Repay Holdings Corporation
2019 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO
(cid:1407)
Commission File Number 001-38531
Repay Holdings Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3 West Paces Ferry Road,
Suite 200
Atlanta, GA
(Address of principal executive offices)
98-1496050
(I.R.S. Employer
Identification No.)
30305
(Zip Code)
Registrant’s telephone number, including area code: (404) 504-7472
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, par value $0.0001 per share
Trading
Symbol(s)
RPAY
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:1407) NO (cid:1409)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES (cid:1407) NO (cid:1409)
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
Name of each exchange on which registered
The NASDAQ Stock Market LLC
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 (cid:1409) NO (cid:1407)
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 (cid:1409)
NO (cid:1407)
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
(cid:1409)
Smaller reporting company
(cid:1407)
Non-accelerated filer
Emerging growth company
(cid:1407)
(cid:1407)
(cid:1409)
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. (cid:1407)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES (cid:1407) NO (cid:1409)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of
common stock on The NASDAQ Stock Market on June 30, 2019, was $269,094,000.
As of April 24, 2020, there were 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 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 Apri1 24, 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.
.
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Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16 Form 10-K Summary
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This 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 benefits from the business
combination with Thunder Bridge Acquisition. Ltd., the expected benefits of the acquisitions of TriSource Solutions, L.L.C.
(“TriSource”), APS Payments, (defined herein), and 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 II, Item 7 “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, those risks described under Part I, Item 1A “Risk Factors" of this Form 10-K. 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.
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ITEM 1. BUSINESS
Organizational Structure and Corporate Information
PART I
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 with and into Hawk Parent Holdings, LLC, a Delaware limited liability company (“Hawk Parent”).
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. 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.
We are headquartered in Atlanta, Georgia. Our 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 (the “2016 Recapitalization”) by certain investment funds
sponsored by, or affiliated with, Corsair Capital LLC (“Corsair”).
Business Overview
We are a leading payments technology company. We provide integrated payment processing solutions to industry-
oriented vertical markets in which businesses have specific and bespoke transaction processing needs. We refer to these
markets as “vertical markets” or “verticals.”
We are a payments innovator, differentiated by our proprietary, integrated payment technology platform and our
ability to reduce the complexity of electronic payments for businesses. We intend to continue to strategically target verticals
where we believe our ability to tailor payment solutions to our customers’ needs, our deep knowledge of our vertical markets,
and the embedded nature of our integrated payment solutions will drive strong growth by attracting new customers and
fostering long-term customer relationships.
We processed approximately $10.7 billion of total card payment volume in 2019. Our year-over-year card payment
volume growth was approximately 44% in 2019 and 42% in 2018. As of December 31, 2019, we had over 14,000 customers.
Our top 10 customers, with an average tenure of approximately four years, contributed to approximately 28% and 33% of
total gross profit during the year ended December 31, 2019 and the year ended December 31, 2018, respectively.
Our leading competitive position and differentiated solutions have enabled us to achieve unique advantages in fast-
growing and strategically-important segments of the payments market. We provide payment processing solutions to
customers primarily operating in the personal loans, automotive loans, receivables management, and business-to-business
verticals. Our payment processing solutions enable consumers and businesses in these verticals to make payments using
electronic payment methods, rather than cash or check, which have historically been the primary methods of payment in these
verticals. We believe that a growing number of consumers and businesses prefer the convenience and efficiency of paying
with cards and other electronic methods and that we are poised to benefit from the significant growth opportunity of
electronic payment processing as these verticals continue to shift from cash and check to electronic payments. The personal
loans vertical is predominately characterized by installment loans, which are typically utilized by consumers to finance
everyday expenses. The automotive loans vertical predominantly includes subprime automotive loans, automotive title loans
and automotive buy-here-pay-here loans and also includes near-prime and prime automotive loans. Our receivables
management vertical relates to consumer loan collections, which typically enter the receivables management process due to
delinquency on credit card bills or as a result of major life events, such as job loss or major medical issues. The business-to-
business vertical relates to transactions occurring between a wide variety of enterprise customers, many of which operate in
the manufacturing, wholesale, and distribution industries.
Our go-to-market strategy combines direct sales with integrations with key software providers in our target verticals.
The integration of our technology with key software providers in the verticals that we serve, including loan management
systems, dealer management systems, collection management systems, and enterprise resource planning software systems,
allows us to embed our omni-channel payment processing technology into our customers’ critical workflow software and
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ensure seamless operation of our solutions within our customers’ enterprise management systems. We refer to these software
providers as our “software integration partners.” This integration allows our sales force to readily access new customer
opportunities or respond to inbound leads because, in many cases, a business will prefer, or in some cases only consider, a
payments provider that has already integrated or is able to integrate its solutions with the business’ primary enterprise
management system. We have successfully integrated our technology solutions with numerous, widely-used enterprise
management systems in the verticals that we serve, which makes our platform a more compelling choice for the businesses
that use them. Moreover, our relationships with our partners help us to develop deep industry knowledge regarding trends in
customer needs. Our integrated model fosters long-term relationships with our customers, which supports our volume
retention rates that we believe are above industry averages. As of December 31, 2019, we maintained approximately 70
integrations with various software providers.
Strategic acquisitions are another important part of our long-term strategy. Our acquisitions have allowed us to
further penetrate existing vertical markets, access new strategic vertical markets, broaden our technology and solutions suite,
and expand our customer base. Our growth strategy is to continue to build our company through a disciplined combination of
organic and acquisitive growth. We continue to focus on identifying strategic acquisition candidates in an effort to drive
accretive growth.
Growth Strategies
We intend to drive future growth in the following ways:
Increase Penetration in Existing Verticals
We expect to grow meaningfully by continuing to provide innovative payment solutions and customer support to our
existing customers as well as new customers in the verticals that we currently serve. In addition, our business model allows
us to benefit from the growth of our customers and software integration partners. As our customers’ payment volumes and
transactions increase, our revenues increase as a result of the fees we charge for processing these payments. Many of the
vertical markets in which we compete are experiencing a secular shift from legacy payment mediums — primarily cash and
check — to electronic forms of payment. We stand to benefit from this trend as our customers increasingly opt to process
payments via the electronic forms of payment in which we specialize.
New Vertical and Geographic Expansion
We also expect that we will find attractive growth potential in certain verticals in which we currently have limited
operations. Though we offer highly customized payment solutions to our customers, our core technology platform is
comprehensive and can be leveraged to penetrate other strategic vertical markets. Several verticals, including but not limited
to, healthcare, credit unions, and niche business-to-business, are natural extensions of our existing verticals and are well
suited to benefit from our core technology offerings. Additionally, we envision growing our geographic footprint, as new
territories continue to present new business opportunities. For example, we are focused on expanding our Canadian
operations, as the demand for our solutions among existing and prospective Canadian customers remains strong.
Strengthen and Extend Our Solution Portfolio through Continued Innovation.
As we further integrate our solution into our client’s workflow, we will look to continue to innovate on our solution
set and broaden our suite of services. Our acquisition of TriSource and our continued investment in our technology
capabilities position us to provide value-added services that will address the evolving needs of our clients as they seek to best
serve their customers. The ability to serve clients across market verticals and to be integrated across various software
platforms enables us to understand the needs of clients across markets and to scale our innovative solutions to a broad
segment of the market.
Continue to Drive Operational Efficiencies
As we continue to grow, we expect to become a more significant partner to our sponsor banks, third party processors
and software integration partners, which we expect will give us greater leverage as we expand our contractual relationships
with them. We will continue to drive operating leverage in our non-technology personnel expenditures, as we believe that we
can process larger payment volumes without significant increases to our personnel and operating expenses.
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Strategic Acquisitions
From January 1, 2016 through December 31, 2019, we have successfully acquired eight businesses. Given the large
size and attractive growth trends of our current addressable market, we are primarily focused on growing our business
organically. However, we may selectively pursue strategic acquisitions as opportunities arise that meet our internal
requirements for the use of capital and return on investment. Some of these opportunities may include those that enable us to
acquire new capabilities that may be harder to develop in-house, gain entrance into new segments of the market, enter new
markets, or consolidate our existing market.
Solutions
We provide our customers with comprehensive solutions relating to the following methods of electronic payment:
• Credit and Debit Processing — Allows our customers to send and accept card payments. These payments can
be made using any of our payment channels, as further described below.
• Automated Clearing House (“ACH”) Processing — Our ACH processing capabilities allow our customers to
send and accept traditional and same-day ACH transactions.
• Instant Funding — Our instant funding capabilities allow our customers to transfer funds directly to a
consumer’s debit or prepaid card. We have created a proprietary process that decreases processing delays
typically associated with traditional fund disbursements.
The above payment and funding methods are processed through our proprietary payment channels:
• Web-based
• Virtual Terminal — A terminal that provides virtual payment access for processing of ACH or card
transactions.
• Hosted Payment Page — A customer-branded terminal that enables ACH and card transaction
processing.
• Online Customer Portal — A consumer-facing, merchant-specific website that gives a merchant’s
customer the ability to pay online and view account information anywhere, anytime. A Repay hosted
website may be stand alone or integrated with any other software application.
• Mobile Application — We provide customers the ability to accept payments via a mobile application on a
customized, white-label basis.
• Text-to-Pay — Allows a business’ customer to pay with a simple text message after receiving an SMS alert
that reminds such customer when payments are due.
• Interactive Voice Response (“IVR”) — A secure and flexible option to pay over the phone, 24 hours a day, 7
days a week, via a 1-800 number with bilingual capabilities.
• Point of Sale (“POS”) — We provide payment acceptance at brick-and-mortar locations through POS
equipment that requires a merchant’s customer to provide a card.
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Sales and Distribution
Our sales strategy consists of our direct sales representatives, who focus on each of our core verticals, and our
software integration partners, which primarily focus on prospective customers within their targeted verticals whose
businesses could be best served by their enterprise software solutions.
Direct Sales Representatives
Our sales representatives are organized by vertical market and account size. Direct sales representatives work with
our customers and software integration partners to understand our customers’ desired payment solutions and then
communicate those desires to our product and technology teams, who build a customized suite of products and payment
channels tailored to our customers’ specific needs.
Software Integration Partners
We are currently integrated with approximately 70 software partners that are providers of our customers’ primary
enterprise management systems. Our integrations ensure seamless delivery of our full suite of payment processing
capabilities to our customers. These integrations are also a critical part of our marketing strategy, as many customers will
prefer to award their payments business to payments processors who have worked to integrate their solutions into the
customer’s enterprise management systems.
Operations
We believe that we have developed an effective operations system, including our proprietary onboarding,
compliance and merchant oversight processes, which is structured to enhance the performance of our platform and support
our customers.
Customer and Transaction Risk Management
We target customers that we identify as low-risk through the development of underwriting policies and transaction
management procedures to manage approval of new accounts and to establish ongoing monitoring of customer accounts.
Effective risk management aids us in minimizing merchant losses relating to chargebacks, rejecting losses and avoiding
merchant fraud for the mutual benefit of our customers, our sponsor banks and ourselves.
Proprietary Compliance Management System. We have developed proprietary onboarding, compliance, and
merchant oversight processes, of which our Compliance Management System (“CMS”) is a part. Our CMS, developed in
conjunction with the Third Party Payment Processors Association (“TPPPA”), is based on four main components — board
and management oversight, a compliance program with written policies and procedures and employee training and
monitoring, response to consumer complaints and annual compliance audits from an independent third party — and is
inclusive of the Electronic Transaction Association (“ETA”) guidelines on underwriting and risk.
Customer Onboarding. We believe we maintain rigorous underwriting standards. Prospective customers submit
applications to our credit underwriting department, which performs verification and credit-related checks on all applicants.
Each customer is assigned a risk profile based on sponsor bank requirements, as well as additional criteria specified by us.
Our sponsor banks periodically review and approve of our underwriting policies to ensure compliance with applicable law,
regulations and payment network rules. Upon approval, the ongoing risk level of a customer is monitored and adjusted on a
monthly basis based on additional data relating to such customer.
Customer Monitoring. Each customer’s file is assigned one of three risk levels (low, medium or high)
corresponding to several customer behaviors. We review and adjust these risk levels on a monthly basis and additionally
subject them to more in-depth quarterly reviews. We also engage third parties and rely on internal reporting to identify and
monitor credit/fraud risk. We generate customer-specific reports that compile daily and historical transactions, which may
include average ticket, transaction volume, refund and chargeback levels and authorization history, which we utilize in order
to identify suspicious processing activity. We review these reports on a daily basis and suspend any irregular processing
activity, which is subject to review, remediation and, as appropriate, suspension of either an individual or batch of
transactions or a particular customer, as applicable.
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Investigation and Loss Prevention. If a customer exceeds the parameters established by our underwriting and/or
risk management team or we determine that a customer has violated the payment network rules or the terms of its service
agreement with us, one of our team members will identify and document the incident. We then review the incident to
determine the actions taken or that we can take to reduce our exposure to loss and the exposure of our customer to liability.
As a part of this process, we may request additional transaction information, withhold or divert funds, verify delivery of
merchandise or, in some circumstances, deactivate the customer account, include the customer on the Network Match List to
notify our industry of the customer’s behavior or take legal action against the customer.
Collateral. We require some of our customers to establish cash or non-cash collateral reserves, which may include
certificates of deposit, letters of credit, rolling merchant reserves or upfront cash. This collateral is utilized in order to offset
potential credit or fraud risk liability that we may incur. We attempt to hold such collateral reserves for as long as we are
exposed to a loss resulting from a customer’s payment processing activity.
Chargebacks. The payment networks permit the reversal of a money transfer, a chargeback, up to six months (or
in rare cases, a longer time frame) after the later of the date the transaction is processed or the delivery of the product or
service to the cardholder. If the customer incurring the chargeback is unable to fund the refund to the card-issuing bank, we
are required to do so by the rules of the payment networks and our contractual arrangements with our sponsor banks. During
the year ended December 31, 2019, we believe our chargeback rate was under 1% of our payment volume.
Security, Disaster Recovery, and Back-up Systems
We adhere to strict security standards to protect the payment information that we process. We regularly update our
network and provide operating system security releases and virus defenses. We have retained an external party to audit our
systems’ compliance with current security standards as established by the Payment Card Industry Data Security Standards
(“PCI DSS”), Service Organization Control (“SOC”), and Health Insurance Portability and Accountability Act (“HIPAA”)
and to test our systems against vulnerability to unauthorized access. Further, we use one of the most advanced commercially
available technologies to encrypt the cardholder numbers and customer data that we store in our databases. Additionally, we
have a dedicated team responsible for security incident response, which team develops, maintains, tests and verifies our
incident response plan. Disaster recovery is built into our infrastructure through redundant hardware and software
applications hosted in two distinct cloud regions. Our primary cloud region is set up to be replicated, substantially on a real
time basis, by our secondary cloud region such that if our primary cloud region becomes impaired or unavailable, operations
are redirected to the secondary cloud region. Our incident response team tests these systems each quarter to assess the
effectiveness of our disaster recovery plan, including staff readiness and operational capability.
Third Party Processors and Sponsor Banks
We partner with institutions in the payment chain to provide authorization, settlement and funding services in
connection with our customers’ transactions. These institutions include third party processors and sponsor banks, who sit
between us, acting as the merchant acquirer, and the payment networks, such as Visa, MasterCard and Discover. When we
facilitate a transaction as a merchant acquirer, we utilize third party processors such as Total Systems Services, Inc. (a
subsidiary of Global Payments, Inc.), Worldpay, Inc. (a subsidiary of Fidelity National Information Services, Inc.), and
Fiserv Inc. Under such processing arrangements, the third party processors and vendors receive processing fees based on a
percentage of the payment volume they process. These processors and vendors in turn have agreements with the payment
networks, which permit them to route transaction information through their networks in exchange for fees.
In addition, in order for us to process and settle transactions for our customers, we have entered into sponsorship
agreements with banks that are members of the payment networks. We are required to register with the payment networks
through these bank partners because we, as payment processors, are not “member banks” as defined by the major payment
networks. Our member bank partners sponsor our adherence to the rules and standards of the payment networks and enable
us to route transactions under the sponsor banks’ control and identification numbers (for example, known as BIN for Visa
and ICA for MasterCard) across the card and ACH networks to authorize and clear transactions. Our relationships with
multiple sponsor banks give us the flexibility to shift payment volumes between them, which helps us to secure more
competitive pricing for our customers and to maintain redundancy.
Competition
We compete with a variety of payment processing companies that have different business models, go-to-market
strategies and technical capabilities. We compete with a large number of small payments processing companies that provide
integrated payments solutions and/or related hardware to customers within our existing verticals. More broadly in the overall
payments industry, our payment and software solutions compete against many forms of financial services and payment
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systems, including Open Edge (a division of Global Payments), ACI Worldwide, Inc., JetPay Corporation (a subsidiary of
NCR Corporation), Electronic Payment Providers, Inc. (d.b.a. BillingTree), Paya, Inc., Paymentus Corporation and Zelis. We
also compete against many traditional merchant acquirers, such as financial institutions, affiliates of financial institutions and
payment processing companies in the payment processing industry, including Bank of America Merchant Services, Elavon,
Inc. (a subsidiary of U.S. Bancorp), Wells Fargo Merchant Services, Global Payments, Inc., WorldPay, Inc. (a subsidiary of
Fidelity National Information Services, Inc.) and Total Systems Services, Inc. (a subsidiary of Global Payments, Inc.). We
believe the most significant competitive factors in the markets in which we compete are: (1) economics, including fees
charged to merchants and commission payouts to software integration partners; (2) product offering, including emerging
technologies and development by other participants in the payments ecosystem; (3) service, including product functionality,
value-added solutions and strong customer support for both merchants and software integration partners; and (4) reliability,
including a strong reputation for quality service and trusted software integration partners. Our competitors include large and
well-established companies, including banks, credit card providers, technology and ecommerce companies and traditional
retailers, many of which are larger than we are, have a dominant and secure position in the markets in which they operate or
offer other products and services to consumers and customers which we do not offer. Moreover, we compete against all
forms of payments, including credit cards, bank transfers, and traditional payment methods, such as cash and check.
Acquisitions
Our historical acquisition activity has allowed us to access new markets, acquire industry talent, broaden our product
suite, and supplement organic growth. Our first three acquisitions — of TBT, Inc., National Translink Corp. and Merchants
Choice, Inc. and Falcon Payment Solutions, LLC — were small portfolio acquisitions completed prior to 2016 that provided
us with valuable merchant contract rights, industry talent and additions to our sales teams. These acquisitions are not
representative of our current acquisition strategy, which will focus on integrated payments companies serving attractive
vertical markets and opportunities to broaden our product offerings. Since 2016 through December 31, 2019, we have
completed five larger acquisitions, which are described below. These acquisitions were of payment companies and are
representative of the acquisitions we envision consummating in the future.
Sigma Acquisition
Effective as of January 1, 2016, we acquired substantially all of the assets of Sigma Payment Solutions, Inc.
(“Sigma”). Sigma was an electronic payment solutions provider to the automotive finance industry. The transaction marked
Repay’s expansion into the automotive finance space. We have benefitted greatly from Sigma’s deep integrations with
automotive finance software platforms, or Dealer Management Systems.
PaidSuite Acquisition
On September 28, 2017, we acquired substantially all of the assets of PaidSuite, Inc. and PaidMD, LLC
(collectively, “PaidSuite”). PaidSuite was an electronic payment solutions provider to the accounts receivable management
industry. The transaction accelerated our growth into the accounts receivable management space via customer and software
integration partner relationships.
Paymaxx Acquisition
On December 15, 2017, we acquired substantially all of the assets of Paymaxx Pro, LLC (“Paymaxx”). The
acquisition of Paymaxx has been highly complementary to our earlier acquisition of Sigma and has bolstered our position in
the niche automotive finance market. As part of the acquisition, we acquired increased distribution capabilities in the form of
an internal sales force and numerous DMS integrations.
TriSource Acquisition
On August 14, 2019, we acquired all of the equity interests of TriSource for $60.1 million in cash. In addition to the
$60.1 million cash consideration, the TriSource selling equityholders may be entitled to a $5.0 million cash earnout payment,
dependent on the achievement of certain growth targets. Since 2012, we have used TriSource as one of our primary third-
party processors for settlement solutions when we facilitate transactions as a merchant acquirer. The acquisition of TriSource
has provided further control over our transaction processing ecosystem and accelerated product delivery capabilities.
APS Acquisition
On October 14, 2019, we acquired substantially all of the assets of American Payment Services of Coeur D’Alene,
LLC, North American Payment Solutions LLC, and North American Payment Solutions Inc. (collectively, “APS”) for $30.0
7
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, dependent on the achievement of certain growth targets. The
acquisition of APS meaningfully expanded our addressable market by enabling us to access the business-to-business vertical.
Government Regulation
We operate in an increasingly complex and ever evolving legal and regulatory environment. Our and our customers’
businesses are subject to a variety of federal, state and local laws and regulations, as well as the rules and standards of the
payment networks that we utilize to provide our electronic payment services. While in some cases payment processors such
as Repay are not directly regulated by governmental agencies, because of the rules and regulations enacted at the state and
federal level that affect our customers and sponsor banks, we have developed and continually evaluate and update our
compliance models to keep up with the rapid evolution of the legal and regulatory regime our customers and sponsor banks
face. We are also subject to legal and regulatory requirements which govern the use, storage and distribution of the
information we collect from our customers and cardholders while processing transactions.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and its related
rules and regulations have resulted in significant changes to the regulation of the financial services industry, including the
electronic payment industry. Under the Dodd-Frank Act, debit interchange transaction fees that a card issuer receives and are
established by a payment card network for an electronic debit transaction are regulated by the Board of Governors of the
Federal Reserve System (the “Federal Reserve”). The Dodd-Frank Act and the Federal Reserve’s implementing regulations
require that such interchange fees be “reasonable and proportional” to the cost incurred by the issuer in processing the
transactions. Federal Reserve regulations implementing this “reasonable and proportional” requirement have capped debit
interchange rates for card issuers operating in the United States with assets of $10 billion or more at the sum of $0.21 per
transaction and 5 basis points multiplied by the value of the transaction to reflect a portion of the issuer’s fraud losses plus,
for qualifying issuers, an additional $0.01 per transaction in debit interchange for fraud prevention costs. In addition, the
regulations contain non-exclusivity provisions that ban debit card networks from prohibiting an issuer from contracting with
any other card network that may process an electronic debit transaction involving an issuer’s debit cards and prohibit card
issuers and card networks from inhibiting the ability of merchants to direct the routing of debit card transactions over any
network that can process the transaction. Beginning April 1, 2012, most debit card issuers in the United States were required
to participate in at least two unaffiliated debit card networks. On April 1, 2013, the ban on network exclusivity arrangements
became effective for prepaid card and healthcare debit card issuers, with certain exceptions for prepaid cards issued before
that date. On May 1, 2013, the ban on network exclusivity arrangements became effective for all reloadable general use
prepaid cards.
Effective July 22, 2010, merchants were allowed to set minimum dollar amounts (not to exceed $10) for the
acceptance of a credit card (while federal governmental entities and institutions of higher education may set maximum
amounts for the acceptance of credit cards). They were also allowed to provide discounts or incentives to entice consumers to
pay with an alternative payment method, such as cash, checks or debit cards.
The Dodd-Frank Act also created the Consumer Financial Protection Bureau (the “CFPB”), which has rulemaking
authority over consumer protection laws, including the authority to regulate consumer financial products in the United States,
including consumer credit, deposit, payment, and similar products. The CFPB may also have authority over us as a provider
of services to regulated financial institutions in connection with consumer financial products. Any new rules or regulations
implemented by the CFPB, and other similar regulatory agencies in other jurisdictions, or pursuant to the Dodd-Frank Act
that are applicable to us or our customers’ businesses, or any adverse changes thereto, could increase our cost of doing
business or limit our current offerings of integrated payment solutions.
Privacy and Information Security Regulations
We provide services that may be subject to various state and federal privacy laws and regulations. Relevant federal
privacy laws include the Gramm-Leach-Bliley Act of 1999, which (along with its implementing regulations) restricts certain
collection, processing, storage, use and disclosure of personal information, requires notice to individuals of privacy practices
and provides individuals with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally
protected information. These rules also impose requirements for the safeguarding and proper destruction of personal
information through the issuance of data security standards or guidelines. Our business may also be subject to the Fair Credit
Reporting Act of 1970, as amended by the Fair and Accurate Credit Transactions Act of 2003, which regulates the use and
reporting of consumer credit information and imposes disclosure requirements on entities who take adverse action based on
information obtained from credit reporting agencies. In addition, there are state laws governing the collection of personal
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information, including those restricting the ability to collect and utilize certain types of information such as Social Security
and driver’s license numbers. Certain state laws impose similar privacy obligations as well as obligations to provide
notification of security breaches of computer databases that contain personal information to affected individuals, state
officers and others. For example, the California Consumer Privacy Act (CCPA) of 2018, which became effective January 1,
2020, imposes more stringent requirements with respect to California data privacy. The CCPA includes provisions that give
California residents expanded rights to access and delete certain personal information, opt out of certain personal information
sharing, and receive detailed information about how certain personal information is used.
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Anti-Money Laundering and Counter-Terrorism Regulation
Our business is subject to U.S. federal anti-money laundering laws and regulations. We are also subject to certain
economic and trade sanctions programs that are administered by OFAC that prohibit or restrict transactions to or from (or
transactions dealing with) narcotics traffickers, terrorists, terrorist organizations, certain individuals, specified countries, their
governments and, in certain circumstances, their nationals. Similar anti-money laundering, counter-terrorist financing and
proceeds of crime laws apply to movements of currency and payments through electronic transactions and to dealings with
persons specified on lists maintained by organizations similar to OFAC in several other countries and which may impose
specific data retention obligations or prohibitions on intermediaries in the payment process. We have developed and continue
to enhance compliance programs and policies to monitor and address related legal and regulatory requirements and
developments.
Unfair or Deceptive Acts or Practices
We and many of our customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or
deceptive acts or practices and various state laws similar in scope and subject matter thereto. In addition, laws prohibiting
these activities and other laws, rules and or regulations, including the Telemarketing Sales Act, may directly impact the
activities of certain of our customers, and in some cases may subject us, as the customer’s payment processor or provider of
certain services, to investigations, fees, fines and disgorgement of funds if we are deemed to have aided and abetted or
otherwise provided the means and instrumentalities to facilitate the illegal or improper activities of a customer through our
services. Various federal and state regulatory enforcement agencies, including the Federal Trade Commission and the states
attorneys general, have authority to take action against payment processors who violate such laws, rules and regulations. To
the extent we are processing payments or providing services for a customer suspected of violating such laws, rules and
regulations, we may face enforcement actions and, as a result, incur losses and liabilities that may adversely affect our
business.
In addition, the Dodd-Frank Act gave the CFPB broad authority to prohibit “unfair, deceptive or abusive acts or
practices” in connection with the provision of consumer financial products and services. The CFPB recently issued a policy
statement providing a framework for how it defines “abusive” conduct and how it will enforce the prohibition against abusive
acts or practices in enforcement actions against financial services companies and their service providers (including payment
processors). UDAAP violations include omissions or misrepresentations of important information to consumers or practices
that take advantage of vulnerable consumers, such as elderly or low-income consumers. The CFPB has left open the
possibility of engaging in a future rulemaking to further define the abusiveness standard and it is uncertain how future
rulemaking may impact our business operations and risk.
Indirect Regulatory Requirements
Certain of our customers and our sponsor banks are financial institutions that are directly subject to various
regulations and compliance obligations issued by the CFPB, the Federal Reserve, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration and other agencies
responsible for regulating financial institutions, which includes state financial institution regulators. While these regulatory
requirements and compliance obligations do not apply directly to us, many of these requirements materially affect the
services we provide to our customers and us overall. The financial institution regulators have imposed requirements on
regulated financial institutions to manage their third-party service providers. Among other things, these requirements include
performing appropriate due diligence when selecting third-party service providers; evaluating the risk management,
information security, and information management systems of third-party service providers; imposing contractual protections
in agreements with third-party service providers (such as performance measures, audit and remediation rights,
indemnification, compliance requirements, confidentiality and information security obligations, insurance requirements and
limits on liability); and conducting ongoing monitoring, diligence and audit of the performance of third-party service
providers. Accommodating these requirements applicable to our customers imposes additional costs and risks in connection
with our relationships with financial institutions. We expect to expend significant resources on an ongoing basis in an effort
to assist our customers in meeting their legal requirements.
Additionally, our customers, particularly those in the consumer finance market, are subject to various federal, state
and local laws and regulations that impose restrictions and requirements on their businesses, such as limitations on interest
rates and fees, maximum loan amounts and the number of simultaneous or consecutive loans, imposition of required waiting
periods between loans, loan extensions and refinancing, requiring payment schedules (including maximum and minimum
loan durations) or repayment plans for borrowers claiming inability to repay loans, mandating disclosures, security for loans,
licensing requirements and, in certain jurisdictions, database reporting and loan utilization information.
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Payment Network Rules and Standards
Payment networks, such as Visa, MasterCard and American Express, establish their own rules and standards that
allocate liabilities and responsibilities among the payment networks and their participants. These rules and standards,
including the Payment Card Industry Data Security Standards, govern a variety of areas, including how consumers and
customers may use their cards, the security features of cards, security standards for processing, data security and allocation of
liability for certain acts or omissions, including liability in the event of a data breach. The payment networks may change
these rules and standards from time to time as they may determine in their sole discretion and with or without advance notice
to their participants. These changes may be made for any number of reasons, including as a result of changes in the regulatory
environment, to maintain or attract new participants, or to serve the strategic initiatives of the networks, and may impose
additional costs and expenses on or be disadvantageous to certain participants. Participants are subject to audit by the
payment networks to ensure compliance with applicable rules and standards. The networks may fine, penalize or suspend the
registration of participants for certain acts or omissions or the failure of the participants to comply with applicable rules and
standards.
In order for us to process and settle transactions for our customers, we have entered into sponsorship agreements
with banks that are members of the payment systems. We are required to register with the payment networks through these
bank partners because we, as payment processors, are not “member banks” as defined by the major payment networks’ rules
and standards governing access to those networks. Our bank partners sponsor our adherence to the rules and standards of the
payment networks and enable us to route transactions under the sponsor banks’ control and identification numbers (known as
BIN for Visa and ICA for MasterCard) across the card and ACH networks to authorize and clear transactions. Payment
network rules restrict us from performing funds settlement and require that merchant settlement funds be in the possession of
the member bank until the merchant is funded. These restrictions place the settlement assets and liabilities under the control
of the member bank.
Our sponsorship agreements give our sponsor banks substantial discretion in approving certain aspects of our
business practices, including our solicitation, application and qualification procedures for customers and the terms of our
agreements with customers, and provide them with the right to audit our compliance with the payment network rules and
guidelines. We are also subject to network operating rules and guidelines promulgated by the National Automated Clearing
House Association (“NACHA”) relating to payment transactions we process using the Automated Clearing House Network.
Like the payment networks, NACHA may update its operating rules and guidelines at any time, which can require us to take
more costly compliance measures or to develop more complex monitoring systems. Similarly, our ACH sponsor banks have
the right to audit our compliance with NACHA’s rules and guidelines, and are given wide discretion to approve certain
aspects of our business practices and terms of our agreements with ACH customers.
Other Regulation
We are subject to U.S. federal and state unclaimed or abandoned property (escheat) laws, which require us to turn
over to certain government authorities the property of others we hold that has been unclaimed for a specified period of time,
such as account balances that are due to a software integration partner or customer following discontinuation of its
relationship with us. The Housing Assistance Tax Act of 2008 requires certain merchant acquiring entities and third-party
settlement organizations to provide information returns for each calendar year with respect to payments made in settlement of
electronic payment transactions and third-party payment network transactions occurring in that calendar year. Reportable
transactions are also subject to backup withholding requirements.
The foregoing is not an exhaustive list of the laws and regulations to which we are subject and the regulatory
framework governing our business is changing continuously. See “Risk Factors — Risks Related to Our Business” in Part I,
Item 1A of this Annual Report on Form 10-K.
Intellectual Property
Certain of our products and services are based on proprietary software and related payment systems solutions. We
rely on a combination of copyright, trademark, and trade secret laws, as well as employee and third-party non-disclosure,
confidentiality, and other contractual arrangements to establish, maintain, and enforce our intellectual property rights in our
technology, including with respect to our proprietary rights related to our products and services. In addition, we license
technology from third parties that is integrated into some of our solutions.
We own a number of registered service marks, including REPAY® and REPAY REALTIME ELECTRONIC
PAYMENTS®, and we have other pending applications. We also own a number of domain names, including
www.repay.com. For additional information regarding some of the risks relating to our intellectual property see “Risk
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Factors — Risks Related to Our Business — We may not be able to successfully manage our intellectual property and may be
subject to infringement claims.” in Part I, Item 1A of this Annual Report on Form 10-K.
Employees
As of December 31, 2019, we had 243 employees. None of our employees is represented by a labor union and we
have experienced no work stoppages. We consider our employee relations to be good.
Available Information
We maintain a website at www.repay.com, through which you may access our public filings free of charge as soon
as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission
(“SEC”). Information contained on our website is not a part of this Annual Report on Form 10-K and the inclusion of our
website address in this report is an inactive textual reference only.
ITEM 1A. RISK FACTORS
Our business involves significant risks. In addition to the risks and uncertainties discussed above under
“Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein.
If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of
operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment.
Additionally, the risks and uncertainties described in this Annual Report on Form 10-K or in any document incorporated by
reference herein are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known
to us or that we currently believe to be immaterial may become material and adversely affect our business.
Unless the context requires otherwise, “we,” “us,” “our,” “Repay” and the “Company” refer to the business of
Repay Holdings Corporation and its subsidiaries. In the section of the Risk Factors entitled “Risks Related to Our Class A
Common Stock, “we,” us” and “our” refer only to Repay Holdings Corporation excluding, unless the context requires
otherwise or as expressly stated, its subsidiaries.
Risks Related to Our Business
The payment processing industry is highly competitive. Such competition could adversely affect the fees we receive, and as
a result, our margins, business, financial condition and results of operations.
The market for payment processing services is highly competitive. There are other payment processing service
providers that have established a sizable market share in the merchant acquiring sector and service more customers than we
do. Our growth will depend, in part, on a combination of the continued growth of the electronic payment market and our
ability to increase our market share.
Our payment and software solutions compete against many forms of financial services and payment systems,
including electronic, mobile and integrated payment platforms as well as cash and checks. Our competitors include Open
Edge (a division of Global Payments), ACI Worldwide, Inc., JetPay Corporation (a subsidiary of NCR Corporation),
Electronic Payment Providers, Inc. (d.b.a. BillingTree), Paya, Inc., Paymentus Corporation and Zelis. There are also many
traditional merchant acquirers, such as financial institutions, affiliates of financial institutions and well-established payment
processing companies, in the payment processing industry, including Bank of America Merchant Services, Elavon, Inc. (a
subsidiary of U.S. Bancorp), Wells Fargo Merchant Services, Global Payments, Inc., WorldPay, Inc. (a subsidiary of Fidelity
National Information Services, Inc.) and Total Systems Services, Inc. (a subsidiary of Global Payments, Inc.). These
institutions have established, or may establish in the future, payment processing businesses that could target our existing and
potential customers.
Many of our competitors have substantially greater financial, technological, management and marketing resources
than we have. Accordingly, if these competitors target our business model and, in particular, the vertical markets that we
serve, they may be able to offer more attractive fees or payment terms and advances to our customers and more attractive
compensation to our software integration partners. They also may be able to offer and provide services and solutions that we
do not offer. There are also a large number of small providers of processing services, including emerging technology and
non-traditional payment processing companies, that provide various ranges of services to our existing and potential
customers. This competition may effectively limit the prices we can charge, cause us to increase the compensation we pay to
our software integration partners and require us to control costs aggressively in order to maintain acceptable profit margins.
Further, if the use of payment cards other than Visa, MasterCard or Discover grows, or if there is an overall decrease in the
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use of debit cards as compared to other payment methods, our profitability could be reduced. Competition could also result in
a loss of existing customers and greater difficulty attracting new customers, and could impact our relationships with software
integration partners that integrate our services into the software used by our customers. Although we carefully monitor
attrition levels of our existing customers, we cannot predict such attrition rates in the future. One or more of these factors
could have a material adverse effect on our business, financial condition and results of operations.
Unauthorized disclosure of merchant or consumer data, whether through breach of our computer systems, computer
viruses, or otherwise, could expose us to liability and protracted and costly litigation, and damage our reputation.
We are responsible for data security for us and for third parties with whom we partner, including with respect to
rules and regulations established by the payment networks, such as Visa, MasterCard and Discover, and debit card networks.
These third parties include our customers, software integration partners and other third-party service providers and agents.
We and other third parties collect, process, store and/or transmit sensitive data, such as names, addresses, social security
numbers, credit or debit card numbers, expiration dates, driver’s license numbers and bank account numbers. We have
ultimate liability to the payment networks and our sponsor banks that register us with the payment networks for our failure or
the failure of other third parties with whom we contract to protect this data in accordance with payment network
requirements. The loss, destruction or unauthorized modification of merchant or consumer data by us or our contracted third
parties could result in significant fines, sanctions, proceedings or actions against us by the payment networks, governmental
bodies, consumers or others.
Threats may result from human error, fraud or malice on the part of employees or third parties, or from accidental
technological failure. For example, certain of our employees have access to sensitive data that could be used to commit
identity theft or fraud. Concerns about security increase when we transmit information electronically because such
transmissions can be subject to attack, interception or loss. Also, computer viruses can be distributed and spread rapidly over
the Internet and could infiltrate our systems or those of our contracted third parties. Denial of service or other attacks could
be launched against us for a variety of purposes, including interfering with our services or to create a diversion for other
malicious activities. These types of actions and attacks and others could disrupt our delivery of services or make them
unavailable.
We and our contracted third parties could be subject to breaches of security by hackers. Our encryption of data and
other protective measures may not prevent unauthorized access to or use of sensitive data. A systems breach may subject us
to material losses or liability, including payment network fines, assessments and claims for unauthorized purchases with
misappropriated credit, debit or card information, impersonation or other similar fraud claims. A misuse of such data or a
cybersecurity breach could harm our reputation and deter merchants or other customers from using electronic payments
generally and our services specifically, thus reducing our revenue. In addition, any such misuse or breach could cause us to
incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject
us to lawsuits, and result in the imposition of material penalties and fines under state and federal laws or by the payment
networks or limitations on our ability to process payment transactions on such payment networks. While we maintain cyber
insurance coverage (which, in certain cases, is required pursuant to certain of our contractual commitments) that may, subject
to policy terms and conditions, cover certain aspects of these risks, our insurance coverage may be insufficient to cover all
losses. Additionally, we may be required to increase our cyber insurance coverage pursuant to our contractual commitments
entered into in the future. The costs to maintain or increase our cyber insurance coverage could have a material adverse effect
on our business, financial condition and results of operations.
Any human error, fraud, malice, accidental technological failure or attacks against us or our contracted third parties
could hurt our reputation, force us to incur significant expenses in remediating the resulting impacts, expose us to uninsured
liability, result in the loss of our sponsor bank relationships or our ability to participate in the payment networks, subject us to
lawsuits, fines or sanctions, distract our management, increase our costs of doing business and/or materially impede our
ability to conduct business.
Although we generally require that our agreements with our software integration partners or service providers
include confidentiality obligations that restrict these parties from using or disclosing any merchant or consumer data except
as necessary to perform their services under the applicable agreements, we cannot guarantee that these contractual measures
will prevent the unauthorized use, modification, destruction or disclosure of data or allow us to seek reimbursement from the
contracted party. In addition, many of our customers are small and medium-sized businesses that may have limited
competency regarding data security and handling requirements and may thus experience data breaches. Any unauthorized
use, modification, destruction or disclosure of data could result in protracted and costly litigation, and the incurrence of
significant losses by us.
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In addition, our agreements with our sponsor banks and our third-party payment processors (as well as payment
network requirements) require us to take certain protective measures to ensure the confidentiality of merchant and consumer
data. Any failure to adequately comply with these protective measures could result in fees, penalties, litigation or termination
of our sponsor bank agreements.
Security breaches may be subject to scrutiny from governmental agencies such as the CFPB. See the risk factor
entitled “Compliance with the Dodd-Frank Act and other federal and state regulations may increase our compliance costs,
limit our revenues and otherwise negatively affect our business.”
If we cannot keep pace with rapid developments and changes in our industry, the use of our products and services could
decline, causing a reduction in our revenues.
The electronic payments market is subject to constant and significant changes. This market is characterized by rapid
technological evolution, new product and service introductions, evolving industry standards, changing customer needs and
the entrance of new competitors, including products and services that enable card networks and banks to transact with
consumers directly. To remain competitive, we continually pursue initiatives to develop new products and services to
compete with these new market entrants. These projects carry risks, such as difficulty in determining market demand and
timing for delivery, cost overruns, delays in delivery, performance problems and lack of customer acceptance, and some
projects may require investment in non-revenue generating products or services that our software integration partners and
customers expect to be included in our offerings. In addition, new products and offerings may not perform as intended or
generate the business or revenue growth expected.
Additionally, we look for acquisition opportunities, investments and alliance relationships with other businesses that
will increase our market penetration and enhance our technological capabilities, product offerings and distribution
capabilities. Any delay in the delivery of new products and services or the failure to differentiate our products and services or
to accurately predict and address market demand could increase the costs of our development efforts and render our products
and services less desirable or even obsolete to our customers and to our software integration partners. Any defects in our
products and errors or delays in our processing of transactions could also increase costs of development efforts and result in
harm to our reputation or liability claims against us. Furthermore, even though the market for integrated payment processing
products and services is evolving, we may develop too rapidly or not rapidly enough for us to recover the costs we have
incurred in developing new products and services targeted at this market. Any of the foregoing could have a material and
adverse effect on our operating results and financial condition.
The continued growth and development of our payment processing services and solutions will depend on our ability
to anticipate and adapt to changes in consumer behavior. For example, consumer behavior may change regarding the use of
payment card transactions, including the relative increased use of cash, crypto-currencies, other emerging or alternative
payment methods and payment card systems that we or our processing partners do not adequately support or that do not
provide adequate commissions to parties like us. Any failure to timely integrate emerging payment methods into our
software, to anticipate consumer behavior changes or to contract with processing partners that support such emerging
payment technologies could cause us to lose traction among our customers or referral sources, including industry
associations, resulting in a corresponding loss of revenue, if those methods become popular among end-users of their
services.
Our products and services are designed to process complex transactions and provide reports and other information
on those transactions, all at very high volumes and processing speeds. Our technology offerings must also integrate with a
variety of network, hardware, mobile and software platforms and technologies, and we need to continuously modify and
enhance our products and services to adapt to changes and innovation in these technologies. Any failure to deliver an
effective, reliable and secure service or any performance issue that arises with a new product or service could result in
significant processing or reporting errors or other losses. If we do not deliver a promised new product or service to our
customers or software integration partners in a timely manner or the product or service does not perform as anticipated, our
development efforts could result in increased costs and a loss in business, reducing our earnings and causing a loss of
revenue. We also rely in part on third parties, including some of our competitors and potential competitors, for the
development of and access to, or production of, new technologies, including software and hardware. For example, we rely on
our software integration partners to integrate our services and products into the software platforms being used by our
customers. Our future success will depend in part on our ability to develop or adapt to technological changes and evolving
industry standards. If we are unable to develop, adapt to or access technological changes or evolving industry standards on a
timely and cost-effective basis, our business, financial condition and results of operations could be materially adversely
affected.
