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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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 001-38531

 

Repay Holdings Corporation

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

98-1496050

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3 West Paces Ferry Road,

Suite 200

Atlanta, GA

30305

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (404504-7472

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

 

RPAY

 

The NASDAQ Stock Market LLC

 

 

 

 

 

 

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.  YES  NO 

 

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).  YES  NO 

 

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:

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 


 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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  NO 

As of May 6, 2020, there are 40,401,264 shares of the registrant’s Class A Common Stock, par value $0.0001 per share, outstanding (which number includes 2,562,645 shares of unvested restricted stock that have voting rights) and 100 shares of the registrant’s Class V Common Stock, par value of $0.0001 per share, outstanding. As of May 6, 2020, the holders of such outstanding shares of Class V common stock also hold 29,505,623 units in a subsidiary of the registrant and such units are exchangeable into shares of the registrant’s Class A common stock on a one-for-one basis. 

 


 


REPAY HOLDINGS CORPORATION

Quarterly Report on Form 10‑Q

For the quarter ended March 31, 2020

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

38

 

 

 

 

Signatures

39

 

 


 


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, the expected impact of the COVID-19 pandemic, the expected benefits of the acquisition of TriSource Solutions, LLC (“TriSource”), the expected benefits of the acquisition of APS Payments (“APS”), the expected benefits of the acquisition of CDT Technologies LTD. d/b/a Ventanex (“Ventanex”), our financial performance, 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 and consumer and commercial spending; the impacts of the ongoing COVID-19 coronavirus pandemic and the actions taken to control or mitigate its spread (which impacts are highly uncertain and cannot be reasonably estimated or predicted at this time); a delay or failure to integrate and realize the benefits of the TriSource acquisition and any difficulties associated with operating in the back-end processing markets in which we do not have any experience; a delay or failure to integrate and realize the benefits of the APS Payments acquisition and any difficulties associated with marketing products and services in the B2B vertical market in which we do not have any experience; a delay or failure to integrate and realize the benefits of the Ventanex acquisition and any difficulties associated with marketing products and services in the mortgage or B2B healthcare vertical market in which we do not have any experience; 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; 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 develop and maintain effective internal controls; and those risks described under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K and Part II, Item 1A “Risk Factors" of this Form 10-Q. 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. Consolidated Financial Statements

 

REPAY HOLDINGS CORPORATION

Consolidated Balance Sheets

 


 

 

 

 

 

 

 

 

 

 

 

March 31, 2020 (Unaudited)

 

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

32,712,610

 

 

 

$

24,617,996

 

Accounts receivable

 

15,202,198

 

 

 

 

14,068,477

 

Related party receivable

 

-

 

 

 

 

563,084

 

Prepaid expenses and other

 

4,824,443

 

 

 

 

4,632,965

 

Total current assets

 

52,739,251

 

 

 

 

43,882,522

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

1,876,382

 

 

 

 

1,610,652

 

Restricted cash

 

11,678,713

 

 

 

 

13,283,121

 

Customer relationships, net of amortization

 

265,284,508

 

 

 

 

247,589,240

 

Software, net of amortization

 

61,664,897

 

 

 

 

61,219,143

 

Other intangible assets, net of amortization

 

24,533,971

 

 

 

 

24,241,505

 

Goodwill

 

411,702,399

 

 

 

 

389,660,519

 

Deferred tax assets

 

347,758

 

 

 

 

-

 

Other assets

 

-

 

 

 

 

555,449

 

Total noncurrent assets

 

777,088,628

 

 

 

 

738,159,629

 

Total assets

$

829,827,879

 

 

 

$

782,042,151

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

$

10,887,469

 

 

 

$

9,586,001

 

Related party payable

 

31,791,494

 

 

 

$

14,571,266

 

Accrued expenses

 

12,228,936

 

 

 

 

15,965,683

 

Current maturities of long-term debt

 

5,502,000

 

 

 

 

5,500,000

 

Current tax receivable agreement

 

6,336,487

 

 

 

 

6,336,487

 

Total current liabilities

 

66,746,386

 

 

 

 

51,959,437

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

240,955,360

 

 

 

 

