REPAY HOLDINGS
CORPORATION
2022 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, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM TO
Commission File Number 001-38531
Repay Holdings Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(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
Name of each exchange on which registered
The NASDAQ Stock Market LLC
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 ☒ NO ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒
NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
☒
☐
Non-accelerated filer
Emerging growth company
☐
☐
Smaller reporting company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
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, 2022, was $1,117,092,455.
As of February 22, 2023, there were 90,386,224 shares of the registrant’s Class A common stock, par value $0.0001 per share, outstanding (which number
includes 2,018,576 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 February 22, 2023, the holders of such outstanding shares of Class V common stock also hold 7,861,271 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.
The registrant has incorporated by reference into Part III of this report certain portions of either an amendment to this Form 10-K or its proxy statement for
its 2023 Annual Meeting of Shareholders, which are expected to be filed within 120 days after the end of the registrant’s fiscal year ended December 31, 2022.
Auditor Firm ID: 248
Auditor Name: Grant Thornton LLP
Auditor Location: Atlanta, Georgia
DOCUMENTS INCORPORATED BY REFERENCE
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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
[Reserved]
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
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 macroeconomic conditions, the expected demand
on our product offering, including further implementation of electronic payment options and statements regarding our market
and growth opportunities, 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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RISK FACTOR SUMMARY
Our business involves significant risks and uncertainties that make an investment in us speculative and risky. The
following is a summary list of the principal risk factors that could materially adversely affect our business, financial condition,
liquidity and results of operations. These are not the only risks and uncertainties we face, and you should carefully review and
consider the full discussion of our risk factors in the section titled “Risk Factors”, together with the other information in this
Annual Report on Form 10-K.
Risks Related to Our Business
The payment processing industry is highly competitive.
Unauthorized disclosure of client or consumer data could expose us to liability and protracted and costly litigation,
and damage our reputation.
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.
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.
Potential clients or software integration partners may be reluctant to switch to, or develop a relationship with, a
new payment processor.
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 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.
To acquire and retain clients, we depend on our software integration partners that integrate our services and
solutions into software used by our clients.
Failure to effectively manage risk and prevent fraud could increase our chargeback liability and other liability.
Our processes to reduce fraud losses depend in part on our ability to restrict the deposit of processing funds while
we investigate suspicious transactions.
To the extent we cannot maintain savings related to favorable pricing or incentives on interchange and other
payment network fees and cannot pass along any corresponding increases in such fees to our clients, our operating
results and financial condition may be materially adversely affected.
Our systems and those of our third-party providers may fail due to factors beyond our control.
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 clients may be interrupted.
We are subject to economic and political risk, the business cycles of our clients and software integration partners
and the overall level of consumer and commercial spending.
The impact of the COVID-19 pandemic outbreak and the measures implemented to mitigate the spread of the
virus could adversely affect our business, financial conditions and results of operations.
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 associated with providing payment processing solutions.
We may not be able to continue to expand our share in our existing vertical markets or continue to expand into
new vertical markets.
We may not be able to successfully manage our intellectual property and may be subject to infringement claims.
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 have been the subject of various claims and legal proceedings and may become the subject of claims, litigation
or investigations.
We may not be able to successfully execute our strategy of growth through acquisitions.
Our acquisitions subject us to a variety of risks that could harm our business and the anticipated benefits from our
acquisitions may not be realized on the expected timeline or at all.
Risks Related to Regulation
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We and our clients 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 business, our clients’
businesses or the electronic payments industry, or our or our clients’ actual or perceived failure to comply with
such obligations.
The businesses of many of our clients are strictly regulated in every jurisdiction in which they operate, and such
regulations, and our clients’ failure to comply with them.
We may be required to become licensed under state money transmission statutes.
We must comply with laws and regulations prohibiting unfair or deceptive acts or practices.
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.
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 clients.
We must maintain effective internal controls and our failure to maintain such controls could lead to litigations.
Risks Related to Our Indebtedness
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.
Future operating flexibility is limited by the restrictive covenants in the Amended Credit Agreement, and we may
be unable to comply with all covenants in the future.