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Potential changes in the competitive landscape, including disintermediation from other participants in the payments value
chain, could harm our business.
We expect that the competitive landscape will continue to change and challenge us to respond to developments such
as:
(cid:120) Rapid and significant changes in technology and new and innovative payment methods and programs;
(cid:120) Competitors, software integration partners, and other industry participants developing products that compete
with or replace our value-added services and solutions;
(cid:120) Participants in the financial services payments and technology industries creating new payment services that
compete with us or merging, creating joint ventures or forming other business combinations that strengthen
their existing business services; and
(cid:120) New services and technologies that we develop being impacted by industry-wide solutions and standards related
to migration to tokenization or other security-related technologies.
Failure to compete effectively against or otherwise address any of these and other competitive threats could have a
material adverse effect on our business, financial condition and results of operations.
If our vertical markets do not increase their acceptance of electronic payments or if there are adverse developments in the
electronic payment industry in general, our business, financial condition and results of operations may be adversely
affected.
The vertical markets we primarily serve have traditionally not utilized electronic payments. If consumers and
businesses in these vertical markets do not increase their use of cards as payment methods for their transactions or if the mix
of payment methods changes in a way that is adverse to us, such developments may have a material adverse effect on our
business, financial condition and results of operations. Regulatory changes may also result in our customers seeking to charge
their own customers additional fees for use of credit or debit cards which may result in such customers using other payment
methods. Additionally, in recent years, increased incidents of security breaches have caused some consumers to lose
confidence in the ability of businesses to protect their information, causing certain consumers to discontinue use of electronic
payment methods. Security breaches could result in financial institutions canceling large numbers of credit and debit cards, or
consumers or businesses electing to cancel their cards following such incidents.
Potential customers or software integration partners may be reluctant to switch to, or develop a relationship with, a new
merchant acquirer, which may adversely affect our growth.
Many potential customers and software integration partners worry about potential disadvantages associated with
switching merchant acquirers, such as a loss of accustomed functionality, increased costs and business disruption. For
merchants that are potential customers and software providers that are potential software integration partners, switching to us
from another merchant acquirer or integrating with us may be a significant undertaking. There can be no assurance that our
strategies for overcoming potential reluctance to change merchant acquirers or to initiate a relationship with us will be
successful, and this resistance may adversely affect our growth and our business overall.
If we fail to comply with the applicable requirements of payment networks and industry self-regulatory organizations,
those payment networks or organizations could seek to fine us, suspend us or terminate our registrations through our
sponsor banks.
We rely on sponsor banks and, in certain cases, third-party processors to access the payment card networks, such as
Visa, MasterCard and Discover, that enable our ability to offer to our customers the acceptance of credit cards and debit
cards, and we must pay fees for such services. To provide our merchant acquiring services, we are registered through our
sponsor banks with the Visa, MasterCard and Discover networks as a service provider for member institutions. As such, we,
our sponsor banks and many of our customers are subject to complex and evolving payment network rules. The payment
networks routinely update and modify requirements applicable to merchant acquirers, including rules regulating data
integrity, third-party relationships (such as those with respect to sponsor banks and independent sales organization (“ISOs”)),
merchant chargeback standards and PCI DSS. The rules of the card networks are set by their boards, which may be
influenced by card issuers, some of which offer competing transaction processing services.
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If we or our sponsor banks fail to comply with the applicable rules and requirements of any of the payment
networks, such payment network could suspend or terminate our registration. Further, our transaction processing capabilities,
including with respect to settlement processes, could be delayed or otherwise disrupted, and recurring non-compliance could
result in the payment networks seeking to fine us or suspend or terminate our registrations that allow us to process
transactions on their networks, which would make it impossible for us to conduct our business on its current scale.
Under certain circumstances specified in the payment network rules, we may be required to submit to periodic
audits, self-assessments or other assessments with regard to our compliance with the PCI DSS. Such audits or assessments
may reveal that we have failed to comply with the PCI DSS. In addition, even if we comply with the PCI DSS, there is no
assurance that we will be protected from a security breach. The termination of our registrations with the payment networks,
or any changes in payment network or issuer rules that limit our ability to provide merchant acquiring services, could have an
adverse effect on our payment processing volumes, revenues and operating costs. If we are unable to comply with the
requirements applicable to our payment processing activities, the payment networks could no longer allow us to provide these
solutions, which would render us unable to conduct our business. If we were precluded from processing Visa and MasterCard
electronic payments, we would lose a substantial portion of our revenues.
We are also subject to the operating rules of the National Automated Clearing House Association (“NACHA”).
NACHA is a self-regulatory organization which administers and facilitates private-sector operating rules for ACH payments
and defines the roles and responsibilities of financial institutions and other ACH network participants. The NACHA Rules
and Operating Guidelines impose obligations on us and our partner financial institutions. These obligations include audit and
oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious
violations. If an audit or self-assessment under PCI DSS or NACHA identifies any deficiencies that we need to remediate, the
remediation efforts may distract our management team and be expensive and time consuming.
Changes in payment network rules or standards could adversely affect our business, financial condition and results of
operations.
Payment network rules are established and changed from time to time by each payment network as they may
determine in their sole discretion and with or without advance notice to their participants. The timelines imposed by the
payment networks for expected compliance with new rules have historically been, and may continue to be, highly
compressed, requiring us to quickly implement changes to our systems which increases the risk of non-compliance with new
standards. In addition, the payment networks could make changes to interchange or other elements of the pricing structure of
the merchant acquiring industry that would have a negative impact on our results of operations.
We rely on sponsor banks in order to process electronic payment transactions, and such sponsor banks have substantial
discretion with respect to certain elements of our business practices. If these sponsorships are terminated and we are not
able to secure new sponsor banks, we will not be able to conduct our business.
Because we are not a bank, we are not eligible for membership in the Visa, MasterCard and other payment
networks, and are, therefore, unable to directly access these payment networks, which are required to process transactions.
These networks’ operating regulations require us to be sponsored by a member bank in order to process electronic
payment transactions. We are currently registered with payment networks through our sponsor banks. We primarily work
with such sponsor banks directly to settle transactions, whereas many of our competitors are generally more dependent on
third party super-ISOs.
In general, our sponsor banks may terminate their agreements with us if we materially breach the agreements and do
not cure the breach within an established cure period, if we enter bankruptcy or file for bankruptcy, or if applicable laws or
regulations, including Visa and/or MasterCard regulations, change to prevent either the applicable bank or us from
performing services under the agreement. If these sponsorships are terminated and we are unable to secure a replacement
sponsor bank within the applicable wind down period, we will not be able to process electronic payment transactions. While
we maintain relationships with multiple sponsor banks for flexibility in the processing of payment volume and in the pricing
of our customers’ solutions, the loss of or termination of a relationship with a sponsor bank or a significant decrease in the
amount of payment volume that a sponsor bank processes for us could reduce such flexibility and negatively affect our
business. As a result, we may be unable to obtain favorable pricing for our customers, which could negatively impact our
ability to attract and retain customers. To the extent the number of our sponsor banks decreases, we will become increasingly
reliant on our remaining sponsor banks, which would materially adversely affect our business should our relationship with
any of such remaining banks be terminated or otherwise disrupted.
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Furthermore, our agreements with our sponsor banks provide the sponsor banks with substantial discretion in
approving certain elements of our business practices, including our solicitation, application and underwriting procedures for
merchants. We cannot guarantee that our sponsor banks’ actions under these agreements will not be detrimental to us, nor can
it provide assurance that any of our sponsor banks will not terminate their sponsorship of us in the future. Our sponsor banks
have broad discretion to impose new business or operational requirements on us for purposes of compliance with payment
network rules, which may materially adversely affect our business. If our sponsorship agreements are terminated and we are
unable to secure another sponsor bank, we will not be able to offer Visa or MasterCard transactions or settle transactions
which would likely cause us to terminate our operations.
Our sponsor banks also provide or supplement funding and settlement services in connection with our card
processing services. If our sponsorship agreements are terminated and we are unable to secure another sponsor bank or
maintain relationships with other existing sponsor banks, we will not be able to process Visa and MasterCard transactions
which would have a material adverse effect on our business, financial condition and results of operations.
To acquire and retain customers, we depend on our software integration partners that integrate our services and solutions
into software used by our customers.
We rely heavily on the efforts of our software integration partners to ensure our services and solutions are properly
integrated into the software that our customers use. Generally, our agreements with software integration partners are not
exclusive and these partners retain the right to refer potential customers to other payment processors.
We may need to provide financial concessions to maintain relationships with current software integration partners or
to attract potential software integration partners from our competitors. We have been required, and expect to be required in
the future, to make concessions when renewing contracts with our software integration partners, and such concessions can
have a material impact on our financial condition or operating performance.
If our software integration partners focus more heavily on working with other payment processors, cease operations
or become insolvent, we may be at risk of losing existing customers with whom these software integration partners have
relationships. If we are unable to maintain our existing base of software integration partners or develop relationships with
new software integration partners, our business, financial condition and results of operations would be materially adversely
affected. In addition, our efforts to form relationships with new software integration partners may be hindered to the extent
they perceive that integrating with a new payment processor or switching to us from another payment processor is too costly
or time-consuming. Many software providers choose to integrate with only a small number of payments processors due to the
requisite time and cost of integrating their systems with a payment processor’s solutions. To the extent that a potential
software integration partner has already integrated with several payments processors, it may be difficult for us to convince
them to expand the number of payments processors they are integrated with and incur the expense and potential business
disruption needed to successfully integrate our software with their systems.
Further, to the extent our software integration partners engage in, or are alleged to have engaged in, behavior that
involves intentional or negligent misrepresentation of pricing or other contractual terms to customers or potential customers
related to our processing services or solutions, we may be named in legal proceedings in connection with such actions of our
software integration partners. Our software integration partners are independent businesses and we have no control over their
day-to-day business activities, including their customer marketing and solicitation practices. While in some cases we may
have indemnification rights against our software integration partners for these activities, there is no guarantee that we will be
able to successfully enforce those indemnification rights or that our software integration partners are adequately capitalized in
a manner necessary to satisfy their indemnification obligations to us. If one or more judgments or settlements in any litigation
or other investigation, or related defense and investigation costs, significantly exceed our insurance coverage and we are
unable to enforce our indemnification rights against a software integration partner or partners, our business, financial
condition and results of operations could materially suffer.
Failure to effectively manage risk and prevent fraud could increase our chargeback liability and other liability.
We are potentially liable for losses caused by fraudulent card transactions or business fraud. Card fraud occurs when
a merchant’s customer uses a stolen card (or a stolen card number in a card-not-present transaction) to purchase merchandise
or services. In a traditional card-present transaction, if the merchant swipes the card, receives authorization for the transaction
from the card issuing bank and verifies the signature on the back of the card against the paper receipt signed by its customer,
the card issuing bank remains liable for any loss. In a fraudulent card-not-present transaction, even if the merchant receives
17
authorization for the transaction, the merchant may be liable for any loss arising from the transaction. In addition, consumers
may dispute repayments on a loan by claiming it was unlawful under applicable law.
Business fraud occurs when a business or organization, rather than a cardholder, opens a fraudulent merchant
account and conducts fraudulent transactions or when a business, rather than a consumer (though sometimes working
together with a consumer engaged in fraudulent activities), knowingly uses a stolen or counterfeit card or card number to
record a false sales transaction, intentionally fails to deliver the merchandise or services sold in an otherwise valid
transaction, or provides services in violation of applicable law. Business fraud also occurs when employees of businesses
change the business demand deposit accounts to their personal bank account numbers, so that payments are improperly
credited to the employee’s personal account.
These types of fraud present potential liability for chargebacks associated with our customers’ processing
transactions. If a billing dispute between a customer and a consumer is not ultimately resolved in favor of our customer, the
disputed transaction is “charged back” to the customer’s bank and credited to the consumer’s bank. Anytime our customer is
unable to satisfy a chargeback, we are responsible for that chargeback. We have a number of contractual protections and
other means of recourse to mitigate those risks, including collateral or reserve accounts that we may require our customers to
maintain for these types of contingencies. Nonetheless, if we are unable to collect the chargeback from the customers’
account or reserve account (if applicable), or if the customer refuses or is financially unable due to bankruptcy or other
reasons to reimburse us for the chargeback, we bear the loss for the amount of the refund paid to the cardholder’s bank. We
have established systems and procedures to detect and reduce the impact of business fraud, but these measures may not be
effective, and incidents of fraud could increase in the future. During the year ended December 31, 2019, we believe our
chargeback rate was less than 1% of payment volume. Any increase in chargebacks not paid by our customers could have a
material adverse effect on our business, financial condition and results of operations.
Our processes to reduce fraud losses depend in part on our ability to restrict the deposit of processing funds while we
investigate suspicious transactions. We could be sued by parties alleging that our restriction and investigation processes
violate federal and state laws on consumer protection and unfair business practice. If we are unable to defend any such
claim successfully, we could be required to restructure our anti-fraud processes in ways that would harm our business or
pay substantial fines.
As part of our program to reduce fraud losses, we may temporarily restrict the ability of customers to access certain
processing deposits if those transactions or their account activity are identified by our anti-fraud models as suspicious. We
could be sued by parties alleging that our restriction and investigation processes violate federal and state laws on consumer
protection and unfair business practice. If we are unable to defend any such claim successfully, we could be required to
restructure our anti-fraud processes in ways that could harm our business, and to pay substantial fines. Even if we are able to
defend a claim successfully, the litigation could damage our reputation, consume substantial amounts of our management’s
time and attention, and require us to change our customer service and operations in ways that could increase our costs and
decrease the effectiveness of our anti-fraud program.
We receive savings related to favorable pricing on interchange and other payment network fees. To the extent we cannot
maintain such savings and cannot pass along any corresponding increases in such fees to our customers, our operating
results and financial condition may be materially adversely affected.
We bear interchange, assessment, transaction and other fees set by the payment networks to the card issuing banks
and the payment networks for each transaction we process. Under certain circumstances, the payment networks afford us
preferential rates with respect to such fees, which helps us to control our operating costs. From time to time, the payment
networks increase the interchange fees and other fees that they charge payment processors and the sponsor banks. At their
sole discretion, our sponsor banks have the right to pass any increases in interchange and other fees on to us, and they have
consistently done so in the past. We are generally permitted under the contracts into which we enter with our customers, and
in the past have been able to, pass these fee increases along to our customers through corresponding increases in our
processing fees. However, if we are unable to pass through these and other fees in the future, or if the payment networks
decline to offer us preferential rates on such fees as compared to those charged to other payment processors, our business,
financial condition and results of operations could be materially adversely affected. In addition, the various card associations
and networks prescribe certain capital requirements on us, such as reserves in respect of certain customers for chargeback
liabilities. Any increase in the capital level required would further limit our use of capital for other purposes.
Our systems and those of our third-party providers may fail due to factors beyond our control, which could interrupt our
service, resulting in our inability to process payments, loss of business, increase in costs and exposure to liability.
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We depend on the efficient and uninterrupted operation of numerous systems, including our computer network
systems, software, data centers and telecommunication networks, as well as the systems and services of our sponsor banks,
the payment networks, third-party providers of processing services and other third parties. Our systems and operations, or
those of our third-party providers, such as our provider of dial-up authorization services, or the payment networks
themselves, could be exposed to damage or interruption from, among other things, hardware and software defects or
malfunctions, telecommunications failure, computer denial-of-service and other cyberattacks, unauthorized entry, computer
viruses or other malware, human error, natural disaster, power loss, acts of terrorism or sabotage, financial insolvency of such
providers and similar events. These threats, and errors or delays in the processing of payment transactions, system outages or
other difficulties, could result in failure to process transactions, additional operating and development costs, diversion of
technical and other resources, loss of revenue, customers and software integration partners, loss of merchant and cardholder
data, harm to our business or reputation, exposure to fraud losses or other liabilities and fines and other sanctions imposed by
payment networks. Our property and business interruption insurance may not be adequate to compensate us for all losses or
failures that may occur.
At present, our critical operational systems, such as our payment gateway, are fully redundant, while certain of our
less critical systems are not. Therefore, certain aspects of our operations may be subject to interruption. Also, while we have
disaster recovery policies and arrangements in place, they have not been tested under actual disasters or similar events.
Maintaining and upgrading our system is costly and time-consuming, involves significant technical risk and may divert our
resources from new features and products, and there can be no assurances that such systems will be effective. Frequent or
persistent site interruptions could lead to regulatory scrutiny, significant fines and penalties, and mandatory and costly
changes to our business practices.
In addition, we are continually improving and upgrading our information systems and technologies. Implementation
of new systems and technologies is complex, expensive and time-consuming. If we fail to timely and successfully implement
new information systems and technologies or improvements or upgrades to existing information systems and technologies, or
if such systems and technologies do not operate as intended, this could have an adverse impact on our business, internal
controls (including internal controls over financial reporting), results of operations and financial condition.
We rely on other service and technology providers. If such providers fail in or discontinue providing their services or
technology to us, our ability to provide services to customers may be interrupted, and, as a result, our business, financial
condition and results of operations could be adversely impacted.
We rely on third parties to provide or supplement card processing services and for infrastructure hosting services.
We also rely on third parties for specific software and hardware used in providing our products and services. The termination
by our service or technology providers of their arrangements with us or their failure to perform their services efficiently and
effectively may adversely affect our relationships with our customers and, if we cannot find alternate providers quickly, may
cause those customers to terminate their relationships with us.
Our third-party processors, which provide us with front-end authorization services and certain other services,
compete with us or may compete with us in the future in the vertical markets that we serve. There can be no assurance that
these processors will maintain their relationships with us in the future or that they will refrain from competing directly with
the solutions that we offer.
If we are unable to renew our existing contracts with our most significant vendors, we might not be able to replace
the related products or services at the same cost, which would negatively impact our profitability. Additionally, while we
believe we would be able to locate alternative vendors to provide substantially similar services at comparable rates, or
otherwise replicate such services internally, no assurance can be made that a change would not be disruptive to our business,
which could potentially lead to a material adverse impact on our revenue and profitability until resolved.
We also rely in part on third parties for the development of and access to new technologies, and updates to existing
products and services for which third parties provide ongoing support, which reliance increases the cost associated with new
and existing product and service offerings. Failure by these third-party providers to devote an appropriate level of attention to
our products and services could result in delays in introducing new products or services, or delays in resolving any issues
with existing products or services for which third-party providers provide ongoing support.
We are subject to economic and political risk, the business cycles of our customers and software integration partners and
the overall level of consumer and commercial spending, which could negatively impact our business, financial condition
and results of operations.
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The electronic payment industry depends heavily on the overall level of consumer and commercial spending. We are
exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income
and changes in consumer purchasing habits, including natural disasters and health emergencies, including earthquakes, fires,
power outages, typhoons, floods, pandemics or epidemics such as the coronavirus and manmade events such as civil unrest,
labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks. A
sustained deterioration in general economic conditions, particularly in the United States, or increases in interest rates, could
adversely affect our financial performance by reducing the number or aggregate volume of transactions made using electronic
payments. For example, the recent COVID-19 coronavirus outbreak may impact the global economy or negatively affect
various aspects of our business, including reductions in the amount of consumer spending and lending which could result in a
decrease in our revenue and profits. If our customers make fewer sales of products and services using electronic payments, or
consumers spend less money through electronic payments, we will have fewer transactions to process at lower dollar
amounts, resulting in lower revenue.
A weakening in the economy could have a negative impact on our customers, as well as their customers who
purchase products and services using the payment processing systems to which we provide access, which could, in turn,
negatively affect our business, financial condition and results of operations. For example, in the primary vertical markets that
we serve, merchants are affected by macroeconomic conditions such as employment, personal income and consumer
sentiment. If economic conditions deteriorate and our customers experience decreased demand for consumer lending
(particularly in the automobile finance market as consumers cut down on discretionary spending), we would experience a
decrease both in volume and number of transactions processed. In addition, a weakening in the economy could force
merchants to close at higher than historical rates in part because many of them are not as well capitalized as larger
organizations, which could expose us to potential credit losses and future transaction declines. Further, credit card issuers
may reduce credit limits and become more selective in their card issuance practices. We also have a certain amount of fixed
and semi-fixed costs, including rent, debt service and salaries, which could limit our ability to quickly adjust costs and
respond to changes in our business and the economy.
In addition, a significant portion of our customers are consumer lenders that provide personal loans and automotive
loans to consumers that have varying degrees of credit risk. The regulatory environment that these customers operate in is
very complex because applicable regulations are often enacted by multiple agencies in the state and federal governments. For
example, the CFPB promulgated new rules applicable to such loans that could have an adverse effect on our customers’
businesses, and numerous state laws impose similar requirements. Such customers are also subject to negative public
perceptions that their consumer lending activities constitute predatory or abusive lending to consumers, and concerns raised
by consumer advocacy groups and government officials may lead to efforts to further regulate the industry in which many of
our customers operate. The combination of these factors, and in particular the uncertainties associated with the regulatory
environments in the various jurisdictions in which our customers operate, could materially adversely affect the business of
our customers and may force our consumer lender customers to change their business models. As a result, we may need to be
nimble and quickly respond to the evolving needs of the vertical markets that we serve. If the business of our customers is
materially adversely affected by the uncertainties described above and if we or our customers fail to respond to such changes
in the industry in a timely manner, or if there are significant changes in such vertical markets that we do not anticipate, our
business, financial condition and results of operations would be materially adversely affected.
Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market
environments or against all types of risks.
We operate in a rapidly changing industry. Accordingly, our risk management policies and procedures may not be
fully effective to identify, monitor, manage and remediate our risks. Some of our risk evaluation methods depend upon
information provided by others and public information regarding markets, merchants or other matters that are otherwise
inaccessible by us. In some cases, that information may not be accurate, complete or up-to-date. Additionally, our risk
detection system is subject to a high degree of “false positive” risks being detected, which makes it difficult for us to identify
real risks in a timely manner. If our policies and procedures are not fully effective or we are not always successful in
capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or
regulatory actions that materially increase our costs and limit our ability to grow and may cause us to lose existing customers.
We may not be able to continue to expand our share in our existing vertical markets or continue to expand into new
vertical markets, which would inhibit our ability to grow and increase our profitability.
Our future growth and profitability depend, in part, upon our continued expansion within the vertical markets in
which we currently operate, the emergence of other vertical markets for electronic payments and our integrated solutions, and
our ability to penetrate new vertical markets and our current software integration partners’ customer bases. As part of our
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strategy to expand into new vertical markets and increase our share in our existing vertical markets, we look for acquisition
opportunities and partnerships with other businesses that will allow us to increase our market penetration, technological
capabilities, product offerings and distribution capabilities. We may not be able to successfully identify suitable acquisition
or partnership candidates in the future, and if we do identify them, they may not provide us with the benefits we anticipated.
In addition, we recently began offering our products and services in Canada, a market in which we have no prior operating
experience. As a result, our ability to grow and profitably service customers in Canada is uncertain and will require additional
resources and controls, and we may encounter unanticipated challenges.
Our expansion into new vertical markets also depends on our ability to adapt our existing technology or to develop
new technologies to meet the particular needs of each new vertical market. We may not have adequate financial or
technological resources to develop effective and secure services or distribution channels that will satisfy the demands of these
new vertical markets. Penetrating these new vertical markets may also prove to be more challenging or costly or may take
longer than we may anticipate. If we fail to expand into new vertical markets and increase our penetration into existing
vertical markets, we may not be able to continue to grow our revenues and earnings.
We may not be able to successfully execute our strategy of growth through acquisitions.
A significant part of our growth strategy is to enter into new vertical markets through platform acquisitions of
vertically-focused integrated payment and software solutions providers, to expand within our existing vertical markets
through selective tuck-in acquisitions and to otherwise increase our presence in the payments processing market. From 2016
until the closing of the Business Combination, we completed a total of three platform acquisitions that enabled us to enter
new, or expand within existing, vertical markets. Since the closing of the Business Combination, we have completed three
additional acquisitions described in more detail below.
Although we expect to continue to execute our acquisition strategy:
(cid:120) we may not be able to identify suitable acquisition candidates or acquire additional assets on favorable terms;
(cid:120) we may compete with others to acquire assets, which competition may increase, and any level of competition
could result in decreased availability or increased prices for acquisition candidates;
(cid:120)
competing bidders for such acquisitions may be larger, better-funded organizations with more resources and
easier access to capital;
(cid:120) we may experience difficulty in anticipating the timing and availability of acquisition candidates;
(cid:120) we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of our
potential acquisitions;
(cid:120)
potential acquisitions may be subject to regulatory approvals, which may cause delays and uncertainties; and
(cid:120) we may not be able to generate cash necessary to execute our acquisition strategy.
The occurrence of any of these factors could adversely affect our growth strategy.
Our acquisitions subject us to a variety of risks that could harm our business.
We review and complete selective acquisition opportunities. There can be no assurances that we will be able to
complete suitable acquisitions for a variety of reasons, including the difficulties associated with the identification of and
competition for acquisition targets, the need for regulatory approvals, the inability of the parties to agree to the structure or
purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms. In addition,
any completed acquisition will subject us to a variety of other risks:
(cid:120) we may need to allocate substantial operational, financial and management resources in integrating new
businesses, technologies and products, and management may encounter difficulties in integrating the operations,
personnel or systems of the acquired business;
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(cid:120)
the acquisition may have a material adverse effect on our business relationships with existing or future
customers or software integration partners;
(cid:120) we may assume substantial actual or contingent liabilities, known and unknown;
(cid:120)
the acquisition may not meet our expectations of future financial performance;
(cid:120) we may experience delays or reductions in realizing expected synergies or benefits;
(cid:120) wet may incur substantial unanticipated costs or encounter other problems associated with the acquired
business, including challenges associated with transfer of various data processing functions and connections to
our systems and those of our third-party service providers;
(cid:120) we may be unable to achieve our intended objectives for the transaction; and
(cid:120) we may not be able to retain the key personnel, customers and suppliers of the acquired business.
These challenges and costs and expenses may adversely affect our business, financial condition and results of
operations.
The anticipated benefits from our recently announced acquisitions may not be realized on the expected timeline or at all.
On August 14, 2019, we announced our acquisition of TriSource. Since 2012, TriSource has been our primary third-
party processor for back-end settlement solutions. We have no prior experience in providing back-end payment processing
services, which represents TriSource’s primary capability. Accordingly, our lack of experience in the back-end processing
market may result in operational difficulties, which could cause a delay or failure to integrate and realize the benefits of the
TriSource acquisition.
On October 14, 2019, we announced our acquisition of APS. APS is an integrated payments provider focused on
the business-to-business (or “B2B”) vertical. APS markets its products and services in the B2B vertical through key
integrations with leading enterprise resource planning (or “ERP”) software platforms. The B2B vertical represents a new
vertical market for us, and we do not have any prior experience with the key ERP platforms that are critical to the B2B
vertical. Accordingly, our lack of experience in the B2B vertical and with the key ERP platforms may result in operational
difficulties, which could cause a delay or failure to integrate and realize the benefits of the APS acquisition.
On February 10, 2020, we announced our acquisition of Ventanex. Ventanex is an integrated payment solutions
provider to consumer finance (including mortgage servicers) and B2B healthcare verticals. The mortgage loan servicer and
B2B healthcare verticals represent a material expansion of our existing focus. Accordingly, our lack of experience in the
mortgage and B2B healthcare verticals may result in operational difficulties, which could cause a delay or failure to integrate
and realize the benefits of the Ventanex acquisition.
We may also experience other challenges associated with operating these acquired businesses, including (1)
difficulties and delays in integrating each acquired business, including with respect to implementing systems to prevent a
material security breach of any internal systems or to successfully manage credit and fraud risks; (2) business disruptions
from the acquisition that will harm us or the acquired business, including current plans and operations; (3) potential adverse
reactions or changes to business relationships resulting from the announcement or completion of each acquisition, including
as it relates to our or the acquired business’ ability to successfully renew existing customer contracts on favorable terms or at
all and obtain new customers; (4) retaining the acquired business’ customers, key personnel, vendors and other business
relations; and (5) other unexpected costs or problems with integrating each acquired business.
Our level of indebtedness could adversely affect our ability to meet our obligations under our indebtedness, react to
changes in the economy or our industry and to raise additional capital to fund operations.
In connection with the Ventanex acquisition, we entered into an amendment to our Credit Agreement (as amended,
the “Amended Credit Agreement”) with Truist Bank and certain other lenders, upsizing the existing credit facility to $345.0
million. As of the closing of the Ventanex acquisition, approximately $255.0 million of aggregate principal amount was
outstanding under the Amended Credit Agreement, and such level of indebtedness could have important consequences to our
stockholders. For example, such level of indebtedness could:
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(cid:120) make it more difficult to satisfy our obligations with respect to any indebtedness, resulting in possible defaults
on, and acceleration of, such indebtedness;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flows from operations to payments on indebtedness,
thereby reducing the availability of such cash flows to fund working capital, capital expenditures and other
general corporate requirements or to carry out other aspects of our business;
limit our ability to obtain additional financing to fund future working capital, capital expenditures and other
general corporate requirements or to carry out other aspects of our business;
limit our ability to make material acquisitions or take advantage of business opportunities that may arise; and
place us at a potential competitive disadvantage compared to our competitors that have less debt.
We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect
our financial and operational flexibility.
A portion of our indebtedness bears interest at variable interest rates, primarily based on LIBOR. LIBOR is the
subject of recent national, international, and other regulatory guidance and proposals for reform, which may cause LIBOR to
disappear entirely after 2021 or to perform differently than in the past. While we expect that reasonable alternatives to
LIBOR will be implemented prior to the 2021 target date, we cannot predict the consequences and timing of these
development, and they could include an increase in our interest expense and/or reduction in our interest income.
Future operating flexibility is limited in significant respects by the restrictive covenants in the Amended Credit
Agreement, and we may be unable to comply with all covenants in the future.
The Amended Credit Agreement imposes restrictions that could impede our ability to enter into certain corporate
transactions, as well as increases our vulnerability to adverse economic and industry conditions, by limiting our flexibility in
planning for, and reacting to, changes in our business and industry. These restrictions will limit our ability to, among other
things:
(cid:120)
(cid:120)
incur or guarantee additional debt;
pay dividends on capital stock or redeem, repurchase, retire or otherwise acquire any capital stock;
(cid:120) make certain payments, dividends, distributions or investments; and
(cid:120) merge or consolidate with other companies or transfer all or substantially all of our assets.
In addition, the Amended Credit Agreement contains certain negative covenants that restrict the incurrence of
indebtedness unless certain incurrence-based financial covenant requirements are met. The restrictions may prevent us from
taking actions that we believe would be in the best interests of the business and may make it difficult for us to successfully
execute our business strategy or effectively compete with companies that are not similarly restricted. Our ability to comply
with these restrictive covenants in future periods will largely depend on our ability to successfully implement our overall
business strategy. The breach of any of these covenants or restrictions could result in a default, which could result in the
acceleration of our debt. In the event of an acceleration of our indebtedness, we could be forced to apply all available cash
flows to repay such debt, which would reduce or eliminate distributions to us, which could also force us into bankruptcy or
liquidation.
We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a
significant negative effect on our financial condition and our share price, which could cause you to lose some or all of
your investment.
As a result of unidentified issues or factors outside of our control, we may be forced to later write-down or write-off
assets, restructure operations, or incur impairment or other charges that could result in reporting losses. Unexpected risks may
23
arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis conducted.
Even though these charges may be non-cash items that would not have an immediate impact on our liquidity, the fact that we
report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of
this nature may cause us to violate leverage or other covenants to which we may be subject. Accordingly, our stockholders
could suffer a reduction in the value of their shares from any such write-down or write-downs.
Changes in tax laws or their judicial or administrative interpretations, or becoming subject to additional U.S., state or
local taxes that cannot be passed through to our customers, could negatively affect our business, financial condition and
results of operations.
Our operations are subject to extensive tax liabilities, including federal and state and transactional taxes such as
excise, sales/use, payroll, franchise, withholding, and ad valorem taxes. Changes in tax laws or their judicial or administrative
interpretations could decrease the amount of revenues we receive, the value of any tax loss carryforwards and tax credits
recorded on our balance sheet and the amount of our cash flow, and may have a material adverse impact on our business,
financial condition and results of operations. Some of our tax liabilities are subject to periodic audits by the applicable taxing
authority which could increase our tax liabilities. Furthermore, companies in the payment processing industry, including us,
may become subject to incremental taxation in various taxing jurisdictions. Taxing jurisdictions have not yet adopted uniform
positions on this topic. If we are required to pay additional taxes and are unable to pass the tax expense through to our
customers, our costs would increase and our net income would be reduced, which could have a material adverse effect on our
business, financial condition and results of operations.
We may not be able to successfully manage our intellectual property and may be subject to infringement claims.
We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish
and protect our proprietary technology, which is critical to our success, particularly in our strategic verticals where we may
offer proprietary software solutions to our customers. Third parties may challenge, circumvent, infringe or misappropriate our
intellectual property, or such intellectual property may not be sufficient to permit us to take advantage of current market
trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of service
offerings or other competitive harm. Other parties, including our competitors, may independently develop similar technology
and duplicate our services or design around our intellectual property and, in such cases, we may not be able to assert our
intellectual property rights against such parties. Further, our contractual arrangements may be subject to termination or
renegotiation with unfavorable terms to us, and our third-party licensors may be subject to bankruptcy, insolvency and other
adverse business dynamics, any of which might affect our ability to use and exploit the products licensed to us by such third-
party licensors. Additionally, our contractual arrangements may not effectively prevent disclosure of our confidential
information or provide an adequate remedy in the event of unauthorized disclosure of our confidential information. We may
have to litigate to enforce or determine the scope and enforceability of our intellectual property rights and know-how, which
is expensive, could cause a diversion of resources and may not prove successful. Also, because of the rapid pace of
technological change in our industry, aspects of our business and our services rely on technologies developed or licensed by
third parties, and we may not be able to obtain or retain licenses and technologies from these third parties on reasonable terms
or at all. The loss of intellectual property protection or the inability to license or otherwise use third-party intellectual
property could harm our business and ability to compete.
We may also be subject to costly litigation if our services and technology are alleged to infringe upon or otherwise
violate a third party’s proprietary rights. Third parties may have, or may eventually be issued, patents that could be infringed
by our products, services or technology. Any of these third parties could make a claim of infringement, breach or other
violation of third-party intellectual property rights against us with respect to our products, services or technology. Any claim
from third parties may result in a limitation on our ability to use the intellectual property subject to these claims.
Additionally, in recent years, individuals and groups have been purchasing intellectual property assets for the sole purpose of
making claims of infringement or other violations and attempting to extract settlements from companies like us. Even if we
believe that intellectual property related claims are without merit, defending against such claims is time consuming and
expensive and could result in the diversion of time and attention of our management and employees. Claims of intellectual
property infringement or violation also may require us to redesign affected products or services, enter into costly settlement
or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing
or selling certain of our products or services. Even if we have an agreement for indemnification against such costs, the
indemnifying party, if any in such circumstance, may be unable to uphold its contractual obligations. If we cannot or do not
license the infringed technology on reasonable terms or substitute similar technology from another source, our revenue and
earnings could be adversely impacted.
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If we are unable to develop and maintain effective internal controls over financial reporting, we may not be able to
produce timely and accurate financial statements, which could have a material adverse effect on our business.
Prior to the Business Combination, for the years ended December 31, 2017 and 2016, Hawk Parent identified
control deficiencies that constituted material weaknesses in controls over financial reporting, which were remediated as of the
year ended December 31, 2018. The material weaknesses previously identified and subsequently remediated were related to
(i) insufficient segregation of duties, (ii) lack of formal documentation and the development of policies and procedures, and
(iii) insufficient evidential matter to support the implementation of control activities, all of which were remediated as of the
year ended December 31, 2018. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the issuer’s annual or interim
consolidated financial statements will not be prevented or deleted on a timely basis.
As a private company not subject to the internal control provisions of the Sarbanes-Oxley Act, Hawk Parent had
limited accounting and finance personnel and other resources with which to address its internal controls and procedures
consistent with PCAOB standards. As of the year ended December 31, 2018, Hawk Parent had remediated its previously
identified material weaknesses by taking certain remedial actions, including hiring key accounting personnel and creating a
formal month-end financial statement review process, which have been completed. We intend to continue to evaluate actions
to enhance our internal controls over financial reporting, but there is no assurance that we will not identify other control
deficiencies or material weaknesses in the future. In addition, we may be required to incur costs in improving our internal
controls, including the costs of hiring additional personnel.
If we identify future material weaknesses in our internal controls over financial reporting or fail to meet the demands
that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to
accurately report our financial results or report them within the timeframes required by law or stock exchange regulations.
Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations
by the SEC or other regulatory authorities. If additional material weaknesses exist or are discovered in the future, and we are
unable to remediate any such material weaknesses, our reputation, financial condition and operating results could suffer.
Our customers and their respective businesses are subject to extensive government regulation, and any new laws and
regulations, industry standards or revisions made to existing laws, regulations or industry standards affecting our
customers’ businesses or the electronic payments industry, or our or our customers’ actual or perceived failure to comply
with such obligations, may have an unfavorable impact on our business, financial condition and results of operations.
The customers we serve are subject to numerous federal and state regulations that affect the electronic payments
industry. While payment processors like us are not typically subject to examination by government agencies, they are subject
to laws and regulations prohibiting unfair, deceptive acts and practices (“UDAAP”). Because of the rules and regulations
enacted at the state and federal level that affect our customers, we have developed compliance mechanisms that are designed
to limit both our and our sponsor banks’ exposure to such regulations and risks associated with our customers’ industries.
Regulation of the consumer finance industry has increased significantly in the past several years and is continually
evolving. In order to manage our exposure to such laws and regulations, we employ a substantial compliance management
system designed to identify and mitigate risks associated with our merchant relationships. Our system is audited annually by
a third-party and compared against industry standards, including System and Organization Controls and the PCI DSS
described above, and we evaluate and update our compliance models to improve our performance and keep up with the rapid
evolution of the legal and regulatory regime our customers face. However, changes to statutes, regulations or industry
standards, including interpretations and implementation of such statutes, regulations or standards, could increase our cost of
doing business or affect our competitive advantage. Our customers are subject to U.S. financial services regulations,
numerous consumer protection laws, escheat regulations and privacy and information security regulations, among other laws,
rules and regulations. Failure of our customers to comply with regulations may have an adverse effect on our business,
including the limitation, suspension or termination of services provided to, or by, third parties, and the imposition of penalties
or fines. To the extent these regulations negatively impact the business, operations or financial condition of our customers,
our business and results of operations could be materially and adversely affected because, among other matters, our
customers may experience decreases in payment transactions processed, could decide to avoid or abandon certain lines of
business, or could seek to pass on increased costs to us by negotiating price reductions. We could be required to invest a
significant amount of time and resources to comply with additional regulations or oversight or to modify the manner in which
we contract with or provide services and solutions to our customers and regulations could directly or indirectly limit how
much we can charge for our services. In addition, we may not be able to update our existing products and services or develop
new ones in a timely manner to address the evolving compliance needs of our customers. Any of these events, if realized,
could have a material adverse effect on our business, results of operations and financial condition.
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Laws and regulations, even if not directed at us, may require us to take significant efforts to change our services and
solutions and may require that we incur additional compliance costs and change how we price our products and services to
our customers and software integration partners. Implementing new compliance efforts is difficult because of the complexity
of new regulatory requirements, and we are devoting and will continue to devote significant resources to ensure compliance.
Furthermore, regulatory actions may precipitate changes in business practices by us and other industry participants which
could affect how we market, price and distribute our products and services, and which could materially adversely affect our
business, financial condition and results of operations. In addition, even an inadvertent failure to comply with laws and
regulations or evolving public perceptions of our business could damage our business or our reputation.
The businesses of our consumer lender customers are strictly regulated in every jurisdiction in which they operate, and
such regulations, and our consumer lender customers’ failure to comply with them, could have an adverse effect on our
customers’ businesses and, as a result, our results of operations.
Our customers are subject to a variety of statutes and regulations enacted by government entities at the federal, state
and local levels, which, for our customers that are consumer lenders, include regulations relating to: the amount they may
charge in interest rates and fees; the terms of their loans (such as maximum and minimum durations), repayment
requirements and limitations, number and frequency of loans, maximum loan amounts, renewals and extensions, required
repayment plans and reporting and use of state-wide databases; collection and servicing activity; the establishment and
operation of their businesses; licensing, disclosure and reporting requirements; restrictions on advertising and marketing; and
requirements governing electronic payments and money transmission.
These regulations affect our consumer lender customers’ businesses in many ways, including their loan volume,
revenues, delinquencies of their borrowers and results of operations. These changes to these customers’ businesses may affect
the payment volume we process, including the number and size of scheduled repayments and the number of originated loans
subject to repayment. To the extent these laws and regulations curtail consumer lending activity, our results of operations and
financial condition could be adversely affected.
Compliance with the Dodd-Frank Act and other federal and state regulations may increase our compliance costs, limit
our revenues and otherwise negatively affect our business.
Since the enactment of the Dodd-Frank Act, there have been substantial reforms to the supervision and operation of
the financial services industry, including numerous new regulations that have imposed compliance costs on us and our
financial institution partners and customers. Among other things, the Dodd-Frank Act established the CFPB, which is
empowered to conduct rule-making and supervision related to, and enforcement of, federal consumer financial protection
laws. The CFPB has issued guidance that applies to “supervised service providers,” which the CFPB has defined to include
service providers, like us, to CFPB supervised banks and nonbanks. The Dodd-Frank Act also established the Financial
Stability Oversight Council, which has the authority to determine whether any non-bank financial company should be
supervised by the Board of Governors of the Federal Reserve System, or the Federal Reserve, because it is systemically
important to the U.S. financial system. In addition, federal and state agencies have recently proposed or enacted cybersecurity
regulations, such as the Cybersecurity Requirements for Financial Services Companies issued by the New York State
Department of Financial Services and the Advance Notice of Proposed Rulemaking on Enhanced Cyber Risk Management
Standards issued by The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation in October 2016. Such cybersecurity regulations are applicable to large bank
holding companies and their subsidiaries, as well as to service providers to those organizations. Any new rules and
regulations implemented by the CFPB or state or other authorities or in connection with the Dodd-Frank Act could, among
other things, slow our ability to adapt to a rapidly changing industry, require us to make significant additional investments to
comply with them, redirect time and resources to compliance obligations, modify our products or services or the manner in
which they are provided, or limit or change the amount or types of revenue we are able to generate.
Interchange fees, which the payment processor typically pays to the card issuer in connection with credit and debit
card transactions, are subject to increasingly intense legal, regulatory and legislative scrutiny. In particular, the Dodd-Frank
Act regulates and limits debit card fees charged by certain card issuers and allows businesses and organizations to set
minimum dollar amounts for the acceptance of credit cards. Specifically, under the so-called “Durbin Amendment” to the
Dodd-Frank Act, the interchange fees that certain issuers charge businesses and organizations for debit transactions are
regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the issuer in authorizing,
clearing and settling the transactions. Rules released by the Federal Reserve in July 2011 to implement the Durbin
Amendment mandate a cap on debit transaction interchange fees for card issuers with assets of $10.0 billion or greater. Since
October 2011, a payment network may not prohibit a card issuer from contracting with any other payment network for the
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processing of electronic debit transactions involving the card issuer’s debit cards, and card issuers and payment networks
may not inhibit the ability of businesses and organizations to direct the routing of debit card transactions over any payment
networks that can process the transactions. These restrictions could negatively affect the number of debit transactions, and
prices charged per transaction, which would negatively affect our business.
We must comply with laws and regulations prohibiting unfair or deceptive acts or practices, and any failure to do so could
materially and adversely affect our business.