197,942,705

 

Line of credit

 

-

 

 

 

 

10,000,000

 

Tax receivable agreement

 

61,381,702

 

 

 

 

60,839,739

 

Deferred tax liability

 

-

 

 

 

 

768,335

 

Other liabilities

 

9,311,648

 

 

 

 

16,864

 

Total noncurrent liabilities

 

311,648,710

 

 

 

 

269,567,643

 

Total liabilities

$

378,395,096

 

 

 

$

321,527,080

 

 

 

 

 

 

 

 

 

 

Commitment and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized and 37,838,619 issued and outstanding as of March 31, 2020

 

3,784

 

 

 

 

3,753

 

Class V common stock, $0.0001 par value; 1,000 shares authorized and 100 shares issued and outstanding as of March 31, 2020

 

-

 

 

 

 

-

 

Additional paid-in capital

 

314,971,234

 

 

 

 

307,914,346

 

Accumulated other comprehensive (loss) income

 

(5,329,705

)

 

 

 

313,397

 

Accumulated deficit

 

(57,310,504

)

 

 

 

(53,878,460

)

Total stockholders' equity

$

252,334,809

 

 

 

$

254,353,036

 

 

 

 

 

 

 

 

 

 

Equity attributable to non-controlling interests

 

199,097,974

 

 

 

 

206,162,035

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity and members' equity

$

829,827,879

 

 

 

$

782,042,151

 

 

See accompanying notes to consolidated financial statements.

2


 

REPAY HOLDINGS CORPORATION

Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended March 31, 2020

 

 

 

Three Months Ended March 31, 2019

 

 

(Successor)

 

 

 

(Predecessor)

 

Revenue

$

39,462,537

 

 

 

$

23,023,405

 

Operating Expenses

 

 

 

 

 

 

 

 

Costs of services

 

10,771,297

 

 

 

 

5,119,184

 

Selling, general and administrative

 

18,166,191

 

 

 

 

8,676,634

 

Depreciation and amortization

 

13,904,384

 

 

 

 

2,914,328

 

Total operating expenses

 

42,841,872

 

 

 

 

16,710,146

 

(Loss) Income from operations

 

(3,379,335

)

 

 

 

6,313,259

 

Other (expense) income

 

 

 

 

 

 

 

 

Interest expense

 

(3,517,785

)

 

 

 

(1,448,892

)

Change in fair value of tax receivable liability

 

(541,963

)

 

 

 

-

 

Other income

 

39,048

 

 

 

 

19

 

Total other (expense) income

 

(4,020,700

)

 

 

 

(1,448,873

)

(Loss) income before income tax expense

 

(7,400,035

)

 

 

 

4,864,386

 

Income tax benefit

 

1,115,592

 

 

 

 

-

 

Net income (loss)

$

(6,284,443

)

 

 

$

4,864,386

 

Less: Net (loss) income attributable to

   non-controlling interests

$

(2,852,399

)

 

 

 

-

 

Net (loss) income attributable to the Company

$

(3,432,044

)

 

 

$

4,864,386

 

 

 

 

 

 

 

 

 

 

Loss per Class A share:

 

 

 

 

 

 

 

 

Basic and diluted

$

(0.09

)

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

37,624,829

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 


3


 

REPAY HOLDINGS CORPORATION

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended March 31, 2020

 

 

 

Three Months Ended March 31, 2019

 

 

 

(Successor)

 

 

 

(Predecessor)

 

Net (loss) income

 

$

(6,284,443

)

 

 

$

4,864,386

 

Other comprehensive loss, before tax

 

 

 

 

 

 

 

 

 

Change in fair value of designated cash flow hedges

 

 

(9,854,764

)

 

 

 

 

Total other comprehensive loss, before tax

 

 

(9,854,764

)

 

 

 

 

Income tax related to items of other comprehensive income:

 

 

 

 

 

 

 

 

 

Tax benefit on change in fair value of designated cash flow hedges

 

 

1,314,843

 

 

 

 

 

Total income tax benefit on related to items of other comprehensive income

 

 

1,314,843

 

 

 

 

 

Total other loss income, net of tax

 

 

(8,539,921

)