We may not have the ability to raise the funds necessary to settle conversions of the 2026 Notes, or to repurchase
the 2026 Notes upon a fundamental change, and our future debt may contain, limitations on our ability to pay
cash upon conversion or repurchase of the 2026 Notes.
The conditional conversion feature of the 2026 Notes, if triggered, may adversely affect our financial condition
and operating results.
Provisions in the indenture could delay or prevent an otherwise beneficial takeover of the Company.
Risks Related to Our Ownership Structure
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, meet our financial obligations under the 2026 Notes and pay dividends.
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 (including an exchange in a sale for cash) of Post-Merger Repay Units into our Class A common stock
and related transactions, and those payments may be substantial.
In certain cases, payments under the Tax Receivable Agreement may exceed the actual tax benefits we realize or
be accelerated.
Risks Related to Our Class A Common Stock
Future issuances or sales of substantial amounts of our Class A common stock in the public market, or the
perception that such issuances or sales may occur, could cause the market price for our Class A common stock to
decline.
Our stock price may be volatile, which could negatively affect our business and operations.
Because we do not currently intend to pay dividends, holders of our Class A common stock will benefit from an
investment in our Class A common stock only if it appreciates in value.
Delaware law and our governing documents contain certain provisions that limit the ability of stockholders to
take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
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.
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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 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 clients’ needs and the embedded nature of our integrated payment
solutions will drive strong growth by attracting new clients and fostering long-term client relationships.
Since a significant portion of our revenue is derived from volume-based payment processing fees, card payment
volume is a key operating metric that we use to evaluate our business. We processed approximately $25.6 billion of total card
payment volume in 2022. Our year-over-year card payment volume growth was approximately 25% in 2022 and 35% in 2021.
As of December 31, 2022, we had over 23,000 clients. Our top 10 clients, with an average tenure of approximately seven years,
contributed to approximately 15% and 14% of total gross profit during the year ended December 31, 2022 and the year ended
December 31, 2021, respectively.
Our leading competitive position and differentiated solutions have enabled us to realize unique advantages in fast-
growing and strategically-important segments of the payments market. We provide payment processing solutions to clients
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 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 clients, many of which
operate in the automotive, field services, healthcare, homeowner association (“HOA”) management and hospitality industries,
as well as educational institutions and governments and municipalities.
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
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systems, dealer management systems (“DMS”), collection management systems, and enterprise resource planning software
systems, allows us to embed our omni-channel payment processing technology into our clients’ critical workflow software and
ensure seamless operation of our solutions within our clients’ enterprise management systems. We refer to these software
providers as our “software integration partners.” An integration allows our sales force to readily access new client 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 client needs. Our integrated
model fosters long-term relationships with our clients, which supports our volume retention rates that we believe are above
industry averages. As of December 31, 2022, we maintained approximately 240 integrations with various software providers.
Segments
Starting from December 31, 2022, we report our financial results based on two reportable segments, Consumer
Payments and Business Payments. For additional information on our segments, see Note 16. Segments to our consolidated
financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Consumer Payments
Our Consumer Payments segment provides payment processing solutions (including debit and credit card processing,
ACH processing and other electronic payment acceptance solutions, as well as our loan disbursement product) that enable our
clients to collect payments and disburse funds to consumers and includes our clearing and settlement solutions (“RCS”) and
Blue Cow Software business (“BCS”). RCS is our proprietary clearing and settlement platform through which we market
customizable payment processing programs to other ISOs and payment facilitators. BCS provides enterprise resource planning
software solutions that are customized to propane and fuel oil dealers. The strategic vertical markets served by our Consumer
Payments segment primarily include personal loans, automotive loans, receivables management, credit unions, mortgage
servicing, consumer healthcare, diversified retail and energy related software services. The BCS business was sold on February
15, 2023. Our Consumer Payments segment represented approximately 85% of our total revenue after any intersegment
eliminations for the year ended December 31, 2022.