We and many of our customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or
deceptive acts or practices and various state laws that are similar in scope and subject matter. In addition, provisions of the
Dodd-Frank Act that prohibit unfair, deceptive or abusive acts or practices, the Telemarketing Sales Act and other laws, rules
and/or regulations, may directly impact the activities of certain of our customers, and in some cases may subject us, as the
electronic payment processor or provider of payment settlement services, to investigations, fees, fines and disgorgement of
funds if we are found to have improperly aided and abetted or otherwise provided the means and instrumentalities to facilitate
the illegal or improper activities of a customer through our services. Various federal and state regulatory enforcement
agencies, including the Federal Trade Commission and state attorneys general have authority to take action against non-banks
that engage in UDAAP, or violate other laws, rules and regulations. To the extent we are processing payments or providing
products and services for a customer suspected of violating such laws, rules and regulations, we may face enforcement
actions and incur losses and liabilities that may adversely affect our business.
Numerous other federal or state laws affect our business, and any failure to comply with those laws could harm our
business.
Currently, we do not believe we are deemed a money transmitter and have no expectation that we would be deemed
as such in the foreseeable future. We, along with our third-party service providers, use structural arrangements designed to
prevent us from receiving or controlling our customers’ funds and therefore remove our activities from the scope of money
transmitter regulation. There can be no assurance that these structural arrangements will remain effective as money
transmitter laws continue to evolve or that the applicable regulatory bodies, particularly state agencies, will view our payment
processing activities as compliant.
Our business may also be subject to the Fair Credit Reporting Act (the “FCRA”), which regulates the use and
reporting of consumer credit information and also imposes disclosure requirements on entities that take adverse action based
on information obtained from credit reporting agencies. We could be liable if our practices do not comply with the FCRA or
regulations under it.
The Housing Assistance Tax Act of 2008 included an amendment to the Internal Revenue Code of 1986, that
requires information returns to be made for each calendar year by payment processing entities and third-party settlement
organizations with respect to payments made in settlement of electronic payment transactions and third-party payment
network transactions occurring in that calendar year. Reportable transactions are also subject to backup withholding
requirements. We could be liable for penalties if our information returns are not in compliance with these regulations.
Our solutions may be required to conform, in certain circumstances, to requirements set forth in the Health
Insurance Portability and Accountability Act of 1996, which governs the privacy and security of “protected health
information.”
Additionally, we are required to comply with certain anti-money laundering regulations in connection with our
payment processing activities and are subject to certain economic and trade sanctions programs, which prohibit or restrict
transactions to or from or dealings with specified countries, their governments, and in certain circumstances, their nationals,
and with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers, and terrorists
or terrorist organizations. These regulations are generally governed by the Financial Crimes Enforcement Network of the
U.S. Department of the Treasury and the Office of Foreign Assets Control.
Depending on how our products and services evolve, we may be subject to a variety of additional laws and
regulations, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds
transfers, anti-money laundering, counter-terrorist financing, restrictions on foreign assets, gambling, banking and lending,
and import and export restrictions.
Our efforts to comply with these laws and regulations could be costly and result in diversion of management time
and effort and may still not guarantee compliance. In addition, to the extent we decide to offer our products and services in
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additional jurisdictions (for example, our recent expansion into Canada), we may incur additional compliance-related costs
with respect to operating in such jurisdictions. Additionally, as our products and services evolve, and as regulators continue
to increase their scrutiny of compliance with these obligations, we may be subject to a variety of additional laws and
regulations, or we may be required to further revise or expand our compliance management system, including the procedures
we use to verify the identity of our customers, their end customers, and to monitor transactions. If we are found to be in
violation of any such legal or regulatory requirements, we may be subject to monetary fines or other penalties, such as a cease
and desist order, or we may be required to alter the nature or packaging of our services and solutions, any of which could
adversely affect our business or operating results.
Governmental regulations designed to protect or limit access to or use of consumer information could adversely affect our
ability to effectively provide our products and services.
In addition to those regulations discussed previously that are imposed by the card networks and NACHA,
governmental bodies in the United States have adopted, or are considering the adoption of, laws and regulations restricting
the use, collection, storage, transfer and disposal of, and requiring safeguarding of, non-public personal information. Our
operations are subject to certain provisions of these laws. Relevant federal privacy laws include the Family Educational
Rights and Privacy Act of 1974, the Protection of Pupil Rights Amendment and the Gramm-Leach-Bliley Act of 1999, which
applies directly to a broad range of financial institutions and indirectly, or in some instances directly, to companies that
provide services to financial institutions. The U.S. Children’s Online Privacy Protection Act also regulates the collection of
information by operators of websites and other electronic solutions that are directed to children under 13 years of age. These
laws and regulations restrict our collection, processing, storage, use and disclosure of personal information, may require us to
notify individuals of our privacy practices and provide individuals with certain rights to prevent the use and disclosure of
protected information, and mandate certain procedures with respect to safeguarding and proper description of stored
information. Certain state laws impose similar privacy obligations as well as obligations to provide notification of security
breaches of personal information to affected individuals, state officers, consumer reporting agencies and businesses and
governmental agencies. The applicable regulatory framework for privacy issues is evolving and is likely to continue doing so
for the foreseeable future, which creates uncertainty. For example, the California Consumer Privacy Act (CCPA) of 2018,
which became effective January 1, 2020, imposes more stringent requirements with respect to California data privacy. The
CCPA includes provisions that give California residents expanded rights to access and delete certain personal information,
opt out of certain personal information sharing, and receive detailed information about how certain personal information is
used.
Further, we are obligated by our customers, sponsor banks and software integration partners to maintain the
confidentiality and security of non-public consumer information that our customers and their end customers share with us.
Our contracts may require periodic audits by independent parties regarding our compliance with applicable standards, and
may permit our counterparties to audit our compliance with best practices established by regulatory guidelines with respect to
confidentiality and security of non-public personal information. Our ability to maintain compliance with these standards and
satisfy these audits will affect our ability to attract, grow and maintain business in the future, and any failure to do so could
subject us to contractual liability, each of which could have a material effect on our business and results of operations.
If we fail to comply with these laws, regulations or contractual terms, or if we experience security breaches, we
could face regulatory enforcement proceedings, suits for breach of contract and monetary liabilities. Additionally, any such
failure could harm the relationships and reputation we depend on to retain existing customers and software integration
partners and obtain new customers and software integration partners. If federal and state governmental bodies adopt more
restrictive privacy laws in the future, our compliance costs could increase, and it could make our due diligence reviews and
monitoring regarding the risk of our customers more difficult, complex and expensive. As our business grows, we may also
be required to invest in a more substantive and complex compliance management system than the one we currently employ.
We are an emerging growth company within the meaning of the Securities Act and we have taken advantage of certain
exemptions from disclosure requirements available to emerging growth companies; this could make our securities less
attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act of 1933 (the “Securities Act”), as
modified by the JOBS Act and have taken 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 our periodic reports and proxy statements and exemptions from the requirements of
holding a nonbinding advisory vote on certain executive compensation matters. As a result, our stockholders may not have
access to certain information they may deem important. We may be an emerging growth company for up to five years from
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the IPO, although circumstances could cause the loss of that status earlier, including if the market value of our common stock
held by non- affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an
emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less
attractive because we rely on these exemptions. If some investors find the securities less attractive as a result of reliance on
these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active
trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply
with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act
registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of
1934) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an
emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such
extended transition period. Accordingly, when a standard is issued or revised and it has different application dates for public
or private companies, we, as an emerging growth company, will adopt the new or revised standard at the time private
companies adopt the new or revised standard, unless early adoption is permitted by the standard. This may make comparison
of our financial statements with another public company which is neither an emerging growth company nor an emerging
growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
The loss of key personnel or the loss of our ability to attract, recruit, retain and develop qualified employees, could
adversely affect our business, financial condition and results of operations.
We depend on the ability and experience of a number of our key personnel who have substantial experience with our
operations, the rapidly changing payment processing industry and the vertical markets in which we offer our products and
services. Many of our key personnel have worked for us for a significant amount of time or were recruited by us specifically
due to their experience. Our success depends in part upon the reputation and influence within the industry of our senior
managers who have, over the years, developed long standing and favorable relationships with our software integration
partners, vendors, card associations, sponsor banks and other payment processing and service providers. It is possible that the
loss of the services of one or a combination of our senior executives or key managers could have a material adverse effect on
our business, financial condition and results of operations. In addition, contractual obligations related to confidentiality and
assignment of intellectual property rights may be ineffective or unenforceable, and departing employees may share our
proprietary information with competitors or seek to solicit our software integration partners or customers or recruit our key
personnel to competing businesses in ways that could adversely impact us.
Further, in order for us to continue to successfully compete and grow, we must attract, recruit, develop and retain
personnel who will provide us with the expertise we need. Our success also depends on the skill and experience of our sales
force, which we must continuously work to maintain. While we have a number of key personnel who have substantial
experience with our operations, we must also develop our personnel so that our personnel is capable of maintaining the
continuity of our operations, supporting the development of new services and solutions, and expanding our customer base. In
addition, our personnel may not be familiar with the requirement of operating a public company and our management will
need to continue to expend time and resources to become familiar with such requirements. The market for qualified personnel
is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel
who depart with qualified or effective successors.
We have been the subject of various claims and legal proceedings and may become the subject of claims, litigation or
investigations which could have a material adverse effect on our business, financial condition or results of operations.
In the ordinary course of business, we are the subject of various claims and legal proceedings and may become the
subject of claims, litigation or investigations, including commercial disputes and employee claims, such as claims of age
discrimination, sexual harassment, gender discrimination, immigration violations or other local, state and federal labor law
violations, and from time to time may be involved in governmental or regulatory investigations or similar matters arising out
of our current or future business. Any claims asserted against us or our management, regardless of merit or eventual outcome,
could harm our reputation and have an adverse impact on our relationships with our customers, software integration partners
and other third parties and could lead to additional related claims. In light of the potential cost and uncertainty involved in
litigation, we have in the past and may in the future settle matters even when we believe we have a meritorious defense.
Certain claims may seek injunctive relief, which could disrupt the ordinary conduct of our business and operations or
increase our costs of doing business. Our insurance or indemnities may not cover all claims that may be asserted against us.
Furthermore, there is no guarantee that we will be successful in defending pending or future litigation or similar matters
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under various laws. Any judgments or settlements in any pending or future claims, litigation or investigations could have a
material adverse effect on our business, financial condition and results of operations.
Our business and operations could be negatively affected if we become subject to any securities litigation or shareholder
activism, which could cause us to incur significant expense, hinder execution of business and growth strategy and impact
our stock price.
In the past, following periods of volatility in the market price of a company’s securities, securities class action
litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a
variety of situations, has been increasing recently. Volatility in the stock price of our common stock or other reasons may in
the future cause us to become the target of securities litigation or shareholder activism. Securities litigation and shareholder
activism, including potential proxy contests, could result in substantial costs and divert management’s and board of directors’
attention and resources from our business. Additionally, such securities litigation and shareholder activism could give rise to
perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to
attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to
any securities litigation and activist shareholder matters. Further, our stock price could be subject to significant fluctuation or
otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.
Risks Related to the Business Combination
If the Business Combination’s benefits do not meet the expectations of investors, stockholders or financial analysts, the
market price of our securities may decline.
If the benefits of the Business Combination do not meet the expectations of investors or securities analysts, the
market price of our securities may decline.
Fluctuations in the price of our securities could contribute to the loss of all or part of your investment. Immediately
prior to the Business Combination, there was no public market for and no trading in Hawk Parent’s stock. As an active
market for our securities develops and continues, the trading price of our securities could be volatile and subject to wide
fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have
a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the
price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a
further decline.
Factors affecting the trading price of our securities may include:
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies
perceived to be similar to us;
changes in the market’s expectations about our operating results or changes to our previously announced
financial forecasts;
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
speculation in the press or investment community;
success of competitors;
our operating results failing to meet the expectation of securities analysts or investors or our previously
announced financial forecasts in a particular period;
changes in financial estimates and recommendations by securities analysts concerning us or the market in
general;
operating and stock price performance of other companies that investors deem comparable to us;
our ability to market new and enhanced products on a timely basis;
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changes in laws and regulations affecting our business;
commencement of, or involvement in, litigation involving us;
changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
the volume of shares of our Class A common stock available for public sale;
any major change in our board of directors or management;
sales of substantial amounts of common stock by our directors, officers or significant stockholders or the
perception that such sales could occur; and
general economic and political conditions such as recessions, interest rates, fuel prices, international currency
fluctuations and acts of war or terrorism and outbreaks of disease or other adverse public health developments
such as the recent COVID-19 coronavirus outbreak (the impact of which are highly uncertain and cannot be
reasonably estimated or predicted at this time).
Broad market and industry factors may materially harm the market price of our securities irrespective of our
operating performance. The stock market in general and Nasdaq have experienced price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices
and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for
the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our
business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could
adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Our results of operations may differ significantly from the unaudited pro forma financial information included in our
SEC reports.
Thunder Bridge and Hawk Parent have had no prior history as a combined entity, and Thunder Bridge’s and Hawk
Parent’s operations have not previously been managed on a combined basis. The pro forma financial information included in
our SEC reports has been presented for informational purposes only and is not necessarily indicative of the financial position
or results of operations that would have actually occurred had the Business Combination or TriSource acquisition been
completed at or as of the dates indicated, nor is it indicative of our future operating results or financial position. Such pro
forma statement of operations does not reflect future nonrecurring charges resulting from the Business Combination or the
TriSource acquisition. Such unaudited pro forma financial information does not reflect future events that have occurred or
may occur after the Business Combination and TriSource acquisition and does not consider potential impacts of future
market conditions on revenues or expenses and instead it was derived from Thunder Bridge’s and Hawk Parent’s historical
financial statements, or TriSource’s historical financial statements, and certain adjustments and assumptions have been made
regarding us after giving effect to the Business Combination and the TriSource acquisition. There may be differences
between preliminary estimates in the pro forma financial information and the final acquisition accounting, which could result
in material differences from the pro forma information presented and our results of operations.
In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate and
other factors may affect our financial condition or results of operations following the closing of the Business Combination
and the TriSource acquisition. Any potential decline in our financial condition or results of operations may cause significant
variations in our stock price.
Risks Related to Our Class A Common Stock
We are a holding company and our only material asset is our interest in Hawk Parent, and we are accordingly dependent
upon distributions made by our subsidiaries to pay taxes, make payments under the Tax Receivable Agreement and pay
dividends.
As part of the Business Combination, a wholly-owned subsidiary of Thunder Bridge merged with and into Hawk
Parent, with Hawk Parent continuing as the surviving entity of the merger and becoming our subsidiary. As a result, we
became a holding company with no material assets other than our ownership of limited liability company interests of Hawk
Parent (the “Post-Merger Repay Units” and holders of such Post-Merger Repay Units other than the Company, the “Repay
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Unitholders”) and our managing member interest in Hawk Parent, and we have no independent means of generating revenue
or cash flow. Upon the completion of the Business Combination, we entered into that certain Tax Receivable Agreement (the
“Tax Receivable Agreement”) with the Repay Unitholders. Our ability to pay taxes, make payments under the Tax
Receivable Agreement and pay dividends will depend on the financial results and cash flows of Hawk Parent and its
subsidiaries and the distributions we receive from Hawk Parent. Deterioration in the financial condition, earnings or cash
flow of Hawk Parent and its subsidiaries, including its operating subsidiaries, for any reason could limit or impair Hawk
Parent’s ability to pay such distributions. Additionally, to the extent that we need funds and Hawk Parent and/or any of its
subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of any
financing arrangements, or Hawk Parent is otherwise unable to provide such funds, it could materially adversely affect our
liquidity and financial condition.
Hawk Parent is treated as a partnership for U.S. federal income tax purposes and, as such, generally is not subject to
any entity-level U.S. federal income tax. Instead, taxable income is allocated to Repay Unitholders (including us).
Accordingly, we will be required to pay income taxes on our allocable share of any net taxable income of Hawk Parent.
Under the terms of Hawk Parent’s Amended and Restated Operating Agreement, Hawk Parent is obligated to make tax
distributions to Repay Unitholders (including us) calculated at certain assumed tax rates. In addition to tax expenses, we will
also incur expenses related to our operations, including payment obligations under the Tax Receivable Agreement (and the
cost of administering such payment obligations), which could be significant. We intend to cause Hawk Parent to make
distributions to Repay Unitholders in amounts sufficient to cover all applicable taxes (calculated at assumed tax rates),
relevant operating expenses, payments under the Tax Receivable Agreement and dividends, if any, declared by Hawk Parent.
However, as discussed below, Hawk Parent’s ability to make such distributions may be subject to various limitations and
restrictions including, but not limited to, restrictions on distributions that would either violate any contract or agreement to
which Hawk Parent is then a party, including debt agreements, or any applicable law, or that would have the effect of
rendering Hawk Parent insolvent. If our cash resources are insufficient to meet our obligations under the Tax Receivable
Agreement and to fund our obligations, we may be required to incur additional indebtedness to provide the liquidity needed
to make such payments, which could materially adversely affect our liquidity and financial condition and subject us to
various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the Tax
Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid; provided, however,
that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable
Agreement and therefore accelerate payments due under the Tax Receivable Agreement.
Additionally, although Hawk Parent generally is not subject to any entity-level U.S. federal income tax, it may be
liable under recent federal tax legislation for adjustments to its tax return, absent an election to the contrary. In the event
Hawk Parent’s calculations of taxable income are incorrect, its members, including us, in later years may be subject to
material liabilities pursuant to this federal legislation and its related guidance.
We anticipate that the distributions we will receive from Hawk Parent may, in certain periods, exceed our actual tax
liabilities and obligations to make payments under the Tax Receivable Agreement. Our board of the directors, in its sole
discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated,
which may include, among other uses, to acquire additional newly issued Post-Merger Repay Units from Hawk Parent at a
per unit price determined by reference to the market value of the Class A common stock; to pay dividends, which may
include special dividends, on our Class A common stock; to fund repurchases of Class A common stock; or any combination
of the foregoing. We will have no obligation to distribute such cash (or other available cash other than any declared dividend)
to our stockholders. To the extent that we do not distribute such excess cash as dividends on Class A common stock or
otherwise undertake ameliorative actions between Post-Merger Repay Units and shares of Class A common stock and
instead, for example, hold such cash balances, Repay Unitholders that hold interests in Hawk Parent pre-Business
Combination may benefit from any value attributable to such cash balances as a result of their ownership of Class A common
stock following an exchange of their Post-Merger Repay Units, notwithstanding that such holders may previously have
participated as holders of Post- Merger Repay Units in distributions by Hawk Parent that resulted in such excess cash
balances being held by us.
Dividends on our common stock, if any, will be paid at the discretion of our board of directors, which will consider,
among other things, our business, operating results, financial condition, current and expected cash needs, plans for expansion
and any legal or contractual limitations on our ability to pay such dividends. Financing arrangements may include restrictive
covenants that restrict our ability to pay dividends or make other distributions to our stockholders. In addition, Hawk Parent
is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the
distribution, after giving effect to the distribution, liabilities of Hawk Parent (with certain exceptions) exceed the fair value of
its assets. Hawk Parent’s subsidiaries are generally subject to similar legal limitations on their ability to make distributions to
32
Hawk Parent. If Hawk Parent does not have sufficient funds to make distributions, our ability to declare and pay cash
dividends may also be restricted or impaired.
Under the Tax Receivable Agreement, we will be required to pay 100% of the tax benefits relating to tax depreciation or
amortization deductions as a result of the tax basis step-up we receive in connection with the exchanges of Post-Merger
Repay Units into our Class A common stock and related transactions, and those payments may be substantial.
The Repay Unitholders may exchange their Post-Merger Repay Units for shares of Class A common stock pursuant
to the Exchange Agreement, subject to certain conditions as set forth therein and in Hawk Parent’s Amended and Restated
Operating Agreement. These exchanges are expected to result in increases in our allocable share of the tax basis of the
tangible and intangible assets of Hawk Parent. These increases in tax basis may increase (for tax purposes) depreciation and
amortization deductions and therefore reduce the amount of income or franchise tax that we would otherwise be required to
pay in the future had such exchanges never occurred.
In connection with the Business Combination, we entered into the Tax Receivable Agreement, which generally
provides for the payment to the Repay Unitholders by us of 100% of certain tax benefits, if any, that we realize (or in certain
cases are deemed to realize) (a portion of which will be paid in turn to certain service providers on behalf of them in respect
of certain transaction expenses) as a result of these increases in tax basis and certain other tax attributes of Hawk Parent and
tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the
Tax Receivable Agreement. These payments are our obligation and not an obligation of Hawk Parent. The actual increase in
our allocable share of Hawk Parent’s tax basis in its assets, as well as the amount and timing of any payments under the Tax
Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges, the market price of
the Class A common stock at the time of the exchange, the extent to which such exchanges are taxable and the amount and
timing of the recognition of our income. While many of the factors that will determine the amount of payments that we will
make under the Tax Receivable Agreement are outside of our control, we expect that the payments we will make under the
Tax Receivable Agreement will be substantial and could have a material adverse effect on our financial condition. Any
payments made by us under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might
have otherwise been available to us. To the extent that we are unable to make timely payments under the Tax Receivable
Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Furthermore, our future
obligation to make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition,
particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the
Tax Receivable Agreement.
In certain cases, payments under the Tax Receivable Agreement may exceed the actual tax benefits we realize or be
accelerated.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, and
the Internal Revenue Service or another taxing authority may challenge all or any part of the tax basis increases, as well as
other tax positions that we take, and a court may sustain such a challenge. In the event any tax benefits initially claimed by us
are disallowed, the current Repay Unitholders will not be required to reimburse us for any excess payments that may
previously have been made under the Tax Receivable Agreement, for example, due to adjustments resulting from
examinations by taxing authorities. Rather, excess payments made to such holders will be netted against any future cash
payments otherwise required to be made by us, if any, after the determination of such excess. However, a challenge to any tax
benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if
challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise
be required to make under the terms of the Tax Receivable Agreement and, as a result, there might not be future cash
payments from which to net against. As a result, in certain circumstances, we could make payments under the Tax Receivable
Agreement in excess of our actual income or franchise tax savings, which could materially impair our financial condition.
Moreover, the Tax Receivable Agreement provides that, in the event that (i) we exercise our early termination rights
under the Tax Receivable Agreement, (ii) we become bankrupt or undergo a similar insolvency event, (iii) certain changes of
control of us occur (as described in the Tax Receivable Agreement) or (iv) we are more than three months late in making of a
payment due under the Tax Receivable Agreement (unless we in good faith determine that we have insufficient funds to
make such payment), our obligations under the Tax Receivable Agreement will accelerate and we will be required to make an
immediate lump-sum cash payment to the Repay Unitholders equal to the present value of all forecasted future payments that
would have otherwise been made under the Tax Receivable Agreement, which lump-sum payment would be based on certain
assumptions, including those relating to our future taxable income. The lump-sum payment to the Repay Unitholders could
be substantial and could exceed the actual tax benefits that we realize subsequent to such payment because such payment
33
would be calculated assuming, among other things, that we would be able to use the assumed potential tax benefits in future
years, and that tax rates applicable to us would be the same as they were in the year of the termination.
There may be a material negative effect on our liquidity if the payments under the Tax Receivable Agreement
exceed the actual income or franchise tax savings that we realize. Furthermore, our obligations to make payments under the
Tax Receivable Agreement could also have the effect of delaying, deferring or preventing certain mergers, asset sales, other
forms of business combinations or other changes of control. We may need to incur additional indebtedness to finance
payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under
the Tax Receivable Agreement as a result of timing discrepancies or otherwise. Such indebtedness may have a material
adverse effect on our financial condition.
Resales of the shares of Class A common stock could depress the market price of our Class A common stock.
There may be a large number of shares of Class A common stock sold in the market in the near future. These sales,
or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market
price of our Class A common stock. A substantial number of our Class A common stock previously held by the pre-Business
Combination public shareholders of Thunder Bridge at the closing of the Business Combination are available for sale in the
public market. In addition, 17,615,000 shares of Class A common stock and up to 8,450,000 shares of Class A common stock
issuable upon the exercise of our warrants have been registered for resale on the registration statement on Form S-3 declared
effective as of September 24, 2019.
We have also registered up to 7,326,728 shares of Class A common stock that we may issue under the Repay
Holdings Corporation 2019 Omnibus Incentive Plan (the “2019 Plan”). To the extent such shares have vested or vest in the
future (and settle into shares, in the case of restricted stock units), they can be freely sold in the public market upon issuance,
subject to volume limitations applicable to affiliates.
In addition, we have granted certain registration rights in respect of all shares of Class A common stock that are
obtainable in exchange for Post-Merger Repay Units held by the Repay Unitholders, including Corsair.
Potential sales of shares of Class A common stock described above or the perception of such sales may depress the
market price of our Class A common stock. A market for our Class A common stock may not continue, which would
adversely affect the liquidity and price of our securities.
The price of our Class A common stock may fluctuate significantly due to the market’s reaction to the Business
Combination and general market and economic conditions. An active trading market for our Class A common stock may not
be sustained. In addition, the price of our Class A common stock can vary due to general economic conditions and forecasts,
our general business condition and the release of our financial reports. Additionally, if our Class A common stock is not
listed on, or becomes delisted from, Nasdaq for any reason, and is quoted on an over-the-counter market, the liquidity and
price of such securities may be more limited than if we were quoted or listed on Nasdaq or another national securities
exchange. You may be unable to sell your Class A common stock unless a market is sustained. Furthermore, our warrants,
when exercised, will increase the number of issued and outstanding shares and may reduce the market price of our Class A
common stock.
If securities or industry analysts cease publishing research or reports about us, our business, or our market, or if they
change their recommendations regarding our Class A common stock adversely, then the price and trading volume of our
Class A common stock could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or
securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover
us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about
our competitors, the price of our Class A common stock would likely decline. If any analyst who may cover us were to cease
coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause
our stock price or trading volume to decline.
Delaware law and our governing documents contain certain provisions, including anti-takeover provisions that limit the
ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may
consider favorable.
34
Our certificate of incorporation, bylaws and Delaware General Corporation Law (“DGCL”) contain provisions that
could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of
directors and therefore depress the trading price of our Class A common stock. These provisions could also make it difficult
for stockholders to take certain actions, including electing directors who are not nominated by the current members of our
board of directors or taking other corporate actions, including effecting changes in management. Among other things, our
certificate of incorporation and bylaws include provisions regarding:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to
change the membership of a majority of our board of directors;
the ability of our board of directors to issue shares of preferred stock, including “blank check” preferred stock
and to determine the price and other terms of those shares, including preferences and voting rights, without
stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
the limitation of the liability of, and the indemnification of, our directors and officers;
the right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of
directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill
vacancies on our board of directors;
the requirement that directors may only be removed from the board of directors for cause;
a prohibition on stockholder action by written consent (except for actions by the holders of our Class V
common stock or as required for holders of future series of preferred stock), which forces stockholder action to
be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force
consideration of a stockholder proposal or to take action, including the removal of directors;
the requirement that a special meeting of stockholders may be called only by our board of directors, the
chairman of our board of directors or our chief executive officer, which could delay the ability of stockholders
to force consideration of a proposal or to take action, including the removal of directors;
controlling the procedures for the conduct and scheduling of our board of directors and stockholder meetings;
the requirement for the affirmative vote of holders of (i) at least 80% and (ii) 66(cid:1152)% of the voting power of all
of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or
repeal any provision of our bylaws and certain provisions in our certificate of incorporation, respectively, which
could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay
changes in our board of directors and also may inhibit the ability of an acquirer to effect such amendments to
facilitate an unsolicited takeover attempt;
the ability of our board of directors to amend our bylaws, which may allow our board of directors to take
additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our bylaws
to facilitate an unsolicited takeover attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to our board of
directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders
from bringing matters before annual or special meetings of stockholders and delay changes in our board of
directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect
the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in
our board of directors or management.
In addition, as a Delaware corporation, we are generally subject to provisions of Delaware law, including the DGCL.
Although we have elected not to be governed by Section 203 of the DGCL, certain provisions of our certificate of
incorporation, in a manner substantially similar to Section 203 of the DGCL, prohibit certain of our stockholders (other than
those stockholders who are party to a stockholders’ agreement with us) who hold 15% or more of our outstanding capital
35
stock from engaging in certain business combination transactions with us for a specified period of time unless certain
conditions are met.
Any provision of our certificate of incorporation, our bylaws or Delaware law that has the effect of delaying or
preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of our
capital stock and could also affect the price that some investors are willing to pay for our common stock.
In addition, the provisions of the Stockholders Agreements (as defined below) provide the stockholders party thereto
with certain board rights which could also have the effect of delaying or preventing a change in control.
Our certificate of incorporation designates a state or federal court located within the State of Delaware as the exclusive
forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to choose
the judicial forum for disputes with us or our directors, officers, or employees.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum,
the Court of Chancery of the State of Delaware, or if such court does not have subject matter jurisdiction, any other court
located in the State of Delaware with subject matter jurisdiction, will be the sole and exclusive forum for (i) any derivative
action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of
our current or former directors, officers, other employees or stockholders to us or our stockholders, (iii) any action asserting a
claim against us or our officers or directors arising pursuant to any provision of the DGCL or our certificate of incorporation
or bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action
asserting a claim against us or any of our directors or officers governed by the internal affairs doctrine of the law of the State
of Delaware.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities will be deemed to have
notice of and consented to this provision. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim
in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage
lawsuits against us or our directors, officers, and other employees. If a court were to find these exclusive-forum provisions to
be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other
jurisdictions, which could harm our results of operations.
Certain of our significant stockholders whose interests may differ from those of our public stockholders will have the
ability to significantly influence our business and management.
Pursuant to the stockholders agreements (each, a “Stockholders Agreement,” and collectively the “Stockholders
Agreements”) that we entered into with Corsair, Thunder Bridge Acquisition LLC (the “Sponsor”), and John Morris and
Shaler Alias at the closing of the Business Combination, we agreed to nominate Corsair’s designees and Paul Garcia to serve
on our board of directors for so long as each of them and their respective affiliates beneficially own certain specified
percentages of our Class A common stock. In addition, John Morris, who serves as our Chief Executive Officer, and Shaler
Alias, who serves as our President, pursuant to their Stockholders Agreement, have the right to be designated or nominated as
directors of our board of directors so long as they serve us in those respective positions and have the right to designate one
separate director (subject to Corsair approval) if they do not continue to serve, as long as they together beneficially own a
certain specified percentage of our common stock (including Post-Merger Repay Units exchangeable for shares of our Class
A common stock pursuant to the Exchange Agreement). Accordingly, the persons party to these Stockholders Agreements
will be able to significantly influence the approval of actions requiring approval by our board of directors through their
voting power. Such stockholders will retain significant influence with respect to our management, business plans and
policies, including the appointment and removal of our officers. In particular, the persons party to these Stockholder
Agreements could influence whether acquisitions, dispositions and other change of control transactions are approved.
Our certificate of incorporation does not limit the ability of the Sponsor or Corsair to compete with us.
The Sponsor, Corsair and their respective affiliates engage in a broad spectrum of activities, including investments
in the financial services and technology industries. In the ordinary course of their business activities, the Sponsor, Corsair and
their respective affiliates may engage in activities where their interests conflict with our interests or those of our stockholders.
Our certificate of incorporation provides that none of the Sponsor, Corsair, any of their respective affiliates or any director
who is not employed by us (including any non-employee director who serves as one of its officers in both his director and
officer capacities) or his or her affiliates has any duty to refrain from engaging, directly or indirectly, in the same business
activities or similar business activities or lines of business in which we operate. The Sponsor and Corsair also may pursue, in
their capacities other than as members of our board of directors, acquisition opportunities that may be complementary to our
36
business, and, as a result, those acquisition opportunities may not be available to us. In addition, each of the Sponsor and
Corsair may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance
its investment, even though such transactions might involve risks to you.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The following table sets forth selected information concerning our principal facilities, as of December 31, 2019.
Location
Corporate Headquarters:
Atlanta, Georgia
Additional Facilities:
Bettendorf, Iowa
Chattanooga, Tennessee
Chicago, Illinois
East Moline, Illinois
Ft. Worth, Texas
Mesa, Arizona
Phoenix, Arizona
Sarasota, Florida
ITEM 3. LEGAL PROCEEDINGS.
Owned/Leased
Approximate Square Footage
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
8,700
4,100
1,000
1,700
7,400
6,300
12,800
7,500
8,900
We are currently not a party to any legal proceedings that would be expected to have a material adverse effect on our
business or financial condition. From time to time, we may be subject to litigation incidental to our business, as well as other
litigation of a non-material nature in the ordinary course of business.
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable.
37
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our Class A common stock is traded on Nasdaq under the symbol “RPAY”. As of March 2, 2020, the closing price
for our Class A common stock was $18.11.
Market price information regarding our Class V common stock and Post-Merger Repay Units is not provided
because there is no public market for our Class V common stock or our Post-Merger Repay Units.
Holders
As of March 1, 2020, there were 26 holders of record of our Class A common stock, 34 holders of record of our
Class V common stock and 34 holders of record of Post-Merger Repay Units. The number of record holders does not include
beneficial owners of our securities whose shares are held in the names of various security brokers, dealers, and registered
clearing agencies.
Dividends
We have never declared or paid cash dividends on our Class A common stock. We currently do not intend to pay
cash dividends in the foreseeable future.
Performance
The following graph compares the total shareholder return from July 17, 2018, the date on which our Class A
common shares commenced trading on the Nasdaq, through December 31, 2019 of (i) our Class A common stock, (ii) the
Standard and Poor's 500 Stock Index (“S&P 500 Index”) and (iii) the Standard and Poor’s 500 Information Technology Index
(“S&P Information Technology Index”). The stock performance graph and table assume an initial investment of $100 on July
17, 2018, and that all dividends of the S&P 500 Index and S&P Information Technology Index, were reinvested.
The performance graph and table are not intended to be indicative of future performance. The performance graph
and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed to be
incorporated by reference into any of our filings under the Securities Act of 1933 or the Exchange Act.
38
Comparison of Cumulative Total Return Since IPO
$160.00
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$-
7/17/18
9/30/18
12/31/18
3/31/19
6/30/19
9/30/19
12/31/19
Repay Holdings Corporation
S&P 500 Index
S&P Information Technology Index
July 17, 2018
September 30, 2018
December 31, 2018
March 31, 2019
June 30, 2019
September 30, 2019
December 31, 2019
Repay Holdings
Corporation
S&P 500 Index
S&P Information
Technology Index
$100.00
100.62
102.59
105.70
108.08
138.13
151.81
$100.00
104.13
90.05
102.34
106.75
108.56
118.40
$100.00
103.42
85.49
102.46
108.68
112.31
128.48
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In connection with the vesting of restricted stock awards, shares of Class A common stock are delivered to the
Company by employees to satisfy tax withholding obligations. The following table summarizes such purchases of Class A
common stock from July 11, 2019 to December 31, 2019:
Total Number
of Shares
Purchased (1)
Average Price
Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
October 1-31, 2019
November 1-30, 2019
December 1-31, 2019
Total
152,976
-
168,287
321,263
$13.31
-
14.79
$14.09
-
-
-
-
Approximate Dollar
Value of Shares that May
yet be Purchased Under
the Plans or Programs
$-
-
-
$-
(1) During period ended December 31, 2019, pursuant
Incentive Plan, we
withheld 321,263 shares at an average price per share of $14.09 in order to satisfy employees' tax withholding
and payment obligations in connection with the vesting of awards of restricted stock, which we withheld at fair
market value on the vesting date.
the 2019 Omnibus
to
39
ITEM 6. SELECTED FINANCIAL DATA.
(cid:3)
You should read the selected financial data set forth below in conjunction with “Item 7 Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and “Item 8 Financial Statements and Supplementary Data.”
From
July 11,
2019 to
December 31,
2019
(Successor)
From
January 1,
2019
to July 10,
2019
Year Ended
December 31,
2018
Year Ended
December 31,
2017
(Predecessor)
From
September 1,
2016 to
December 31,
2016
From
January 1,
2016
to August 31,
2016
(Predecessor)
(2)
$47,043
(20,597)
(23,743)
(23,743)
$130,013
16,611
10,537
10,537
$93,951
16,389
9,448
9,448
$28,747
1,613
(311)
(311)
$55,548
133
(201)
(201)
$57,560
(27,611)
(31,561)
(16,290)
$(0.46)
(in thousands)
Statement of operations data:
Revenue (1)
Income (loss) from operations
Net income (loss)
Net income (loss) attributable to the Company
Earnings (loss) per Class A share (3):
Basic and diluted
(1) Revenue for the reporting periods beginning in 2019 is presented under ASC 606, defined herein, while prior
period revenue is reported in accordance with the Company’s historic accounting practices under previous
guidance. Refer to Part II, Item 8, Note 2, “Basis of Presentation and Summary of Significant Accounting
Policies”, for further discussion of the revenue accounting policy and recent adoption of Accounting Standards
Update 2014-09.
(2) This period includes the operation results for REPAY LLC (a predecessor entity of Hawk Parent), prior to the
2016 Recapitalization.
(3) Basic and diluted earnings per Class A share is presented only for the Successor Period, defined herein.
(in thousands)
Balance sheet data:
Total assets
Line of credit
Long-term debt
Tax receivable agreement
Total members’ equity
Total stockholders’ equity
Equity attributable to noncontrolling interests
As of December
31, 2019
(Successor)
As of December
31, 2018
As of December
31, 2017
(Predecessor)
$782,042
10,000
203,443
67,176
-
254,353
206,162
$219,058
3,500
90,715
-
109,078
-
-
$211,598
500
95,208
-
104,052
-
-
40
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis of financial condition and results of operations should be read together with
our audited consolidated financial statements and the related notes to those statements included under Item 8, hereof. For
purposes of this section, "Repay", the “Company", "we", or "our" refer to (i) Hawk Parent Holdings, LLC and its
subsidiaries ("Predecessor") for the years ended December 31, 2017, December 31, 2018 and the period from January 1,
2019 through July 10, 2019 (each referred to herein as a "Predecessor Period") prior to the consummation of the Business
Combination and (ii) Repay Holdings Corporation and its subsidiaries (the "Successor ") for the period from July 11, 2019
through December 31, 2019 (the "Successor Period") after the consummation of the Business Combination, unless the
context otherwise requires. Certain figures have been rounded for ease of presentation and may not sum due to rounding.
The combined year ended December 31, 2019 represents the aggregated total of the Predecessor Period and Successor
Period.
Overview
We provide integrated payment processing solutions to industry-oriented markets in which merchants 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 intend to continue to strategically target verticals where we believe our ability to
tailor payment solutions to our customer needs, our deep knowledge of our vertical markets and the embedded nature of our
integrated payment solutions will drive strong growth by attracting new customers and fostering long-term customer
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 $10.7 billion of total card
payment volume for the year ending December 31, 2019, and our year-over-year card payment volume growth was
approximately 44%.
Business Combination
The Company was formed upon closing of the merger (the “Business Combination”) of Hawk Parent Holdings LLC
(together with Repay Holdings, LLC and its other subsidiaries, “Hawk Parent”) with a subsidiary of Thunder Bridge
Acquisition, Ltd, (“Thunder Bridge”), a special purpose acquisition company, on July 11, 2019 (the “Closing Date”). On the
Closing Date, Thunder Bridge changed its name to “Repay Holdings Corporation.”
As a result of the Business Combination, Thunder Bridge was identified as the acquirer for accounting purposes, and
Hawk Parent, which is the business conducted prior to the closing of the Business Combination, is the acquiree and
accounting Predecessor. The acquisition was accounted for as a business combination using the acquisition method of
accounting, and the Successor’s financial statements reflect a new basis of accounting that is based on the fair value of net
assets acquired. As a result of the application of the acquisition method of accounting as of the effective time of the Business
Combination, the financial statements for the Predecessor period and for the Successor period are presented on different
bases. The historical financial information of Thunder Bridge prior to the Business Combination has not been reflected in the
Predecessor period financial statements.
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:
(cid:404)
(cid:404)
(cid:404)
(cid:404)
(cid:404)
the dollar amount volume and the number of transactions that are processed by the customers that we currently
serve;
our ability to attract new merchants and onboard them as active processing customers;
our ability to (i) successfully integrate recent acquisitions and (ii) complete future acquisitions;
our ability to offer new and competitive payment technology solutions to our customers; and
general economic conditions and consumer finance trends.
41
Acquisitions
On August 14, 2019, the Company announced the acquisition of TriSource, for up to $65.0 million, which includes a
$5.0 million performance based earn-out. The acquisition was financed with a combination of cash on hand and proceeds
from borrowings under the New Credit Agreement. See Note 4 to the audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
On October 11, 2019, the Company announced the acquisition of APS, for up to $60.0 million, which includes a
$30.0 million performance based earn-out. The acquisition was financed with a combination of cash on hand and proceeds
from borrowings under the New Credit Agreement. See Note 4 to the audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
Key Components of Our Revenues and Expenses
Revenues
Revenue. As our customers 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 are determined, based on the judgment of the Company’s management,
considering factors such as margin objectives, pricing practices and controls, customer segment pricing strategies, the product
life cycle and the observable price of the service charged to similarly situated customers. We believe our chargeback rate
was less than 1% of our card payment volume, during the years ended December 31, 2019, 2018 and 2017.
As discussed in Note 3 in the Notes to the Consolidated Financial Statements, Repay adopted ASC 606 on January
1, 2019, using the modified retrospective method and applying the standard to all contracts not completed on the date of
adoption. Results for the reporting period beginning January 1, 2019 are presented under ASC 606, while prior period
amounts continue to be reported in accordance with the Company's historic accounting practices under previous guidance.
The primary impact to the Company’s consolidated financial statements as a result of the adoption of ASC 606 is a
change in total net revenue attributable to the presentation of interchange, network and other fees on a net basis, driven by
changes in principal and agent considerations, as compared to previously being presented on a gross basis. Under the
modified retrospective method, the Company has not restated its comparative consolidated financial statements for these
effects.
Expenses
Interchange and network fees. Interchange and network fees consist primarily of pass-through fees which
generally increase in proportion to card payment volume increases. These include interchange fees, dues and assessments,
and other pass-through costs. Beginning January 1, 2019, as a result of the adoption of ASC 606, interchange and network
fees are not presented as operating expenses, but as a reduction of revenue.
Other costs of services. Other 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, over a ten-year estimated useful life for customer relationships and channel
relationships, and a two-year estimated useful life for non-competition agreements.
Interest expense. Prior to the closing of the Business Combination, interest expense consisted of interest in respect
of our indebtedness under our Prior Credit Agreement (as defined below), which was terminated in connection with the
closing of the Business Combination. In periods after the closing of the Business Combination, interest expense consists of
42
interest in respect of our indebtedness under the New Credit Agreement, which was entered into in connection with the
Business Combination.
Other expenses. Other expenses primarily consist of write-off of debt issuance costs relating to our Prior Credit
Agreement (prior to the Business Combination) and prepayment penalties relating to the Prior Credit Agreement, which was
terminated at the closing of the Business Combination, and the write-offs related to certain fixed assets.