 

 

 

 

Total comprehensive loss

 

$

(14,824,364

)

 

 

$

4,864,386

 

Less: Comprehensive loss  attributable to

   non-controlling interests

 

 

(7,064,061

)

 

 

 

 

Comprehensive (loss) income attributable to the Company

 

$

(7,760,303

)

 

 

$

4,864,386

 

 

 

 

 

 

4


 

REPAY HOLDINGS CORPORATION

Consolidated Statements of Changes in Equity

(Unaudited)

 

 

 

Total Equity

 

 

 

(Predecessor)

 

Balance at December 31, 2018

 

$

109,078,357

 

Net income

 

 

4,864,386

 

Contributions by members

 

 

-

 

Stock based compensation

 

 

127,195

 

Distribution to members

 

 

(151,764

)

Balance at March 31, 2019

 

$

113,918,174

 

 

 

 

 

Class A Common

Stock

 

 

Class V Common

Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

Total

Stockholders'

 

 

Non-controlling

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Loss) Income

 

 

Equity

 

 

Interests

 

Balance at December 31, 2019 (Successor)

 

 

37,530,568

 

 

$

3,753

 

 

 

100

 

 

$

-

 

 

$

307,914,346

 

 

$

(53,878,460

)

 

$

313,397

 

 

$

254,353,036

 

 

$

206,162,035

 

Stock-based compensation

 

 

 

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

3,522,731

 

 

 

-

 

 

 

-

 

 

 

3,522,731

 

 

 

-

 

Warrant exercise

 

 

308,051

 

 

 

31

 

 

 

 

 

 

 

-

 

 

 

3,534,157

 

 

 

-

 

 

 

-

 

 

 

3,534,188

 

 

 

-

 

Net loss

 

 

 

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

(3,432,044

)

 

 

-

 

 

 

(3,432,044

)

 

 

(2,852,399

)

Accumulated other comprehensive (loss) income

 

 

 

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,643,102

)

 

 

(5,643,102

)

 

 

(4,211,662

)

Balance at March 31, 2020 (Successor)

 

 

37,838,619

 

 

$

3,784

 

 

 

100

 

 

$

-

 

 

$

314,971,234

 

 

$

(57,310,504

)

 

$

(5,329,705

)

 

$

252,334,809

 

 

$

199,097,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 


5


 

REPAY HOLDINGS CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Three Months Ended March 31, 2019

 

 

 

(Successor)

 

 

 

(Predecessor)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(6,284,443

)

 

 

$

4,864,386

 

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash

   provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,904,384

 

 

 

 

2,914,328

 

Stock based compensation

 

 

3,522,731

 

 

 

 

127,195

 

Amortization of debt issuance costs

 

 

332,990

 

 

 

 

101,851

 

Fair value change in tax receivable liability

 

 

541,963

 

 

 

 

-

 

Fair value change in other assets and liabilities

 

 

(4,531

)

 

 

 

-

 

Deferred tax expense

 

 

(1,116,093

)

 

 

 

-

 

Change in accounts receivable

 

 

242,818

 

 

 

 

(1,346,738

)

Change in related party receivable

 

 

563,084

 

 

 

 

-

 

Change in prepaid expenses and other

 

 

(10,964

)

 

 

 

(52,123

)

Change in accounts payable

 

 

1,149,433

 

 

 

 

(553,268

)

Change in related party payable

 

 

(160,321

)

 

 

 

-

 

Change in accrued expenses and other

 

 

(4,109,906

)

 

 

 

(6,398,639

)

Net cash provided by (used in) operating activities

 

 

8,571,145

 

 

 

 

(343,008

)

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(366,694

)

 

 

 

(102,488

)

Purchases of software

 

 

(2,409,074

)

 

 

 

(1,938,738

)

Acquisition of Ventanex, net of cash and restricted cash acquired

 

 

(35,521,024

)

 

 

 

-

 

Net cash used in investing activities

 

 

(38,296,792

)

 

 

 

(2,041,226

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Change in line of credit

 

 

(10,000,000

)

 

 

 

-

 

Issuance of long-term debt

 

 

46,000,000

 

 

 