Business Payments
Our Business Payments segment provides payment processing solutions (including accounts payable automation,
debit and credit card processing, virtual credit card processing, Automated Clearing House (“ACH”) processing and other
electronic payment acceptance solutions) that enable our clients to collect or send payments to other businesses. The strategic
vertical markets served within our Business Payments segment primarily include retail automotive, education, field services,
governments and municipalities, healthcare, HOA management and hospitality. Our Business Payments segment represented
approximately 15% of our total revenue after any intersegment eliminations for the year ended December 31, 2022.
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 client support to our
existing clients as well as new clients in the verticals that we currently serve. In addition, our business model allows us to
benefit from the growth of our clients and software integration partners. As our clients’ 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 continuing to shift from legacy payment mediums — primarily cash and check — to electronic forms
of payment. We expect to benefit from this trend as our clients 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 or do not operate. Though we offer highly customized payment solutions to our clients, our core technology platform
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is comprehensive and can be utilized to penetrate other strategic vertical markets. 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 clients remains
strong.
Strengthen and Extend Our Solution Portfolio through Continued Innovation.
As we further integrate our solution into our clients’ workflows, we will look to continue to innovate on our solution
set and broaden our suite of services. Our acquisition of TriSource Solutions, LLC (“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 verticals and to be integrated across various software
platforms enables us to better understand the needs of clients across verticals 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 plan to continue to drive operating leverage in our non-technology personnel expenditures, as we believe that,
in general we can process larger payment volumes without significant increases to our personnel and operating expenses.
Strategic Acquisitions
From January 1, 2016 through December 31, 2022, we have successfully acquired eleven 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 clients with comprehensive solutions, which can generally be categorized as follows:
Payment Acceptance
Debit and Credit Card Processing — Allows our clients to accept card payments. These payments can be
made using any of our payment channels, as further described below.
ACH Processing — Our ACH processing capabilities allow our clients to send and accept traditional and
same-day ACH transactions.
ECash – Through third party relationships, we can facilitate customers who want to make payments with
cash by converting it into digital payments that are deposited with our clients.
Digital Wallet Services – Enables customers to quickly and easily pay using payment data securely stored in
the digital wallets of their mobile devices.
Accounts Payable Automation
Virtual Credit Card Processing — Our virtual credit card product offering enables our clients to automate
their payables transactions by sending single-use virtual credit cards to their suppliers.
Enhanced ACH Processing — Provides the same functionality as our standard ACH processing capability,
but with the added benefit of incremental transaction and reconciliation data.
Clearing and Settlement – Our RCS business offers ISOs and payment facilitators clearing and settlement
solutions for all major card brands
Instant Funding — Our instant funding capabilities allow our clients 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.
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The above payment acceptance 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 client-branded terminal that enables ACH and card transaction processing.
Online Client Portal — A consumer-facing, client-specific website that gives a client’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 clients 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 client’s customer to provide a card.
Sales and Distribution
Our sales effort primarily consists of two strategies: first, our direct sales representatives, who focus on each of our
core verticals, and second, our software integration partners, which enable the direct salesforce to more effectively access new
client opportunities and respond to inbound leads.
Direct Sales Representatives
Our sales representatives are organized by vertical market and account size. Direct sales representatives work with
our clients and software integration partners to understand our clients’ 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
clients’ specific needs. We also maintain a sales support team that supports the onboarding process.
Software Integration Partners
As of December 31, 2022, we were integrated with approximately 240 software partners that are providers of our
clients’ primary enterprise management systems. Our integrations ensure seamless delivery of our full suite of payment
processing capabilities to our clients. These integrations are also a critical part of our marketing strategy, as many clients would
prefer to award their payments business to payments processors who have worked to integrate their solutions into the client’s
enterprise management systems.
Operations
We believe that we have developed an effective operations system, including our proprietary onboarding, compliance
and client oversight processes, which is structured to enhance the performance of our platform and support our clients.
Client and Transaction Risk Management
We target clients 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 client accounts. Effective
risk management aids us in minimizing client losses, such as those relating to chargebacks or similar rejected transactions, and
avoiding fraud for the mutual benefit of our clients, our sponsor banks and ourselves.