Results of Operations
(in thousands)
Revenue
Processing and service fees
Interchange and network fees
Total Revenue
Operating Expenses
Interchange and network fees
Other costs of services
Selling general and administrative
Depreciation and amortization
Change in fair value of contingent consideration
Total operating expenses
From
July 11,
2019 to
December 31,
2019
(Successor)
From
January 1,
2019
to July 10,
2019
Year Ended
December 31,
2018
(Predecessor)
Year Ended
December 31,
2017
$57,560
—
57,560
$47,043
—
47,043
$82,186
47,827
130,013
$57,063
36,888
93,951
$
—
15,657
45,758
23,757
—
85,172
—
10,216
51,201
6,223
—
67,640
47,827
27,160
29,097
10,421
(1,103)
113,402
36,888
20,713
14,604
7,456
(2,100)
77,562
Income (loss) from operations
(27,611)
(20,597)
16,611
16,389
Other income (expense)
Interest expense
Change in fair value of tax receivable liability
Other income (expense)
Total other income (expenses)
Income (loss) before income tax expense
Income tax benefit (expense)
Net income (loss)
Less: Net income (loss) attributable to noncontrolling
interests
Net income (loss) attributable to the Company
(5,922)
(1,638)
(1,380)
(8,940)
(3,145)
—
0
(3,145)
(36,552)
4,991
$(31,561)
(23,743)
—
$(23,743)
$(15,271)
$(16,290)
—
$(23,743)
(6,073)
—
(1)
(6,074)
10,537
—
$10,537
—
$10,537
(5,706)
—
(1,235)
(6,941)
9,448
—
$9,448
—
$9,448
Earnings (loss) per Class A share:
Basic and diluted
Weighted-average shares outstanding:
Basic and diluted
$(0.46)
35,731,220
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Revenue
Total revenue was $57.6 million for the Successor Period, $47.0 million from January 1, 2019 through July 10,
2019, and $130.0 million in the year ended December 31, 2018. Total revenue for the combined year ended December 31,
2019 was $104.6 million, a decrease of $25.4 million or 19.5% from $130.0 million for the year ended December 31, 2018.
43
The primary reason for the decrease is the impact of adopting ASC 606 in 2019 and the result of recording processing
revenue “net” of the fees collected on behalf of the payment networks and card issuers, as opposed to the “gross” presentation
for certain of these fees in 2018. The decrease is offset by increases as a result of newly signed customers, the growth of our
existing customers, as well as the acquisitions of TriSource and APS. For the year ended December 31, 2019, incremental
revenues of approximately $13.6 million are attributable to TriSource and APS.
Interchange and Network Fees
Interchange and network fees were $0.0 million for the Successor Period, $0.0 million from January 1, 2019 through
July 10, 2019 and $47.8 million in the year ended December 31, 2018. The primary reason for the decrease is due to the
impact of adopting ASC 606 in 2019 and the result of recording fees collected on behalf of the payment networks and card
issuers “net” of the amounts paid to them, as opposed to the “gross” presentation for certain of these fees in 2018.
Other Costs of Services
Other costs of services were $15.7 million for the Successor Period, $10.2 million from January 1, 2019 through
July 10, 2019 and $27.2 million in the year ended December 31, 2018. Other costs of services for the combined year ended
December 31, 2019 was $25.9 million, a decrease of $1.3 million or 4.7% from $27.2 million for the year ended December
31, 2018. The primary reason for the decrease is due to the impact of adopting ASC 606 in 2019 and the recording of certain
processing and service fees “net” as opposed to the “gross” presentation in 2018. Other costs of services generally increase in
proportion to card processing volume. For the year ended December 31, 2019, incremental costs of services of
approximately $6.1 million are attributable to TriSource and APS.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $45.2 million for the Successor Period, $51.2 million from
January 1, 2019 through July 10, 2019 and $29.1 million in the year ended December 31, 2018. Selling, general and
administrative expenses for the combined year ended December 31, 2019 were $96.4 million, an increase of $67.3 million or
231.3% from $29.1 million for the year ended December 31, 2018. This increase was primarily due to one-time expenses
associated with the Business Combination, general business growth, increases in stock compensation expense, and increases
in expenses relating to software and technological services, rent, telecommunication costs, advertising and marketing.
Change in Fair Value of Contingent Consideration
There was no change in the fair value of contingent consideration in the Successor Period or the period from January
1, 2019 through July 10, 2019.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $23.8 million for the Successor Period, $6.2 million from January 1,
2019 through July 10, 2019 and $10.4 million in the year ended December 31, 2018. Depreciation and amortization expenses
for the combined year ended December 31, 2019 were $30.0 million, an increase of $19.6 million or 187.7% from $10.4
million for the year ended December 31, 2018. The increase was primarily due to fair value adjustments to intangibles
resulting from the Business Combination, as well as additional depreciation and amortization of fixed assets and intangibles
from the acquisitions of TriSource and APS.
Interest Expense
Interest expense was $5.9 million for the Successor Period, $3.1 million from January 1, 2019 through July 10, 2019
and $6.1 million in the year ended December 31, 2018. Interest expense for the combined year ended December 31, 2019 was
$9.1 million, an increase of $3.0 million or 49.3% from $6.1 million for the year ended December 31, 2018. This increase
was due to a higher average outstanding principal balance under our New Credit Agreement as compared to the average
outstanding principal balance under the Prior Credit Agreement.
Change in Fair Value of Assets and Liabilities
Change in fair value of assets and liabilities were $1.6 million for the Successor Period which consisted of fair value
adjustments related to the tax receivable liability.
44
Other Expenses
Other expenses were $1.4 million for the Successor Period which primarily consisted of write-off expenses of debt
issuance costs relating to our Prior Credit Agreement, which was settled on July 11, 2019, in connection with the Business
Combination and New Credit Agreement. There were de minimis other expenses from January 1, 2019 through July 10, 2019
and for the year ended December 31, 2018.
Income Tax
Prior to the Business Combination, the Company was not subject to corporate income taxation and, thus, did not
have any corporate income tax expense in 2018 or 2017. Therefore, comparison of the year ended December 31, 2019 versus
2018 and the year ended December 31, 2018 versus 2017 are not meaningful.
The income tax benefit recorded during 2019 of $5.0 million reflected the expected income tax benefit to be
received on the net earnings for the Successor Period related to the Company’s economic interest in Hawk Parent. This was a
result of the operating loss incurred by the Company, primarily driven by the expenses incurred in conjunction with Business
Combination and stock-based compensation deductions.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenue
Total revenue increased $36.1 million, or 38.4%, to $130.0 million for the year ended December 31, 2018 from
$94.0 million for the year ended December 31, 2017. For the year ended December 31, 2018, incremental revenues of
approximately $5.4 million and $17.3 million are attributable to the clients of PaidSuite and Paymaxx, respectively. For the
year ended December 31, 2018, revenue from discount fees and fixed transaction and service fees was approximately $128.0
million, which increased $35.1 million, or 37.8%, from $92.9 million for the year ended December 31, 2017.
Processing and service fees increased $25.1 million or 44.0%, to $82.2 million for the year ended December 31,
2018 from $57.1 million for the year ended December 31, 2017.
Interchange and Network Fees
Interchange and network fees increased $10.9 million, or 29.7%, to $47.8 million for the year ended December 31,
2018 from $36.9 million for the year ended December 31, 2017, driven by increases in card payment volume associated with
the PaidSuite and Paymaxx acquisitions, new clients, and same sales growth from existing clients. Interchange and network
fees increased in general proportion to card payment volume increases.
Other Costs of Services
Other costs of services increased $6.4 million, or 31.1%, to $27.2 million for the year ended December 31, 2018
from $20.7 million for the year ended December 31, 2017. Increased card payment volume resulted in greater third-party
processing costs and an increase in commissions paid to our software integration partners.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $14.5 million, or 99.2%, to $29.1 million for the year ended
December 31, 2018 from $14.6 million for the year ended December 31, 2017. This increase was primarily driven by an
increase in compensation expenses due to an increase in headcount from acquisitions and general business growth. Increases
in software and technological services, rent, telecommunication costs, advertising and marketing expenses accounted for the
remainder of the increase. We expect selling, general and administrative expenses to increase going forward, as we further
develop our personnel infrastructure and make other investments needed to support the continued development and
distribution of our solutions.
Depreciation and Amortization
Depreciation and amortization increased $3.0 million, or 39.7%, to $10.4 million for the year ended December 31,
2018 from $7.5 million for the year ended December 31, 2017, primarily due to greater amortization expense resulting from
the PaidSuite and Paymaxx acquisitions
45
Change in Fair Value of Contingent Consideration
There was $1.1 million of change in fair value of contingent consideration for the year ended December 31, 2018
associated with the earnout payment in connection with the 2016 Recapitalization. The change in fair value of contingent
consideration for the year ended December 31, 2017 was income of $2.1 million, associated with an earnout relating to an
acquisition that occurred prior to 2016.
Interest Expense
Interest expense increased $0.4 million, or 6.4%, to $6.1 million for the year ended December 31, 2018 from $5.7
million for the year ended December 31, 2017. While our total debt during the year ended December 31, 2018 was higher
than that of the year ended December 31, 2017, our Prior Credit Agreement, which was obtained in September 2017, allowed
for significantly lower borrowing costs relative to our previous debt facility, which was refinanced and replaced with our
Prior Credit Agreement.
Other Expense
Other expenses decreased to $1.1 thousand during the year ended December 31, 2018, from $1.2 million for the year
ended December 31, 2017, $0.7 million of which were related to the write-off of debt issuance costs relating to our Prior
Credit Agreement and $0.5 million of which were prepayment penalties relating to our previous debt facility, which was
refinanced and replaced with our Prior Credit Agreement.
Non-GAAP Financial Measures
This communication 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 non-cash and non-recurring charges, such as loss on
extinguishment of debt, non-cash change in fair value of contingent consideration, share-based compensation charges,
transaction expenses, management fees, legacy commission related charges, employee recruiting costs, loss on disposition of
property and equipment, other taxes, strategic initiative related 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 non-cash and non-recurring charges, such as loss on
extinguishment of debt, non-cash change in fair value of contingent consideration, transaction expenses, share-based
compensation expense, management fees, legacy commission related charges, employee recruiting costs, loss on disposition
of property and equipment, strategic initiative related costs and other non-recurring charges. 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 as-converted basis) for the three months
ended December 31, 2019, and for the Successor period from July 11, 2019 to December 31, 2019 (excluding certain shares
that were subject to forfeiture). Organic gross profit growth is a non-GAAP financial measure that represents the year-on-
year gross profit growth that excludes gross profit attributed to acquisitions made in 2019.
We believe that Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share and organic gross profit
growth 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 and organic
gross profit growth 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
46
EBITDA, Adjusted Net Income, Adjusted Net Income per share, organic gross profit growth 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, Adjusted Net Income per share and organic gross profit growth alongside other financial
performance measures, including net income and our other financial results presented in accordance with GAAP. You
should be aware of additional limitations with respect to Adjusted Net Income per share because the GAAP presentation of
net loss per share is only reflected for the Successor period.
The following tables set forth our results of operations for the Successor Period, Predecessor Periods, and year
ended December 31, 2019 on a Predecessor/Successor combined basis.
Due to the Predecessor and Successor periods, for the convenience of readers, we have presented the year
ended December 31, 2019 on a combined basis (reflecting simple arithmetic combination of the GAAP Predecessor and
Successor Periods without further adjustment) in order to present a meaningful comparison against the corresponding period
in the years ended December 31, 2018 and 2017.
47
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
From
July 11,
2019 to
December 31,
2019
From
January 1,
2019
to July 10,
2019
(Successor) (Predecessor)
Combined
2019
Adjustments(o)
Pro Forma
year ended
December 31,
2019
Year Ended
December 31,
2018
Year Ended
December 31,
2017
(Predecessor)
$57,560
—
57,560
$47,043
—
47,043
$104,603
—
104,603
$
—
15,657
45,758
23,757
—
85,172
—
10,216
51,201
6,223
—
67,640
—
25,873
96,960
29,980
—
152,812
$
—
—
—
—
—
—
(15,412)
—
(15,412)
$104,603
—
104,603
$82,186
47,827
130,013
$57,063
36,888
93,951
—
25,873
96,960
14,568
47,827
27,160
29,097
10,421
—
137,401
(1,103)
113,402
36,888
20,713
14,604
7,456
(2,100)
77,562
(in thousands)
Revenue
Processing and service fees
Interchange and network fees
Total Revenue
Operating Expenses
Interchange and network fees
Other costs of services
Selling general and administrative
Depreciation and amortization
Change in fair value of contingent
consideration
Total operating expenses
Income (loss) from operations
(27,611)
(20,597)
(48,209)
15,412
(32,797)
16,611
16,389
Other income (expense)
Interest expense
Change in fair value of tax
receivable liability
Other income (expense)
Total other income (expenses)
Income (loss) before income tax
expense
Income tax benefit (expense)
Net income (loss)
Add:
Interest expense
Depreciation and amortization (a)
Income tax (benefit)
EBITDA
Loss on extinguishment of debt (b)
Non-cash change in fair value of
contingent consideration (c)
Non-cash change in fair value of
assets and liabilities (d)
Share-based compensation expense (e)
Transaction expenses (f)
Management Fees (g)
Legacy commission related charges (h)
Employee recruiting costs (i)
Loss on disposition of property and
equipment
Other taxes (j)
Strategic initiative costs (k)
Other non-recurring charges (l)
Adjusted EBITDA
(5,922)
(3,145)
(9,067)
(1,638)
(1,380)
(8,940)
—
0
(3,145)
(1,638)
(1,380)
(12,085)
—
—
—
—
(1,638)
(1,380)
(12,085)
—
(1)
(6,074)
(9,067)
(6,073)
(5,706)
(36,552)
4,991
$(31,561)
(23,743)
—
$(23,743)
(60,294)
4,991
$(55,303)
15,412
—
$15,412
(44,882)
4,991
$(39,891)
10,537
—
$10,537
9,067
14,568
(4,991)
$(21,247)
1,380
6,073
10,421
—
27,031
1
—
(1,235)
(6,941)
9,448
—
$9,448
5,706
7,456
—
22,611
1,235
-
(1,103)
(2,100)
1,638
22,922
40,126
211
2,557
51
-
226
352
215
$48,432
-
797
4,751
400
4,168
256
17
216
272
(27)
$36,779
-
622
1,351
400
782
278
8
98
164
(24)
$25,426
48
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income
From
July 11,
2019 to
December 31,
2019
From
January 1,
2019
to July 10,
2019
(Successor) (Predecessor)
Combined
2019
Adjustments(o)
Pro Forma
year ended
December
31, 2019
Year Ended
December 31,
2018
Year Ended
December 31,
2017
(Predecessor)
$57,560
—
57,560
$47,043
—
47,043
$104,603
—
104,603
$
—
—
—
$104,603
—
104,603
$82,186
47,827
130,013
$57,063
36,888
93,951
$
—
15,657
45,758
23,757
—
85,172
—
10,216
51,201
6,223
—
67,640
—
25,873
96,960
29,980
—
152,812
—
—
—
(15,412)
—
(15,412)
—
25,873
96,960
14,568
47,827
27,160
29,097
10,421
—
137,401
(1,103)
113,402
36,888
20,713
14,604
7,456
(2,100)
77,562
(in thousands)
Revenue
Processing and service fees
Interchange and network fees
Total Revenue
Operating Expenses
Interchange and network fees
Other costs of services
Selling general and administrative
Depreciation and amortization
Change in fair value of contingent
consideration
Total operating expenses
Income (loss) from operations
(27,611)
(20,597)
(48,209)
15,412
(32,797)
16,611
16,389
(5,922)
(3,145)
(9,067)
(9,067)
(6,073)
(5,706)
(1,638)
(1,380)
(12,085)
(60,294)
4,991
$(55,303)
—
—
—
—
(1,638)
(1,380)
(12,085)
15,412
—
$15,412
(44,882)
4,991
$(39,891)
—
(1)
(6,074)
10,537
—
$10,537
—
(1,235)
(6,941)
9,448
—
$9,448
Other income (expense)
Interest expense
Change in fair value of tax receivable
liability
Other income (expense)
Total other income (expenses)
(1,638)
(1,380)
(8,940)
—
0
(3,145)
Income (loss) before income tax expense
Income tax benefit (expense)
Net income (loss)
(36,552)
4,991
$(31,561)
(23,743)
—
$(23,743)
Add:
Amortization of Acquisition-Related
Intangibles(m)
Loss on extinguishment of debt (b)
Non-cash change in fair value of
contingent consideration(c)
Non-cash change in fair value of assets
and liabilities(d)
Share-based compensation expense(e)
Transaction expenses(f)
Management Fees(g)
Legacy commission related charges(h)
Employee recruiting costs(i)
Loss on disposition of property and
equipment
Strategic initiative costs(k)
Other non-recurring charges(l)
Adjusted Net Income
Shares of Class A common stock
outstanding (on an as-converted
basis)(n)
Adjusted Net income per share
9,917
1,380
7,919
1
6,605
1,235
—
(1,103)
(2,100)
1,638
22,922
40,126
211
2,557
51
-
352
215
$39,479
-
797
4,751
400
4,168
256
17
272
(27)
$27,987
-
622
1,351
400
782
278
8
164
(24)
$18,770
59,721,429
$0.66
(a) See footnote (m) for details on our amortization and depreciation expenses.
(b) Reflects write-offs of debt issuance costs relating to Hawk Parent’s term loans and prepayment penalties
relating to its previous debt facilities.
49
(c) 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.
(d) Reflects the changes in management’s estimates of the fair value of the liability relating to the Tax Receivable
Agreement
(e) Represents compensation expense associated with Hawk Parent’s equity compensation plans, totaling $908,977
in the Predecessor period from January 1, 2019 to July 10, 2019 inclusive of charges from accelerated vesting
due to a change of control triggered by the Business Combination, and $22,013,287 as a result of new grants
made in the Successor period.
(f) Primarily consists of (i) during the Successor Period , professional service fees and other costs in connection
with the Business Combination, the acquisitions of TriSource and APS, and (ii) during the year ended
December 31, 2018, professional service fees and other costs in connection with the Business Combination, and
additional transaction related expenses in connection with the acquisitions of PaidSuite, Inc. and PaidMD, LLC
(together, “PaidSuite”) and Paymaxx Pro, LLC (“Paymaxx”), which transactions closed in 2017.
(g) Reflects management fees paid to Corsair Investments, L.P. pursuant to the management agreement, which
terminated upon the completion of the Business Combination.
(h) Represents payments made to certain employees in connection with significant restructuring of their
commission structures. These payments represented commission structure changes which are not in the ordinary
course of business.
(i) Represents payments made to third-party recruiters in connection with a significant expansion of our personnel,
which Repay expects will become more moderate in subsequent periods.
(j) Reflects franchise taxes and other non-income based taxes.
(k) Consulting fees relating to Repay’s processing services and other operational improvements that were not in the
ordinary course as well as one-time fees relating to special projects for new market expansion that are not
anticipated to continue in the ordinary course of business are reflected in the twelve months ended December
31, 2019 and 2018, respectively. Additionally, one-time expenses related to the creation of a new entity in
connection with equity arrangements for the members of Hawk Parent in connection with the Business
Combination are reflected in the twelve months ended December 31, 2019.
(l) For the twelve months ended December 31, 2018 reflects reversal of adjustments over the prior and current
periods made for legal expenses incurred related to a dispute with a former customer, for which we were
reimbursed in the current period as a result of its settlement. For the three months ended December 31, 2018
and the twelve months ended December 31, 2019, reflects expenses incurred related to other one-time legal and
compliance matters.
(m) For the year ended December 31, 2018, reflects amortization of customer relationships intangibles acquired
through Hawk Parent’s acquisitions of PaidSuite and Paymaxx during the year ended December 31, 2017 and
the recapitalization transaction in 2016, through which Hawk Parent was formed in connection with the
acquisition of a majority interest in Repay Holdings, LLC by certain investment funds sponsored by, or
affiliated with, Corsair. For the year ended December 31, 2019 reflects amortization of the customer
relationships intangibles described previously, as well as customer relationships, non-compete agreement,
software, and channel relationship intangibles acquired through the Business Combination, and customer
relationships, non-competition agreement, and software intangibles acquired through Repay Holdings, LLC’s
acquisitions of TriSource and APS. 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 our amortization expenses:
(in $ thousands)
Acquisition-related intangibles
Software
Reseller buyouts
Amortization
Depreciation
Total Depreciation and amortization1
Twelve months ended December 31,
2018
2017
2019
$9,917
3,895
58
$13,870
698
$7,919
2,052
58
$10,029
392
$6,605
687
0
$7,292
164
$14,568
$10,421
$7,456
(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 we exclude amortization from acquisition-related intangibles from our non-GAAP
50
expenses, management believes that it is important for investors to understand that such intangibles were
recorded as part of purchase accounting and may 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.
(n) Represents the weighted average number of shares of Class A common stock outstanding (on as-converted
basis) for the three months ended December 31, 2019, and for the Successor period from July 11, 2019 to
December 31, 2019 (excluding certain shares that were subject to forfeiture).
(o) Adjustment for incremental depreciation and amortization recorded due to fair-value adjustments under ASC
805 in the Successor Period.
Adjusted EBITDA for the combined year ended December 31, 2019 and for the year ended December 31, 2018 was
$48.4 million and $36.8 million, respectively, representing 31.7% year-over-year increase. Adjusted Net Income for the
combined year ended December 31, 2019 and the year ended December 31, 2018 was $39.5 million and $28.0 million,
respectively, representing a 41.0% year-over-year increase. Our net income (loss) attributable to the Company for the
combined year ended December 31, 2019 and for the year ended December 31, 2018 was ($40.0) million and $10.5 million,
respectively, representing a 381.0% year-over-year decrease.
Adjusted EBITDA for the year ended December 31, 2018 and 2017 was $36.8 million and $25.4 million,
respectively, representing a 44.7% year-over-year increase. Adjusted Net Income for the year ended December 31, 2018 and
2017 was $28.0 million and $18.8 million, respectively, representing a 49.1% year-over-year increase. Our net income for the
year ended December 31, 2018 and 2017 was $10.5 million and $9.4 million, respectively, representing an 11.5% year-over-
year increase.
These increases in Adjusted EBITDA and Adjusted Net Income, in the combined year ended December 31, 2019,
are the result of the growing card payment volume and revenue figures described above, new customers, and same store sales
growth from existing customers as well as the acquisitions of TriSource and APS. The decrease in Net Income, in the
combined year ended 2019, is primarily the result of one-time expenses incurred in connection with the Business
Combination as well as stock compensation expense.
These increases in Adjusted EBITDA and Adjusted Net Income, in the year ended December 31, 2018, are the result
of the growing card payment volume and revenue figures described above, new customers, and same store sales growth from
existing customers.
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 during the first quarter of the calendar year tend to increase
in comparison to the remaining three quarters of the calendar year on a same store basis. 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
December 31, 2019, we had $24.6 million of cash and cash equivalents and available borrowing capacity of $10.0 million
under the New Credit Agreement. This balance does not include restricted cash, which reflects cash accounts holding
reserves for potential losses and customer settlement funds of $13.3 million at December 31, 2019. 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 New 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 II,
Item 1A "Risk Factors - Risks Related to Our Class A Common Stock."
51
Cash Flows
The following table present a summary of cash flows from operating, investing and financing activities for the
periods indicated:
(In thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided (used) by financing
activities
Cash Flow from Operating Activities
July 11, 2019 to
December 31,
2019
(Successor)
January 1, 2019
to
July 10, 2019
Period Ended
December 31,
2018
(Predecessor)
Period Ended
December 31,
2017
$12,936
(335,084)
360,049
$8,350
(4,046)
(9,355)
$24,177
(5,798)
$21,143
(3,437)
(8,208)
(8,993)
Net cash provided by operating activities was $12.9 million in the Successor Period.
Net cash provided by operating activities was $8.4 million from January 1, 2019 through July 10, 2019.
Net cash provided by operating activities was $24.2 million in the year ended December 31, 2018.
Net cash provided by operating activities was $21.1 million in the year ended December 31, 2017.
Cash provided by operating activities for the Successor Period from July 11, 2019 to December 31, 2019 and the
Predecessor periods from January 1 to July 10, 2019 and the year ended December 31, 2018 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 $335.1 million in the Successor Period due to the Business Combination,
the acquisitions of TriSource and APS, and capitalization of software development activities.
Net cash used in investing activities was $4.0 million from January 1, 2019 through July 10, 2019 due to
capitalization of software development activities and fixed asset additions.
Net cash used in investing activities was $5.8 million in the year ended December 31, 2018 due to capitalization of
software development activities and fixed asset additions.
Net cash used in investing activities was $3.4 million in the year ended December 31, 2017 due to capitalization of
software development activities and fixed asset additions.
Cash Flow from Financing Activities
Net cash provided by financing activities was $360.0 million in the Successor Period due to borrowings under our
New Credit Agreement of $220.0 million, offset by debt issuance costs of $6.1 million. The Company received proceeds
from the Business Combination of $148.9 million and a private placement offering of $135.0 million, offset by payments of
$93.3 million to settle our Prior Credit Agreement and $38.7 million to repurchase outstanding Thunder Bridge warrants.
Net cash used in financing activities was $9.4 million from January 1, 2019 through July 11, 2019 due to $2.5
million of principal payments related to our Prior Credit Agreement and tax distributions of $6.9 million to Hawk Parent’s
members.
Net cash used in financing activities was $8.2 million, for the year ended December 31, 2018, as compared to $9.0
million for the year ended December 31, 2017. This decrease was primarily due to the repayment of the Seller Notes,
associated with the Repay Acquisition.
52
Indebtedness
Prior Credit Agreement
Hawk Parent was previously party to the Revolving Credit and Term Loan Agreement, dated as of September 28,
2017, and amended as of December 15, 2017 (the “Prior Credit Agreement”), with SunTrust Bank, as administrative agent
and lender, and the other lenders party thereto. In connection with the completion of the Business Combination, all
outstanding loans were repaid and the Prior Credit Agreement was terminated.
New 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 a Revolving Credit and Term Loan Agreement (the “New
Credit Agreement”) with certain financial institutions, as lenders, and Truist Bank (formerly SunTrust Bank), as the
administrative agent.
As of December 31, 2019, the New Credit Agreement provided for a senior secured term loan facility of $170.0
million, a delayed draw term loan of $40.0 million, and a revolving credit facility of $20.0 million. As of December 31, 2019,
the Company had $10.0 million drawn against the revolving credit facility. We paid $30,764 in fees related to unused
commitments from July 11, 2019 through December 31, 2019. The New Credit Agreement was upsized in February 2020.
See Note 18 to the financial statements in Item 8 of this Annual Report on Form 10-K for more information.
As of December 31, 2019, we had term loan borrowings of $203.4 million, net of deferred issuance costs, and $10.0
million in revolver borrowings outstanding under the New Credit Agreement and were in compliance with its restrictive
financial covenants.
Contractual Obligations
The following table summarizes our contractual obligations and commitments as of December 31, 2019 related to
leases and borrowings:
(in thousands)
Processing minimums (a)
Facility leases
Credit Facility and related interest (b)
Contingent consideration (c)
Total
Total
$862
2,066
269,218
14,250
$286,396
Payments Due by Period
1 to 3 Years
3 to 5 Years More than
Less than 1
Year
$202
944
17,440
14,250
$32,837
$360
1,018
43,568
-
$44,945
$300
104
208,210
-
$208,614
5 Years
$-
-
-
-
$-
(a) Certain of the agreements with third-party processors require us to submit a minimum monthly number of transactions for
processing. If we submit a number of transactions that is lower than the minimum, we are required to pay to the processor
the fees it would have received if we had submitted the required minimum number of transactions.
(b) We estimated interest payments through the maturity of the Credit Facility by applying the interest rate of 5.50% in effect
on our borrowings as of December 31, 2019, plus an unused fee rate of 0.50%.
(c) Represents contingent consideration associated with the acquisitions of TriSource and APS.
Potential payments under the Tax Receivable Agreement are not reflected in this table. See the sections entitled “—
Tax Receivable Agreement” below and “Shareholder Proposal 2: The Business Combination Proposal — Related
Agreements — Tax Receivable Agreement.”
Tax Receivable Agreement
Upon the completion of the Business Combination, we entered into that certain Tax Receivable Agreement (the
“TRA”) with holders (other than the Company) of limited liability company interests of Hawk Parent (the “Post-Merger
Repay Units”). As a result of the TRA, we established a liability in our consolidated financial statements. Such liability,
which will increase upon the exchanges of Post-Merger Repay Units for Class A common stock, generally represents 100%
of the estimated future tax benefits, if any, relating to the increase in tax basis that will result from 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.
53
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 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 our Class A common stock 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.
Critical Accounting Policies and Recently Issued Accounting Standards
Revenue Recognition
We provide integrated payment processing solutions to niche markets that have specific transaction processing
needs; for example, personal loans, automotive loans, and receivables management. We contract with our customers through
contractual agreements that set forth the general terms and conditions of the service relationship, including rights of
obligations of each party, line item pricing, payment terms and contract duration. 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. As our customers process increased volumes of payments, our revenues increase as a result of the
fees we charge for processing these payments.
Our performance obligations in our contracts with customers is the promise to stand-ready to provide front-end
authorization and back-end settlement 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, our 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, we have determined that our stand-ready performance obligation comprises a series
of distinct 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.
Revenues are also derived from transaction or service fees (e.g. chargebacks, gateway) as well as other
miscellaneous service fees. These services are considered immaterial in the overall context of our contractual arrangements
and, as such, do not represent distinct performance obligations. Instead, the fees associated with these services are bundled
with the processing services performance obligation identified.
The transaction price for such processing services are determined, based on the judgment of our management,
considering factors such as margin objectives, pricing practices and controls, customer segment pricing strategies, the product
life cycle and the observable price of the service charged to similarly situated customers.
We follow the requirements of Topic 606-10-55-36 through -40, Revenue from Contracts with Customers, Principal
Agent Considerations, in determining the gross versus net revenue recognition for performance obligation(s) in the contract
with a customer. Revenue recorded with the Company acting in the capacity of a principal is reported at on a gross basis
equal to the full amount of consideration to which we expect 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.
The principal versus agent evaluation is matter of judgment that depends on the facts and circumstances of the
arrangement and is dependent on whether we control the good or service before it is transferred to the customer or whether
we are acting as an agent of a third party. This evaluation is performed separately for each performance obligation identified.
Interchange and network fees
Within our contracts with customers, we incur 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. We
54
have determined that we are acting as an agent with respect to these payment authorization and routing services, based the
fact that we have no discretion over which card-issuing bank or payment network will be used to process a transaction and is
unable to direct the activity of the merchant to another card-issuing bank or payment network. As such, we view the card-
issuing bank and the payment network as the principal for these performance obligations, as these parties are primarily
responsible for fulfilling these promises to the merchant. 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 and year ended December 31, 2019, in connection with the adoption of ASC
606.
Indirect relationships
As a result of our past acquisitions, we have legacy relationships with Independent Sales Organizations (“ISO”),
whereby we act 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, we recognize 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. We are not focused on this sales model, and we expect this relationship will represent an
increasingly smaller portion of the business over time.
Goodwill
Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities assumed
arising from business combinations. Goodwill is generally allocated to reporting units based upon relative fair value (taking
into consideration other factors such as synergies) when an acquired business is integrated into multiple reporting units.
Repay’s reporting units are at the operating segment level or one level below the operating segment level for which discrete
financial information is prepared and regularly reviewed by management. When a business within a reporting unit is disposed
of, goodwill is allocated to the disposed business using the relative fair value method. Relative fair value is estimated using a
discounted cash flow analysis.
We test goodwill annually for impairment, as well as upon an indicator of impairment, at the reporting unit level. As
of the most recent impairment analysis date, the fair value of each reporting unit exceeded its carrying value. We did not
record any goodwill impairment charges for the years ended December 31, 2019 and 2018.
Intangibles
Intangible assets include acquired merchant relationships, residual buyouts, trademarks, tradenames, website
development costs and non-compete agreements. Merchant relationships represent the fair value of customer relationships we
purchased. Residual buyouts represent the right to not have to pay a residual to an independent sales agent related to certain
future transactions of the agent’s referred merchants.
We amortize definite lived identifiable intangible assets using a method that reflects the pattern in which the
economic benefits of the intangible asset are expected to be consumed or otherwise utilized. The estimated useful lives of our
customer-related intangible assets approximate the expected distribution of cash flows, whether straight-line or accelerated,
generated from each asset. The useful lives of contract-based intangible assets are equal to the terms of the agreement.
Management evaluates the remaining useful lives and carrying values of long lived assets, including definite lived
intangible assets, at least annually or when events and circumstances warrant such a review, to determine whether significant
events or changes in circumstances indicate that a change in the useful life or impairment in value may have occurred. There
were no impairment charges during the years ended December 31, 2019 and 2018.
Income Taxes
Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to net operating losses, tax credits, and temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, which will result in taxable or deductible
amounts in the future. Our income tax expense/benefit, deferred tax assets and tax receivable liability reflect management’s
best assessment of estimated current and future taxes. Significant judgments and estimates are required in determining the
consolidated income tax expense/benefits, deferred tax assets and tax receivable agreement liability. In evaluating our ability
to recover our deferred tax assets, we consider all available positive and negative evidence, including projected future taxable
income and results of recent operations. Estimating future taxable income is inherently uncertain, requires judgment and is
55
consistent with estimates we are using to manage our business. If we determine in the future that we will not be able to fully
utilize all or part of the deferred tax assets, we would record a valuation allowance through earnings in the period the
determination was made.
Equity Units Awarded
We measure restricted shares awarded to management based on the fair value of the awards on the date of the grant
and recognizes compensation expense for those awards over the requisite service period. The restricted share awards vest
over varying periods with all of the restricted share awards being fully vested in 2023.
Recently Adopted Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers (“Topic 606” or “ASC 606”), a comprehensive new revenue recognition
standard that superseded nearly all legacy revenue recognition guidance under U.S. GAAP. The standard’s core principle is
that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance
may be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initial
application recognized at the date of initial application (“modified retrospective method”) for fiscal years beginning after
December 15, 2017. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one
year for private or emerging growth companies, making it effective for the Company in annual reporting periods beginning
after December 15, 2018, and interim periods beginning after December 15, 2019.
We adopted Topic 606 on January 1, 2019, using the modified retrospective method and applying the standard to all
contracts not completed on the date of adoption. Results for the reporting period beginning January 1, 2019 are presented
under ASC 606, while prior period amounts continue to be reported in accordance with our historic accounting practices
under previous guidance.
The primary impact to our consolidated financial statements as a result of the adoption of ASC 606 is a change in
total net revenue attributable to the presentation of interchange, network and other fees on a net basis, driven by changes in
principal and agent considerations, as compared to previously being presented on a gross basis. Under the modified
retrospective method, we have not restated our comparative consolidated financial statements for these effects.
Refer to Note 3, Revenue, to the financial statements in Item 8 of this Annual Report on Form 10-K for more detail
on the impact of our adoption of ASC 606.
Business Combinations
In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of
a Business (“ASU 2017-01”). The amendments in this update clarify the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets
or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and
consolidation. The standard is effective for annual periods beginning after December 15, 2017, including interim periods
within those fiscal years. We have adopted with update, effective January 1, 2018. There was no material impact on the
consolidated financial statements.
Intangibles – Goodwill and Other
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment. The ASU simplifies the measurement of goodwill impairment by eliminating the
requirement that an entity compute the implied fair value of goodwill based on the fair values of its assets and liabilities to
measure impairment. Instead, goodwill impairment will be measured as the difference between the fair value of the reporting
unit and the carrying value of the reporting unit. The ASU also clarifies the treatment of the income tax effect of tax-
deductible goodwill when measuring goodwill impairment loss. ASU 2017-04 will be effective for the Company beginning
on November 1, 2022. The amendment must be applied prospectively with early adoption permitted. We elected to early
adopt the amendment for the year ended December 31, 2017, which did not have a material impact on the consolidated
financial statements.
56
Statement of Cash Flows
We adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on January 1, 2019, using the
retrospective method. The most notable change relates to the treatment of balances we consider to be "restricted cash." The
amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
Fair Value Measurement
In August 2018, the FASB issued 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; and, for nonpublic entities, the changes in
unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end
of the reporting period. However, in lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity will be
required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and
liabilities.
ASU 2018-13 is effective for our fiscal year 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. Early
adoption is permitted, and an entity also is permitted to early adopt any removed or modified disclosures on issuance of ASU
2018-13, and delay adoption of the additional disclosures until their effective date. After adopting ASU 2018-13, there was
no material effect on our consolidated financial statements.
Recently Issued Accounting Pronouncements not yet Adopted
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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. We are considered an emerging growth company and have elected to use the extended transition
period provided for such companies. As a result, we will not be required to adopt ASU No. 2016-13 until January 1, 2023.
We are currently evaluating the impact of the adoption of this principle on our consolidated financial statements.
57
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. We are
currently in the process of evaluating the effects of ASU No. 2019-12 on our consolidated financial statements, including
potential early adoption.
Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements as of December 31, 2019 (Successor), for the period
from January 1, 2019 to July 10, 2019 (Predecessor), or December 31, 2018 (Predecessor).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 December 31, 2019, and December 31, 2018, we had term loan borrowings of $204.2 million and $90.7
million, respectively, and revolver borrowings of $10.0 million and $3.5 million, respectively, outstanding under the
respective credit agreements. The borrowings 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 New Credit Agreement or a base rate plus a margin of 2.00% to 3.00% or at an adjusted LIBOR rate plus
a margin of 3.00% to 4.00%, under the Prior Credit Agreement, in each case depending on the total net leverage ratio, as
defined in the respective agreements governing the New Credit Agreement and Prior Credit Agreement.
We have entered into an interest rate swap with a notional amount of $140.0 million, that reduces a portion of our
exposure to market interest rate risk on certain of our variable-rate debt as discussed in Item II, Part 8, Note 11,
“Derivatives." A 1.0% increase or decrease in the interest rate applicable to such borrowings under the New Credit
Agreement would have increased or decreased cash interest expense on our indebtedness by approximately $0.8 million per
annum and $0.8 million per annum, for the year ended December 31, 2019, respectively.
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. 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 New Credit Agreement, which in turn could have unpredictable
effects on our interest payment obligations under the New Credit Agreement.
58
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.
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to the Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the periods ended December 31, 2019 and July 10, 2019 and the years
ended December 31, 2018 and 2017
Consolidated Statements of Comprehensive Income for the periods ended December 31, 2019 and July 10, 2019 and
the years ended December 31, 2018 and 2017
Consolidated Statements of Stockholders’ Equity for the periods ended December 31, 2019 and July 10, 2019 and
the years ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the periods ended December 31, 2019 and July 10, 2019 and the years
ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
61
63
64
65
66
67
69
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Repay Holdings Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of Repay Holdings Corporation (a Delaware
corporation) and subsidiaries (the “Company” or “Successor”) as of December 31, 2019 and consolidated balance sheet of
Hawk Parent Holdings LLC (“Predecessor”) as of December 31, 2018, the related consolidated statements operations,
comprehensive income, changes in equity, and cash flows for the periods from July 11, 2019 to December 31, 2019
(Successor), January 1, 2019 to July 10, 2019 (Predecessor), and the year ended December 31, 2018 (Predecessor), and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2019 and the results of its operations and its
cash flows for the period from July 11, 2019 to December 31, 2019 and the financial position of the Predecessor as of
December 31, 2018, and the results of its operations and its cash flows for the period from January 1, 2019 to July 10, 2019,
and the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of
America.
Change in accounting principle
As discussed in Note 3 to the financial statements, the Company and the Predecessor have changed their method of
accounting for revenue in 2019 due to the adoption of ASU 2014-09, Revenue from Contracts with Customers (ASC Topic
606).
Basis for opinion
These financial statements are the responsibility of the Company’s and Predecessor’s management. Our
responsibility is to express an opinion on the Company’s and Predecessor’s financial statements based on our audits. We are
a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company and Predecessor are not required to have, nor were we engaged to perform, an
audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s or Predecessor’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2018.
Philadelphia, Pennsylvania
March 16, 2020
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members
of Hawk Parent Holdings LLC
Atlanta, Georgia
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, members’ equity, and cash flows of
Hawk Parent Holdings LLC for the year ended December 31, 2017. In our opinion, these consolidated financial statements
present fairly, in all material respects, the results of operations and cash flows for the year ended December 31, 2017, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of Hawk Parent Holdings LLC’s management. Our
responsibility is to express an opinion on Hawk Parent Holdings LLC’s consolidated financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to Hawk Parent Holdings LLC. in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audit provide a reasonable basis for our
opinion.
/s/ Warren Averett, LLC
Birmingham, Alabama
November 28, 2018
62
REPAY HOLDINGS CORPORATION
Consolidated Balance Sheets
as of
Assets
Cash and cash equivalents
Accounts receivable
Related party receivable
Prepaid expenses and other
Total current assets
Property, plant and equipment, net
Restricted cash
Customer relationships, net of accumulated amortization
Software, net of amortization
Other intangible assets, net of accumulated amortization
Goodwill
Other assets
Total noncurrent assets
Total assets
Liabilities
Accounts payable
Related party payable
Accrued expenses
Current maturities of long-term debt
Current tax receivable agreement
Total current liabilities
Long-term debt, net of current maturities
Line of credit
Tax receivable agreement
Deferred tax liability
Other liabilities
Total noncurrent liabilities
Total liabilities
Commitment and contingencies (Note 12)
Members' Equity
Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized
and 37,530,568 issued and outstanding as of December 31, 2019
Class V common stock, $0.0001 par value; 1,000 shares authorized and 100
shares issued and outstanding as of December 31, 2019
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Equity attributable to noncontrolling interests
Total liabilities and stockholders' equity and members' equity
December 31,
2019
(Successor)
December 31,
2018
(Predecessor)
$
$
$
$
$
$
$
24,617,996 $
14,068,477
563,084
4,632,965
43,882,522
1,610,652
13,283,121
247,589,240
61,219,143
24,241,505
389,660,519
555,449
738,159,629
782,042,151 $
9,586,001 $
14,571,266
15,965,683
5,500,000
6,336,487
51,959,437
197,942,705
10,000,000
60,839,739
768,335
16,864
269,567,643
321,527,080 $
13,285,357
5,979,247
—
817,212
20,081,816
1,247,149
9,976,701
62,528,880
5,170,748
523,133
119,529,202
—
198,975,813
219,057,629
2,909,378
—
12,837,826
4,900,000
—
20,647,204
85,815,204
3,500,000
—
—
16,864
89,332,068
109,979,272
$
109,078,357
3,753
—
307,914,346
313,397
(53,878,460 )
254,353,036
206,162,035
782,042,151 $
219,057,629
The accompanying notes are an integral part of these consolidated financial statements.
63
REPAY HOLDINGS CORPORATION
Consolidated Statements of Operations
From
July 11,
2019 to
December 31,
2019
(Successor)
From
January 1,
2019
to July 10,
2019
Year Ended
December 31,
2018
(Predecessor)
Year Ended
December 31,
2017
Revenue
Processing and service fees
Interchange and network fees
Total Revenue
Operating Expenses
Interchange and network fees
Other costs of services
Selling general and administrative
Depreciation and amortization
Change in fair value of contingent consideration
Total operating expenses
$ 57,560,470 $ 47,042,917 $ 82,186,411 $ 57,062,810
36,888,311
93,951,121
57,560,470 47,042,917 130,012,940
— 47,826,529
—
—
15,656,730
45,758,335
23,756,888
—
— 47,826,529
10,216,079 27,159,763
51,201,322 29,097,302
6,222,917 10,421,000
(1,103,012 )
85,171,953 67,640,318 113,401,582
—
36,888,311
20,713,025
14,604,261
7,456,438
(2,100,000)
77,562,035
Income (loss) from operations
(27,611,483) (20,597,401) 16,611,358
16,389,086
Other income (expense)
Interest expense
Change in fair value of tax receivable liability
Other income (expense)
Total other income (expenses)
Income (loss) before income tax expense
Income tax benefit
Net income (loss)
Less: Net income (loss) attributable to noncontrolling
interests
Net income (loss) attributable to the Company
(5,921,893)
(1,638,465)
(1,379,824)
(8,940,182)
(3,145,167)
—
38
(3,145,129)
(6,072,837 )
—
(1,078 )
(6,073,915 )
(5,706,232)
—
(1,234,610)
(6,940,842)
(36,551,665)
4,990,989
(23,742,530) 10,537,443
—
—
$ (31,560,676) $(23,742,530) $ 10,537,443 $
$ (15,271,043)
$ (16,289,633) $(23,742,530) $ 10,537,443 $
—
—
9,448,244
—
9,448,244
—
9,448,244
Earnings (loss) per Class A share:
Basic and diluted
Weighted-average shares outstanding:
Basic and diluted
$
(0.46)
35,731,220
The accompanying notes are an integral part of these consolidated financial statements.