 

-

 

Payments on long-term debt

 

 

(1,562,500

)

 

 

 

(1,225,000

)

Exercise of warrants

 

 

3,534,188

 

 

 

 

-

 

Distributions to Members

 

 

-

 

 

 

 

(151,764

)

Payment of loan costs

 

 

(1,755,835

)

 

 

 

-

 

Net cash provided by (used in) financing activities

 

 

36,215,853

 

 

 

 

(1,376,764

)

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash, cash equivalents and restricted cash

 

 

6,490,206

 

 

 

 

(3,760,998

)

Cash, cash equivalents and restricted cash at beginning of period

 

$

37,901,117

 

 

 

$

23,262,058

 

Cash, cash equivalents and restricted cash at end of period

 

$

44,391,323

 

 

 

$

19,501,060

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

 

 

 

 

 

 

 

 

 

INFORMATION

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

 

Interest

 

$

3,184,795

 

 

 

$

5,665,434

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NONCASH

 

 

 

 

 

 

 

 

 

INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation adjustment to contingent consideration for APS acquisition

 

$

6,580,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Ventanex in exchange for contingent consideration

 

$

10,800,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

6


REPAY HOLDINGS CORPORATION

Notes to the Unaudited 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 (1) before the Business Combination, to Hawk Parent and its consolidated subsidiaries and (2) from and after the Business Combination, to Repay Holdings Corporation and its consolidated subsidiaries.  Throughout this section, unless otherwise noted or unless the context otherwise requires, “Thunder Bridge” refers to Thunder Bridge Acquisition. Ltd. prior to the consummation of the Business Combination.  

The Company is headquartered in Atlanta, Georgia.  The Company’s legacy business was founded as M & A Ventures, LLC, a Georgia limited liability company doing business as REPAY: Realtime Electronic Payments (“REPAY LLC”), in 2006 by current executives John Morris and Shaler Alias. Hawk Parent was formed in 2016 in connection with the acquisition of a majority interest in the successor entity of REPAY LLC and its subsidiaries by certain investment funds sponsored by, or affiliated with, Corsair Capital LLC (“Corsair”).

On February 10, 2020, the Company acquired all of the equity interests of CDT Technologies, LTD. d/b/a Ventanex (“Ventanex”) for $36.0 million in cash. In addition to the $36.0 million cash consideration, the Ventanex selling equityholders may be entitled to a total of $14.0 million in two separate cash earnout payments, dependent on the achievement of certain growth targets.

 

2. Basis of Presentation and Summary of Significant Accounting Policies

 

Unaudited Interim Financial Statements

 

These unaudited consolidated interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for the period ended December 31, 2019 and Hawk Parent audited consolidated financial statements and accompanying notes for the years ended December 31, 2018 and 2017, which are included in the Company’s Form 10-K for the year ended December 31, 2019, as amended.

 

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 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 consolidated financial statements are unaudited, but in the Company’s opinion include all adjustments that are necessary for a fair statement of financial position, 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.

7


REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Repay Holdings Corporation, the majority-owned Hawk Parent Holdings LLC and its wholly owned subsidiaries: Hawk Intermediate Holdings, LLC, Hawk Buyer Holdings, LLC, Repay Holdings, LLC, M&A Ventures, LLC, Repay Management Holdco Inc., Repay Management Service LLC, Sigma Acquisition, LLC, Wildcat Acquisition, LLC (“PaidSuite”), Marlin Acquirer, LLC (“Paymaxx”), REPAY International LLC, REPAY Canada ULC, TriSource Solutions, LLC,  Mesa Acquirer, LLC, CDT Technologies LTD. and Viking GP Holdings, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of Financial Statement Presentation

 

The accompanying 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.

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 consolidated statements of operations during the reporting period. Actual results could differ materially from those estimates.

 

Emerging Growth Company

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Recently Adopted Accounting Pronouncements

 

Fair Value Measurement

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820. After the adoption of ASU 2018-13, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; the valuation processes for Level 3 fair value measurements.