Proprietary Compliance Management System. We have developed proprietary onboarding, compliance, and client
oversight processes, of which our Compliance Management System (“CMS”) is a part. Our CMS, developed in conjunction
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with the Third Party Payment Processors Association, focuses on four main components — board and management oversight,
a compliance program with written policies and procedures and employee training and monitoring, responsiveness to consumer
complaints and annual compliance audits from an independent third party — and is inclusive of the Electronic Transaction
Association guidelines on underwriting and risk.
Client Onboarding. We believe we maintain rigorous underwriting standards. Prospective clients submit applications
to our credit underwriting department, which performs verification and credit-related checks on all applicants. Each client 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 client is monitored and adjusted on a monthly basis based
on additional data relating to such client.
Client Monitoring. Each client’s file is assigned one of three risk levels (low, medium or high) corresponding to
several client 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 client-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 client, as applicable.
Investigation and Loss Prevention. If a client exceeds the parameters established by our underwriting and/or risk
management team or we determine that a client 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 client 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 client account, include the client on the Network Match List to notify our industry of the client’s
behavior or take legal action against the client.
Collateral. We require some of our clients 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 client’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 client 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, 2022, we believe our chargeback rate was under 1% of our payment volume.
Security, Disaster Recovery, and Back-up Systems
We adhere to industry security standards to protect the payment information that we process. We regularly scan and
update our network, systems and application code and malware defenses. We use a third party vendor solution for security
education materials. Every employee and contractor is required to successfully complete annual security awareness training.
We routinely retain external parties to audit our systems’ compliance with current security standards as established by the
Payment Card Industry Data Security Standards (“PCI DSS”), Service Organization Control ("SOC1 Type II,” “SOC2 Type
II”), Health Insurance Portability and Accountability Act (“HIPAA”) and International Organization for Standardization (“ISO
27001”) and to test our systems against vulnerability to unauthorized access. We utilize third party vendors for internal and
external penetration testing. Further, we use one of the most advanced commercially available technologies to encrypt the
cardholder numbers and client data that we store in our databases. Additionally, we have a dedicated team responsible for
continuous monitoring and security incident response. This team also develops, maintains, tests and verifies our incident
response plan. Disaster recovery is built into our primary payment gateway through redundant hardware and software
applications hosted in two distinct cloud regions. Our primary cloud region for the payment gateway infrastructure 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
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We partner with institutions in the payment chain to provide authorization, settlement and funding services in
connection with our clients’ transactions. These institutions include third party processors and sponsor banks, who sit between
us, acting as the merchant acquirer or payment processor, and the payment networks, such as Visa, MasterCard and Discover.
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.
When we facilitate a transaction as a merchant acquirer, we utilize third party processors such as Global Payments,
Inc. Under such processing arrangements, the third-party processors and vendors receive processing fees, which are typically
based on the number of transactions processed.
In order for us to process and settle transactions for our clients, 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 a payment processor, are not a “member bank” 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 is designed to help us to secure more competitive pricing for our
clients and to maintain redundancy.
When we facilitate a client’s payment to its suppliers or vendors, we typically utilize the services of third party program
managers, such as Wex Inc. and Comdata Inc. (a subsidiary of FleetCor Technologies, Inc.), who have arrangements with
banks to operate card issuance programs. Under such arrangements, the program manager and issuing bank retain a portion of
the interchange generated by each transaction. Under the applicable contractual arrangements, our clients are generally required
to prefund these payments. Because we are not a licensed money transmitter, we have entered into custodial agreements with
banks or other financial institutions who will hold our clients’ funds in trust.
See “Risk Factors—Risks Related to Our Business – 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 clients may be
interrupted, and, as a result, our business, financial condition and results of operations could be adversely impacted.” in Part I,
Item 1A of this Annual Report on Form 10-K.for further discussion of our arrangements with certain service providers.