64
REPAY HOLDINGS CORPORATION
Consolidated Statements of Comprehensive Income
Net income (loss)
Other comprehensive income, before tax
Change in fair value of designated cash flow hedges
Total other comprehensive income, before tax
Income tax related to items of other comprehensive
income:
Tax expense on change in fair value of designated cash
flow hedges
Total income tax expense on related to items of other
comprehensive income
Total other comprehensive income, net of tax
Total comprehensive income (loss)
Less: Comprehensive income (loss) attributable to
noncontrolling interests
Comprehensive income (loss) attributable to the
Company
From
January 1,
2019 to
July 10,
2019
From
July 11,
2019 to
December 31,
2019
(Successor)
$ (31,560,676) $(23,742,530) $ 10,537,443 $
Year ended
December 31,
2018
(Predecessor)
Year ended
December 31,
2017
555,449
555,449
(54,303)
(54,303)
501,146
—
—
—
—
—
—
—
—
—
—
$ (31,059,530) $(23,742,530) $ 10,537,443 $
9,448,244
—
—
—
—
—
9,448,244
(15,027,371)
—
—
—
$ (16,032,159) $(23,742,530) $ 10,537,443 $
9,448,244
The accompanying notes are an integral part of these consolidated financial statements.
65
REPAY HOLDINGS CORPORATION
Consolidated Statements of Changes in Equity
Balance at January 1, 2017
Net income
Contributions by members
Stock based compensation
Distributions to members
Balance at December 31, 2017
Net income
Contributions by members
Stock based compensation
Distributions to members
Balance at December 31, 2018
Net income
Contributions by members
Stock based compensation
Distributions to members
Balance at July 10, 2019
Class A Common
Stock
Class V Common
Stock
Balance at July 11, 2019
1,135,291
Release of Founder Shares 2,965,000
Release of share awards
vested under
2019 Plan
Treasury shares
repurchased
Stock-based compensation
Warrant exercise
Tax distribution from
Hawk Parent
Net loss
Accumulated other
comprehensive income
Balance at December 31,
2019
18
—
—
—
—
—
—
37,530,568 $ 3,753
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Amount Shares Amount
Shares
33,430,259 $ 3,343
297
100
$
— $290,408,807 $ (37,588,827) $
—
(297)
—
114
—
(114)
(4,507,544)
— 22,013,287
207
—
—
—
—
—
—
—
— (16,289,633)
—
—
— (16,289,633)
(185,957)
(15,271,043)
—
—
313,397
313,397
243,671
100
$
— $307,914,346 $ (53,878,460) $
313,397 $ 254,353,036 $ 206,162,035
Total Equity
(Predecessor)
99,460,583
9,448,244
—
622,411
(5,479,355)
104,051,883
10,537,443
—
796,967
(6,307,936)
109,078,357
(23,742,530)
—
908,978
(6,904,991)
79,339,814
$
$
$
$
Total
Stockholders' Noncontrolling
Equity
Interests
— $ 252,823,323 $ 221,375,364
—
—
—
—
—
(4,507,544)
— 22,013,287
207
—
—
(Successor)
The accompanying notes are an integral part of these consolidated financial statements.
66
REPAY HOLDINGS CORPORATION
Consolidated Statements of Cash Flows
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization
Stock based compensation
Amortization of debt issuance costs
Loss on unamortized deferred loan costs
Loss on disposal of property and equipment
Fair value change in tax receivable liability
Gain on change in contingent consideration
Provision for (reduction in) bad debt expense
Deferred tax expense
Change in accounts receivable
Change in related party receivable
Change in prepaid expenses and other
Change in accounts payable
Change in related party payable
Change in accrued expenses and other
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Purchases of software
Acquisition of Hawk Parent, net of cash and restricted cash acquired
Acquisition of TriSource, net of cash and restricted cash acquired
Acquisition of APS Payments, net of cash and restricted cash acquired
Net cash used in investing activities
Cash flows from financing activities
Change in line of credit
Issuance of long-term debt
Payments on long-term debt
Private placement issuance of Class A Common Stock
Repurchase of treasury stock
Issuance of warrants
Repurchase of outstanding warrants
Conversion of Thunder Bridge Class A ordinary shares to Class A
Common Stock
Distributions to Members
Payment of loan costs
Net cash provided (used) by financing activities
July 11,
2019 to
December 31,
2019
(Successor)
January 1,
2019 to
July 10,
2019
(Predecessor)
Period
Ended
December 31,
2018
(Predecessor)
Period
Ended
December 31,
2017
(Predecessor)
$
(31,560,676)
$
(23,742,530) $
10,537,443
$
9,448,244
23,756,888
22,013,287
570,671
—
—
1,638,465
—
—
(4,990,989)
779,008
(563,084)
(3,579,300)
2,656,630
14,571,266
(12,356,519)
12,935,647
(498,513)
(3,375,751)
(242,599,551)
(59,160,005)
(29,450,022)
(335,083,842)
6,500,000
210,000,000
(90,862,500)
135,000,000
(4,507,544)
207
(38,700,000)
148,870,571
(185,957)
(6,065,465)
360,049,312
6,222,917
908,978
215,658
—
—
—
—
—
—
(4,614,620)
—
(73,533)
1,297,035
—
28,136,310
8,350,215
(203,026 )
(3,842,744)
—
—
—
(4,045,770)
—
—
(2,450,000)
—
—
—
—
—
(6,904,991)
—
(9,354,991)
10,421,000
796,967
407,403
—
16,827
—
(1,103,012 )
—
—
(1,534,285 )
—
(394,127 )
1,502,090
—
3,526,470
24,176,776
(913,498 )
(4,884,457 )
—
—
—
(5,797,955 )
3,000,000
—
(4,900,000 )
—
—
—
—
—
(6,307,935 )
—
(8,207,935 )
7,456,438
622,411
239,190
753,958
7,970
—
—
(2,900)
—
(1,049,161)
—
(95,410)
90,322
—
3,672,100
21,143,162
(448,601)
(2,988,875)
—
—
—
(3,437,476)
500,000
58,873,301
(50,850,000)
(10,000,000)
—
—
—
—
(5,479,355)
(2,037,014)
(8,993,068)
Increase (decrease) 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
37,901,117
— $
37,901,117 $
(5,050,546)
23,262,058 $
18,211,512 $
10,170,886
13,091,172
23,262,058
$
$
8,712,618
4,378,554
13,091,172
$
$
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest
$
5,351,222
$
2,929,509 $
5,665,434
$
5,467,042
67
REPAY HOLDINGS CORPORATION
Consolidated Statements of Cash Flows
July 11,
2019 to
December 31,
2019
(Successor)
January 1,
2019 to
July 10,
2019
(Predecessor)
Period
Ended
December 31,
2018
(Predecessor)
Period
Ended
December 31,
2017
(Predecessor)
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of Hawk Parent in exchange for Class A Common Stock
$220,056,226
Acquisition of Hawk Parent in exchange for amounts payable under Tax
Receivable Agreement
$65,537,761
Acquisition of Hawk Parent in exchange for contingent consideration
$12,300,000
Acquisition of TriSource in exchange for contingent consideration
$2,250,000
Acquisition of APS Payments in exchange for contingent consideration
$12,000,000
Acquisition of Wildcat Acquisition, LLC in exchange for contingent
consideration
Acquisition of Marlin Acquirer, LLC in exchange for contingent
consideration
$4,829,000
$34,297,699
The accompanying notes are an integral part of these consolidated financial statements.
68
REPAY HOLDINGS CORPORATION
Notes to 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 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.
We are headquartered in Atlanta, Georgia. Our 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 (the “2016 Recapitalization”) by certain investment funds
sponsored by, or affiliated with, Corsair Capital LLC (“Corsair”).
Business Overview
We provide integrated payment processing solutions to industry-oriented markets in which businesses 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 business. We charge our
customers processing fees based on the volume of payment transactions processed and other transaction or service fees. We
intend to continue to strategically target verticals where we believe our ability to tailor payment solutions to our customers’
needs, our deep knowledge of our vertical markets and the embedded nature of our integrated payment solutions will drive
strong growth by attracting new customers and fostering long-term customer relationships.
We provide payment processing solutions to customers primarily operating in the personal loans, automotive loans,
receivables management, and business-to-business verticals. Our payment processing solutions enable consumers and
businesses in these verticals to make payments using electronic payment methods, rather than cash or check, which have
historically been the primary methods of payment in these verticals. We believe that a growing number of consumers and
businesses prefer the convenience and efficiency of paying with cards and other electronic methods and that we are poised to
benefit from the significant growth opportunity of electronic payment processing as these verticals continue to shift from
cash and check to electronic payments. The personal loans vertical is predominately characterized by installment loans,
which are typically utilized by consumers to finance everyday expenses. The automotive loans vertical predominantly
includes subprime automotive loans, automotive title loans and automotive buy-here-pay-here loans and also includes near-
prime and prime automotive loans. Our receivables management vertical relates to consumer loan collections, which typically
enter the receivables management process due to delinquency on credit card bills or as a result of major life events, such as
job loss or major medical issues. The business-to-business vertical relates to transactions occurring between a wide variety of
enterprise customers, many of which operate in the manufacturing, wholesale, and distribution industries.
Our go-to-market strategy combines direct sales with integrations with key software providers in our target verticals.
The integration of our technology with key software providers in the verticals that we serve, including loan management
systems, dealer management systems, collection management systems, and enterprise resource planning software systems,
allows us to embed our omni-channel payment processing technology into our customers’ critical workflow software and
ensure seamless operation of our solutions within our customers’ enterprise management systems. We refer to these software
providers as our “software integration partners.” This integration allows our sales force to readily access new customer
opportunities or respond to inbound leads because, in many cases, a business will prefer, or in some cases only consider, a
payments provider that has already integrated or is able to integrate its solutions with the business’ primary enterprise
management system. We have successfully integrated our technology solutions with numerous, widely-used enterprise
management systems in the verticals that we serve, which makes our platform a more compelling choice for the businesses
that use them. Moreover, our relationships with our partners help us to develop deep industry knowledge regarding trends in
customer needs. Our integrated model fosters long-term relationships with our customers, which supports our volume
retention rates that we believe are above industry averages. As of December 31, 2019, we maintained approximately 70
integrations with various software providers.
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2. Basis of Presentation and Summary of Significant Accounting Policies
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, Marlin Acquirer, LLC, REPAY International LLC, REPAY Canada
ULC, TriSource Solutions, LLC and Mesa Acquirer, 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 generally
accepted accounting principles in the United States of America (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.
Segment Reporting
Operating segments are defined as components of an enterprise about which discrete financial information is available
that is evaluated regularly by the chief operating decision maker, or decision-making group, in making decisions on how to
allocate resources and assess performance for the organization. The Company’s chief decision maker is the Chief Executive
Officer. The Company’s chief decision maker reviews consolidated operating results to make decisions about allocating
resources and assessing performance for the entire Company. Accordingly, the Company has determined that it has one
operating segment; Merchant services.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposit accounts, and short-term investments with original
maturities of three months or less. The Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.
Restricted Cash
Restricted cash consists of funds required to serve as security for services rendered by a service provider under a
service provider agreement.
Accounts Receivable
Accounts receivable represent amounts due from customers and payment processors for services rendered less
estimated allowances for doubtful accounts. The Company maintains a policy for reserving for uncollectible accounts. On a
continuing basis, management analyzes delinquent receivables and, once these receivables are determined to be uncollectible,
they are written off through a charge against an existing allowance account or against operations. Based on management’s
assessment, no allowance for doubtful accounts has been recorded as of December 31, 2019 or 2018.
Concentration of Credit Risk
The Company is highly diversified, and no single merchant represents greater than 10% of the business on a volume or
profit basis.
Earnings per Share
Basic earnings per share of Class A common stock is computed by dividing net income attributable to the Company
by the weighted average number of shares of Class A common stock outstanding during the period. Diluted earnings per
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share of Class A common stock is computed by dividing net income attributable to the Company, adjusted for the assumed
exchange of all Post-Merger Repay Units, by the weighted average number of shares of Class A common stock outstanding
adjusted to give effect to potentially dilutive elements.
The Predecessor’s LLC membership structure included several different types of LLC interests including ownership
interests and profits interests. The Company analyzed the calculation of earnings per unit by using the two-class method and
determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements.
Therefore, the Predecessor’s earnings per share information has not been presented for any period.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation and includes expenditures which
substantially increase the useful lives of existing property and equipment. Maintenance, repairs, and minor renovations are
charged to operations as incurred. When property and equipment is retired or otherwise disposed of, the related costs and
accumulated depreciation are removed from their respective accounts, and any gain or loss on the disposition is credited or
charged to operations.
The Company provides for depreciation of property and equipment using the straight-line method designed to
amortize costs over estimated useful lives as follows:
Furniture, fixtures, and office equipment
Computers
Leasehold improvements
Intangible Assets
Estimated
Useful Life
5 years
3 years
5 years
Intangible assets consist of internal use software development costs, purchased software, channel relationships,
customer relationships, certain key personnel non-compete agreements, and trade names. The Company is amortizing
software development costs and purchased software on the straight-line method over a three-year estimated useful life, a
ten-year estimated useful life for channel and customer relationships, and an estimated useful life for non-compete
agreements equal to the term of the agreement. Trade names are determined to have an indefinite useful life. The Company
evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible
asset’s carrying amount may not be recoverable. The evaluation of asset impairment requires the Company to make
assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant
judgment, and actual results may differ from assumed and estimated amounts. No indicators of impairment were identified in
the periods ending December 31, 2019 and 2018.
Goodwill
Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities assumed
arising from business combinations. Goodwill is generally allocated to reporting units based upon relative fair value (taking
into consideration other factors such as synergies) when an acquired business is integrated into multiple reporting units. The
Company’s reporting units are at the operating segment level or one level below the operating segment level for which
discrete financial information is prepared and regularly reviewed by management. When a business within a reporting unit is
disposed of, goodwill is allocated to the disposed business using the relative fair value method. Relative fair value is
estimated using a discounted cash flow analysis.
The Company determined that no impairment of goodwill existed as of the last testing date, December 31, 2019.
Future impairment reviews may require write-downs in the Company’s goodwill and could have a material adverse impact on
the Company’s operating results for the periods in which such write-downs occur.
Revenue
Repay provides integrated payment processing solutions to niche markets that have specific transaction processing
needs; for example, personal loans, automotive loans, and receivables management. The Company contracts with its
customers through contractual agreements that set forth the general terms and conditions of the service relationship, including
rights of obligations of each party, line item pricing, payment terms and contract duration. Most of our revenues are derived
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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. As our customers process increased volumes of payments, our revenues increase as
a result of the fees we charge for processing these payments.
The Company’s performance obligations in its contracts with customers is the promise to stand-ready to provide
front-end authorization and back-end settlement 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 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.
Revenues are also derived from transaction or service fees (e.g. chargebacks, gateway) as well as other
miscellaneous service fees. These services are considered immaterial in the overall context of our contractual arrangements
and, as such, do not represent distinct performance obligations. Instead, the fees associated with these services are bundled
with the processing services performance obligation identified.
The transaction price for such processing services are determined, based on the judgment of the Company’s
management, considering factors such as margin objectives, pricing practices and controls, customer segment pricing
strategies, the product life cycle and the observable price of the service charged to similarly situated customers.
The Company follows the requirements of Topic 606-10-55-36 through -40, Revenue from Contracts with
Customers, Principal Agent Considerations, in determining the gross versus net revenue recognition for performance
obligation(s) in the contract with a customer. 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.
The principal versus agent evaluation is matter of judgment that depends on the facts and circumstances of the
arrangement and is dependent on whether the Company controls the good or service before it is transferred to the customer or
whether the Company is acting as an agent of a third party. This evaluation is performed separately for each performance
obligation identified.
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, based the fact that the Company has no discretion over which card-issuing bank or payment network will be used to
process a transaction and is unable to direct the activity of the merchant to another card-issuing bank or payment network. As
such, the Company views the card-issuing bank and the payment network as the principal for these performance obligations,
as these parties are primarily responsible for fulfilling these promises to the merchant. 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 and year ended December 31, 2019, in connection with the
adoption of ASC 606.
Indirect relationships
As a result of its past acquisitions, the Company has legacy relationships with 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 it does not believe this relationship
will represent an increasingly smaller portion of the business over time.
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Transaction Costs
The Company expenses all transactions costs as incurred and are included in selling, general, and administrative
expenses in the condensed consolidated statements of operations. For the period from July 11, 2019 to December 31, 2019
the Successor incurred $4.5 million of transaction costs for closed and pending transactions. The Predecessor incurred
transaction costs of $34.9 million for the period from January 1, 2019 to July 10, 2019. For the years ended December 31,
2018 and 2017, the Predecessor incurred transaction costs of $4.0 million and $0.8 million of transaction costs, respectively.
Equity Units Awarded
The Repay Holdings Corporation 2019 Omnibus Incentive Plan (the “2019 Plan”) provides for the grant of various
equity-based incentive awards to employees, directors, consultants and advisors to the Company. The types of equity-based
awards that may be granted under the 2019 Plan include: stock options, stock appreciation rights (“SARs”), restricted stock
awards (“RSAs”), restricted stock units (“RSUs”), and other stock-based awards. As of December 31, 2019, there
were 7,326,728 shares of Class A common stock reserved for issuance under the 2019 Plan.
The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718,
Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees, to be recognized in the statement of
operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the
grant date, based on the fair value of the award, and are recognized as expense over the employee’s requisite or derived
service period.
The Predecessor accounted for profit units awarded to management based on the fair value of the awards on the date
of the grant and recognized compensation expense for those awards over the requisite service period. The profits units were
fully vested as of the Closing.
The fair value of the RSAs and RSUs granted under the 2019 Plan and the profit interests granted under the profit
unit plan of the Predecessor is estimated on the grant date using the Black-Scholes option valuation model. The
Black-Scholes option valuation model incorporates assumptions as to dividend yield, expected volatility, an appropriate
risk-free interest rate, and the expected life of the option. Forfeitures are accounted for as they occur.
Debt Issuance Costs
The Company accounts for debt issuance costs according to the Financial Accounting Standards Board Accounting
Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs, to present debt issuance costs as a reduction
of the carrying amount of the debt.
Fair Value of Financial Instruments
The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements and
Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures
about fair value measurements. Fair value is the price that would be received to sell an asset or the price paid to transfer a
liability as of the measurement date. A three-tier, fair-value reporting hierarchy exists for disclosure of fair value
measurements based on the observability of the inputs to the valuation of financial assets and liabilities. The three levels are:
• Level 1 — Quoted prices for identical instruments in active markets.
• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets.
• Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable in active exchange markets.
The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash and
processing assets and liabilities approximated their fair values as of December 31, 2019 and 2018, because of the relatively
short maturity dates on these instruments. The carrying amount of debt approximates fair value as of December 31, 2019 and
2018, because interest rates on these instruments approximate market interest rates.
Taxation
Income taxes are provided for in accordance with ASC 740. Deferred tax assets and liabilities are recognized for the
expected future tax consequences attributable to net operating losses, tax credits, and temporary differences between the
73
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period of the enactment date. Valuation allowances are established when it is more likely than
not that some or all of the deferred tax assets will not be realized.
The Company reports a liability or a reduction of deferred tax assets for unrecognized tax benefits resulting from
uncertain tax positions taken or expected to be taken in a tax return. When applicable, the Company recognizes accrued
interest and penalties related to unrecognized tax benefits as income tax expense.
Noncontrolling interest
As of July 11, 2019, the Company held a 55.9% interest in Hawk Parent. The noncontrolling interest, for the period
from July 11, 2019 to December 31, 2019, in the net loss of subsidiaries was $15.3 million.
Contingent Consideration
The Company estimates and records the acquisition date estimated fair value of contingent consideration as part of
purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates changes in the fair
value of contingent consideration, and any change in fair value is recognized in the consolidated income statements. An
increase in the contingent consideration expected to be paid will result in a charge to operations in the period that the
anticipated fair value of contingent consideration increases, while a decrease in the earn-out expected to be paid will result in
a credit to operations in the period that the anticipated fair value of contingent consideration decreases. The estimate of the
fair value of contingent consideration requires subjective assumptions to be made of future operating results, discount rates,
and probabilities assigned to various potential operating result scenarios.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as
amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), 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
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers (“Topic 606” or “ASC 606”), a comprehensive new revenue recognition
standard that superseded nearly all legacy revenue recognition guidance under U.S. GAAP. The standard’s core principle is
that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance
may be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initial
application recognized at the date of initial application (“modified retrospective method”) for fiscal years beginning after
December 15, 2017. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one
year for private or emerging growth companies, making it effective for the Company in annual reporting periods beginning
after December 15, 2018, and interim periods beginning after December 15, 2019.
The Company adopted Topic 606 on January 1, 2019, using the modified retrospective method and applying the
standard to all contracts not completed on the date of adoption. Results for the reporting period beginning January 1, 2019 are
presented under ASC 606, while prior period amounts continue to be reported in accordance with the Company's historic
accounting practices under previous guidance.
The primary impact to the Company’s consolidated financial statements as a result of the adoption of ASC 606 is a
change in total revenue attributable to the presentation of interchange, network and other fees on a net basis, driven by
changes in principal and agent considerations, as compared to previously being presented on a gross basis. Under the
74
modified retrospective method, the Company has not restated its comparative consolidated financial statements for these
effects.
Refer to Note 3, Revenue, for more detail on the impact of the Company’s adoption of ASC 606.
Business Combinations
In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business (“ASU 2017-01”). The amendments in this update clarify the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets
or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and
consolidation. The standard is effective for annual periods beginning after December 15, 2017, including interim periods
within those fiscal years. The Company has adopted with the update, effective January 1, 2018. There was no material impact
on the consolidated financial statements.
Intangibles – Goodwill and Other
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment. The ASU simplifies the measurement of goodwill impairment by eliminating the requirement
that an entity compute the implied fair value of goodwill based on the fair values of its assets and liabilities to measure
impairment. Instead, goodwill impairment will be measured as the difference between the fair value of the reporting unit and
the carrying value of the reporting unit. The ASU also clarifies the treatment of the income tax effect of tax-
deductible goodwill when measuring goodwill impairment loss. ASU 2017-04 will be effective for the Company beginning
on November 1, 2022. The amendment must be applied prospectively with early adoption permitted. The Company elected to
early adopt the amendment for the year ended December 31, 2017, which did not have a material impact on the consolidated
financial statements.
Statement of Cash Flows
We adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on January 1, 2019, using the
retrospective method. The most notable change relates to the treatment of balances we consider to be "restricted cash." The
amendments in this update required that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
Fair Value Measurement
In August 2018, the FASB issued 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. Early adoption is permitted, and an entity also is permitted to early adopt any removed or modified disclosures on
issuance of ASU 2018-13, and delay adoption of the additional disclosures until 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
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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
75
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,
including potential early adoption.
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
The tables below show the effects of the adoption of Topic 606 on the Company’s consolidated statements of
operations for the three month period and year ended December 31, 2019:
76
July 11, 2019 to December 31, 2019
(Successor)
January 1, 2019 to July 10, 2019
(Predecessor)
As Reported
under ASC
606
Impact of
ASC 606
Excluding
Impact of
Adoption
As Reported
under ASC
606
Impact of
ASC 606
Excluding
Impact of
Adoption
2019
Combined
Including
Impact of
Adoption
2019
Combined
Excluding
Impact of
Adoption
$57,560
-
57,560
-
15,657
45,758
23,757
-
85,172
$(27,611)
$(1,254)
(27,593)
(28,847)
(27,593)
(1,254)
-
-
-
(28,847)
$-
$58,815
27,593
86,407
27,593
16,911
45,758
23,757
$47,043
-
47,043
-
10,216
51,201
6,223
-
114,019
$(27,611)
-
67,640
$(20,597)
$(2,358)
(29,989)
(32,347)
(29,989)
(2,358)
-
-
-
(32,347)
$-
$49,401
29,989
79,390
$104,603
-
104,603
$108,216
57,582
165,797
29,989
12,574
51,201
6,223
-
25,873
96,960
29,980
57,582
29,485
96,960
29,980
-
99,987
$(20,597)
-
152,812
$(48,209)
-
214,006
$(48,209)
(in thousands)
Revenue
Processing and service fees
Interchange and network fees
Total Revenue
Operating Expense
Interchange and network fees
Other Cost of Services
Selling general and administrative
Depreciation and amortization
Change in fair value of contingent
consideration
Total Operating Expenses
Income (Loss) from Operations
Disaggregation of revenue
The table below presents a disaggregation of revenue by direct and indirect relationships.
Revenue
Direct relationships
Indirect relationships
Total Revenue
Contract Costs
From
July 11,
2019 to
December 31,
2019
(Successor)
From
January 1,
2019
to July 10,
2019
(Predecessor)
$56,370,029
1,190,440
$57,560,470
$45,693,961
1,348,956
$47,042,917
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 amortization period is consistent with the concept
of useful life under other accounting guidance, which is defined as the period over which an asset is expected to contribute
directly or indirectly to future cash flows.
The Company currently incurs costs to obtain a contract through payments made to external referral
partners. Commission payments are made to the external referral partner on a monthly basis based on a percentage of the
profit on the contract, for as long as the customer and the external referral partner have agreements with the Company. 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.
Costs to fulfill contracts with customers either give rise to an asset or are expensed as incurred. If the cost is not
already covered by other applicable accounting literature, fulfilment costs are capitalized to the extent they directly relate to a
specific contract, are used to generate or enhance resources used in satisfying performance obligations and are expected to be
recovered. The Company does not have any costs incurred to fulfill a contract.
77
Practical Expedients
The Company has utilized the portfolio approach practical expedient per Topic 606-10-10-4, which allows the
application of Topic 606 to a portfolio of contracts with similar characteristics provided the accounting does not differ
materially to application of Topic 606 to the individual contract.
The Company has also utilized the practical expedient for immaterial goods and services per Topic 606-10-25-16A,
which permits the Company not to recognize a promised good or service as a performance obligation if it is considered an
immaterial promise in the context of the contract.
4. Earnings per share
During the Successor period from July 11, 2019 to December 31, 2019, basic and diluted net loss per common share
are the same since the inclusion of the assumed exchange of all Post-Merger Repay Units, unvested restricted share awards
and all warrants would have been anti-dilutive.
The following table summarizes net loss attributable to the Company and the weighted average basic and basic and
diluted shares outstanding during the Successor period from July 11, 2019 to December 31, 2019:
Loss before income tax expense
Less: Net loss attributable to noncontrolling interests
Income tax benefit
Net loss attributable to the Company
July 11,
2019 to
December 31,
2019
(36,551,665)
(15,271,043)
4,990,989
(16,289,633)
$
$
Weighted average shares of Class A common stock outstanding - basic and diluted
35,731,220
Loss per share of Class A common stock outstanding - basic and diluted
$
(0.46)
For the Successor period, 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
Earn-out Post-Merger Repay Units exchangeable for Class A common stock
Dilutive warrants exercisable for Class A common stock
Unvested restricted share awards of Class A common stock
Share equivalents excluded from earnings (loss) per share
21,985,297
7,500,000
1,816,890
1,731,560
33,033,747
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
Hawk Parent Holdings LLC
Thunder Bridge and Hawk Parent entered into the Merger Agreement effective as of January 21, 2019 and
announced consummation of the transactions contemplated by the Merger Agreement on July 11, 2019. Pursuant to the terms
and subject to the conditions set forth in the Merger Agreement, at the Closing, (a) Thunder Bridge effected the
domestication to become a Delaware corporation and (b) a wholly-owned subsidiary of Thunder Bridge merged with and into
Hawk Parent, with Hawk Parent continuing as the surviving entity and becoming a subsidiary of the Company (with Thunder
Bridge receiving membership interests in Hawk Parent as the surviving entity and becoming the managing member of the
surviving entity). At the effective time of the Business Combination, Thunder Bridge changed its corporate name to “Repay
Holdings Corporation” and all outstanding securities of Hawk Parent converted into the right to receive the consideration
specified in the Merger Agreement.
78
Each member of Hawk Parent received in exchange for their limited liability interests (i) one share of Class V
common stock of the Company and (ii) a pro rata share of (A) non-voting limited liability units of Hawk Parent as the
surviving entity, referred to as Post-Merger Repay Units, (B) certain cash consideration, and (C) the contingent right to
receive certain additional Post-Merger Repay Units issued as an earn-out under the Merger Agreement after the Closing
(“Earn-Out Units”). Shares of Class A common stock of the Company will provide the holder with voting and economic
rights with respect to the Company as a holder of common stock. Each share of Class V common stock of the Company
entitles the holder to vote as a stockholder of the Company, with the number of votes equal to the number of Post-Merger
Repay Units held by the holder but provides no economic rights to the holder. At any time after the six month anniversary of
the Closing, pursuant to the terms of the Exchange Agreement, each holder of a Post-Merger Repay Unit will be entitled to
exchange such unit for one share of Class A common stock of the Company.
The amount of cash consideration paid to selling Hawk Parent members at the Closing was equal to the following:
(i) the total cash and cash equivalents of Thunder Bridge (including funds in its trust account after the redemption of its
public stockholders and the proceeds of any debt or equity financing), minus (ii) the amount of Thunder Bridge’s unpaid
expenses and obligations, plus (iii) the cash and cash equivalents of Hawk Parent as of immediately prior to the effective time
of the Business Combination (excluding restricted cash), minus (iv) the amount of unpaid transaction expenses of Hawk
Parent as of the Closing, minus (v) the amount of the indebtedness and other debt-like items of Hawk Parent and its
subsidiaries as of the Closing, minus (vi) the amount of change of control and similar payments payable to employees of
Hawk Parent in connection with the Business Combination, minus (vii) an amount of cash reserves equal to
$10,000,000, minus (viii) a cash escrow of $150,000, minus (ix) an amount equal to $2,000,000 to be held by a representative
of
the Warrant
Amendment, minus (xi) an amount required to be deposited on the balance sheet of Hawk Parent in connection with the
Business Combination.
the selling Hawk Parent members, minus (x)
the cash payment required
in connection with
Pursuant to a Tax Receivable Agreement (“TRA”) between the Company and the selling Hawk Parent members, the
Company will pay to exchanging holders of Post-Merger Repay Units 100% of the tax savings that the Company realizes as a
result of increases in tax basis in the Company’s assets as a result of the exchange of the Post-Merger Repay Units for shares
of Class A common stock pursuant to the Exchange Agreement between the Company and the Class A unit holders of Hawk
Parent Holdings LLC, excluding the Company, dated as of July 11, 2019, and certain other tax attributes of Repay and tax
benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA.
Hawk Parent constitutes a business, with inputs, processes, and outputs. Accordingly, the Business Combination
constitutes the acquisition of a business for purposes of ASC 805 and, due to the changes in control from the Business
Combination, is accounted for using the acquisition method. Under the acquisition method, the acquisition date fair value of
the gross consideration paid by Thunder Bridge to close the Business Combination was allocated to the assets acquired and
the liabilities assumed based on their estimated fair values.
The following summarizes the preliminary purchase consideration paid to the selling members of Hawk Parent:
Cash Consideration
Unit Consideration (1)
Contingent consideration (2)
Tax receivable agreement liability (3)
Net working capital adjustment
Total purchase price
$
$
260,811,062
220,452,964
12,300,000
65,537,761
(396,737)
558,705,050
(1) The Company issued 22,045,297 shares of Post-Merger Repay Units valued at $10.00 per share as of July 11, 2019.
(2) Reflects the fair value of Earn-Out Units, the contingent consideration paid to the selling members of Hawk Parent,
pursuant to the Merger Agreement. The Company reflected this as noncontrolling interests on its balance sheet. The
Repay Unitholders received 7,500,000 Earn-Out Units based on the stock price of the Company.
(3) Represents liability with an estimated fair value of $65.5 million as a result of the TRA. If all the Post-Merger Repay
Units are ultimately exchanged, the liability will significantly increase based on a variety of factors present at the time of
exchange including, but not limited to, the market price at the time of the exchange. If the Company were to elect to
terminate the Tax Receivable Agreement early, the Company would be required to make an immediate cash payment
equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement,
which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits.
79
The Company recorded an allocation of the purchase price to Hawk Parent’s tangible and identifiable intangible
assets acquired and liabilities assumed based on their fair values as of the July 11, 2019 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
Identifiable intangible assets
Total identifiable assets acquired
Accounts payable
Accrued expenses
Accrued employee payments
Other liabilities
Repay debt assumed
Net identifiable assets acquired
Goodwill
Total purchase price
$
$
11,281,078
10,593,867
890,745
22,765,690
1,167,872
6,930,434
301,000,000
331,863,996
(4,206,413)
(8,831,363)
(6,501,123)
(16,864)
(93,514,583)
218,793,650
339,911,400
558,705,050
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
Identifiable intangible assets
Non-compete agreements
Trade names
Developed technology
Merchant relationships
Channel relationships
Fair Value
(in millions)
Useful life
(in years)
$
$
3.0
20.0
65.0
210.0
3.0
301.0
2
Indefinite
3
10
10
Goodwill, $339.9 million, represents the excess of the gross consideration transferred over the fair value of the
underlying net tangible and identifiable intangible assets acquired. Qualitative factors that contribute to the recognition of
goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from
goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market position and the
assembled workforce of Hawk Parent.
The Successor incurred $1.6 million of transaction expenses related to the Business Combination, from July 11,
2019 to December 31, 2019. The Predecessor incurred $34.7 million of transaction expenses from January 1 to July 10,
2019. Thunder Bridge incurred $16.2 million of transaction expenses, not reported in the Predecessor consolidated statement
of operations, directly related to the Business Combination for the period from January 1, 2019 to July 10, 2019.
TriSource Solutions, LLC
On August 13, 2019, the Company acquired all of the ownership interests of TriSource Solutions, LLC. Under the
terms of the Securities Purchase Agreement, between Repay Holdings, LLC and the direct and indirect owners of TriSource
Solutions, LLC, as of August 13, 2019, the aggregate consideration paid at closing by Repay was approximately $60.2
million in cash. In addition to the closing consideration, the TriSource Purchase Agreement contains a performance based
earnout based on future results of the acquired business, which could result in an additional payment to the former owners of
TriSource of up to $5.0 million. The TriSource Acquisition was financed with a combination of cash on hand and committed
borrowing capacity under the Company’s existing credit facility. The TriSource Purchase Agreement contains customary
representations, warranties and covenants by the Company and the former owners of TriSource, as well as a customary post-
closing adjustment provision relating to working capital and similar items.
80
The following summarizes the preliminary purchase consideration paid to the selling members of TriSource:
Cash Consideration
Contingent consideration (1)
Total purchase price
$
$
60,235,090
2,250,000
62,485,090
(1) Reflects the fair value of Earn-Out Payment, the contingent consideration to be paid to the selling members of TriSource,
pursuant to the TriSource Purchase Agreement. The selling members of TriSource will have the contingent earnout right
to receive a payment of up to $5.0 million dependent upon the Gross Profit, as defined in the TriSource Purchase
Agreement, for the period commencing on July 1, 2019 and ending on June 30, 2020.
The Company recorded a preliminary allocation of the purchase price to TriSource’s tangible and identifiable
intangible assets acquired and liabilities assumed based on their fair values as of the August 13, 2019 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
Identifiable intangible assets
Total identifiable assets acquired
Accounts payable
Accrued expenses
Net identifiable assets acquired
Goodwill
Total purchase price
$
$
383,236
2,290,441
95,763
2,769,440
215,739
509,019
30,500,000
33,994,198
(1,621,252)
(756,117)
31,616,829
30,868,261
62,485,090
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
Identifiable intangible assets
Non-compete agreements
Trade names
Developed technology
Merchant relationships
Fair Value
(in millions)
Useful life
(in years)
$
$
0.4
0.7
3.9
25.5
30.5
2
Indefinite
3
10
Goodwill, $30.9 million, represents the excess of the gross consideration transferred over the fair value of the
underlying net tangible and identifiable intangible assets acquired. Qualitative factors that contribute to the recognition of
goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from
goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market position and the
assembled workforce of TriSource.
The Company incurred transaction expenses of $1.3 million from July 11, 2019 to December 31, 2019, related to the
TriSource Acquisition. Since the date of the acquisition, TriSource has contributed $9.2 million to revenue and $1.1 million
in net income to the Company’s consolidated statement of operations.
81
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, 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
Contingent consideration (1)
Total purchase price
$
$
30,000,000
12,000,000
42,000,000
(1) Reflects the fair value of Earn-Out Payment, the contingent consideration to be paid to the selling members of APS
Payments, pursuant to the APS Payments Purchase Agreement. The selling members of APS Payments will have the
contingent earnout right to receive a payment of up to $30.0 million dependent on the achievement of certain growth
targets, as defined in the APS Payments Purchase Agreement, for the period commencing on October 12, 2019 and
ending on December 31, 2020.
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
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Restricted cash
Identifiable intangible assets
Total identifiable assets acquired
Accounts payable
Accrued expenses
Net identifiable assets acquired
Goodwill
Total purchase price
$
$
—
1,963,177
67,158
2,030,335
159,553
549,978
21,500,000
24,239,865
(1,101,706)
(19,018)
23,119,142
18,880,858
42,000,000
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
Identifiable intangible assets
Non-compete agreements
Trade names
Merchant relationships
Fair Value
(in millions)
Useful life
(in years)
$
$
0.5
0.5
20.5
21.5
2
Indefinite
10
Goodwill, $18.9 million, represents the excess of the gross consideration transferred over the fair value of the
underlying net tangible and identifiable intangible assets acquired. Qualitative factors that contribute to the recognition of
goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from
goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market position and the
assembled workforce of APS Payments.
The Company incurred transaction expenses of $1.0 million from July 11, 2019 to December 31, 2019, related to the
APS Payments Acquisition. Since the date of the acquisition, APS Payments has contributed $3.2 million to revenue and
$0.8 million in net income to the Company’s consolidated statement of operations.
82
Pro Forma Financial Information (Unaudited)
The supplemental condensed consolidated results of the Company on an unaudited pro forma basis give effect to the
Hawk Parent Business Combination, TriSource Acquisition and APS Payments Acquisition as if the transactions had
occurred on January 1, 2017. The unaudited pro forma information reflects adjustments for the issuance of the Company’s
common stock, debt incurred in connection with the transactions, 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.
Revenue
Net loss
Net loss attributable to noncontrolling interests
Net loss attributable to the Company
Pro Forma
Year Ended
December 31,
2019
$ 131,262,214
(45,496,385)
(19,999,699)
(25,496,686)
Pro Forma
Year Ended
December 31,
2018
Pro Forma
Year Ended
December 31,
2017
$ 164,161,841 $ 124,938,611
(83,166,080)
(36,558,873)
(46,607,207)
(32,428,157 )
(14,255,053 )
(18,173,104 )
Loss per Class A share - basic and diluted
$
(0.70) $
(0.54 ) $
(1.39)
6. Fair Value of Assets and Liabilities
The following table summarizes, by level within the fair value hierarchy, the carrying amounts and estimated fair
values of our 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. Refer to Note 5, Note 9 and Note 10 for
additional information on these assets and liabilities.
Assets:
Cash and cash equivalents
Interest rate swap
Total assets
Liabilities:
Contingent consideration
Term loan
Total liabilities
Assets:
Cash and cash equivalents
Total assets
Liabilities:
Contingent consideration
Term loan
Total liabilities
Cash and cash equivalents
Level 1
December 31, 2019 (Successor)
Level 3
Level 2
$24,617,996
—
$24,617,996
$ — $ —
—
$ —
555,449
$555,449
$ — $ —
213,442,705
$213,442,705
$ —
—
$14,250,000
—
$14,250,000
Level 1
December 31, 2018 (Predecessor)
Level 2
Level 3
$13,285,357
$13,285,357
$ — $ —
$ —
$ —
$ — $ —
94,215,204
$94,215,204
$ —
—
$1,816,988
—
$1,816,988
Total
24,617,996
555,449
$25,173,445
14,250,000
213,442,705
$227,692,705
Total
13,285,357
$13,285,357
1,816,988
94,215,204
$96,032,192
Cash and cash equivalents are classified within Level 1 of the fair value hierarchy, as the primary component of the
price is obtained from quoted market prices in an active market. The carrying amounts of the Company’s cash and cash
equivalents approximate their fair values due to the short maturities and highly liquid nature of these accounts.
Interest rate swap
In October 2019, the Company entered into a $140.0 million notional, fifty-seven month interest rate swap
agreement to hedge changes in its cash flows attributable to interest rate risk on $140.0 million of our variable-rate term loan
to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense. This swap involves the
receipt of variable-rate amounts in exchange for fixed interest rate payments over the life of the agreement without an
83
exchange of the underlying notional amount and was designated for accounting purposes as a cash flow hedge. The interest
rate swap is carried at fair value on a recurring basis in the Consolidated Balance Sheets and is classified within Level 2 of
the fair value hierarchy, as the inputs to the derivative pricing model are generally observable and do not contain a high level
of subjectivity. The fair value was determined based on the present value of the estimated future net cash flows using implied
rates in the applicable yield curve as of the valuation date.
Contingent Consideration
Contingent consideration relates to potential payments that the Company may be required to make associated with
acquisitions. To the extent that the valuation of these liabilities are based on inputs that are less observable or not observable
in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in
determining fair value is greatest for measures categorized in Level 3.
Term loan
The carrying value of our term loan is net of unamortized debt discount and debt issuance costs. The fair value of
our term loan was determined using a discounted cash flow model based on observable market factors, such as changes in
credit spreads for comparable benchmark companies and credit factors specific to us. The fair value of our term loan is
classified within Level 2 of the fair value hierarchy, as the inputs to the discounted cash flow model are generally observable
and do not contain a high level of subjectivity.
7. Property and equipment
Property and equipment consisted of the following:
December 31, December 31,
Furniture, fixtures, and office equipment
Computers
Leasehold improvements
Total
Less: Accumulated depreciation and amortization
$
$
2019
(Successor)
2018
(Predecessor)
893,287
600,139
310,520
1,803,946
556,797
1,247,149
944,105 $
859,426
223,145
2,026,676
416,024
1,610,652 $
Depreciation expense for property and equipment was $0.4 million for the Successor period from July 10, 2019 to
December 31, 2019. For the Predecessor period from January 1, 2019 to July 10, 2019 depreciation expense was $0.2
million. Under the Predecessor, depreciation expense for property and equipment was $0.4 million and $0.2 million for the
years ended December 31, 2018 and 2017, respectively.
8. Intangible assets
The Company holds definite and indefinite-lived intangible assets. The indefinite-lived intangible assets consist of
trade names, of $21.2 million, as of December 31, 2019. This balance consists of three trade names, arising from the
acquisitions of Hawk Parent, TriSource and APS Payments in the Successor period from July 11, 2019 to December 31,
2019.
