjusted EBITDA (2)

 

 

31,717

 

 

 

24,490

 

 

 

30

%

 

 

88,683

 

 

 

65,354

 

 

 

36

%

(1)  

Gross profit represents revenue less costs of services.

(2)  

Adjusted EBITDA is a non-GAAP financial measure that represents net income adjusted for interest expense, depreciation and amortization and certain other charges deemed to not be part of normal operating expenses, non-cash charges and/or non-recurring items. See “Non-GAAP Financial Measures” above and the reconciliation of Adjusted EBITDA to its most comparable GAAP measure below.

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

 

 

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

 

 

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

 

 

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

 

 

Reconciliation of Operating Cash Flow to Free Cash Flow and Adjusted Free Cash Flow

For the Three and Nine Months Ended September 30, 2022 and 2021

(Unaudited)

             

 

 

Three Months ended
September 30,

 

 

Nine Months ended
September 30,

 

(in $ thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net cash provided by operating activities

 

$

19,409

 

 

$

14,615

 

 

$

52,392

 

 

$

31,482

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for property and equipment

 

 

(799

)

 

 

(943

)

 

 

(2,623

)

 

 

(1,928

)

Cash paid for intangible assets (n)

 

 

(8,657

)

 

 

(5,162

)

 

 

(23,482

)

 

 

(14,900

)

Total capital expenditures

 

 

(9,456

)

 

 

(6,105

)

 

 

(26,105

)

 

 

(16,828

)

Free cash flow

 

$

9,953

 

 

$

8,510

 

 

$

26,287

 

 

$

14,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

Transaction expenses (e)

 

 

4,117

 

 

 

4,425

 

 

 

16,116

 

 

 

13,743

 

Restructuring and other strategic initiative costs (f)

 

 

1,484

 

 

 

1,362

 

 

 

4,165

 

 

 

2,935

 

Other non-recurring charges (g)

 

 

1,927

 

 

 

989

 

 

 

4,699

 

 

 

2,442

 

Adjusted free cash flow

 

$

17,481

 

 

$

15,286

 

 

$

51,267

 

 

$

33,774

 

Reconciliation of Gross Profit Growth to Organic Gross Profit Growth

For the Year-over-Year Change Between the Three Months Ended September 30, 2022 and 2021

(Unaudited)

         

 

 

Q3 YoY Change

 

 

Total gross profit growth

 

 

20

%

 

Less: growth from acquisitions

 

 

5

%

 

Organic gross profit growth (o)

 

 

15

%

 

(a)  

See footnote (j) for details on amortization and depreciation expenses.

(b)  

Reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the most recent balance sheet date.

(c)  

Reflects the changes in management’s estimates of the fair value of the liability relating to the Tax Receivable Agreement.

(d)  

Represents compensation expense associated with equity compensation plans, totaling $5.3 million and $14.5 million for the three and nine months ended September 30, 2022, respectively, and totaling $5.6 million and $16.2 million for the three and nine months ended September 30, 2021, respectively.

(e)  

Primarily consists of (i) during the three and nine months ended September 30, 2022, professional service fees and other costs incurred in connection with the acquisitions of BillingTree, Kontrol Payables and Payix, and (ii) during the three and nine months ended September 30, 2021, professional service fees and other costs incurred in connection with the acquisition of Ventanex, cPayPlus, CPS, BillingTree and Kontrol Payables, as well as professional service expenses related to the January 2021 equity and convertible notes offerings.

(f)  

Reflects consulting fees related to processing services and other operational improvements, including restructuring and integration activities related to acquired businesses, that were not in the ordinary course during the three and nine months ended September 30, 2022 and 2021.

(g)  

For the three and nine months ended September 30, 2022 and 2021, reflects payments made to third-party recruiters in connection with a significant expansion of our personnel, franchise taxes and other non-income based taxes, extraordinary refunds to clients and other payments related to COVID-19, and non-cash rent expense. Additionally, for the three and nine months ended September 30, 2022, reflects loss on termination of lease and loss on disposal of fixed assets.

(h)  

Reflects write-offs of debt issuance costs relating to Hawk Parent’s term loans.

(i)  

Reflects realized loss of REPAY's interest rate hedging arrangement which terminated in conjunction with the repayment of Hawk Parent’s term loans.

(j)  

For the three and nine months ended September 30, 2022, reflects amortization of client relationships, non-compete agreement, software, and channel relationship intangibles acquired through the business combination with Thunder Bridge, and client relationships, non-compete agreement, and software intangibles acquired through REPAY's acquisitions of TriSource Solutions, APS Payments, Ventanex, cPayPlus, CPS Payments, BillingTree, Kontrol Payables and Payix. For the three and nine months ended September 30, 2021 reflects amortization of client relationships, non-compete agreement, software, and channel relationship intangibles acquired through the business combination, and client relationships, non-compete agreement, and software intangibles acquired through REPAY's acquisitions of TriSource Solutions, APS Payments, Ventanex, cPayPlus, CPS, BillingTree, and Kontrol Payables. This adjustment excludes the amortization of other intangible assets which were acquired in the regular course of business, such as capitalized internally developed software and purchased software. See additional information below for an analysis of amortization expenses:

 

 

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

 

(1)  

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 (see corresponding adjustments in the reconciliation of net income to Adjusted Net Income presented above). Management believes that the adjustment of acquisition-related intangible amortization supplements GAAP financial measures because it allows for greater comparability of operating performance. Although REPAY excludes amortization from acquisition-related intangibles from its 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. Amortization of intangibles that relate to past acquisitions will recur in future periods until such intangibles have been fully amortized. Any future acquisitions may result in the amortization of additional intangibles.

(k)  

Represents amortization of non-cash deferred debt issuance costs.

(l)  

Represents pro forma income tax adjustment effect associated with items adjusted above.

(m)  

Represents the weighted average number of shares of Class A common stock outstanding (on an as-converted basis assuming conversion of outstanding Post-Merger Repay Units) for the three and nine months ended September 30, 2022 and 2021. These numbers do not include any shares issuable upon conversion of the Company’s convertible senior notes due 2026. See the reconciliation of basic weighted average shares outstanding to the non-GAAP Class A common stock outstanding on an as-converted basis for each respective period below:

 

 

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
Weighted average Post-Merger Repay Units exchangeable for Class A common stock

 

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

(n)  

Excludes acquisition costs that are capitalized as channel relationships.

(o)  

Represents year‐on-year gross profit growth that excludes incremental gross profit attributable to acquisitions made in the applicable prior period or any subsequent period.

Investor Relations Contact for REPAY:
[email protected]

Media Relations Contact for REPAY:
Kristen Hoyman
(404) 637-1665
[email protected]

Source: Repay Holdings Corporation