Competitive Conditions and Market Trends
We compete with a variety of payment processing companies that have different business models, go-to-market
strategies and technical capabilities. In our Consumer Payments segment, our primary competitors include ACI Worldwide,
Paymentus, PayNearMe, and PayScout. We also compete in our Consumer Payments segment 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 (a subsidiary of U.S. Bancorp), Wells
Fargo Merchant Services, Global Payments, WorldPay (a subsidiary of Fidelity National Information Services) and Fiserv. In
our Business Payments segment, our primary competitors include AvidXchange, Corporate Spending Innovations (a division
of Edenred), Nvoicepay (a division of FleetCor Technologies), Paya and Zelis. 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 client support for
both clients 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 clients
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.
We believe there is a significant digital shift in our industry. Many of the vertical markets in which we compete are
continuing to shift from legacy payment mediums — primarily cash and check — to electronic forms of payment. In addition,
the COVID-19 pandemic and the resulting changes in consumer behavior has led to an accelerated shift to electronic payments.
We expect to benefit from this trend as our clients increasingly opt to process payments via the electronic forms of payment in
which we specialize.
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
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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.
Acquisitions
Our historical acquisition activity has allowed us to access new markets, acquire industry talent, broaden our product
suite, and supplement organic growth. Our current acquisition strategy focuses on integrated payments companies serving
attractive vertical markets and opportunities to broaden our product offerings. From January 1, 2016 through December 31,
2022, we have completed eleven 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 our expansion
into the automotive finance space. We have benefited greatly from Sigma’s deep integrations with automotive finance software
platforms, or DMS.
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 client 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. 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”). The
acquisition of APS meaningfully expanded our addressable market by enabling us to access the business-to-business vertical.
Ventanex Acquisition
On February 10, 2020, we acquired all of the equity interests of CDT Technologies, LTD. d/b/a Ventanex
(“Ventanex”). The acquisition of Ventanex accelerated our entry into the healthcare payments vertical.
cPayPlus Acquisition
On July 23, 2020, we acquired all of the equity interest of cPayPlus, LLC (“cPayPlus”). The acquisition of cPayPlus
further expanded our business-to-business automation and payment offering to include accounts payable automation and
payment solutions for both existing and prospective clients across all business lines.
CPS Acquisition
On November 2, 2020, we acquired all of the equity interests of CPS Payment Services, LLC, Media Payments, LLC,
and Custom Payment Systems, LLC (collectively, “CPS”). The acquisition of CPS enhanced our business-to-business accounts
payable automation offerings and introduced our solutions to new verticals including education, government, and media sectors.
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BillingTree Acquisition
On June 15, 2021, we acquired all of the equity interests of BT Intermediate, LLC (together with its subsidiaries,
“BillingTree”). The acquisition of BillingTree further expanded our position in the healthcare, credit union, and accounts
receivable management industries and significantly enhanced our scale and our client diversification.
Kontrol Acquisition
On June 22, 2021, we acquired substantially all of the assets of Kontrol LLC (“Kontrol”). The acquisition of Kontrol
grew our accounts payable automation business and enabled us to leverage our existing B2B technology infrastructure to
increase our virtual card volume.
Payix Acquisition
On December 29, 2021, we acquired Payix Holdings Incorporated (together with its subsidiary, “Payix”). The
acquisition of Payix expanded our position in the large and growing automotive finance market and provided further access to
software integrations with leading loan management system and DMS integrations.
Government Regulation
We operate in an increasingly complex and ever evolving legal and regulatory environment. Our and our clients’
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 clients 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 clients 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
clients 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. In addition, the regulations contain certain prohibitions
on card brand network exclusivity and merchant routing restrictions of debit card transactions. As a result of the Dodd-Frank
Act, merchants are also allowed to set minimum dollar amounts (within certain parameters) for the acceptance of a credit card,
and they are 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 clients’ 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,
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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. All fifty states have enacted data breach notification laws requiring businesses that experience a security
breach of their computer databases that contain personal information to notify affected individuals, consumer reporting agencies
and governmental agencies. In addition, there are state laws that restrict the ability to collect and utilize certain types of personal
information, such as Social Security and driver’s license numbers, and impose secure disposal requirements for personal data.