84
Definite-lived intangible assets consisted of the following:
Customer relationships
Software costs
Reseller buyouts
Balance as of December 31, 2018 (Predecessor)
Customer relationships
Channel relationships
Software costs
Non-competition agreements
Balance as of December 31, 2019 (Successor)
Gross
Carrying
Value
Net
Carrying
Value
Accumulated
Amortization
$ 79,187,788 $ 16,658,908 $ 62,528,880
5,170,748
523,133
2,779,091
57,867
7,949,839
581,000
$ 87,718,627 $ 19,495,866 $ 68,222,761
$256,000,000 $ 11,393,825 $ 244,606,175
2,858,065
11,080,696 61,210,055
3,166,505
3,000,000
72,290,752
3,900,000
141,935
733,495
$335,190,752 $ 23,349,951 $ 311,840,801
Weighted
Average
Useful
Life (Years)
7.92
2.10
9.00
7.49
9.48
9.53
2.54
2.28
7.90
The Successor’s amortization expense for intangible assets was $23.3 million for the period from July 11, 2019
through December 31, 2019. The Predecessor’s amortization expense for intangible assets was $5.9 million for the period
from January 1, 2019 to July 10, 2019. The Predecessor’s amortization expense for intangible assets was $10.0 million and
$7.3 million for the years ended December 31, 2018 and 2017, respectively.
The estimated amortization expense for the next five years and thereafter in the aggregate is as follows:
Year Ending December 31,
2020
2021
2022
2023
2024
2025
Thereafter
Estimated
Future
Amortization
Expense
$
$
51,904,695
50,848,243
39,501,841
26,307,778
26,255,735
26,127,778
90,894,731
9. Goodwill
The following table presents changes to goodwill for the years ended December 31, 2019 and 2018:
Balance as of December 31, 2017
Acquisitions
Dispositions
Impairment Loss
Balance as of December 31, 2018 (Predecessor)
Balance as of July 11, 2019
Acquisitions
Dispositions
Impairment Loss
Balance as of December 31, 2019 (Successor)
85
Total
119,529,202
—
—
—
119,529,202
339,911,399
49,749,119
—
—
389,660,519
$
$
$
$
10. Borrowings
Prior Credit Agreement
The Predecessor entered into a Revolving Credit and Term Loan Agreement (the “Prior Credit Agreement”), with
SunTrust Bank and the other lenders party thereto on September 28, 2017, and amended December 15, 2017, which included
a revolving loan component, the term loan and a delayed draw term loan. The Prior Credit Agreement was collateralized by
substantially all assets of the Predecessor, based on the Prior Credit Agreement’s collateral documents, and it included
restrictive qualitative and quantitative covenants, as defined in the Prior Credit Agreement. The Predecessor was in
compliance with its restrictive covenants under the Prior Credit Agreement at December 31, 2018.
The Prior Credit Agreement provided for a maximum $10.0 million revolving loan at a variable interest rate. This
facility was terminated upon the closing of the Business Combination and execution of the New Credit Agreement (defined
below). At the Closing and December 31, 2018, the outstanding balance on the revolving loan was $3.5 million. This balance
was settled upon the Closing. Interest expense on the line of credit totaled $0.1 million for the period from January 1, 2019 to
July 10, 2019. Interest expense on the line of credit totaled $0.2 million and $0.1 million for the years ended December 31,
2018 and 2017, respectively.
New Credit Agreement
The Company entered into a Revolving Credit and Term Loan Agreement (the “New Credit Agreement”) on July
11, 2019, with Truist Bank (formerly SunTrust Bank) and the other lenders party thereto, which provided a revolving credit
facility, a term loan A, and a delayed draw term loan at a variable interest rate (5.26% at December 31, 2019). The term of
the New Credit Agreement expires on July 11, 2024. The New Credit Agreement is collateralized by substantially all of the
Company’s assets, and includes restrictive qualitative and quantitative covenants, as defined in the New Credit Agreement.
The Company was in compliance with its restrictive covenants under the New Credit Agreement at December 31, 2019.
As of December 31, 2019, the New Credit Agreement provided for an aggregate revolving commitment of $20.0
million at a variable interest rate (5.26% at December 31, 2019). At December 31, 2019, there was $10.0 million on the
revolving credit facility. The Successor’s interest expense on the line of credit totaled $0.1 million for the period from July
11, 2019 through December 31, 2019. The New Credit Agreement was upsized in February 2020. See Note 18 for more
information.
At December 31, 2019 and December 31, 2018, total borrowings under the New Credit Agreement and Prior Credit
Agreement consisted of the following, respectively:
Non-current indebtedness:
Term Loan
Delayed Draw Term Loan
Revolving Credit Facility
Total borrowings under credit facility (1)
Less: Current maturities of long-term debt (2)
Less: Long-term loan debt issuance cost (3)
Total non-current borrowings
December 31,
2019
Successor
December 31,
2018
Predecessor
$
$
168,937,500 $
40,000,000
10,000,000
218,937,500
5,500,000
5,494,795
207,942,705 $
63,750,000
28,500,000
3,500,000
95,750,000
4,900,000
1,534,796
89,315,204
(1) The Term Loan, Delayed Draw Term Loan and Revolving Credit Facility bear interest, at variable rates, which were
5.26% and 5.77% at December 31, 2019 (Successor) and December 31, 2018 (Predecessor), respectively
(2) Pursuant to the terms of the New Credit Agreement, the Successor is required to make quarterly principal payments
equal to 0.625% of the initial principal amount of the Term Loan and Delayed Draw Term Loan (collectively the “Term
Loans”). Under the Prior Credit Agreement, the Predecessor was required to make quarterly principal payments equal to
1.25% of the initial principal amount of the Term Loans.
(3) The Successor incurred $0.6 million of interest expense for the amortization of deferred debt issuance costs from the
Closing through December 31, 2019. The Predecessor incurred $0.2 million for the period January 1, 2019 to July 10,
2019.
86
Following is a summary of principal maturities of the term loan for each of the next five years ending December 31
and in the aggregate:
2020
2021
2022
2023
2024
$
$
5,500,000
7,875,000
13,125,000
15,750,000
166,687,500
208,937,500
The Successor incurred interest expense on the Term Loans of $5.3 million from July 11, 2019 through December
31, 2019. The Predecessor incurred interest expense of $2.8 million for the period from January 1, 2019 to July 10, 2019.
Interest expense on the long-term debt totaled $5.5 million and $4.4 million for the years ended December 31, 2018 and
2017, respectively.
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 $140.0 million notional, five-year interest rate swap agreement to
hedge changes in cash flows attributable to interest rate risk on $140.0 million of its variable-rate term loan. This agreement
involves the receipt of variable-rate amounts in exchange for fixed interest rate payments over the life of the agreement
without an exchange of the underlying notional amount. This interest rate swap was designated for accounting purposes as a
cash flow hedge. As such, changes in the interest rate swap’s fair value are deferred in accumulated other comprehensive
income (loss) in the Consolidated Balance Sheets and are subsequently reclassified into interest expense in each period that a
hedged interest payment is made on the Company’s variable-rate term loan.
As of December 31, 2019, the Company had the following outstanding interest rate derivatives that were designated
as cash flow hedges of interest rate risk.
Interest rate swap
Notional Amount
$
140,000,000
Fixed Interest Rate
1.598%
Termination Date
July 11, 2024
12. Commitments and contingencies
The Company is committed under various operating leases for buildings with varying expiration dates. Future
minimum lease payments under noncancelable operating leases as of December 31, 2019, are as follows:
Year Ended
2020
2021
2022
2023
2024
Thereafter
87
Amounts
944,234
716,367
301,455
103,868
—
—
2,065,924
$
$
13. Related party transactions
The Predecessor paid management fees to Corsair Capital LLC, a related party having common ownership in the
amount of $210,753 from January 1, 2019 to July 10, 2019. The Predecessor paid management fees of $0.4 million and $0.4
million for the years ended December 31, 2018 and 2017, respectively, which are included in selling, general, and
administrative expenses in the consolidated statement of operations.
The Successor incurred transaction costs on behalf of related parties from July 11, 2019 through December 31, 2019
of $1.3 million. The Predecessor incurred transaction costs on behalf of related parties from January 1, 2019 to July 10, 2019
of $6.8 million. The Predecessor incurred transaction costs on behalf of related parties for the years ended December 31,
2018 and 2017 of $1.6 million and $0.4 million, respectively.
As of December 31, 2019, the Successor held receivables from related parties $0.6 million. These amounts were
due from employees, related to tax withholding on vesting of equity compensation. See Note 14 for more detail on these
restricted share awards. As of December 31, 2018 the Predecessor held no receivables from related parties.
The Successor owed $14.3 million to related parties, in the form of contingent consideration payable to the sellers of
TriSource and APS who were employees of REPAY, as of December 31, 2019. Further, the Successor owed employees $0.3
million for amounts paid on behalf of the Company. As of December 31, 2018 the Predecessor did not have any amounts due
to related parties.
14. Share based compensation
Omnibus Incentive Plan
At the Shareholders Meeting, Thunder Bridge shareholders considered and approved the 2019 Plan which resulted
in the reservation of 7,326,728 shares of common stock for issuance thereunder. The 2019 Plan became effective
immediately upon the Closing.
Under this plan, the Company currently has two types of share-based compensation awards outstanding: restricted
stock awards (RSAs) and restricted stock units (RSUs). Activity from July 11, 2019 through December 31, 2019 was as
follows:
Unvested at July 11, 2019
Granted
Forfeited (1)
Vested
Unvested at December 31, 2019
Class A
Common
Stock
Weighted
Average
Grant Date
Fair Value
—
3,275,229 $
321,263
1,135,291
1,818,675 $
12.07
11.81
11.68
12.39
(1) Upon vesting, award-holders elected to sell shares to the Company in order to satisfy the associated tax obligations. The
awards are not deemed outstanding; further, these forfeited shares are added back to the amount of shares available for
grant under the 2019 Plan.
Unrecognized compensation expense related to unvested RSAs and RSUs was $17.5 million at December 31, 2019,
which is expected to be recognized as expense over the weighted-average period of 2.26 years. The Successor incurred $22.0
million of share-based compensation expense from July 11, 2019 through December 31, 2019.
Original Equity Incentives
As a result of the change in ownership of Hawk Parent, 9,171 previously unvested profit interest units of the
Predecessor with a weighted average grant date fair value of $180.87 were automatically vested, upon the Closing. A
summary of the changes in non-vested units outstanding for the period from January 1, 2019 to July 10, 2019 is presented
below:
88
Non-vested units at January 1, 2019
Activity during the period:
Granted
Vested
Non-vested units at December 31, 2019
Weighted
average
fair value
per unit
Units
9,460 $
182.83
—
(9,460 )
— $
(182.83)
—
The estimated fair value of the Predecessor’s profit interest units that vested during January 1, 2019 to July 10, 2019
is $0.9 million. During the years ended December 31, 2018 and 2017, the Predecessor incurred $0.5 million and $0.6
million, respectively, of share-based compensation expense, included in selling, general and administrative costs in the
Consolidated Statements of Operations.
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 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 components of income before income taxes are as follows:
Domestic
Foreign
Income (loss) before income tax expense
July 11, 2019 to
December 31,
2019
(Successor)
$(36,281,944)
(269,721)
$(36,551,665)
January 1, 2019
to July 10, 2019
Year ended
December 31,
2018
(Predecessor)
Year ended
December 31,
2017
$(23,668,078)
(74,452)
$(23,742,530)
$10,537,443
-
$10,537,443
$9,448,244
-
$9,448,244
The Company recorded a provision for income tax as follows:
July 11, 2019 to
December 31,
2019
(Successor)
January 1, 2019
to July 10, 2019
Year ended
December 31,
2018
(Predecessor)
Year ended
December 31,
2017
Current expense
Federal
State
Foreign
Total current expense (benefit)
Deferred expense
Federal
State
Foreign
Total deferred benefit
Income tax benefit
$-
-
-
-
$-
-
-
-
$-
$-
-
-
-
$-
-
-
-
$-
$-
-
-
-
$-
-
-
-
$-
$-
-
-
-
$(4,343,013)
(575,152)
(72,824)
(4,990,989)
$(4,990,989)
89
A reconciliation of the United States statutory income tax rate to the Company’s effective income tax rate is as
follows for the years indicated:
July 11, 2019
to December
31, 2019
(Successor)
January 1,
2019 to July
10, 2019
Federal income tax expense
State taxes, net of federal benefit
Income attributable to noncontrolling interest
Excess tax benefit related to share-based compensation
Other
Total deferred benefit
21.0%
1.6%
-8.6%
0.5%
-0.8%
13.7%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Year ended
December 31,
2018
(Predecessor)
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Year ended
December 31,
2017
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
The Company’s effective tax rate for the period from July 11, 2019 through December 31, 2019, the Successor
period, was 13.7%. The comparison of our effective tax rate to the U.S. statutory tax rate of 24% was primarily influenced by
the fact that the Company is not liable for the income taxes on the portion of Hawk Parent’s earnings that are attributable to
noncontrolling interests. The results for the Predecessor do not reflect income tax expense because, prior to the Closing, the
consolidated Hawk Parent was treated as a partnership for U.S. federal and most applicable state and local income tax
purposes and was not subject to corporate tax.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. Details of the Company's
deferred tax assets and liabilities are as follows:
December 31,
2019
Successor
December 31,
2018
Predecessor
Deferred tax assets
Tax Credits
Section 163(j) Limitation Carryover
Acquisition Costs
Federal Net Operating Losses
State Net Operating Losses
Foreign Net Operating Losses
Other Assets
Total deferred tax asset
Valuation allowance
Total deferred tax asset, net of valuation allowance
Deferred tax liabilities
Partnership basis tax differences
Total deferred tax liabilities
Net deferred tax liabilities
$52,314
719,773
378,386
3,682,201
526,607
74,445
10,320
5,444,045
(5,799,118)
(355,073)
(413,261)
(413,261)
$(768,334)
$
—
—
—
—
—
—
—
—
—
—
—
—
$
—
As a result of the Merger, the Company recognized a deferred tax asset (DTA) and offsetting deferred tax liability
(DTL) in the amount of $5.8 million to account for the portion of the Company’s outside basis in the partnership interest that
it will not recover through tax deductions, a ceiling rule limitation arising under Internal Revenue Code (the “Code”) sec.
704(c). 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. At the
Closing, the Company concluded, based on the weight of all positive and negative evidence, that all of our DTA are not
likely to be realized. As such, a 100% valuation allowance was recognized. In addition, the Company recognized a change
to the valuation allowance in the amount of $0.04 million as of December 31, 2019.
As of December 31, 2019, the Company has a federal net operating loss carryforward of approximately $3.7 million,
state net operating loss carryforwards of approximately $0.5 million, and foreign net operating loss carryforwards of
90
approximately $0.1 million, which will be available to offset future taxable income. The federal and foreign net operating
loss carryforwards have an indefinite life. The state net operating loss carryforwards will begin to expire between 2031 and
2035. The Company expects to utilize the net operating loss against earnings in future years.
No uncertain tax positions existed as of December 31, 2019.
Tax receivable agreement liability
Pursuant to our election under Section 754 of the Code, we expect to obtain an increase in our 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 100% of the
amount of any tax benefits realized, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax
basis in the net assets of Hawk Parent resulting from any redemptions or exchanges of Post-Merger Repay Units and from
our 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 Repay. 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.
As of December 31, 2019, the Company had a liability of $67.2 million related to its projected obligations under the
TRA, which is captioned as the tax receivable agreement liability in our Audited Consolidated Balance Sheet.
16. Segment Reporting
The Company conducts its operations through a single operating segment and, therefore, one reportable segment.
Operating segments are revenue-generating components of a company for which separate financial information is internally
produced for regular use by the Chief Operating Decision Maker (“CODM”) to allocate resources and assess the performance
of the business. Our CODM uses a variety of measures to assess the performance of the business; however, detailed
profitability information of the nature that could be used to allocate resources and assess the performance of the business are
managed and reviewed for the Company as a whole.
There are no significant concentrations by state or geographical location, nor are there any significant individual
customer concentrations by balance.
17. Selected Quarterly Financial Data (Unaudited)
The following tables set forth certain unaudited quarterly results of operations for the indicated periods:
(in thousands)
Revenue (1)
Income (loss) from operations
Net income (loss)
Net income (loss) attributable to the
Company
Earnings (loss) per Class A share:
Basic and diluted (2)
Three months
ended
December 31,
2019
From
July 11,
2019 to
September 30,
2019
(Successor)
$33,633
(13,464)
(15,681)
$23,927
(14,147)
(15,880)
From
July 1,
2019
to July 10,
2019
$2,334
(32,536)
(32,763)
Three months
ended June
30, 2019
(Predecessor)
$21,686
5,626
4,156
Three months
ended March
31, 2019
$23,024
6,313
4,864
(7,809)
(8,481)
(32,763)
4,156
4,864
$(0.21)
$(0.25)
91
(in thousands)
Revenue
Income from operations
Net income
Net income attributable to the Company
Three months
ended December
31, 2018
Three months
ended
September 30,
2018
Three months
ended June 30,
2018
Three months
ended March 31,
2018
$33,858
3,717
2,145
2,145
(Predecessor)
$32,292
5,215
3,727
3,727
$31,066
5,995
4,484
4,484
$32,797
1,684
181
181
(1) Revenue for the reporting period beginning in 2019 is presented under ASC 606, while prior period revenue
continues to be reported in accordance with the Company’s historic accounting practices under previous
guidance. Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies”, for further
discussions of the adoption of ASC 606.
(2) The sum of the quarterly earnings per share amounts may not equal the full year amount reported since per
share amounts are computed independently for each period based upon the respective weighted-average
common shares outstanding for each respective period.
18. Subsequent events
Management has evaluated subsequent events and their potential effects on these consolidated financial statements
through March 16, 2020, which is the date the consolidated financial statements were available to be issued.
On February 10, 2020, Repay announced the acquisition of Ventanex for up to $50.0 million, which includes a $14.0
million performance-based earnout. The closing of the acquisition was financed with a combination of cash on hand and new
borrowings under Repay’s existing credit facility. As part of the financing for the transaction, Repay entered into an
agreement with Truist Bank (formerly SunTrust Bank) and other members of its existing bank group to amend and upsize its
previous $230.0 million credit facility under the Amended Credit Agreement to $345.0 million to provide additional capacity
for growth.
On February 21, 2020, the Company entered into a swap transaction with Regions Bank. On a quarterly basis,
commencing on March 31, 2020 up to and including the termination date of February 10, 2025, the Company will make fixed
payments on a beginning notional amount of $30.0 million. On a quarterly basis, commencing on February 21, 2020 up to
and including the termination date of February 10, 2025, the counterparty will make floating rate payments based on the 3-
month LIBOR on the beginning notional amount of $30.0 million.
92
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, we carried out an evaluation, with the
participation of our management, including our Chief Executive Officer and Executive Vice President and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that
information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, 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 our management, including our Chief Executive Officer and Executive
Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial
reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the
Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial and
accounting officers and effected by our board of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions
and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial statements.
Our management, with the participation of our principal executive and principal financial and accounting officers,
assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in its 2013 Internal Control — Integrated Framework. Based on this assessment, our management
has concluded that, as of December 31, 2019, our internal control over financial reporting is effective based on those criteria.
This Annual Report does not include an attestation report of our independent registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent
registered public accounting firm pursuant to an exemption under Section 989G of the Dodd-Frank Wall Street Reform and
Consumer Protection Act made available to us under the JOBS Act.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2019, no change in our internal controls over financial reporting (as defined
in Rule 13a-15(f) under the Act) occurred that has materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
93
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
PART III
The following table sets forth the names, ages and positions of our current executive officers and directors as of the
date hereof.
Name
John Morris
Shaler Alias
Timothy J. Murphy
Jason Kirk
Susan Perlmutter
Michael F. Jackson
Tyler B. Dempsey
Jacob H. Moore
Peter J. Kight(3)(4)
Paul R. Garcia(1)(2)
Maryann Goebel(1)(4)
Robert H. Hartheimer(1)
William Jacobs(2)(3)
Jeremy Schein(2)
Richard E. Thornburgh(3)(4)
Age
Position
51
40
38
41
56
56
46
32
64
67
69
62
78
40
67
Chief Executive Officer and Co-Founder, Director
President and Co-Founder, Director
Chief Financial Officer
Chief Technology Officer
Chief Revenue Officer
Chief Operating Officer
General Counsel
Executive Vice President, Corporate Development and Strategy
Chairman
Director
Director
Director
Director
Director
Director
(1) Member of the audit committee
(2) Member of the compensation committee
(3) Member of the nominating and corporate governance committee
(4) Member of the technology committee
John Morris has served as our Chief Executive Officer and a director since the Business Combination. He co-
founded REPAY LLC and has served as its Chief Executive Officer since 2010. Mr. Morris served as President of REPAY
LLC from 2006 to 2008. From its formation in September 2016 through the Business Combination, Mr. Morris served as a
member of the board of directors of Hawk Parent. Mr. Morris has also been a member of the board of directors of Repay
Holdings, LLC since its formation in September 2013. Prior to commencing his role as Chief Executive Officer of REPAY
LLC, Mr. Morris served as the Executive Vice President of Sales and Marketing for Payliance, a payment processing, risk
management and recovery solutions company, after its acquisition of Security Check Atlanta, a check processing and
recovery solutions company, where he had served as President. From 1994 to 1997, Mr. Morris served in several corporate
finance positions for Bass Hotels and Resorts, including Director of Corporate Finance. We believe that Mr. Morris is well-
qualified to serve as a member of our board of directors because of the experience that he brings as a co-founder as well as
his knowledge of the payments industry.
Shaler Alias has served as our President and a director since the Business Combination. He co-founded REPAY LLC in 2006
and has served as its President since 2008. From its formation in September 2016 through the Business Combination, Mr.
Alias served as a member of the board of directors of Hawk Parent. Mr. Alias has also been a member of the board of
directors of Repay Holdings, LLC since its formation in September 2013. Mr. Alias served as Vice President of Sales of
REPAY LLC from 2006 to 2008. Prior to 2006, Mr. Alias co-founded and served as Director of Sales and Marketing for
Capital Recovery Solutions, a collection agency that served community banks and consumer finance lenders. We believe that
Mr. Alias is well-qualified to serve as a member of our board of directors because of the experience that he brings as a co-
founder as well as his knowledge of the payments industry.
Timothy “Tim” J. Murphy has served as our Chief Financial Officer since the Business Combination and as Chief Financial
Officer of REPAY LLC since January 2014. Mr. Murphy has been a member of the board of directors of Repay Holdings,
LLC since September 2016. He oversees our financial operations including accounting, tax, treasury, financial planning,
reporting and investor relations. Prior to joining REPAY LLC, Mr. Murphy served as Director of Corporate Development for
94
Amaya Gaming Group Inc. (now known as The Stars Group Inc.), a Canadian online and mobile gaming and interactive
entertainment company, from January 2013 to January 2014. Mr. Murphy previously served as Director of Finance for
Cadillac Jack, Inc., a company engaged in the design, development, and supply of electronic gaming machines, from August
2009 to December 2012. Mr. Murphy began his professional career as an investment banker at Credit Suisse.
Jason Kirk has served as Chief Technology Officer since the Business Combination and as Chief Technology Officer of
REPAY LLC since December 2014. Prior to joining REPAY LLC, from May 2001 to December 2014, Mr. Kirk held various
positions at CCBill, LLC, a provider of third-party payment processing, including leading a team that developed products and
platform relating to card payment processing. In addition, Mr. Kirk served as an NBC Defense Specialist in the United States
Marine Corps from August 1997 to May 2001.
Susan Perlmutter has served as Chief Revenue Officer since the Business Combination and as Chief Revenue Officer of
REPAY LLC since January 2016. Ms. Perlmutter previously served as Chief Revenue Officer at Sigma Payment Solutions,
Inc. (“Sigma”), a provider of electronic payment solutions to the automotive finance industry, from October 2012 to January
2016, and joined Repay LLC when it acquired Sigma in January 2016. In connection with its acquisition of Sigma, REPAY
LLC agreed to retain Ms. Perlmutter’s services as its Chief Revenue Officer. Prior to Sigma, Ms. Perlmutter held various
positions with PAYTEK Solutions, LLC a provider of payment processing services, from February 1995 to February 2011.
Michael “Mike” F. Jackson has served as Chief Operating Officer since the Business Combination and as Chief Operating
Officer of REPAY LLC since October 2016. Prior to joining REPAY LLC, Mr. Jackson served in numerous executive roles
for enterprise software and payment service providers, including as Senior Vice President, Business Unit Head Cash
Management at D+H Ltd. (now known as Finastra), a global payments and lending technology provider, from January 2014
to June 2016 and as Vice President and the Head of EBPP Business/Community Financial Services for ACI Worldwide, Inc.
a provider of electronic payments solutions, from August 2012 to December 2013. Prior to ACI Worldwide, Inc.,
Mr. Jackson worked for S1 Software Corp., from 2008 to 2012, until it was acquired by ACI Worldwide, Inc. Prior to 2008,
he worked for the U.S.-based Regions Financial Corporation, where he was responsible for card and merchant services,
internet banking and online products and services as Executive Vice President of Alternative Delivery, and President of the
Internet Bank.
Tyler B. Dempsey has served as our General Counsel since September 2019. Prior to joining us, Mr. Dempsey provided legal
counsel and support to REPAY LLC for more than nine years as outside counsel at Troutman Sanders LLP, where he served
as a Partner since 2008. Prior to joining Troutman Sanders, Mr. Dempsey was an attorney at King & Spalding LLP.
Jacob “Jake” H. Moore has served as our Executive Vice President, Corporate Development and Strategy since March
2020. From January 2018 to March 2020, Mr. Moore served as the Head of Corporate Development for REPAY LLC.
Previously, Mr. Moore served as Vice President, Corporate Development of REPAY LLC from January 2017 to December
2017. Before joining REPAY LLC, Mr. Moore was a private equity investment professional, serving as a Senior Associate at
BlueArc Capital Management from May 2016 to January 2017 and as an Associate at Trinity Hunt Partners from March 2012
to June 2014. From 2010 to 2012, Mr. Moore was an investment banker in the Mergers and Acquisitions Group at SunTrust
Robinson Humphrey.
Peter “Pete” J. Kight has been the Chairman of our board of directors since the Business Combination and previously served
as the Executive Chairman of Thunder Bridge since June 2018. Mr. Kight has 34 years of industry experience. He has been
an Angel Investor and Advisor to Commerce Ventures, a Silicon Valley based venture capital firm focused on investing in
innovations in the retail and financial services industries, since 2012. Mr. Kight previously served as a Co-Chairman and
Managing Partner at Comvest Partners, a mid-market private investment firm, from 2010 – 2013, and then as a Senior
Advisor at Comvest Partners from 2013 to 2015. He was the Founder, Chairman, and Chief Executive Officer of CheckFree
Corporation (NASDAQ: CKFR), a provider of financial services technology, from 1981 until it was acquired by Fiserv
(NASDAQ: FISV) in 2007. Mr. Kight then served as director and vice chairman of Fiserv following Fiserv’s acquisition of
CheckFree from 2007 to 2012 (Vice Chairman from 2007 to 2010). Mr. Kight has served: as a director of Bill.com Holdings,
Inc. (NYSE: BILL), a provider of software that digitizes and automates back-office financial operations since May 2019; as
a director of Blackbaud, Inc. (NASDAQ: BLKB), a supplier of software and services specifically designed for nonprofit
organizations, since 2014; and as a director of Huntington Bancshares Incorporated (NASDAQ: HBAN), a regional bank
holding company, since 2012. Mr. Kight previously served on the boards of directors of Akamai Technologies, Inc.
(NASDAQ GS: AKAM), distributor of computing solutions and services, from 2004 to 2012, Manhattan Associates, Inc.,
(NASDAQ: MANH) a provider of supply chain planning and execution solutions, from 2007 to 2011 and Kabbage, Inc., a
technology-driven SME lending company, from 2015 to November 2017. Mr. Kight is also a member of the Board of
Directors of Urjanet, Inc., a data analytics company focused primarily on energy, utility, and financial transaction data, from
2016 to present and Insightpool, LLC, a marketing data analytics business focused on earned influence marketing analytics,
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from 2015 to June 2018. He has been a Principal of Thunder Bridge Capital, LLC, since 2017. He holds more than a dozen
patents and publications for electronic banking and payment systems. We believe that Mr. Kight is well-qualified to serve as
a member of our board of directors due to his extensive financial services, operational, management and investment
experience.
Paul R. Garcia has served as a director since the Business Combination. Mr. Garcia served as Chairman and CEO of Global
Payments Inc. (NYSE:GPN), a leading provider of credit card processing, check authorization and other electronic payment
processing services, from June 1999 to May 2014. Mr. Garcia has served as a director of Truist Financial Corp.
(NYSE:TFC), a bank holding company, since December 2019 (as well as a director of SunTrust Banks, Inc. (NYSE: STI)
from August 2014 through December 2019). Mr. Garcia also serves as a director of Payment Alliance International. He
previously served on the board of directors of The Dun & Bradstreet Corporation (from May 2012 until February 2019),
West Corporation (from March 2013 until October 2017) and Global Payments Inc. (from February 2001 until May 2014).
We believe that Mr. Garcia is well-qualified to serve as a member of our board of directors due to his extensive experience in
the payment services industry.
Maryann Goebel has served as a director since the Business Combination. Ms. Goebel has been an IT management
consultant, providing assessments and recommendations regarding IT management and coaching to chief information
officers, since July 2012. Ms. Goebel has served as a director of Seacoast Banking Corporation of Florida (“Seacoast”)
(NASDAQ:SBCF), a bank holding company, since February 2014. She is also a member of Seacoast’s audit committee and
enterprise risk management committee and chairs its compensation and governance committee. From June 2009 to July 2012,
Ms. Goebel served as executive vice president and chief information officer of Fiserv, Inc. (“Fiserv”) (NASDAQ: FISV),
where she was responsible for all internal Fiserv IT systems, as well as IT infrastructure, operations, engineering and
middleware services. Ms. Goebel currently serves on the Arts and Sciences Advisory Board of Worcester Polytechnic
Institute. In 2017, Ms. Goebel was awarded the CERT Certificate in Cybersecurity Oversight by the NACD. We believe that
Ms. Goebel is well-qualified to serve as a member of our board of directors due to her extensive experience in the
information technology industry.
Robert H. Hartheimer has served as a director since June 2018 (including service as a director of Thunder Bridge through
the Business Combination). Mr. Hartheimer has served as a director of Thunder Bridge Acquisition II, Ltd. (“Thunder Bridge
II”) (NASDAQ: THBR), a special purpose acquisition company, since August 2019. Mr. Hartheimer also serves as the
Chairman of the Audit Committee of Thunder Bridge II. Mr. Hartheimer has also been an Independent Director of
CardWorks, a privately held consumer lender and credit card servicer since 2017. Mr. Hartheimer is Co-Founder and Chief
Regulatory Officer of CreditStacks, a fin-tech credit card originator since 2015 and the Founder and Managing Member of
Hartheimer LLC, which provides senior-level consulting services to banks, investment firms and financial services
companies on financial, regulatory, strategic and governance matters, since 2008. From 2002 to 2008, Mr. Hartheimer was a
Managing Director at Promontory Financial Group, a regulatory consulting firm. In 1991, Mr. Hartheimer joined the Federal
Deposit Insurance Corporation, where he and a small team created the Division of Resolutions to analyze and sell failed
banks. He went on to serve as the Director of that division. Mr. Hartheimer’s other past positions include senior roles at
investment banks, including Merrill Lynch, Smith Barney and Friedman Billings Ramsey. Mr. Hartheimer previously served
on five boards of directors: Lending Club Asset Management, an investment management subsidiary of fin-tech market
lending firm Lending Club (NYSE: LC) from 2016 to 2019, Higher One Holdings (NYSE: ONE) a financial technology
company focused on providing cost-saving solutions to colleges and universities, where he served as Chairman of the Risk
Committee, from 2012 to 2016, Sterling Financial Corporation and Sterling Bank (NASDAQ: STSA), a recapitalized
regional bank in the State of Washington, where he served as Chairman of the Risk Committee, from 2010 to 2014, the three
E*Trade Banks (E*Trade Bank, E*Trade Savings Bank and United Medical Bank subsidiaries of online broker E*Trade),
where he served as Chairman of the Audit Committee for such bank subsidiaries for part of this tenure (NASDAQ: ETFC)
from 2005 to 2008, and Merrick Bank, a Utah based credit card bank, where he served as Chairman of its Audit Committee,
from 1997 to 2003. We believe that Mr. Hartheimer is well-qualified to serve on our board of directors because he brings to it
his extensive experience in the financial services industry, the bank regulatory community and investment banking.
William Jacobs has served as a director since the Business Combination. From its formation in September 2016 through the
Business Combination, Mr. Jacobs served as a member of the board of directors of Hawk Parent. Mr. Jacobs has served as a
director of Global Payments Inc. (NYSE: GPN) (“Global Payments”), a payment processing services company, since 2001,
and as Chairman of Green Dot Corporation (NYSE: GDOT) (“Green Dot”), a financial services technology company, since
June 2016 (and he has served as a director of Green Dot since April 2016). In addition, he currently serves as a member of
Global Payments’ Governance and Nominating Committee and Compensation Committee, served as Lead Independent
Director of Global Payments from 2003 to May 2014, served as Chairman of the board of directors of Global Payments from
June 2014 to September 2019, and has served as one of its business advisors since August 2002, and previously served on its
Audit Committee and as Chair of its Compensation Committee. Mr. Jacobs also served as Interim Chief Executive Officer of
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Green Dot from January 2020 to March 2020. He previously served on the boards of directors of Asset Acceptance Capital
Corp., a publicly-traded debt collection company, from 2004 to June 2013, when that company merged with Encore Capital
Group, Inc. He also served as a member of the board of directors of Investment Technology Group, Inc., a publicly-
traded electronic trading resources company, from June 1994 to March 2008, Alpharma, Inc., a publicly-traded specialty
pharmaceutical company, from May 2002 to May 2006, and as a member of the Board of Trustees of The American
University in Washington, D.C. from 1985 to 2001, of which he served as Chairman from 1997 to 2001. From 1995 to 2000,
Mr. Jacobs served in various senior roles at MasterCard International, including as Senior Executive Vice President. Before
joining MasterCard International, Mr. Jacobs co-founded Financial Security Assurance Inc. (FSA), where he served as Chief
Operating Officer. Mr. Jacobs has served as an operating partner of Corsair Capital LLC since 2018. We believe Mr. Jacobs
is well-qualified to serve on our board of directors based on his management experience and expertise in the payments and
financial services industries.
Jeremy Schein has served as a director since the Business Combination. From its formation in September 2016 through the
Business Combination, Mr. Schein served as a member of the board of directors of Hawk Parent. Mr. Schein is a Managing
Director of Corsair Capital LLC, which he joined in 2001 and where he serves as a member of its Investment Committee.
Additionally, Mr. Schein has served as a director of NM Money Holdings Ltd., Personal Capital, Jackson Hewitt and Spring
Venture Group, LLC since August 2012, October 2014, May 2018 and July 2018, respectively, all of which are portfolio
companies of Corsair Capital LLC. We believe Mr. Schein is well-qualified to serve on our board of directors because of his
experience in investing in the financial services sector as well as his overall financial and business expertise.
Richard E. Thornburgh has served as a director since the Business Combination. Since December 2011, Mr. Thornburgh
has served as a director of S&P Global, Inc. (NYSE: SPGI), a financial information and analytics company, where he serves
as the Chair of the Financial Policy Committee and a member of the Executive and Audit Committees. Mr. Thornburgh also
serves as the Chair of the board of directors of Jackson Hewitt Tax Service Inc., a company that provides assisted tax
preparation services and related financial products and which is a portfolio company of Corsair Capital LLC. He has held this
position since June 2018. He previously served as a director of Capstar Financial Holdings, Inc., a publicly-traded bank
holding company, from December 2008 to December 2019, and Newstar Financial, a commercial financing company, from
December 2006 until December 2017, both of which were portfolio companies of Corsair Capital, LLC during his service. In
addition, from May 2006 to April 2018, Mr. Thornburgh served on the board of directors of Credit Suisse AG, a publicly
traded global financial institution. He served as Vice Chairman of the board, chair of its risk committee, member of the audit
and nominations and governance committees. From 1995 to 2005, he held a variety of executive and other board
responsibilities at Credit Suisse Group AG, including Chief Financial Officer and Chief Risk Officer. Mr. Thornburgh was
also the Chairman of the board of directors of Credit Suisse Holdings USA from December 2015 to April 2018.
Mr. Thornburgh is a Senior Advisor and member of the investment committee of Corsair Capital LLC, which he joined in
2006. He also previously served a director of Reynolds America Inc. from December 2011 until December 2015. We believe
Mr. Thornburgh is well-qualified to serve on our board of directors because of his familiarity with the capital markets and
strategic transactions obtained through executive-level positions in investment banking and private equity, as well as his
extensive experience in the financial services industry.
Board Composition
Our business affairs are managed under the direction of our board of directors. Our board consists of nine members,
seven of whom qualify as independent within the meaning of the independent director guidelines of the Nasdaq Stock Market
(“Nasdaq”). Messrs. Morris and Alias are not considered independent.
Our board is divided into three staggered classes of directors. At each annual meeting of its stockholders, a class of
directors will be elected for a three-year term to succeed the same class whose term is then expiring, as follows:
(cid:120)
(cid:120)
(cid:120)
the Class I directors are Messrs. Alias, Thornburgh and Garcia and their terms will expire at the annual
meeting of stockholders to be held in 2020;
the Class II directors are Messrs. Hartheimer and Schein and Ms. Goebel and their terms will expire at the
annual meeting of stockholders to be held in 2021; and
the Class III directors are Messrs. Jacobs, Kight and Morris and their terms will expire at the annual
meeting of stockholders to be held in 2022.
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Our certificate of incorporation provides that our board will consist of one or more members, and the number of
directors may be increased or decreased from time to time by a resolution of our board provided that the number of directors
constituting the whole board shall not be more than 15. Each director’s term will continue until the election and qualification
of his or her successor, or his or her earlier death, resignation, or removal. Any increase or decrease in the number of
directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the
total number of directors. This classification of our board may have the effect of delaying or preventing changes in control of
us.
We previously entered into Stockholders Agreements with Thunder Bridge Acquisition LLC (the “Sponsor”), which
agreement has since terminated pursuant to its terms , and Corsair and Messrs. Morris and Alias that provide or provided
these parties with certain director nomination rights. The Stockholders Agreements are described in Item 13 of Part III of
this Annual Report on Form 10-K and such description is incorporated herein by reference.
Each of our officers serve at the discretion of our board and will hold office until his or her successor is duly
appointed and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our
directors or officers.
Audit Committee
Our board of directors maintains a standing Audit Committee, established in accordance with Section 3(a)(58)(A) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The members of our audit committee are Paul R.
Garcia, Maryann Goebel and Robert H. Hartheimer. Robert H. Hartheimer serves as chairperson of the audit committee.
Each of the members of our audit committee satisfy the requirements for independence and financial literacy under the
applicable rules and regulations of the SEC and rules of Nasdaq. Our board has also determined that Mr. Hartheimer qualifies
as an “audit committee financial expert” as defined in the SEC rules.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more
than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes
in ownership of our ordinary shares and other equity securities. These executive officers, directors, and greater than 10%
beneficial owners are required by SEC regulation to furnish us with copies of all Section 16(a) forms filed by such reporting
persons. Based solely on our review of such forms furnished to us and written representations from certain reporting persons,
we believe that all filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners
were filed in a timely manner.
Policy Regarding Director Nominations
Our nominating and corporate governance committee utilizes a broad approach for identification of director
nominees and may seek recommendations from our directors, officers or stockholders and/or engage a search firm. In
evaluating and determining whether to ultimately recommend a person as a candidate for election as a director, the
nominating and corporate governance committee evaluates all factors that it deems appropriate, including the number of
current directors, the terms of the Stockholder Agreements, as well as the qualifications set forth in our Corporate
Governance Guidelines. It also takes into account specific characteristics and expertise that it believes will enhance the
diversity of knowledge, expertise, background and personal characteristics of our board of directors.
The nominating and corporate governance committee may engage a third party to conduct or assist with this
evaluation. Ultimately, the nominating and corporate governance committee seeks to recommend to our board of directors
those nominees whose specific qualities, experience and expertise will augment the current board of directors’ composition
and whose past experience evidences that they will: (i) dedicate sufficient time, energy and attention to ensure the diligent
performance of board duties; (ii) comply with the duties and responsibilities set forth in our Corporate Governance
Guidelines and in our bylaws; (iii) comply with all duties of care, loyalty and confidentiality applicable to them as directors
of publicly traded corporations organized in Delaware; and (iv) adhere to our Code of Ethics.
The nominating and corporate governance committee will also consider recommendations of qualified nominees by
stockholders on a substantially similar basis as it considers other nominees. If any stockholder wishes to recommend
candidates directly to our nominating and corporate governance committee, such stockholder may do so by sending an email
communication to: corpsecretary@repay.com.
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In addition to the process described above, our bylaws permit stockholders to nominate directors for election at an
annual meeting of stockholders. To nominate a director, the stockholder must meet certain deadlines established by our
bylaws and provide certain information required by our bylaws.
Code of Ethics
We have adopted a Code of Ethics applicable to our directors, officers and employees. A copy of our Code of Ethics
and committee charters are available to the public on our website at www.repay.com under the Investors section titled
Corporate Governance. We intend to post any amendments to or any waivers from a provision of our Code of Ethics on our
website.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Executive Compensation Table
The following table sets forth information concerning the annual and long-term compensation awarded to, earned
by, or paid to our principal executive officer and two other most highly compensation persons serving as executive officers as
of December 31, 2019 (the “named executive officers”) for all services rendered in all capacities to the Company, or any of
our subsidiaries, for the last two completed fiscal years.
Name and principal position
John Morris
Chief Executive Officer
Shaler Alias
President
Tim Murphy
Chief Financial Officer
Year
2019
2018
2019
2018
2019
2018
Salary
($)(1)
355,000
355,000
305,000
305,000
275,000
215,050
Bonus
($)(2)
1,675,432
-
936,367
-
1,183,840
107,525
Stock
awards
($)(3)
8,682,199
-
3,472,880
-
5,209,319
-
Option
awards
($)
Non-equity
incentive plan
compensation
($)(4)
Nonqualified
deferred
compensation
earnings
($)
All other
compensation
($)(5)
-
-
-
-
-
-
177,500
125,000
152,500
125,000
206,250
-
-
-
-
-
-
-
14,200
14,200
12,200
12,200
11,000
8,602
Total
($)
10,904,331
494,200
4,878,946
442,200
6,885,409
331,177
(1) Amounts reflect annual base salary paid for the fiscal year.
(2)
For 2018, represents annual cash award under our Annual Cash Incentive Program. For a discussion of the determination of these amounts, please see the section
below entitled “— Narrative Disclosure to Summary Executive Compensation Table – Annual Cash Incentive Compensation Program.” For 2019, represents
cash transaction bonuses paid in connection with the completion of the Business Combination.
(3) Amounts shown are the aggregate grant date (July 11, 2019) fair value of awards computed in accordance with FASB ASC Topic 718. For a discussion of the
assumptions made in such valuation, see Note 2 to our audited financial statements for the fiscal year ended December 31, 2019, included in our Annual Report
on Form 10-K.
(4) Represents annual performance-based cash incentives. For a discussion of the determination of these amounts, please see the section below entitled “—
Narrative Disclosure to Summary Compensation Table — Annual Cash Incentive Compensation Program.”