 

ASU 2018-13 is effective for the Company’s annual period beginning after December 15, 2019. The amendments on changes in unrealized gains and losses should be applied prospectively for only the most recent period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented on their effective date. After adopting ASU 2018-13, there was no material effect on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements not yet Adopted

 

Leases

 

8


REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

In February 2016, the FASB issued ASU 2016‑02, Leases (Subtopic 842). The purpose of this ASU is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this ASU require that lessees recognize the rights and obligations resulting from leases as assets and liabilities on their balance sheets, initially measured at the present value of the lease payments over the term of the lease, including payments to be made in optional periods to extend the lease and payments to purchase the underlying assets if the lessee is reasonably certain of exercising those options. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.

The effective date of this ASU for emerging growth companies is for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Management is currently assessing the impact this ASU will have on its consolidated financial statements.

 

Credit Losses

 

                In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, instead of when incurred. The changes (as amended) are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is considered an emerging growth company and has elected to use the extended transition period provided for such companies. As a result, the Company will not be required to adopt ASU No. 2016-13 until January 1, 2023. The Company is currently evaluating the impact of the adoption of this principle on the Company’s consolidated financial statements.

Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU No. 2019-12").  ASU No. 2019-12 simplifies the accounting for income taxes, eliminates certain exceptions within Income Taxes (Topic 740), and clarifies certain aspects of the current guidance to promote consistency among reporting entities, and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Most amendments within ASU No. 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently in the process of evaluating the effects of ASU No. 2019-12 on its consolidated financial statements.

Reclassification

Certain amounts in the consolidated financial statements have been reclassified from their original presentation to conform to current year presentation. These reclassifications had no material impact on the consolidated financial statements as previously reported.

 

3. Revenue

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 Company’s performance obligations in its contracts with customers is the promise to stand-ready to provide payment processing services ("processing services") for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the customer’s use (e.g., number of transactions submitted and processed) of the related processing services. Accordingly, the total transaction price is variable. These services are stand-ready obligations, as the timing and quantity of transactions to be processed is not determinable. Under a stand-ready obligation, the Company’s performance obligation is satisfied over time throughout the contract term rather than at a point in time. Because the service of standing ready to perform processing services is substantially the same each day and has the same pattern of transfer to the customer, the Company has determined that its stand-ready performance obligation comprises a series of distinct

9


REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

days of service. Discount fees and other fixed per transaction fees are recognized each day using a time-elapsed output method based on the volume or transaction count at the time the merchants’ transactions are processed.

Revenue recorded with by the Company in the capacity as a principal is reported at on a gross basis equal to the full amount of consideration to which the Company expects in exchange for the good or service transferred. Revenue recorded with the Company acting in the capacity of an agent is reported on a net basis, exclusive of any consideration provided to the principal party in the transaction.

Interchange and network fees

Within its contracts with customers, the Company incurs interchange and network pass-through charges from the third-party card issuers and payment networks, respectively, related to the provision of payment authorization and routing services. The Company has determined that it is acting as an agent with respect to these payment authorization and routing services and as such, the Company views the card-issuing bank and the payment network as the principal for these performance obligations. Therefore, revenue allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and card networks, respectively, for the three months ended March 31, 2020 and 2019 respectively.

Indirect relationships

As a result of its past acquisitions, the Company has legacy relationships with Independent Sales Organizations (each an “ISO”), whereby the Company acts as the merchant acquirer for the ISO. The ISO maintains a direct relationship with the sponsor bank and the transaction processor, rather than the Company. Consequently, the Company recognizes revenue for these relationships net of the residual amount remitted to the ISO, based on the fact that the ISO is primarily responsible for providing the transaction processing services to the merchant. The Company is not focused on this sales model, and this relationship will represent an increasingly smaller portion of the business over time.

 

Disaggregation of revenue

 

The table below presents a disaggregation of revenue by direct and indirect relationships for the three months ended:

 

 

March 31, 2020

 

 

 

March 31, 2019

 

 

 

(Successor)

 

 

 

(Predecessor)

 

Revenue

 

 

 

 

 

 

 

 

 

Direct relationships

 

$

38,715,624

 

 

 

$

22,309,716

 

Indirect relationships

 

 

746,913

 

 

 

 

713,689

 

Total Revenue

 

$

39,462,537

 

 

 

$

23,023,405

 

 

Contract Costs

The incremental costs of obtaining a contract are recognized as an asset if the cost is incremental to obtaining a contract, and whether the costs are recoverable from the client.  If both criteria are not met, costs are expensed as incurred. If the amortization period of the capitalized commission cost asset is less than one year, the Company may elect a practical expedient per ASC 340-40-25-4 to expense commissions as incurred.