Certain state laws mandate businesses to implement reasonable data security measures. In addition, various states, including
California, Colorado, Connecticut, Utah and Virginia, have recently enacted laws concerning privacy, data protection and
information security. For example, the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on
January 1, 2020 and was amended by the California Privacy Rights Act of 2020 (the “CRPA”), for which most provisions were
effective on January 1, 2023, requires companies that process personal information of California residents to make certain
disclosures to consumers about data practices, grants consumers specific access rights to their data, allows consumers to opt
out of certain data sharing activities and creates a private right of action for data breaches. The CPRA also establishes a privacy
enforcement agency known as the California Privacy Protection Agency. Other states are expected to enact in new similar laws
and regulations in the near future.
Health Insurance Portability and Accountability Act & Health Information Technology for Economic and Clinical Health
Act
HIPAA and its related rules and regulations establish policies and procedures for maintaining the privacy and security
of individually identifiable health information (“Protected Health Information”). The Health Information Technology for
Economic and Clinical Health Act and its related rules and regulations extended the privacy and security provisions of HIPAA
to “Business Associates” of “Covered Entities” (each as defined by HIPAA).
Some of our clients are Covered Entities. In providing certain services for our Covered Entity clients, we may receive,
maintain, and transmit Protected Health Information on their behalf, and we may be a Business Associate. To the extent we are
a Business Associate, we are subject to HIPAA rules and regulations regarding privacy and security of Protected Health
Information. In connection with certain services, we may enter into Business Associate Agreements with our Covered Entity
clients, requiring compliance with HIPAA rules and regulations, and defining permissible uses and disclosures of Protected
Health Information.
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 clients 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 Rule, may directly impact the activities
of certain of our clients, and in some cases may subject us, as the client’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 client through our services. Various federal and
state regulatory enforcement agencies, including the Federal Trade Commission (“FTC”) 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
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processing payments or providing services for a client 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” (“UDAAP”) in connection with the provision of consumer financial products and services. The CFPB has extended
certain UDAAP-related provisions of the Dodd-Frank Act to directly apply to payment processors.
Indirect Regulatory Requirements
Certain of our clients 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 clients 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 clients
impose 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 clients in meeting their legal requirements.
Additionally, our clients, particularly those in the personal loans, automotive loans and receivables management
verticals, are subject to various federal, state and local laws and regulations that impose restrictions and requirements on their
businesses. For personal lenders and automotive lenders, these laws and regulations could include 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. For receivables
management companies, these laws and regulations could include laws and regulations (including the federal Fair Debt
Collection Practices Act (“FDCPA”) and comparable state laws) regarding the time, place and manner of communications with
consumers regarding debt collection and prohibitions or limitations on certain debt collection practices. Lastly, some of our
clients are subject to various state laws and regulations that prohibit or limit the imposition of a surcharge or convenience fee
in connection with their customers use of a payment card or other form of electronic payment.
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, whether (and the terms under which) convenience fees or surcharges may be imposed in connection with the
use of 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 clients, 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 a payment processor, are not a “member bank” 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
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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 clients and the terms of our agreements with
clients, 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 clients.
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 client 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 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.
Human Capital
Our employees are a critical component of our success. As of December 31, 2022, we employed approximately 579
full-time employees throughout the U.S. and Canada. We have 12 office locations in the U.S. and have a remote employee
presence in 42 states. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
We strive to create and maintain a special culture at REPAY that focuses on our values of excellence, passion,
integrity, respect, and innovation. Our strong emphasis on culture is intended to empower our employees to make decisions
and develop themselves personally and professionally. One of our priorities is to maintain and enhance our culture as we grow
in employee size and integrate new team members.
We participate in an annual employee engagement and feedback survey which allows all full-time employees to
anonymously give us feedback on our workplace culture, employee programs, and more. In 2022, 80% of participants
responded that REPAY is a great place to work. Our employees’ feedback from the annual surveys have allowed us to be
certified as a Great Place to Work® for the last seven consecutive years. We take employee feedback seriously and share the
results of the survey, along with an action plan of how we can continue to improve, with all employees.