(5) Amounts reflect matching contributions made by the Company to each named executive officer’s 401(k) plan account.
Narrative Disclosure to Summary Executive Compensation Table
The following is a brief description of the compensation arrangements we have with each of our named executive
officers and other compensation paid to our named executive officers.
Annual Cash Incentive Compensation Program
Fiscal 2018 Awards Program
As provided for in their employment agreements, the named executive officers have the opportunity to earn annual
performance-based cash bonuses which are intended to compensate them for achieving both short-term company-wide and
individual performance goals.
For fiscal 2018, Messrs. Morris and Alias were entitled under their employment agreements to:
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(i)
a discretionary bonus of up to $25,000 and
(ii)
a performance-based bonus equal to the lesser of:
(a) $125,000 and
(b) The product of (x) the Company’s Adjusted EBITDA multiplied by (y) 0.0067, less $103,470.
For purposes of computing these performance-based annual bonuses, Adjusted EBITDA is calculated as described
in the section entitled “Management Discussion and Analysis of Financial Condition and Results of Operations— Non-
GAAP Financial Measures” in Item 7 of our Annual Report on Form 10-K.
For fiscal 2018, Mr. Murphy was eligible for an annual cash bonus of 50% of his base salary. The amount of
Mr. Murphy’s bonus was determined by Hawk Parent’s board and the CEO based on the Company’s achievement of an
Adjusted EBITDA target of $35.1 million for the year (50%), progress towards achievement of the Company’s strategic
goals (25%) and achievement of Mr. Murphy’s personal performance goals (25%).
Notwithstanding the establishment of the performance components and the formula for determining the cash
incentive award payment amounts as described above, we had the ability to exercise positive or negative discretion and award
a greater or lesser amount to the named executive officers than the amount determined by the annual cash incentive award
formula if, in the exercise of its business judgment, we determined that a greater or lesser amount was warranted under the
circumstances.
Actual 2018 Awards
For fiscal 2018, our Adjusted EBITDA was $36.8 million. Therefore, the product of (x) our Adjusted EBITDA
multiplied by (y) 0.0067, less $103,470 was $143,090. Since this amount was more than $125,000, each of Messrs. Morris
and Alias was paid an annual performance-based bonus of $125,000.
In fiscal 2018, Mr. Morris and Mr. Alias did not receive an additional discretionary bonus of up to $25,000 as
contemplated by their employment agreements, but these amounts were considered when determining the amount of the
transaction bonus to be awarded to each of Messrs. Morris and Alias upon the completion of the Business Combination.
Our fiscal 2018, Adjusted EBITDA of $36.8 million resulted in Mr. Murphy receiving the maximum allocation
based on Adjusted EBITDA. In addition, Hawk Parent’s board and the CEO determined the Company’s strategic goals and
Mr. Murphy’s personal goals were achieved. Accordingly, Mr. Murphy received a bonus award of $107,500 for fiscal 2018.
In fiscal 2018, we did not award a greater or lesser amount to the named executive officers than the amount
determined by the annual cash incentive award formula.
Fiscal 2019 Awards Program
For fiscal 2019, Messrs. Morris and Alias were entitled under their new employment agreements to an annual cash
performance-based bonus with a target of 50% of base salary based on the achievement of certain performance objectives as
determined by our board. For fiscal 2019, Mr. Murphy was entitled under his new employment agreement to an annual cash
performance-based bonus with a target of 75% of base salary based on the achievement of certain performance objectives as
determined by our board.
For fiscal 2019, Hawk Parent’s board and the CEO determined the performance objectives to be based on our
achievement of an Adjusted EBITDA target of $40.0 million (50%), achievement of personal and department performance
goals tied to each of the named executive officer’s roles at the Company (25%) and Hawk Parent’s board’s and the CEO’s
subjective assessment of personal effort and intrinsic value to the Company (25%).
Notwithstanding the establishment of the performance components and the formula for determining the cash
incentive award payment amounts as described above, we had the ability to exercise positive or negative discretion and award
a greater or lesser amount to the named executive officers than the amount determined by the annual cash incentive award
formula if, in the exercise of its business judgment, we determined that a greater or lesser amount was warranted under the
circumstances.
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For purposes of computing these performance-based annual bonuses, Adjusted EBITDA is calculated as described
in the section entitled “Management Discussion and Analysis of Financial Condition and Results of Operations— Non-
GAAP Financial Measures” in Item 7 of our Annual Report on Form 10-K.
Actual 2019 Awards
Adjusted EBITDA for the combined year ended December 31, 2019 was $48.4 million, which resulted in each of the
named executive officers receiving the maximum allocation based on Adjusted EBITDA. Our compensation committee
determined that Messrs. Morris, Alias and Murphy each achieved 100% of their respective personal and departmental goals,
as well as 100% of the amounts allocated to subjective assessment of personal effort and intrinsic value to the Company.
Accordingly, each of Messrs. Morris, Alias and Murphy received performance-based cash bonuses in the following amounts:
(i) Mr. Morris received an aggregate cash bonus totaling $177,500; (ii) Mr. Alias received an aggregate cash bonus totaling
$152,500; and (iii) Mr. Murphy received an aggregate cash bonus totaling $206,250.
In fiscal 2019, we did not award a greater or lesser amount to the named executive officers than the amount
determined by the annual cash incentive award formula.
Transaction Bonuses
During fiscal 2019, in addition to the annual cash incentive program, Messrs. Morris, Alias and Murphy received
cash bonuses in connection with the closing of the Business Combination in the following amounts: (i) Mr. Morris received
an aggregate cash bonus totaling $1,675,432; (ii) Mr. Alias received an aggregate cash bonus totaling $936,367; and (iii) Mr.
Murphy received an aggregate cash bonus totaling $1,183,840. These transaction bonuses reduced the amount of merger
consideration otherwise payable to the equityholders of Hawk Parent pursuant to the Merger Agreement.
Employment Agreements
The employment arrangements we have with our named executive officers set forth in the Summary Compensation
Table are summarized below.
Mr. Morris
On July 22, 2016, we (through our subsidiaries) entered into an employment agreement (“Mr. Morris’ Prior
Employment Agreement”) with Mr. Morris, which set forth the terms and conditions of his services as Chief Executive
Officer. Mr. Morris’ Prior Employment Agreement had an initial five-year term and automatically renewed for successive
one-year periods unless either the Company or Mr. Morris gave written notice to the other at least ninety (90) days prior to
the end of the applicable term.
Under the terms of Mr. Morris’ Prior Employment Agreement, he was entitled to receive an annual base salary of at
least $355,000 and an annual discretionary cash bonus of up to $25,000 for fiscal year 2018 based on the achievement of
certain strategic goals. Mr. Morris was also entitled to an annual cash performance-based bonus for fiscal year 2018 in an
amount between $0 and $125,000 based on Adjusted EBITDA. For fiscal year 2018, such EBITDA Bonus was the lesser of
either (a) $125,000 or (b) the product of (x) the Company’s Adjusted EBITDA multiplied by (y) 0.0067, less $103,470. Mr.
Morris was eligible for employee benefits under our policies.
In connection with the Business Combination, we (through our subsidiaries) entered into a new employment
agreement with Mr. Morris, dated January 21, 2019 (“Mr. Morris’ New Employment Agreement”), which sets forth the terms
and conditions of his service as Chief Executive Officer. Mr. Morris’ New Employment Agreement has an initial three-year
term and automatically renews thereafter for successive one-year periods unless either party gives written notice to the other
at least ninety (90) days prior to the end of the applicable term.
Under the terms of Mr. Morris’ New Employment Agreement, he is entitled to receive an annual base salary of at
least $355,000. Mr. Morris is eligible for an annual cash performance-based bonus with a target amount of 50% of his base
salary based on the achievement of certain performance objectives as established by our board of directors. Mr. Morris is
eligible to participate in our employee benefit plans.
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Mr. Morris’s New Employment Agreement also provides for severance benefits in the event of a termination of his
employment by us without “Cause” (as defined in the agreement) or a non-renewal of the employment term by us or by Mr.
Morris for “Good Reason,” (as defined in the agreement), including payment of an amount equal to the sum of his base salary
and target annual bonus for each fiscal year during the 18-month period following his termination, vesting of time-based
equity awards that would have vested during such 18-month period if Mr. Morris had remained employed and continued
eligibility to vest in performance-based equity awards during such 18-month period subject to achievement of performance
objectives. If such termination occurs within 24 months following or prior to and in anticipation of a change in control, the
applicable period is 30 months following termination of employment. Mr. Morris’s New Employment Agreement also
contains certain restrictive covenants, including non-competition and non-solicitation covenants.
Mr. Alias
On July 22, 2016 we (through our subsidiaries) entered into an employment agreement with Mr. Alias (“Mr. Alias’
Prior Employment Agreement”), which set forth the terms and conditions of his service as President and Secretary. The
employment agreement had an initial five-year term and automatically renewed thereafter for successive one-year periods
unless either the Company or Mr. Alias gave written notice to the other at least ninety (90) days prior to the end of the
applicable term.
Under the terms of Mr. Alias’ Prior Employment Agreement, he was entitled to receive an annual base salary of at
least $305,000 and an annual discretionary cash bonus of up to $25,000 for fiscal year 2018, based on the achievement of
certain strategic goals. Mr. Alias was also entitled to an annual cash performance-based bonus for fiscal year 2018 in an
amount between $0 and $125,000 based on Adjusted EBITDA. For fiscal year 2018, such bonus was the lesser of either (a)
$125,000 or (b) the product of (x) the Company’s Adjusted EBITDA multiplied by (y) 0.0067, less $103,470. Mr. Alias was
eligible for employee benefits under our policies.
In connection with the Business Combination, we (through our subsidiaries) entered into an employment agreement
with Mr. Alias, dated January 21, 2019 (“Mr. Alias’ New Employment Agreement”), which sets forth the terms and
conditions of his service as President. Mr. Alias’ New Employment Agreement has an initial three-year term and
automatically renews thereafter for successive one-year periods unless either party gives written notice to the other at least
ninety (90) days prior to the end of the applicable term.
Under the terms of Mr. Alias’s New Employment Agreement, he is entitled to receive an annual base salary of at
least $305,000. Mr. Alias is eligible for an annual cash performance-based bonus with a target amount of 50% of his base
salary based on the achievement of certain performance objectives as established by our board of directors. Mr. Alias is
eligible to participate in our employee benefit plans.
Mr. Alias’s New Employment Agreement also provides for severance benefits in the event of a termination of his
employment by us without “Cause” (as defined in the agreement) or a non-renewal of the employment term by us or by Mr.
Alias for “Good Reason,” (as defined in the agreement), including payment of an amount equal to the sum of his base salary
and target annual bonus for each fiscal year during the 18-month period following his termination, vesting of time-based
equity awards that would have vested during such 18-month period if Mr. Alias had remained employed and continued
eligibility to vest in performance-based equity awards during such 18-month period subject to achievement of performance
objectives. If such termination occurs within 24 months following or prior to and in anticipation of a change in control, the
applicable period is 30 months following termination of employment. Mr. Alias’s New Employment Agreement also contains
certain restrictive covenants, including non-competition and non-solicitation covenants.
Mr. Murphy
On July 22, 2016, we (through our subsidiaries) entered into an employment agreement with Mr. Murphy (“Mr.
Murphy’s Prior Employment Agreement”), which set forth the terms and conditions of his service as Chief Financial Officer.
Mr. Murphy’s Prior Employment Agreement had an initial five-year term and automatically renewed thereafter for
successive one-year periods unless either the Company or Mr. Murphy gave written notice to the other at least ninety (90)
days prior to the end of the applicable term.
Under the terms of Mr. Murphy’s Prior Employment Agreement, he was entitled to receive an annual base salary of
at least $170,000. Mr. Murphy was eligible for a cash bonus with a target amount of 50% of his base salary based on the
attainment of certain performance criteria as established by the Company’s board of directors. Mr. Murphy was eligible to
participate in our employee benefit plans.
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In connection with the Business Combination, we (through our subsidiaries) entered into a new employment
agreement with Mr. Murphy, dated January 21, 2019 (“Mr. Murphy’s New Employment Agreement”), which sets forth the
terms and conditions of his service as Chief Financial Officer. Mr. Murphy’s New Employment Agreement has an initial
three-year term and automatically renews thereafter for successive one-year periods unless either party gives written notice to
the other at least ninety (90) days prior to the end of the applicable term.
Under the terms of Mr. Murphy’s New Employment Agreement, he is entitled to receive an annual base salary of at
least $275,000. Mr. Murphy is eligible for an annual cash performance-based bonus with a target amount of 75% of his base
salary based on the achievement of certain performance objectives as established by our board of directors. Mr. Murphy is
eligible to participate in our employee benefit plans.
Mr. Murphy’s New Employment Agreement also provides for severance benefits in the event of a termination of his
employment by us without “Cause” (as defined in the agreement) or a non-renewal of the employment term by us or by Mr.
Murphy for “Good Reason,” (as defined in the agreement), including payment of an amount equal to the sum of his base
salary and target annual bonus for each fiscal year during the 18-month period following his termination, vesting of time-
based equity awards that would have vested during such 18-month period if Mr. Murphy had remained employed and
continued eligibility to vest in performance-based equity awards during such 18-month period subject to achievement of
performance objectives. If such termination occurs within 24 months following or prior to and in anticipation of a change in
control, the applicable period is 30 months following termination of employment. Mr. Murphy’s New Employment
Agreement also contains certain restrictive covenants, including non-competition and non-solicitation covenants.
Equity-based Compensation
No equity-based compensation was awarded in fiscal 2018.
As contemplated under the terms of their new employment agreements, Messrs. Morris, Alias and Murphy were
granted restricted stock awards of Repay in connection with the closing of the Business Combination in the amounts of
732,675, 293,070 and 439,605 shares, respectively. 50% of such awards are subject to time-based vesting and the remaining
50% are subject to performance-based vesting, in each case subject to the executive’s continued employment on the
applicable vesting date. The time-based awards vest 25% on the first anniversary of the grant date and then 2.081/3% monthly
thereafter such that 100% of the time-based shares are vested by the fourth anniversary of the grant date. 50% of the
performance-based awards vest upon the attainment of an average share price of $12.50 and the remaining 50% of such
performance-based awards vest upon the attainment of an average share price of $14.00, in each case as determined based on
the volume weighted trading price of such shares over any 20 trading days within any consecutive 30 trading days. All of
such performance-based restricted stock awards vested during fiscal 2019. Notwithstanding the foregoing, all these restricted
shares shall automatically accelerate upon a change in control (as defined in the award agreement), subject to the executive’s
continued employment on the date of the change in control.
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth information concerning unexercised options; stock that has not vested; and equity
incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year.
Option Awards
Stock Awards
Number of
Securities
underlying
unexercised
options (#)
exercisable
Number of
securities
underlying
unexercised
options (#)
exercisable
-
-
-
-
-
-
Equity
incentive plan
awards:
Number of
securities
underlying
unexercised
unearned
options (#)
-
-
-
Name
John Morris
Shaler Alias
Tim Murphy
Option
exercise
price
(#)
Option
expiration
date
Number of
shares or
units of
stock that
have not
vested (#)
Market value
of shares or
units of stock
that have not
vested ($)
Equity
incentive plan
awards:
Number of
unearned
shares, units
or other rights
that have not
vested(1) (#)
Equity incentive
plan awards:
Market or
payout value of
unearned shares,
units or other
rights that have
not vested(2) (#)
366,338
146,535
219,803
5,366,852
2,146,738
3,220,114
103
(1) These represent time-based restricted stock awards of our Class A common Stock granted on July 11, 2019, which vest 25% on the first anniversary of the
grant date and then 2.081/3% monthly thereafter such that 100% of the time-based shares are vested by the fourth anniversary of the grant date.
Notwithstanding the foregoing, all the restricted shares shall automatically accelerate upon a change in control (as defined in the award agreement), subject
to the executive’s continued employment on the date of the change in control.
(2) The aggregate dollar value of the restricted stock is based on $14.65 per share of Class A common stock on December 31, 2019.
Retirement Plans
We have established a qualified retirement plan under Section 401(k) of the Internal Revenue Code. The plan
covers all employees, including our named executive officers. The plan provides for matching contributions of 100% of
participant deferrals up to 3% of compensation and 50% of participant deferrals from 3% to 5% of compensation, with a
maximum annual employer contribution of 4% of a participant’s compensation. The matching contribution formula is
applied on a payroll to payroll basis.
Potential Payments Upon Termination or Change-In-Control
Pursuant to the terms of the new employment agreements for Messrs. Morris, Alias and Murphy, in the event of a
termination of the executive’s employment by us without “Cause” (as defined in the agreements), by the executive for “Good
Reason,” (as defined in the agreements), or a non-renewal by us, the executive is entitled to receive the following payments
and benefits:
(cid:120) An amount equal to the sum of base salary and target annual bonus for each fiscal year during the Severance Period
(as defined below), payable in installments;
(cid:120)
Immediate vesting of all time-based equity awards that would have vested through the Severance Period;
(cid:120) All performance-based equity awards remain outstanding and eligible to vest based on achievement of performance
objectives through the Severance Period; and
(cid:120) Outstanding stock options remain outstanding until the earlier of (i) the expiration of the Severance Period and (ii)
the original expiration of the stock option.
The severance period is 18 months; provided that in the event such termination is on or within 24 months following
a change in control or prior to and in anticipation of a change in control, the severance period is 30 months (such applicable
period, the “Severance Period”). Such severance payments and benefits are subject to execution and non-revocation of a
release of claims.
Pursuant to the terms of the new employment agreements, in the event of a termination due to death or incapacity,
Messrs. Morris, Alias and Murphy are entitled to the annual bonus that would have been paid had the executive remained
employed until the end of the applicable bonus period.
In the event of any termination of employment, Messrs. Morris, Alias and Murphy are entitled to a lump sum equal
to (i) any earned but unpaid base salary, (ii) any earned but unpaid annual bonus, (iii) any unreimbursed business expenses
and (iv) vested and accrued employee benefits, if any, to which the executive is entitled under employee benefit plans.
Director Compensation Table
The following table sets forth information concerning the annual and long-term compensation awarded to, earned
by, or paid to each director for all services rendered in all capacities to our company, or any of its subsidiaries, for the last
fiscal year.
104
Name
Peter Kight
Paul Garcia
Maryann Goebel
Robert Hartheimer
William Jacobs
Jeremy Schein
Richard Thornburgh
Fees earned or
paid in cash
($)
Stock awards
($)(1)(2)
Option
awards
($)
21,250
21,250
21,250
25,000
25,000
17,500
18,750
170,000
170,000
170,000
170,000
170,000
170,000
170,000
-
-
-
-
-
-
-
Non-equity
incentive plan
compensation
($)
Nonqualified
deferred
compensation
on earnings
($)
All other
compensation
($)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
($)
191,250
191,250
191,250
195,000
195,000
187,500
188,750
(1) The aggregate dollar value of the restricted stock units is based on $13.66 per share of Class A common stock on September 20, 2019.
(2)
The aggregate number of stock awards outstanding for each director as of December 31, 2019 is 2,445.
Narrative Disclosure to Director Compensation Table
Prior to the consummation of the Business Combination, we did not maintain a compensation policy for our
directors, and we did not pay any compensation to our directors. Following the Business Combination, we adopted a non-
employee director compensation policy. Under such policy, we compensate our non-employee directors with a combination
of cash and equity in the form of restricted stock units. In addition, we reimburse directors for their reasonable out-of-pocket
expenses incurred in connection with attending board and committee meetings.
Annual Cash Retainer
Under the non-employee director compensation policy, non-employee directors are entitled to an annual cash
retainer of $30,000, which is paid quarterly in arrears on October 1, January 1, April 1 and July 1 of each year. For fiscal
2019, each non-employee director received an annual cash retainer of $7,500 on October 1.
Annual Equity Award
An annual equity award is awarded to incumbent directors who are nominated for re-election at the next
stockholders’ meeting in the form of restricted stock units, calculated based on the closing price on the grant date (or the most
recent trading day if such date is not a trading day) and rounded down to the nearest whole unit. Restricted stock units vest
on the earlier of (x) the first anniversary of the date of grant and (y) the next regularly scheduled annual shareholder meeting
occurring in the year following the year of the date of grant. Vesting also accelerates upon a change of control or termination
from service as a result of the director’s death or disability. Vested restricted stock units are settled on the earlier of (x) the
date the director undergoes a “separation from service” as defined in Section 409A of the Internal Revenue Code and (y) a
change of control. For fiscal 2019, each director received an award of $170,000 in restricted stock units.
Committee and Committee Chair Fees
The non-employee director compensation policy also provides that non-employee directors serving as an audit
committee member will receive an additional $7,500 cash payment annually. Directors serving as committee members of
another committee (other than the audit committee) will receive an additional $5,000 cash payment annually. Such payments
are made quarterly in arrears on October 1, January 1, April 1 and July 1 of each year.
Directors serving as committee chairpersons will receive additional cash compensation. The non-employee director
compensation policy entitles the audit committee chairperson to $20,000, the compensation committee chairperson to
$15,000 and all other committee chairpersons (other than audit and compensation) to $10,000 (in each case, on an annual
basis). Such payments are made quarterly in arrears on October 1, January 1, April 1 and July 1 of each year.
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are Paul R. Garcia, William Jacobs and Jeremy Schein.
105
None of our executive officers currently serve, and in the past year has not served, (i) as a member of the
compensation committee or the board of directors of another entity, one of whose executive officers served on our
compensation committee, (ii) as a director of another entity, one of whose executive officers served on our compensation
committee, or (iii) as a member of the compensation committee of another entity, one of whose officers served on our board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Securities Authorized for Issuance Under Equity Compensation Plans
We maintain the Repay Holdings Corporation Omnibus Incentive Plan (the “Incentive Plan”), pursuant to which we
may grant awards of restricted stock, restricted stock units, stock options, stock appreciation rights and dividend equivalent
rights. The Incentive Plan was approved by our stockholders in connection with the Business Combination.
The following table includes information with respect to the Incentive Plan as of December 31, 2019. All
outstanding awards relate to our Class A common stock.
Available for
future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
(c)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
N/A
4,372,762
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
1,818,675(1)
—
—
—
1,818,675(1)
N/A
4,372,762
Equity Compensation plans approved by security
holders
Equity Compensation plans not approved by security
holders
Total
__________________________
(1) Represents shares of unvested restricted stock and restricted stock units outstanding under the Incentive Plan. Does not
include shares of Class A common stock with respected to previously granted awards of restricted stock that were
vested as of December 31, 2019.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our Class A common stock,
our Class V common stock and the “Post-Merger Repay Units” as of April 9, 2020. The Post-Merger Repay Units are
defined and described in Item 13 of Part III of this Annual Report on Form 10-K and such description is incorporated herein
by reference.
The information is provided with respect to (1) each person who is known by us to own beneficially more than 5%
of the outstanding shares of our Class A common stock, (2) each of our directors, (3) each of our named executive officers
and (4) all of our directors and executive officers, as a group.
Beneficial ownership is determined in accordance with the rules of the SEC, which generally deem a person to
beneficially own any shares of our Class A common stock the person has or shares voting or dispositive power over and any
additional shares obtainable within 60 days through the exercise of options, warrants or other purchase rights. Unless
otherwise indicated, each person possesses sole voting and investment power with respect to the shares identified as
beneficially owned. Percentage of beneficial ownership is based on 40,391,264 shares of our Class A Common Stock and
29,505,623 Post-Merger Repay Units outstanding on April 9, 2020.
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power
with respect to all shares beneficially owned by them. No director or executive officer has pledged any of the shares or units
106
disclosed below. Unless otherwise noted, the business address of each of the following entities or individuals is 3 West Paces
Ferry Road, Suite 200, Atlanta, Georgia 30305.
Class V
common stock /
Post-Merger
Repay Units(2)
Class A
common stock(1)
% of
Class
% of
Class
Voting
Power %(3)
-
-
-
-
-
-
10.3%
225,202
4,149,556
3,658,529
3,318,073
463,965
6.4%
5.2%
1.2%
*
-
*
*
1.9%
-
*
2.1%
*
1.0%
*
-
*
-
3.2%
-
*
12.4%
11.2%
1.6%
-
-
-
*
-
-
-
845,312
315,979
401,914
65,800
-
70,169
-
1,302,956
-
16,600
Name
Directors and Named Executive Officers:
John Morris(4)
Shaler Alias(5)
Timothy Murphy(6)
Paul R. Garcia
Maryann Goebel
Robert H. Hartheimer
William Jacobs(7)
Peter J. Kight
Jeremy Schein(8)
Richard E. Thornburgh(9)
All Directors and Executive Officers as a
Group
5% Stockholders
CC Payment Holdings, L.L.C.(10)
Neuberger Berman Group(11)
Baron Small Cap Fund(12)
Monroe Capital Management Advisors,
LLC(13)
Westwood Management Corp.(14)
__________________________
*
(1) Interests shown consist solely of Class A common stock and does not reflect the ownership of the Post-Merger Repay Units or the
Class A common stock exchangeable therefore pursuant to the Exchange Agreement (described in Item 13 of Part III of this Annual
Report on Form 10-K). Subject to the terms of the Exchange Agreement and the Hawk Parent Limited Liability Company Agreement,
each holder of a Post-Merger Repay Unit, subject to certain limitations, has the right to cause Hawk Parent to acquire all or a portion
of its Post-Merger Repay Units for shares of our Class A common stock at an initial exchange ratio of one share of Class A common
stock for each Post-Merger Repay Unit exchanged (subject to adjustments for any subdivisions or combination of the Post-Merger
Repay Units that is not accompanied by an identical subdivision or combination of our Class A common stock or, by any such
subdivision or combination of our Class A common stock that is not accompanied by an identical subdivision or combination of the
Post-Merger Repay Unit). In connection with such exchange, the corresponding number of shares of Post-Merger Repay Units will be
cancelled. Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial ownership of a security as to which that person,
directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares voting power and/or
investment power of such security and as to which that person has the right to acquire beneficial ownership of such security within 60
days. The Company has the option to deliver cash in lieu of shares of Class A common stock upon exercise by such holder of its
exchange right. As a result, beneficial ownership of Class V common stock and Post-Merger Repay Units is not reflected as beneficial
ownership of shares of our Class A common stock for which such Post-Merger Repay Units may be exchanged.
-
4,004,058
3,500,000
2,500,000
2,171,257
66.3%
-
-
28.0%
5.7%
5.0%
-
9.9%
8.7%
less than one percent.
6.2%
5.4%
3.6%
3.1%
19,564,816
8,460,884
28.7%
18.0%
-
-
-
-
-
-
(2) Each holder of Post-Merger Repay Units also holds one share of Class V common stock and is entitled to a number of votes that is
equal to the product of (i) the total number of Post-Merger Repay Units held by such holder multiplied by (ii) the exchange ratio
between the Post-Merger Repay Units and Class A common stock, which will initially be one-for-one. Subject to the terms of the
Exchange Agreement, the Post-Merger Repay Units are initially exchangeable for shares of Class A common stock.
(3) Represents percentage of voting power of our Class A common stock and Class V common stock voting together as a single class.
(4) Represents securities held of record by (i) John Morris, individually, (ii) the 2018 JAM Family Charitable Trust dated March 1, 2018
(the “JAM Family Charitable Trust”) and (iii) JOSEH Holdings, LLC (together with the JAM Family Charitable Trust, the “Morris
Entities”). John Morris owns all of the voting ownership interests of JOSEH Holdings, LLC and serves as the sole member of its board
of managers. John Morris is the sole trustee of the JAM Family Charitable Trust. Mr. Morris has voting and investment power over
the securities held by the Morris Entities. Mr. Morris has sole voting power over 4,503,841 shares and sole dispositive power over
4,024,866 shares. The number of shares of Class A common stock beneficially owned by Mr. Morris includes 478,975 shares of
107
restricted Class A common stock that remain subject to time-based vesting. JOSEH Holdings has sole voting and dispositive power
over 3,149,397 shares. Mr. Morris is an officer and director of the Company.
(5) Represents securities held of record by (i) Shaler Alias, individually, and (ii) Alias Holdings, LLC (“Alias Holdings”). Shaler Alias
owns all of the voting ownership interests of Alias Holdings. He also serves as the sole member of its board of managers. Mr. Alias
has voting and investment power over the securities held by Alias Holdings. Mr. Alias has sole voting power over 3,634,052 shares
and sole dispositive power over 3,464,608 shares. The number of shares of Class A common stock beneficially owned by Mr. Alias
includes 169,444 shares of restricted Class A common stock that remain subject to vesting. Alias Holdings has sole voting and
dispositive power over 3,172,988 shares. Mr. Alias is an officer and director of the Company.
(6) Represents securities held of record by (i) Timothy Murphy, individually, and (ii) The Murphy Family Irrevocable Trust u/a/d
December 31, 2018 (the “Murphy Trust”). Timothy Murphy is the investment adviser of the Murphy Trust. Mr. Murphy has voting
and investment power over the securities held by the Murphy Trust. Mr. Murphy has sole voting power over 865,879 shares and sole
dispositive power over 609,715 shares. The number of shares of Class A common stock beneficially owned by Mr. Murphy includes
256,164 shares of restricted Class A common stock that remain subject to vesting. The Murphy Trust has sole voting and dispositive
power over 463,965 shares. Mr. Murphy is an officer of the Company.
(7) Excludes shares listed in footnote 10 below. Mr. Jacobs is an Operating Partner of Corsair Capital LLC.
(8) Excludes shares listed in footnote 10 below. Mr. Schein is a Partner of Corsair Capital LLC.
(9) Excludes shares listed in footnote 10 below. Mr. Thornburgh is a Senior Adviser of Corsair Capital LLC.
(10) Based solely on information obtained from Amendment No. 2 to Schedule 13D filed with the SEC on January 3, 2020, and represents
securities held of record by CC Payment Holdings, L.L.C. (the “Payment Holdings LLC”). Corsair Capital LLC is the general partner
of (a) Corsair IV Management AIV, L.P. (“Corsair IV AIV”), which is the general partner of Corsair IV Payment Holdings Partners,
L.P. (which holds all of the limited liability company interests of the Payment Holdings LLC), and (b) Corsair IV Management L.P.
(“Corsair IV”), which is (i) the managing member of the Payment Holdings LLC, and (ii) the general partner of Corsair IV Payment
Holdings Investors, L.P. (the majority limited partner of Corsair IV Payment Holdings Partners, L.P.) (collectively, the “Corsair
Entities”). As such, each of the Corsair Entities may be deemed to have beneficial ownership of the securities held by Payment
Holdings LLC. The Corsair Entities have shared voting power and dispositive power over the shares. The principal business address
for each of the entities and the persons identified in this paragraph is c/o Corsair Capital, 717 Fifth Avenue, 24th Floor, New York,
NY 10022.
(11) Based solely on information obtained from Amendment No. 2 to Schedule 13G filed with the SEC on March 10, 2020 by Neuberger
Berman Group LLC and represents securities held of record by (i) Neuberger Berman Group LLC, (ii) Neuberger Berman Investment
Advisers LLC, (iii) Neuberger Berman Alternative Funds, (iv) Neuberger Berman Long Short Fund and (v) Neuberger Berman Equity
Funds (the “Neuberger Entities”). Neuberger Berman Group LLC and its affiliates may be deemed to be beneficial owners of
securities for purposes of Exchange Act Rule 13d-3 because they or certain affiliated persons have shared power to retain, dispose of
or vote the securities of unrelated clients. Neuberger Berman Group LLC and Neuberger Berman Investment Advisers LLC have
shared voting power with respect to 3,998,172 shares and shared power to dispose of 4,004,058 shares. Neuberger Berman
Alternative Funds and Neuberger Berman Long Short Fund have shared voting and dispositive power for 2,091,758 shares.
Neuberger Berman Equity Funds has shared voting power and dispositive power over 1,065,327 shares. The primary business address
of the Neuberger Entities is 1290 Avenue of the Americas, New York, NY 10104.
(12) Based solely on information contained in the Schedule 13G filed with the SEC on February 18, 2020, and represents securities held of
record by BAMCO Inc., Baron Capital Group, Inc. and Ronald Baron, who have shared voting power and shared dispositive power
over the shares. BAMCO Inc. (“BAMCO”) and Baron Capital Management, Inc. (“BCM”) are subsidiaries of Baron Capital Group,
Inc. (“BCG”) and Ronald Baron owns a controlling interest in BCG. The principal business address for each of the entities and
persons identified in this paragraph is 767 Fifth Avenue, 49th Floor, New York, NY 10153.
(13) Based solely on information contained in the Schedule 13G filed with the SEC on July 22, 2019, and does not include the 976,116
shares listed in the Prospectus Supplement filed with the SEC on November 19, 2019 by Repay. Monroe Capital Management
Advisors, LLC (“MCMA”) is investment advisor of (i) Monroe Capital Private Credit Fund II LP (“Credit Fund II”); (ii) Monroe
Capital Private Credit Fund II (Unleveraged) LP (“Unleveraged Credit Fund II”); (iii) Monroe Capital Private Credit Fund II-O
(Unleveraged Offshore) LP (“Unleveraged Offshore Credit Fund II”); (iv) Monroe Capital Private Credit Fund III LP (“Credit Fund
III”); (v) Monroe Capital Private Credit Fund III (Unleveraged) LP (“Unleveraged Credit Fund III”); (vi) Monroe Capital Fund SV
S.a.r.l. - Fund III (Unleveraged) Compartment (“Unleveraged Offshore Credit Fund III”); (vii) Monroe Capital Private Credit Fund III
(Lux) Financing Holdco LP (“Lux Credit Fund III”); (viii) Monroe Private Credit Fund A LP (“Credit Fund A” and, collectively with
Credit Fund II, Unleveraged Credit Fund II, Unleveraged Offshore Credit Fund II, Credit Fund III, Unleveraged Credit Fund III,
Unleveraged Offshore Credit Fund III and Lux Credit Fund III, the “Monroe Funds”). Based solely on information contained in the
Schedule 13G filed with the SEC on July 11, 2019, (i) Credit Fund II had shared voting and dispositive power over 387,038 shares,
(ii) Unleveraged Credit Fund II had shared voting and dispositive power over 52,597 shares, (iii) Unleveraged Offshore Credit Fund II
had shared voting and dispositive power over 60,365 shares, (iv) Credit Fund III had shared voting and dispositive power over
668,925 shares, (v) Unleveraged Credit Fund III had shared voting and dispositive power over 158,925 shares, (vi) Unleveraged
Offshore Credit Fund III had shared voting and dispositive power over 156,237 shares, (vii) Lux Credit Fund III had shared voting and
dispositive power over 265,913 shares and (viii) Credit Fund A had shared voting and dispositive power over 750,000 shares. As the
investment of each of the Monroe Funds, MCMA may be deemed to beneficially own the shares of Class A common stock directly
owned by the Monroe Funds and has shared voting and dispositive power over the shares. Mr. Theodore Koenig has voting and
dispositive power over any such shares due to his ownership interests in MCMA. Mr. Koenig disclaims beneficial ownership over any
108
shares of Class A common stock held by the Monroe Funds and MCMA. The principal business address of Monroe Capital
Management Advisors, LLC is 311 South Wacker Drive, Suite 6400, Chicago, IL 60606.
(14) Based solely on information contained in the Schedule 13G filed with the SEC on February 14, 2020 by Westwood Management
Corp. (“Westwood”). Westwood has sole voting power and sole dispositive power with respect to the shares. The principal business
address for Westwood is 200 Crescent Court, Suite 1200, Dallas, TX 75201.
Changes in Control
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Party Transactions
Thunder Bridge Related Person Transactions
Founder Shares
Thunder Bridge Acquisition LLC (the “Sponsor”) held an aggregate of 6,450,000 shares of Thunder Bridge’s Class
B ordinary shares prior to the Business Combination. Of those shares (sometimes referred to as “Founder Shares”), 2,335,000
were forfeited in connection with the closing (the “Closing”) of the Business Combination, as described below. In connection
with the Business Combination, each of the issued and outstanding Founder Shares were converted into shares of Class A
common stock.
Forward Contract
In connection with its initial public offering, Thunder Bridge entered into a Contingent Forward Purchase Contract
(“Forward Contract”) with Monroe Capital, LLC (“Monroe Capital”), a member of the Sponsor, granting Monroe Capital the
right to purchase, at its option exercised by consenting to Thunder Bridge’s initial business combination, 5,000,000 units of
Thunder Bridge at $10.00 per unit, for aggregate gross proceeds of $50,000,000 in a private placement to occur concurrently
with the completion of Thunder Bridge’s initial business combination. The Forward Contract also provided that, if Monroe
Capital consented to a business combination, Monroe Capital would obtain a right of first refusal to participate in up-to 51%
of any debt financing in such initial business combination and to act as lead arranger and agent in the debt financing.
On January 21, 2019, Monroe Capital, the Sponsor and Thunder Bridge executed a letter agreement relating to the
Forward Contract pursuant to which Monroe Capital consented to the Business Combination. However, in order to facilitate
the certain debt financing arrangements in connection with the Business Combination, Monroe agreed to waive its right of
first refusal on debt financings of the Company in connection with the Transactions and both the Company and Monroe
agreed that Monroe would not purchase any Units under the Forward Contract.
Insider Letter Agreement
Thunder Bridge also entered into a letter agreement with the Sponsor and its directors and officers (including Robert
H. Hartheimer and Peter J. Kight), dated June 18, 2018 (the “Insider Letter Agreement”), containing provisions relating to
lock-up restrictions applicable to the Founder Shares and other matters, including but not limited to, those relating to the trust
account of Thunder Bridge and waiver of redemption rights. Pursuant to the Insider Letter Agreement, 4,115,000 shares held
by the Sponsor were subject to lock-up restrictions until the earlier of (A) one year after the Closing of the Business
Combination or (B) subsequent to the Business Combination, (x) if the last sale price of the shares equals or exceeds $12.00
per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and similar transactions) for any 20
trading days within any 30-trading day period commencing at least 150 days after the Closing of the Business Combination
or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar
transaction that results in all of the Company’s stockholders having the right to exchange their shares for cash, securities or
other property. On January 7, 2020, the lock-up restrictions expired because the closing price of our Class A common stock
exceeded $12.00 per share for at least 20 trading days within the prescribed 30-trading day period.
109
Administrative Services Agreement and Related Matters
Thunder Bridge entered into an Administrative Services Agreement with First Capital Group, LLC, an affiliate of
the Sponsor, pursuant to which Thunder Bridge agreed to pay a total of $10,000 per month for office space, administrative
and support services to such affiliate. Upon completion of the Business Combination, Thunder Bridge ceased paying these
monthly fees. Accordingly, the Sponsor’s affiliate was paid a total of $70,000 ($10,000 per month) for office space,
administrative and support services and reimbursement for out-of-pocket expenses during the year ended December 31, 2019.
The Sponsor, its officers and directors, or any of their respective affiliates, were entitled to reimbursement for any
out-of-pocket expenses incurred in connection with activities on behalf of Thunder Bridge, such as identifying potential
target businesses and performing due diligence on suitable business combinations. The audit committee of Thunder Bridge
reviewed on a quarterly basis all payments that were made to the Sponsor, officers, directors or their affiliates and determined
which expenses and the amount of expenses that will be reimbursed. There was no cap or ceiling on the reimbursement of
out-of-pocket expenses incurred by such persons in connection with activities on behalf of Thunder Bridge; however, the
amount of fees that Thunder Bridge was allowed to incur in connection with the Business Combination was capped at
$1,500,000 under the Merger Agreement, unless such cap was waived or increased by Hawk Parent (however, see “Sponsor
Letter Agreement” below for additional provisions regarding Thunder Bridge’s expenses and obligations).
Promissory Note
On April 15, 2019, Thunder Bridge executed a promissory note with the Sponsor, whereby Thunder Bridge may
borrow up to $600,000. The note was non-interest bearing and matured on the date of the consummation of the Business
Combination. All advances under the note were at the discretion of the Sponsor.
Registration Rights Agreement
Thunder Bridge entered into a registration rights agreement with respect to the Founder Shares, the warrants sold in
a private placement prior to the Business Combination (the “Private Warrants”) and warrants issued upon conversion of
working capital loans (if any). At the completion of the Business Combination, Thunder Bridge entered into an amendment
to this agreement to cover the shares of Class A common stock of the Company owned by the parties thereto or issuable in
exchange for warrants owned by the parties as registrable securities thereunder. Additionally, the amendment changed the
registration rights so that they rank pari passu with the registration rights of the parties under the Repay Unitholders
Registration Rights Agreement described below.
Sponsor Letter Agreement
Simultaneously with the execution of the Merger Agreement, the Sponsor entered into a letter agreement with
Thunder Bridge and Hawk Parent (as amended, the “Sponsor Letter Agreement”), pursuant to which the Sponsor, at the
Closing (i) forfeited 2,335,000 of its Founder Shares for cancellation and (ii) deposited with an escrow agent 2,965,000 of the
shares of Class A common stock of the Company to be received in the Domestication to be held in escrow (such shares, the
“Escrow Shares”), along with any earnings or proceeds thereon. The Sponsor Letter Agreement provided that fifty percent of
the Escrow Shares would vest and be released from escrow to the Sponsor (along with any related earnings and proceeds) if
at any time prior to the seventh anniversary of the Closing the closing price of shares of Class A common stock (or any
successor equity security) on the principal exchange on which such securities are then listed or quoted have been at or above
$11.50 for 20 trading days over a 30 trading day period (subject to equitable adjustment for stock splits, stock dividends,
reorganizations or extra ordinary dividends), which escrow release criteria was achieved as of August 14, 2019. The Sponsor
Letter Agreement further provided that 100% of the Escrow Shares would vest and be released from escrow to the Sponsor
(along with any related earnings and proceeds) if at any time prior to the seventh anniversary of the Closing the closing price
of shares of Class A common stock (or any successor equity security) on the principal exchange on which such securities are
then listed or quoted have been at or above $12.50 for 20 trading days over a 30 trading day period (subject to equitable
adjustment for stock splits, stock dividends, reorganizations or extra ordinary dividends), which escrow release criteria was
achieved as of September 30, 2019.
The Sponsor Letter Agreement also provides that in the event that Thunder Bridge’s unpaid expenses and
obligations as of the Closing are greater than $21.75 million, then the Sponsor will forfeit a number of Escrow Shares equal
in value to the excess of such expenses and obligations over such cap, with each Escrow Share valued at the price per share
paid to each Thunder Bridge shareholder who elected to redeem its shares in connection with the Business Combination. The
aggregate unpaid expenses and obligations of Thunder Bridge as of the Closing were approximately $20,070,000.
Accordingly, no Escrow Shares were forfeited.
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Pursuant to the Sponsor Letter Agreement, the parties thereto consented to the Sponsor transferring 8,000,000 of its
Private Warrants to certain of the PIPE Investors (as defined below) pursuant to the Lock-up Agreement (as defined below),
and delivered to Thunder Bridge for cancellation its remaining Private Warrants after giving effect to such transfer, and the
Sponsor waived with respect to its Private Warrants any rights that it might otherwise have to receive a $1.50 cash payment
for each of its Private Warrants.
Subscription Agreements; Lock-up Agreements
On May 9, 2019, Thunder Bridge entered into the Subscription Agreements (each, a “Subscription Agreement”)
with certain accredited investors and qualified institutional buyers (collectively, the “PIPE Investors”) pursuant to which
Thunder Bridge agreed to issue and sell to the PIPE Investors an aggregate of 135,000,000 Thunder Bridge Class A ordinary
shares, at a price of $10.00 per share, simultaneously with or immediately prior to the Closing (the “PIPE Investment”). The
PIPE Investment closed on July 11, 2019, and the proceeds from the PIPE Investment were used to fund a portion of certain
payments required in connection with the Business Combination. As part of the PIPE Investment, Peter J. Kight purchased
500,000 Class A ordinary shares, at a price of $10.00 per Class A ordinary share.