The Company currently incurs costs to obtain a contract through payments made to external referral partners. Any capitalized commission cost assets have an amortization period of one year or less, therefore the Company utilizes the practical expedient to expense commissions as incurred.

4. Earnings Per Share

During the three months ended March 31, 2020, 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 (the “Post-Merger Repay Units”), unvested restricted share awards and all warrants would have been anti-dilutive.

10


REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

The following table summarizes net loss attributable to the Company and the weighted average basic and basic and diluted shares outstanding:

 

 

 

For the Three Months Ended March 31, 2020

 

Loss before income tax expense

 

$

(7,400,035

)

Less: Net loss attributable to non-controlling interests

 

 

(2,852,399

)

Less: Income tax benefit

 

 

1,115,592

 

Net loss attributable to the Company

 

$

(3,432,044

)

 

 

 

 

 

Weighted average shares of Class A common stock outstanding - basic and diluted

 

 

37,624,829

 

 

 

 

 

 

Loss per share of Class A common stock outstanding - basic and diluted

 

$

(0.09

)

 

For the three months ended March 31, 2020, 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:

 

Post-Merger Repay Units exchangeable for Class A common stock

 

 

29,505,623

 

Dilutive warrants exercisable for Class A common stock

 

 

1,925,108

 

Unvested restricted share awards of Class A common stock

 

 

2,905,053

 

Share equivalents excluded from earnings (loss) per share

 

 

34,335,784

 

 

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.

5. Business Combinations

APS Payments

On October 14, 2019, the Company acquired substantially all of the assets of APS Payments for $30.0 million in cash. In addition to the $30.0 million cash consideration, the APS selling equityholders may be entitled to a total of $30.0 million in three separate cash earnout payments (“APS Earnout”), dependent on the achievement of certain growth targets.

The following summarizes the preliminary purchase consideration paid to the selling members of APS Payments:

 

Cash consideration

 

$

30,000,000

 

Contingent consideration (1)

 

 

18,580,549

 

Total purchase price

 

$

48,580,549

 

 

(1)

Reflects the fair value of APS Earnout, to be paid to the selling members of APS, pursuant to the asset purchase agreement between APS and Repay Holdings, LLC (“APS Purchase Agreement”). The selling members of APS will have the contingent earnout right to receive a payment of up to $30.0 million in three separate payments, dependent on the achievement of certain growth targets, as defined in the APS Purchase Agreement, for the period commencing on October 12, 2019 and ending on December 31, 2020.  As of March 31, 2020, the APS Earnout was $18.6 million, as a result of a $6.6 million measurement period adjustment to the preliminary valuation of $12.0 million, as of December 31, 2019.  

11


REPAY HOLDINGS CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

The Company recorded a preliminary allocation of the purchase price to APS Payments’ tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the October 11, 2019 closing date. The preliminary purchase price allocation is as follows:

Cash and cash equivalents

 

$

-

 

Accounts receivable

 

 

1,963,177

 

Prepaid expenses and other current assets

 

 

67,158

 

Total current assets

 

 

2,030,335

 

Property, plant and equipment, net

 

 

159,553

 

Restricted cash

 

 

549,978

 

Identifiable intangible assets

 

 

21,500,000

 

Total identifiable assets acquired

 

 

24,239,866

 

Accounts payable

 

 

(1,101,706

)

Accrued expenses

 

 

(19,018

)

Net identifiable assets acquired

 

 

23,119,142

 

Goodwill

 

 

25,461,407

 

Total purchase price

 

$

48,580,549

 

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)

Non-compete agreements

 

$

0.5

 

 

5

Trade names

 

 

0.5

 

 

Indefinite

Merchant relationships

 

 

20.5

 

 

9