Attracting, developing, and retaining top talent is a priority at REPAY and we have a dedicated human resources team
that focuses on these initiatives. To ensure we stay competitive in the talent market, we strive to make it clear to our employees
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that we value and appreciate them, and reward high performance. We foster a culture of rewards and recognition and incentivize
our employees with opportunities for growth within the company. New employees are welcomed through our virtual new hire
onboarding experience, which consists of at-home equipment, welcome gift packages, an onboarding plan with consistent
communication, and human resources orientation, ensures our new hires have the support they need. Additionally, new hire
spotlights are socialized in our monthly newsletters to ensure new team members are introduced to the Company and receive a
warm welcome and every one of our new employees has the opportunity to meet with our CEO for a “coffee chat” within their
first month of employment.
REPAY’s leadership empowers each team member to make a difference and stretch to their fullest potential. Our
dedication to frequent, transparent communication is shown with company-wide meetings where our leaders share Company
vision and encourage employees to ask questions. Several departments across the Company hold annual training summits where
team members have an opportunity to collaborate with fellow colleagues, participate in department-specific training and further
enhance their skillsets. Our compensation strategy gives us competitive advantages by offering competitive salaries, bonus
potential and employee ownership opportunities for a meaningful portion of our employees through equity incentive grants.
We recognize the importance of giving back to the communities in which we live. Participating in community outreach
initiatives and volunteer opportunities is extremely important to our employees and has become an integral part of our corporate
culture. Throughout the year, we provide multiple ways for team members to volunteer and positively impact the surrounding
communities.
We value diverse backgrounds, perspectives and experiences, and we are committed to providing an inclusive
environment where all individuals are heard and respected. We maintain an Employee Resource Group aimed at connecting
and creating a network for women at REPAY. This group meets several times throughout the year to discuss relevant topics
and connect with others at the Company. We have also partnered with diverse organizations and higher education programs,
to identify a more diverse pool of qualified candidates for recruitment. We continue to evaluate our diversity and inclusion
program and are in various phases of implementing several strategic initiatives, which we believe will help us cultivate a more
diverse workforce and inclusive environments. Our diversity and inclusion initiatives are periodically reviewed and discussed
at the board level.
We offer a comprehensive benefits package, which goes into effect on a person’s first day of employment, including
100% coverage of employee healthcare premiums and several benefits at no cost to our employees, including life insurance,
telehealth, mental health and work-life balance resources. We perform a thorough review of our benefits package annually.
Among other benefits, we continue to offer an Employee Stock Purchase Plan (“ESPP”). The ESPP is highly valued because
it gives our employees the opportunity to become shareholders in REPAY at a discounted price. The financial future of our
employees is important to us, which is why we have a generous 401(k)-employer match and performance-based bonus program.
To promote personal and professional growth, we encourage our employees to pursue ongoing training and career development
opportunities, and we provide tuition assistance and reimbursement for certain pre-approved continuing education programs
and professional certifications.
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 sections of the Risk Factors entitled “Risks Related to Our Ownership
Structure” and “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.
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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 markets in which we compete and service more clients 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.
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 clients 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 clients. 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.
Unauthorized disclosure of client 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 clients, 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, bank account numbers and protected health information. 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 client 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 (including a ransomware attack) could harm our reputation and deter clients 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. Our cyber insurance costs have increased significantly following well-publicized ransomware attacks
involving other organizations. 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
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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 client 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 clients 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.
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 client 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, the FTC and the U.S.
Department of Health and Human Services Office for Civil Rights. See “Risks Related to Regulation” below.
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 client 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 client acceptance, and some projects may require investment
in non-revenue generating products or services that our software integration partners and clients 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.
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 and business behavior. Any failure to timely integrate emerging payment
methods into our software, to anticipate consumer or business behavior changes or to contract with processing partners that
support such emerging payment technologies could cause us to lose traction among our clients 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 clients 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 clients. 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.