In connection with the PIPE Investment, on May 9, 2019, certain PIPE Investors, holding in the aggregate 8,000,000
shares, entered into a letter agreement by and among Thunder Bridge, the Sponsor and the PIPE Investors named therein (the
“Lock-up Agreement”). Pursuant to the Lock-up Agreement, the PIPE Investors party thereto agreed, for a period
commencing on the Closing and ending one hundred twenty (120) days thereafter, not to engage in a Prohibited Transfer (as
defined in the Lock-up Agreement (which generally includes all sales, lending and other transfer arrangements, subject to
specified exceptions)) with respect to the shares acquired by such PIPE Investor pursuant to the Subscription Agreement and
the Private Warrants (and any shares issuable upon exercise of such Private Warrants) acquired by such PIPE Investor from
the Sponsor pursuant to the Lock-up Agreement. In consideration for entering into the Lock-up Agreement, the Sponsor
agreed to transfer to the PIPE Investors party to the Lock-up Agreement an aggregate of 8,000,000 Private Warrants held by
the Sponsor. The Private Warrants transferred pursuant to the Lock-up Agreement were subject to the terms of a warrant
amendment such that following such amendment and upon completion of the Business Combination they became exercisable
for an aggregate of 2,000,000 Class A ordinary common stock (except that each of the PIPE Investors who received the
Private Warrants waived its rights to receive the $1.50 cash payment for any warrant it holds).
Certain Forfeitures and Waivers
In connection with the PIPE Financing, on May 9, 2019, Cantor Fitzgerald & Co. (“Cantor”) entered into a letter
agreement (the “Cantor Forfeiture Agreement”) with Thunder Bridge and Hawk Parent, pursuant to which Cantor agreed to
forfeit all 350,000 of its Private Warrants and waived its rights to the right to receive payment of $1.50 to be paid to the
holders of Warrants for each Warrant owned.
Simultaneously with the execution of the Merger Agreement, Thunder Bridge, Hawk Parent and the Sponsor,
entered into a Waiver Agreement pursuant to which the Sponsor agreed to waive certain of its anti-dilution rights under
Thunder Bridge’s Memorandum and Articles of Association that may have been otherwise triggered upon the completion of
the financing transactions in connection with the Merger Agreement or the transactions contemplated by the Merger
Agreement.
Hawk Parent Related Person Transactions
In September 2016, Hawk Parent entered into a management agreement with Corsair Investments, an affiliate of its
significant equityholder Corsair, pursuant to which Corsair Investments agreed to provide management and consulting
services to Hawk Parent in exchange for fees. This agreement was terminated in connection with the completion of the
Business Combination (other than certain limitation of liability and indemnification provisions relating to periods prior to the
termination). Hawk Parent paid to Corsair Investments $210,753 in the year ended December 31, 2019 in respect of
management fees under the management agreement.
Certain of our executive officers, directors and Corsair are parties to the limited liability company agreement of
Hawk Parent. During the year ended December 31, 2019, Hawk Parent declared and paid total cash tax distributions of
approximately $6.92 million, of which approximately $3.76 million was paid to Corsair, approximately $416,000 was paid to
Bill Jacobs, approximately $745,000 was paid to John Morris (including certain affiliated entities), approximately $943,000
was paid to Shaler Alias (including certain affiliated entities), approximately $268,000 was paid to Tim Murphy (including
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certain affiliated entities), approximately $218,000 was paid to Jason Kirk, approximately $78,000 was paid to Susan
Perlmutter, approximately $93,000 was paid to Mike Jackson, and approximately $71,000 was paid to Jake Moore.
In January 2018, Hawk Parent, through its subsidiary, entered into a sponsorship agreement with CapStar Bank
(“CapStar”), an entity then affiliated with its significant equityholder Corsair, pursuant to which CapStar provides
sponsorship to allow Hawk Parent’s subsidiary to settle processing transactions through the payment networks. During the
year ended December 31, 2019, Hawk Parent’s subsidiary paid approximately $651,848 to CapStar. Hawk Parent and its
subsidiaries maintain relationships with multiple sponsor banks, and we believe the terms of the transactions described above
were comparable to terms we could have obtained in arm’s-length dealings with unrelated third parties. As of December 31,
2019, Corsair was no longer affiliated with CapStar.
In connection with the Business Combination, Hawk Parent fully accelerated the vesting of all outstanding profits
interests of Hawk Parent that remained unvested at such time. All outstanding profits interests, including those unvested
profits interests that became vested profits interests in connection with the Business Combination, were exchanged into Hawk
Parent units immediately prior to the Closing based on the fair market value of such profits interests as determined pursuant
to the terms of the existing limited liability company agreement of Hawk Parent at that time. Under the terms of the Merger
Agreement, at the effective of the Business Combination, the Hawk Parent units (including those issued in exchange for
unvested profits interests) were converted into the right to receive (i) certain cash consideration at Closing, (ii) certain units
representing non-voting limited liability company interests in Hawk Parent (the “Post-Merger Repay Units”), and (iii) the
contingent right to receive additional Post-Merger Repay Units (as discussed below under “Post-Business Combination
Arrangements – Earn-Out Units”). The Merger Agreement also contained provisions regarding certain escrows, holdbacks
and post-Closing adjustments. The aggregate amount of cash consideration paid at Closing under the Merger Agreement in
respect of Hawk Parent units was approximately $260.8 million, and the aggregate number of Post-Merger Repay Units
issued at Closing under the Merger Agreement in respect of Hawk Parent units was 21,985,297. Of such aggregate cash
consideration paid at Closing in respect of the Hawk Parent units, approximately $177.4 million was paid to Corsair,
approximately $32.5 million was paid to Mr. Morris (including certain affiliated entities), approximately $29.6 million was
paid to Mr. Alias (including certain affiliated entities), approximately $3.7 million was paid to Mr. Murphy (including certain
affiliated entities), approximately $3.1 million was paid to Mr. Kirk, approximately $1.4 million was paid to Ms. Perlmutter,
approximately $1.1 million was paid to Mr. Jackson, approximately $821,000 was paid to Mr. Moore, and approximately
$1.8 million was paid to Mr. Jacobs. Of such aggregate Post-Merger Repay Units issued at Closing in respect of the Hawk
Parent units, 14,952,465 Post-Merger Repay Units were issued to Corsair, 2,738,905 Post-Merger Repay Units were issued to
Mr. Morris (including certain affiliated entities), 2,492,629 Post-Merger Repay Units were issued to Mr. Alias (including
certain affiliated entities), 312,704 Post-Merger Repay Units were issued to Mr. Murphy (including certain affiliated entities),
257,261 Post-Merger Units were issued to Mr. Kirk, 118,458 Post-Merger Units were issued to Ms. Perlmutter, 90,992 Post-
Merger Units were issued to Mr. Jackson, 69,078 Post-Merger Units were issued to Mr. Moore, and 153,237 Post-Merger
Units were issued to Mr. Jacobs.
Post-Business Combination Arrangements
Exchange Agreement
In connection with the Closing, we entered into the Exchange Agreement with holders (the “Repay Unitholders”) of
the Post-Merger Repay Units, which provides the Repay Unitholders with the right to elect to exchange such Post-Merger
Repay Units into shares of Class A common stock (as described below). The Exchange Agreement provides that Repay
Unitholders are able to exchange all or any portion of their Post-Merger Repay Units for shares of Class A common stock by
delivering a written notice to both Hawk Parent and us and surrendering such Post-Merger Repay Units to us, subject to
certain limitations. The initial exchange ratio is one Post-Merger Repay Unit for one share of Class A common stock. The
exchange ratio will be adjusted for any subdivision (split, unit distribution, reclassification, reorganization, recapitalization or
otherwise) or combination (by reverse unit split, reclassification, reorganization, recapitalization or otherwise) of the Post-
Merger Repay Units that is not accompanied by an identical subdivision or combination of the Class A common stock or, by
any such subdivision or combination of the Class A common stock that is not accompanied by an identical subdivision or
combination of the Post-Merger Repay Units. If the Class A common stock is converted or changed into another security,
securities or other property, on any subsequent exchange an exchanging Repay Unitholder will be entitled to receive such
security, securities or other property. The exchange ratio will also adjust in certain circumstances when we acquire Post-
Merger Repay Units other than through an exchange for our shares of Class A common stock.
Hawk Parent and each Repay Unitholder will bear its own expense regarding any exchange, except that Hawk
Parent will be responsible for transfer tax, stamp taxes and similar duties (unless the applicable holder has requested that the
Company issue the shares of Class A common stock in the name of another holder).
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Tax Receivable Agreement
In connection with the Closing, we entered into the Tax Receivable Agreement with the Repay Unitholders.
As described above, Repay Unitholders may, subject to certain conditions, exchange their Post-Merger Repay Units
for our shares of Class A common stock on a one-for-one basis, subject to the terms of the Exchange Agreement, including in
certain cases adjustments as set forth therein. Hawk Parent intends to have in effect an election under Section 754 of the
Internal Revenue Code for each taxable year in which an exchange of Post-Merger Repay Units for shares of Class A
common stock occurs, which is expected to result in increases to the tax basis of the assets of Hawk Parent at the time of an
exchange of Post-Merger Repay Units. The exchanges are expected to result in increases in the tax basis of the tangible and
intangible assets of Hawk Parent. These increases in tax basis may reduce the amount of tax that we would otherwise be
required to pay in the future. These increases in tax basis 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.
The Tax Receivable Agreement provides for the payment by us to exchanging Repay Unitholders of 100% of the tax
benefits, if any, that we realize (or in certain cases are deemed to realize) as a result of these increases in tax basis and certain
other tax attributes of Hawk Parent and tax benefits related to entering into the Tax Receivable Agreement, including tax
benefits attributable to payments under the Tax Receivable Agreement. This payment obligation is an obligation of the
Company and not of Hawk Parent. For purposes of the Tax Receivable Agreement, the cash tax savings in income tax will be
computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount
of such taxes that the Company would have been required to pay had there been no increase (or decrease) to the tax basis of
the assets of Hawk Parent as a result of the exchanges and had the Company not entered into the Tax Receivable Agreement.
Such increase or decrease will be calculated under the Tax Receivable Agreement without regard to any transfers of Post-
Merger Repay Units or distributions with respect to Post-Merger Repay Units before the exchange under the Exchange
Agreement.
The term of the Tax Receivable Agreement will continue until all such tax benefits have been utilized or expired
unless the Company exercises its right to terminate the Tax Receivable Agreement for an amount representing the present
value of anticipated future tax benefits of the Tax Receivable Agreement.
We expect that, as a result of the size of the increases in the tax basis of the tangible and intangible assets of Hawk
Parent, the payments that we may make under the Tax Receivable Agreement will be substantial. There may be a material
negative effect on our liquidity if, as a result of timing discrepancies or otherwise, the payments under the Tax Receivable
Agreement exceed the actual cash tax savings that we realize in respect of the tax attributes subject to the Tax Receivable
Agreement and/or distributions to the Company by Hawk Parent are not sufficient to permit the Company to make payments
under the Tax Receivable Agreement after it has paid taxes. Late payments under the Tax Receivable Agreement generally
will accrue interest at an uncapped rate equal to LIBOR plus 500 basis points. The payments under the Tax Receivable
Agreement are not conditioned upon continued ownership of us by Repay Unitholders. The rights of each party under the Tax
Receivable Agreement other than the Company are assignable.
Corsair Stockholders Agreement
In connection with the Closing, we entered into a Stockholders Agreement with Corsair (the “Corsair Stockholders
Agreement”). Pursuant to the Corsair Stockholders Agreement, (i) for so long as Corsair and its affiliates beneficially own at
least 12% of the outstanding Class A common stock (including pursuant to Post-Merger Repay Units that can be exchanged
pursuant to the Exchange Agreement), Corsair will have the right to select two designees to be nominated for election to our
Board by the nominating and governance committee of the Board (consisting of one Class I director (whose initial term
expires at the Company’s annual meeting of stockholders in 2020, and whose subsequent terms will last until the Company’s
third succeeding annual meeting of stockholders thereafter) and one Class II director (whose initial term expires at the
Company’s annual meeting of stockholders in 2021, and whose subsequent terms will last until the Company’s third
succeeding annual meeting of stockholders thereafter)) and (ii) for so long as Corsair and its affiliates beneficially own at
least 5% of the outstanding Class A common stock (including pursuant to Post-Merger Repay Units that can be exchanged
pursuant to the Exchange Agreement), Corsair will have the right to select one designee to be nominated by the nominating
and governance committee of the Board (with the director’s class depending on which of its prior Corsair designees is then
serving, and if none, then Corsair will be entitled to determine whether its designee will be nominated as a Class I director or
a Class II director (such designees, the “Corsair Designees”).
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In the event that William Jacobs ceases to serve as a director of the Company, Corsair will have the right to select
one designee to be nominated by the nominating and governance committee of the Board as a Class III director (whose initial
term expires at the Company’s annual meeting of stockholders in 2022, and whose subsequent terms will last until the
Company’s third succeeding annual meeting of stockholders thereafter) a new independent director (the “New Neutral
Director” and, either Mr. Jacobs or the New Neutral Director, the “Neutral Director”); provided that, if at the time of such
designation Corsair and its affiliates beneficially own less than 23% of the Class A common stock (including pursuant to
Post-Merger Repay Units that can be exchanged pursuant to the Exchange Agreement), the nominating and governance
committee of the Board will have the right to approve any such Neutral Director. Each Corsair Designee and New Neutral
Director must be eligible to serve as a director, and the Neutral Director and all but one of the Corsair Designees must also be
considered “independent”, in each case under applicable Nasdaq rules (or any other market upon which shares of Class A
common stock are then traded). The Corsair Designees and the New Neutral Director may only be removed with the consent
of Corsair, and in the event of any vacancy with respect to the seat of a Corsair Designee or the New Neutral Director, we
will use our best efforts to fill such vacancy with a person designated by Corsair. We have also generally agreed to use our
best efforts to cause the Corsair Designees and the Neutral Director to be elected to our Board. Additionally, any change in
the size of our Board requires the consent of Corsair. Each Corsair Designee and the Neutral Director will be entitled to
receive compensation consistent with the compensation received by other non-employee directors, including any fees and
equity awards, and will be entitled to the same rights and privileges applicable to all other members of our Board, including
indemnification and exculpation rights and director and officer insurance.
Founders’ Stockholders Agreement
In connection with the Closing, the Company entered into a Stockholders Agreement with Mr. Alias and Mr. Morris
(together, the “Repay Founders”) (the “Founders’ Stockholders Agreement”).
Under the Founders’ Stockholders Agreement, Mr. Morris and Mr. Alias will serve on our Board (with Mr. Alias
being a Class I director and Mr. Morris being a Class III director). The Founders’ Stockholders Agreement provides that (i) if
Mr. Morris ceases to serve as Chief Executive Officer of the Company, he will immediately resign as a director and will no
longer be entitled to be designated to our Board, and (ii) if Mr. Alias ceases to serve as President of the Company, he will
immediately resign as a director and no longer be entitled to be designated to our Board. If Mr. Morris and/or Mr. Alias
resign, upon their termination, the Repay Founders together will be entitled to designate one designee for nomination to our
Board as an independent director to replace the resigning director(s) (but no more than one independent director in total),
which independent director will be subject to the approval of Corsair if Corsair and its affiliates collectively beneficially own
at least 5% of the outstanding Class A common stock (including pursuant to Post-Merger Repay Units) (the “Independent
Founder Designee” and together with either Mr. Morris and Mr. Alias if serving as a designee under the foregoing provisions,
the “Founder Designees”).
Each Founder Designee must be eligible to serve as a director, and the Independent Founder Designee must be
independent, in each case under applicable Nasdaq rules (or any other market upon which shares of Class A common stock
are then traded). Mr. Morris and Mr. Alias may only be removed upon termination of service as described above, and the
Independent Founder Designee may only be removed with the consent of the Repay Founders. In the event of any vacancy
with respect to the seat of the Independent Founder Designee, we will use our best efforts to fill such vacancy with such
person as designed by the Repay Founders (and approved by Corsair, if applicable). We also agree to use our best efforts to
cause the Founder Designees to be elected to our Board. Additionally, any change in the size of our Board requires the
consent of the Repay Founders. Mr. Morris and Mr. Alias will not be entitled to compensation (other than as officers of the
Company and expense reimbursements), but the Independent Founder Designee will be entitled to receive compensation
consistent with the compensation received by other non-employee directors, including any fees and equity awards. Each
Founder Designee will be entitled to the same rights and privileges applicable to all other members of Board, including
indemnification and exculpation rights and director and officer insurance.
Sponsor Stockholders Agreement
In connection with the Closing, the Company entered into a Stockholders Agreement with the Sponsor (the
“Sponsor Stockholders Agreement”).
Under the Sponsor Stockholders Agreement for the Sponsor, Peter J. Kight (or in the event of his death or
incapacity, Robert H. Hartheimer) (the “Sponsor Designator”) had the right to designate an individual (the “Sponsor
Designee”) to be nominated to serve as a Class I director on the Company Board; provided, that such Sponsor Designee must
have been eligible to serve as a director, qualify as “independent” and be qualified to serve on the audit committee of the
Board, in each case under applicable Nasdaq rules (or any other market upon which shares of Class A common stock are then
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traded), and be willing to serve on the audit committee. The Sponsor Designator agreed to continue to designate Mr. Garcia
as the Sponsor Designee as long as Mr. Garcia is willing to serve on the Company Board and meets the requirements to serve
as the Sponsor Designee as described above.
The Sponsor Stockholders Agreement terminated when the lock-up restrictions under the Insider Letter Agreement
expired on January 7, 2020.
Repay Unitholders Registration Rights Agreement
In connection with the Closing, we entered into the Repay Unitholders Registration Rights Agreement with Corsair
and the other Repay Unitholders. Under the Repay Unitholders Registration Rights Agreement, the Repay Unitholders are
entitled to registration rights that obligate the Company to register for resale under the Securities Act all or any portion of the
shares of Class A common stock issuable upon exchange for Post-Merger Repay Units pursuant to the Exchange Agreement
so long as such shares are not then restricted under any applicable support agreement or escrow agreement.
Under the Repay Unitholders Registration Rights Agreement, we have agreed to indemnify the Repay Unitholders
and each underwriter and each of their respective controlling persons against any losses or damages resulting from any untrue
statement or omission of a material fact in any registration statement or prospectus pursuant to which they sell Shares, unless
such liability arises from their misstatement or omission, and Repay Unitholders have agreed to indemnify the Company and
our officers and directors and controlling persons against all losses caused by their misstatements or omissions in those
documents.
Support Agreements
Simultaneously with the execution of the Merger Agreement (other than Richard E. Thornburgh, who entered into
such agreement on May 9, 2019), each of (i) Corsair, (ii) John A. Morris and Shaler V. Alias (each of whom are Repay
Unitholders who serve as Company directors) (the “Repay Unitholder Directors”) and (iii) Jeremy Schein and Richard E.
Thornburgh (each of whom are representatives of Corsair and serve as Company directors) (the “Corsair Directors”) entered
into support agreements (collectively, the “Support Agreements”) in favor of Thunder Bridge and Hawk Parent and their
present and future successors and subsidiaries (collectively, the “Covered Parties”). The Support Agreements executed by
each of Corsair and the Repay Unitholder Directors provided for each of Corsair and the Repay Unitholder Directors to vote
in favor of the Merger Agreement and related transactions. They also each agreed to a lock-up for a period of six months after
the Closing with respect to the any securities of the Company that they received under the Merger Agreement, and they each
agreed to non-competition and non-solicitation covenants.
Amended Operating Agreement
Concurrently with the completion of the Business Combination, the existing amended and restated limited liability
company agreement of Hawk Parent was amended and restated in its entirety to become the Amended Operating Agreement.
Pursuant to the Amended and Restated Operating Agreement, the Post-Merger Repay Units are entitled to share in the profits
and losses of Hawk Parent and to receive distributions as and if declared by the managing member of Hawk Parent and will
have no voting rights. The Company, as managing member of Hawk Parent may, in its sole discretion, authorize distributions
to the Hawk Parent members. All such distributions will be made pro rata in accordance with each member’s interest in
Hawk Parent.
The Amended Operating Agreement also provides for cash distributions, which we refer to as “tax distributions,” to
the holders of Post-Merger Repay Units if the Company, as the sole managing member of Hawk Parent, reasonably
determines that a holder, by reason of holding Post-Merger Repay Units, incurs an income tax liability. Generally, these tax
distributions will be computed based on the Company’s estimate of the net taxable income of Hawk Parent multiplied by an
assumed tax rate equal to the highest effective marginal combined United States federal, state and local income tax rate
prescribed for an individual or corporate resident in New York, New York (taking into account the non-deductibility of
certain expenses and the character of the Company’s income).
Upon the liquidation or winding up of Hawk Parent, all net proceeds thereof will be distributed one hundred percent
(100%) to the holders of Post-Merger Repay Units, pro rata based on their percentage interests.
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Escrow Agreement
In connection with the Business Combination, we entered into an escrow agreement with the Repay Unitholders and
Continental Stock Transfer & Trust Company, as escrow agent, whereby we agreed to deposit 60,000 Post-Merger Repay
Units to cover any negative post-Closing adjustments to the Merger Consideration for the Closing Adjustment Items. For
purposes of the Merger Agreement and the Escrow Agreement, the Escrow Units are ascribed a value of $10.00 per unit, with
an aggregate value of $600,000. On October 1, 2019, in connection with the post-closing adjustment provisions of the Merger
Agreement, 39,674 Post-Merger Repay Units were cancelled and 20,326 Post-Merger Repay Units were released from
escrow and are no longer subject to forfeiture. Of the Post-Merger Repay Units released from escrow, 13,121 Post-Merger
Repay Units were released to Corsair, 2,616 Post-Merger Repay Units were released to Mr. Morris (including certain
affiliated entities), 2,348 Post-Merger Repay Units were released to Mr. Alias (including certain affiliated entities), 431 Post-
Merger Repay Units were released to Mr. Murphy (including certain affiliated entities), 352 Post-Merger Units were released
to Mr. Kirk, 144 Post-Merger Units were released to Ms. Perlmutter, 137 Post-Merger Units were released to Mr. Jackson,
105 Post-Merger Units were released to Mr. Moore, and 205 Post-Merger Units were released to Mr. Jacobs.
Earn-Out Units
Pursuant to the Merger Agreement, we agreed to issue up to 7,500,000 additional Post-Merger Repay Units (the
“Earn-Out Units”) to Corsair and the other Repay Unitholders as follows (i) if, within the twelve month anniversary of the
Closing, the volume weighted average price of the Class A common stock is greater than or equal to $12.50 over any 20
trading days within any 30 trading day period, the Repay Unitholders would be entitled to receive 50% of the Earn-Out
Units; and (ii) if, within the twenty-four month anniversary of the Closing, the volume weighted average price of the Class A
common stock is greater than or equal to $14.00 over any 20 trading days within any 30 trading day period, the Repay
Unitholders would be entitled to receive 100% of the Earn-Out Units.
On September 30, 2019, the triggering event for the issuance of the first tranche of Earn-Out Units to the Repay
Unitholders occurred, as the volume weighted average closing price per share of the Company’s Class A common stock as of
that date had been greater than or equal to $12.50 over any 20 trading days within any 30 trading day period. As a result, we
issued 3,750,000 Earn-Out Units to the Repay Unitholders on October 1, 2019, which included 2,299,615 Post-Merger Repay
Units to Corsair, 458,504 Post-Merger Repay Units to Mr. Morris (including certain affiliated entities), 411,548 Post-Merger
Repay Units to Mr. Alias (including certain affiliated entities), 75,415 Post-Merger Repay Units to Mr. Murphy (including
certain affiliated entities), 61,645 Post-Merger Units to Mr. Kirk, 25,212 Post-Merger Units to Ms. Perlmutter, 24,022 Post-
Merger Units to Mr. Jackson, 18,415 Post-Merger Units to Mr. Moore, and 35,880 Post-Merger Units to Mr. Jacobs.
On December 24, 2019, the triggering event for the issuance of the second tranche of Earn-Out Units to the Repay
Unitholders occurred, as the volume weighted average closing price per share of the Company’s Class A common stock as of
that date had been greater or equal to than or equal to $14.00 over any 20 trading days within any 30 trading day period. As a
result, we issued 3,750,000 Earn-Out Units to the Repay Unitholders on December 31, 2019, which included 2,299,615 Post-
Merger Repay Units to Corsair, 458,504 Post-Merger Repay Units to Mr. Morris (including certain affiliated entities),
411,548 Post-Merger Repay Units to Mr. Alias (including certain affiliated entities), 75,415 Post-Merger Repay Units to Mr.
Murphy (including certain affiliated entities), 61,645 Post-Merger Units to Mr. Kirk, 25,212 Post-Merger Units to Ms.
Perlmutter, 24,022 Post-Merger Units to Mr. Jackson, 18,415 Post-Merger Units to Mr. Moore, and 35,880 Post-Merger
Units to Mr. Jacobs.
Indemnification of Directors and Officers
Our Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the Delaware
General Corporate Law (“DGCL”). In addition, our Articles of Incorporation provide that our directors will not be liable for
monetary damages for breach of fiduciary duty to the fullest extent permitted by the DGCL.
In addition, we have entered into indemnification agreements with each of our executive officers and directors. The
indemnification agreements provide the executive officers and directors with contractual rights to indemnification, expense
advancement, and reimbursement to the fullest extent permitted under the DGCL.
There is no pending litigation or proceeding naming any of our directors or officers to which indemnification is
being sought, and we are not aware of any pending or threatened litigation that may result in claims for indemnification by
any director or officer.
116
Statement of Policy Regarding Transactions with Related Persons
We have adopted a formal written policy providing that our officers, directors, nominees for election as directors,
beneficial owners of more than 5% of any class of our capital stock, any member of the immediate family of any of the
foregoing persons and any firm, corporation or other entity in which any of the foregoing persons is employed or is a general
partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest, are not
permitted to enter into a related party transaction with the Company without the approval of the nominating and corporate
governance committee, subject to certain exceptions. For more information, see the section entitled “Management.”
Director Independence
Our common stock is listed on Nasdaq. Under the rules of Nasdaq, independent directors must comprise a majority
of a listed company’s board of directors. In addition, the rules of Nasdaq require that, subject to specified exceptions, each
member of a listed company’s audit, compensation and nominating and corporate governance committees be independent.
Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board
of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. Audit committee members must also satisfy the additional independence
criteria set forth in Rule 10A-3 under the Exchange Act and the rules of Nasdaq. Compensation committee members must
also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act and the rules of Nasdaq.
In order to be considered independent for purposes of Rule 10A-3 under the Exchange Act and under the rules of
Nasdaq, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the
committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory,
or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed
company or any of its subsidiaries.
To be considered independent for purposes of Rule 10C-1 under the Exchange Act and under the rules of Nasdaq,
the board of directors must affirmatively determine that the member of the compensation committee is independent,
including a consideration of all factors specifically relevant to determining whether the director has a relationship to the
company which is material to that director’s ability to be independent from management in connection with the duties of a
compensation committee member, including, but not limited to: (i) the source of compensation of such director, including
any consulting, advisory or other compensatory fee paid by the company to such director; and (ii) whether such director is
affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company.
The Board has undertaken a review of the independence of each director and considered whether each director has a
material relationship with the Company that could compromise his or her ability to exercise independent judgment in
carrying out his or her responsibilities. As a result of this review, the Board has determined that Ms. Goebel and Messrs.
Hartheimer, Jacobs, Thornburgh, Kight, Schein and Garcia are “independent directors” as defined under the listing
requirements and rules of Nasdaq and the applicable rules of the Exchange Act.
117
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The audit committee selected Grant Thornton LLP (“Grant Thornton”) to serve as our independent registered
accounting firm for the fiscal year ending December 31, 2019. We first engaged Grant Thornton in 2018, and it has served as
our principal accounting firm since that date. The following table shows the fees for professional services rendered by Grant
Thornton for the audit of our annual financial statements for the years ended December 31, 2019 and December 31, 2018, and
fees billed for other services rendered by Grant Thornton during those periods.
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
All Other Fees(4)
Total
2019
2018
$ 693,271
52,544
-
-
$ 745,815
$ 206,085
256,260
-
-
$ 462,345
(1) Audit Fees. Audit Fees consist of fees for professional services rendered for the audits of our annual consolidated financial statements,
reviews of unaudited condensed consolidated quarterly financial statements, and consent procedures required in connection with our
Form S-3 Registration Statements, Form S-4 and Form S-4/A Registration Statements.
(2) Audit-Related Fees. Audit-Related Fees consist of fees for professional services that are reasonably related to the performance of the
audit or review of the Company’s financial statements and are not reported under “Audit Fees.”
(3) Tax Fees. Tax Fees consist of fees for professional services rendered with respect to federal and state tax compliance and tax advice.
This can include preparation of tax returns, claims for refunds, payment planning, and tax law interpretation.
(4) All Other Fees. All Other Fees consist of fees for professional services or costs not otherwise reported in Audit Fees, Audit-Related
Fees or Tax Fees. There were no other fees billed by Grant Thornton for the years ended December 31, 2019 and 2018.
Preapproval Policies and Procedures
All audit-related services, tax services and other non-audit services were pre-approved by the audit committee,
which concluded that the provision of such services by Grant Thornton was compatible with the maintenance of that firm’s
independence in the conduct of its auditing functions. The audit committee’s outside auditor independence policy provides
for pre-approval of audit and audit-related services specifically described by the committee on an annual basis and, in
addition, individual engagements anticipated to exceed pre-established thresholds must be separately approved.
118
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
PART IV
(1)
Financial Statements
The following Consolidated Financial Statements of Repay Holdings Corporation and the Reports of the
Independent Registered Public Accounting Firms are included in Part II, Item 8 of this report.
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the periods ended December 31, 2019 and July 11, 2019 and the years
ended December 31, 2018 and 2017
Consolidated Statements of Comprehensive Income for the periods ended December 31, 2019 and July 11, 2019 and
the years ended December 31, 2018 and 2017
Consolidated Statements of Stockholders’ Equity for the periods ended December 31, 2019 and July 11, 2019 and
the years ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the periods ended December 31, 2019 and July 11, 2019 and the years
ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
61
63
64
65
66
67
69
All financial statement schedules have been omitted as the information is not required under the related instruction
or is not applicable or because the information required is already included in the financial statements or the notes to those
financial statements.
119
(3)
Exhibits
Exhibit
Number
Description
2.1†
2.2†
2.3†
2.4†
2.5
2.6
2.7
3.1
3.2
3.3
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
Agreement and Plan of Merger, dated as of January 21, 2019, by and among Thunder Bridge, Merger Sub, Hawk
Parent, and the Repay Securityholder Representative named therein (incorporated by reference to Exhibit 2.1 of
Thunder Bridge’s Form 8-K (File No. 001-38531), filed with the SEC on January 22, 2019).
First Amendment to Agreement and Plan of Merger, dated February 11, 2019, by and among Thunder Bridge,
Merger Sub, Hawk Parent, and the Repay Securityholder Representative named therein (incorporated by
reference to Exhibit 2.1 of Thunder Bridge’s Form 8-K (File No. 001-38531), filed with the SEC on February 12,
2019).
Second Amendment to Agreement and Plan of Merger, dated May 9, 2019, by and among Thunder Bridge,
Merger Sub, Hawk Parent, and the Repay Securityholder Representative named therein (incorporated by
reference to Exhibit 2.1 of Thunder Bridge’s Form 8-K (File No. 001-38531), filed with the SEC on May 9,
2019).
Third Amendment to Agreement and Plan of Merger, dated June 19, 2019, by and among Thunder Bridge,
Merger Sub, Hawk Parent, and the Repay Securityholder Representative named therein (incorporated by
reference to Exhibit 2.1 of Thunder Bridge’s Form 8-K (File No. 001-38531), filed with the SEC on June 20,
2019).
Securities Purchase Agreement by and among Repay Holdings, LLC and the direct and indirect owners of
TriSource Solutions, LLC, as of August 13, 2019 (incorporated by reference to Exhibit 2.1 of the Company’s
Form 8-K (File No. 001-38531), filed with the SEC on August 19, 2019).
Asset Purchase Agreement, dated as October 11, 2019, by and among Mesa Acquirer LLC, Repay Holdings,
LLC, American Payment Services of Coeur D’Alene, LLC, North American Payment Solutions LLC, North
American Payment Solutions Inc., David Ford and Phillip Heath (incorporated by reference to Exhibit 2.1 of the
Company’s Form 8-K (File No. 001-38531), filed with the SEC on October 15, 2019).
Securities Purchase Agreement, dated as February 10, 2020, by and among Repay Holdings, LLC and the direct
and indirect owners of CDT Technologies, LTD (incorporated by reference to Exhibit 2.1 of the Company’s Form
8-K (File No. 001-38531), filed with the SEC on February 10, 2020).
Certificate of Corporate Domestication of Repay Holdings Corporation (incorporated by reference to Exhibit 3.1
to the Company’s Form 8-K (File No. 001-38531), filed with the SEC on July 17, 2019).
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-
K (File No. 001-38531), filed with the SEC on July 17, 2019).
Bylaws of the Company (incorporated by reference to Exhibit 3.3 of the Company’s Form 8-K (File No. 001-
38531), filed with the SEC on July 17, 2019).
Specimen Warrant Certificate of Thunder Bridge (incorporated by reference to Exhibit 4.3 of Thunder Bridge’s
Form S-1 (File No. 333-224581), filed with the SEC on June 8, 2018).
Warrant Agreement, dated June 18, 2018, between Thunder Bridge and Continental Stock Transfer & Trust
Company (incorporated by reference to Exhibit 4.1 of Thunder Bridge’s Form 8-K (File No. 001-38531), filed
with the SEC on June 22, 2018).
Amendment of Warrant Agreement, dated July 11, 2019, between Thunder Bridge and Continental Stock
Transfer & Trust Company (incorporated by reference to Exhibit 4.5 of the Company’s Form 8-K (File No. 001-
38531), filed with the SEC on July 17, 2019).
Description of Registrant’s Securities (incorporated by reference to Exhibit 4.4 of the Company’s Form 10-K
(File No. 001-38531), filed with the SEC on March 16, 2020).
Exchange Agreement, dated July 11, 2019, by and among the Company, Repay and the other holders of Class A
units of Repay (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-38531), filed
with the SEC on July 17, 2019).
Tax Receivable Agreement, dated July 11, 2019, by and among the Company and the other Repay Unitholders
(incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K (File No. 001-38531), filed with the SEC
on July 17, 2019).
Company Sponsor Stockholders Agreement, dated July 11, 2019, between the Company and CC Payment
Holdings, L.L.C. (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K (File No. 001-
38531), filed with the SEC on July 17, 2019).
Stockholders Agreement, dated as of July 11, 2019, among Repay Holdings Corporation and Thunder Bridge
Acquisition LLC (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K (File No. 001-38531),
filed with the SEC on July 17, 2019).
120
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Founder Stockholders Agreement, dated as of July 11, 2019, between the Company, John A. Morris, Shaler V.
Alias, The JAM Family Charitable Trust dated March 1, 2018, JOSEH Holdings, LLC and Alias Holdings, LLC
(incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K (File No. 001-38531), filed with the SEC
on July 17, 2019).
Registration Rights Agreement, dated July 11, 2019, by and among the Company, Repay, and the Repay
Unitholders (incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K (File No. 001-38531), filed
with the SEC on July 17, 2019).
Registration Rights Agreement, dated June 18, 2018, by and between the Company, the Sponsor and the holders
party thereto (incorporated by reference to Exhibit 10.4 of Thunder Bridge’s Form 8-K (File No. 001-38531),
filed with the SEC on June 22, 2018).
First Amendment to Registration Rights Agreement, dated July 11, 2019, by and among Thunder Bridge
Acquisition Ltd. and Thunder Bridge Acquisition LLC (incorporated by reference to Exhibit 10.7 to the
Company’s Form 8-K (File No. 001-38531), filed with the SEC on July 17, 2019).
Revolving Credit and Term Loan Agreement, dated July 11, 2019, by and among TB Acquisition Merger Sub
LLC, Hawk Parent Holdings LLC, the other Loan Parties from time to time party thereto, the Lenders from time
to time party thereto, and SunTrust Bank as Administrative Agent and the other parties thereto (incorporated by
reference to Exhibit 10.8 to the Company’s Form 8-K (File No. 001-38531) filed with the SEC on July 17, 2019).
First Amendment to Revolving Credit and Term Loan Agreement, dated as February 10, 2020, by and among
Hawk Parent Holdings, LLC, the other borrowers and guarantors party thereto, the banks and other financial
institutions and lenders party thereto, and Truist Bank, as administrative agent (incorporated by reference to
Exhibit 2.1 of the Company’s Form 8-K (File No. 001-38531), filed with the SEC on February 10, 2020).
Repay Holdings Corporation Omnibus Incentive Plan, effective as of July 11, 2019 (incorporated by reference to
Exhibit 10.10 to the Company’s Form 8-K (File No. 001-38531), filed with the SEC on July 17, 2019).
Amendment No. 1 to the Repay Holdings Corporation Omnibus Incentive Plan, effective as of September 20,
2019 (incorporated by reference to Exhibit 99.2 to the Company’s Form S-8 (Registration No. 333-233879), filed
with the SEC on September 20, 2019).
Promissory Note, dated April 15, 2019 (incorporated by reference to Exhibit 10.1 to Thunder Bridge’s Form 8-K
(File No. 001-38531), filed with the SEC on April 17, 2019).
Parent Sponsor Director Support Agreement, dated as of May 29, 2019, by Paul R. Garcia in favor of Thunder
Bridge and Repay (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K (File No. 001-38531),
filed with the SEC on May 29, 2019).
Sponsor Letter Agreement by and among Thunder Bridge, Sponsor, Repay and the Managing Member of the
Sponsor, dated January 21, 2019 (incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K (File No.
001-38531), filed with the SEC on January 22, 2019).
Amendment to Sponsor Letter Agreement, dated as of May 9, 2019, by and among Thunder Bridge, Sponsor and
Repay (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-38531), filed with
the SEC on May 9, 2019).
Second Amendment to Sponsor Letter Agreement, dated as of May 29, 2019, by and among Thunder Bridge,
Sponsor and Repay (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K (File No. 001-38531),
filed with the SEC on May 29, 2019).
Form of Subscription Agreement between Thunder Bridge and the PIPE Investors named therein, dated as of May
9, 2019 (incorporated by reference to Exhibit 10.4 of Thunder Bridge’s Form 8-K (File No. 38531), filed with the
SEC on May 9, 2019).
Form of Lock-Up Agreement between Sponsor and certain PIPE Investors, dated as of May 9, 2019 (incorporated
by reference to Exhibit 10.5 of Thunder Bridge’s Form 8-K (File No. 38531), filed with the SEC on May 9,
2019).
Company Sponsor Support Agreement, by Corsair, dated January 21, 2019 (incorporated by reference to Exhibit
10.4 of the Company’s Current Report on Form 8-K (File No. 001-38531), filed with the SEC on May 9, 2019.
Corsair Director Support Agreement, dated as of January 21, 2019, by Jeremy Schein (incorporated by reference
to Exhibit 10.15 of the Company’s Form S-4 (File No. 001-38531), filed with the SEC on June 20, 2019).
Corsair Director Support Agreement, dated as of May 9, 2019, by Richard E. Thornburgh in favor of Thunder
Bridge and Repay (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K (File No. 001-
38531), filed with the SEC on May 9, 2019).
Company Equity Holder Support Agreement, dated as of January 21, 2019, by John A. Morris (incorporated by
reference to Exhibit 10.17 of the Company’s Form S-4 (Registration No. 333-229616), filed with the SEC on
February 12, 2019).
121
10.24
10.25+
10.26+
10.27+
10.28+
10.29+
10.30+
10.31+
10.32+
21.1
23.1*
23.2*
31.1*
31.2*
Company Equity Holder Support Agreement, dated as of January 21, 2019, by Shaler V. Alias (incorporated by
reference to Exhibit 10.18 of the Company’s Form S-4 (Registration No. 333-229616), filed with the SEC on
February 12, 2019).
Employment Agreement, dated January 21, 2019, between M & A Ventures, LLC and John Morris (incorporated
by reference to Exhibit 10.24 of the Company’s Form S-4 (Registration No. 333-229616), filed with the SEC on
February 12, 2019).
Employment Agreement, dated January 21, 2019, between M & A Ventures, LLC and Shaler Alias (incorporated
by reference to Exhibit 10.25 of the Company’s Form S-4 (Registration No. 333-229616), filed with the SEC on
February 12, 2019).
Employment Agreement, dated January 21, 2019, between M & A Ventures, LLC and Timothy J. Murphy
(incorporated by reference to Exhibit 10.26 of the Company’s Form S-4 (Registration No. 333-229616), filed
with the SEC on February 12, 2019).
Repay Holdings Corporation Form of Restricted Stock Award Agreement (Time Vested) (incorporated by
reference to Exhibit 10.17 to the Company’s Form 8-K (File No. 001-38531), filed with the SEC on July 17,
2019).
Repay Holdings Corporation Form of Restricted Stock Award Agreement (Performance Vested) (incorporated by
reference to Exhibit 10.18 to the Company’s Form 8-K (File No. 001-38531), filed with the SEC on July 17,
2019).
Repay Holdings Corporation Form of Restricted Stock Unit Agreement between the Company and the Grantee
named therein (incorporated by reference to Exhibit 10.13 of the Company’s Form 10-Q (File No. 001-38531),
filed with the SEC on November 14, 2019).
Repay Holdings Corporation Summary of Non-Employee Director Compensation, as of September 20, 2019
(incorporated by reference to Exhibit 10.14 of the Company’s Form 10-Q (File No. 001-38531), filed with the
SEC on November 14, 2019).
Form of Indemnification Agreement between the Company and the Indemnitee named therein (incorporated by
reference to Exhibit 10.32 of the Company’s Form 10-K/A (File No. 001-38531), filed with the SEC on April 17,
2020.
Subsidiaries of the registrant (incorporated by reference to Exhibit 21.1 of the Company's Form 10-K (File No.
001-38531), filed with the SEC on March 16, 2020).
Consent of Grant Thornton LLP
Consent of Warren Averett
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
† Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Registration S-K. The registrant hereby agrees
to furnish a copy of any omitted schedules to the Commission upon request.
+
Indicates a management or compensatory plan.
122
ITEM 16. FORM 10-K SUMMARY.
None.
123
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 16, 2020
By:
/s/ John Morris
John Morris
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed
below by the following persons on behalf of the Registrant in the capacities as of March 16, 2020.
Name
/s/ John Morris
John Morris
/s/ Tim Murphy
Tim Murphy
Title
Chief Executive Officer, Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas Sullivan
Vice President, Corporate Controller
Thomas Sullivan
/s/ Shaler Alias
Shaler Alias
/s/ Peter Kight
Peter Kight
/s/ Paul Garcia
Paul Garcia
/s/ Maryann Goebel
Maryann Goebel
(Principal Accounting Officer)
President, Director
Chairman of the Board
Director
Director
/s/ Robert H. Hartheimer
Director
Robert H. Hartheimer
/s/ William Jacobs
William Jacobs
Director
/s/ Richard Thornburgh
Director
Richard Thornburgh
/s/ Jeremy Schein
Jeremy Schein
Director
124
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