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 not historically utilized electronic payments to the same extent as
traditional markets such as retail and travel. If consumers and businesses in our primary vertical markets do not increase their
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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 clients seeking to charge their own clients additional fees for use of credit or debit cards which
may result in such clients 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 clients or software integration partners may be reluctant to switch to, or develop a relationship with, a new payment
processor, which may adversely affect our growth.
Many potential clients and software integration partners worry about potential disadvantages associated with
switching payment processing providers, such as a loss of accustomed functionality, increased costs and business disruption.
There can be no assurance that our strategies for overcoming potential reluctance to change payment processing providers 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 clients 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 clients 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. Any changes in payment network rules or standards may be imposed
on highly compressed timelines and may have a negative impact on our results of operations.
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 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.
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.
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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. We are currently
registered with payment networks through our sponsor banks.
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 clients’ 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. 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. 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 clients. Our sponsor banks’ actions
under these agreements could be detrimental to us.
To acquire and retain clients, we depend on our software integration partners that integrate our services and solutions into
software used by our clients.
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 clients use. Generally, our agreements with software integration partners are not exclusive
and these partners retain the right to refer potential clients to other payment processors. In addition, our agreements with
software integration partners do not generally prohibit these partners from providing payment processing solutions to clients
(including by acquiring a competing payment processing business).
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, acquire or develop
their own payment processing capabilities, cease operations or become insolvent, we may be at risk of losing existing clients
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.
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
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.
Certain of these types of fraud present potential liability for chargebacks associated with our clients’ processing
transactions. If a billing dispute between a client and a consumer is not ultimately resolved in favor of our client, the disputed
transaction is “charged back” to the client’s bank and credited to the consumer’s bank. Anytime our client is unable to satisfy
a chargeback, we are responsible for that chargeback. We have a number of contractual protections and other means of recourse
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to mitigate those risks, including collateral or reserve accounts that we may require our clients to maintain for these types of
contingencies. Nonetheless, if we are unable to collect the chargeback from the clients’ account or reserve account (if
applicable), or if the client 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, 2022, we believe our chargeback rate was less than 1% of payment volume.
Any increase in chargebacks not paid by our clients 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, unfair business practices or other applicable laws. 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 clients 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 or unfair business practices. 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 client service and operations in ways that could increase our costs and decrease
the effectiveness of our anti-fraud program. In addition, if a client has filed for bankruptcy protection, then our normal processes
may be limited by applicable bankruptcy laws.
We receive savings related to favorable pricing or incentives on certain 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 clients, 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 as a merchant acquirer. Under certain circumstances, the payment
networks afford us preferential rates or incentives 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 clients, and in the past have been able to, pass these fee increases along to our clients through corresponding increases in
our processing fees. However, if we are unable to pass through these and other fees in the future (which could be the result of
the structure of “flat rate” or convenience fee pricing under certain contracts), or if the payment networks decline to offer us
preferential rates or incentives 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.
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 or provide ancillary services, loss of business, increase in costs and
exposure to liability.
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 or provide ancillary services, additional operating and development costs,
diversion of technical and other resources, loss of revenue, clients and software integration partners, loss of client 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.
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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 clients 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 clients and, if we cannot find alternate providers quickly, may cause
those clients to terminate their relationships with us.
Our third-party processors and third-party program managers, which provide us with front-end authorization services,
card issuance program 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.
The COVID-19 pandemic and the measures implemented to mitigate the spread of the virus have had and may continue to
have an adverse effect on our business, results of operations and financial condition.
The COVID-19 pandemic and the mitigation efforts by governments and other parties to attempt to control the spread
of the virus (including its variants) have adversely impacted the U.S. and global economy, leading to significant changes in
consumer and business spending and economic activity and disruptions and volatility in the U.S. and global capital markets.
We are diligently working to ensure that we can continue to operate with minimal disruption, mitigate the impact of the
pandemic on our employees’ health and safety and address potential business interruptions on ourselves and our clients.
However, we cannot assure you that we will continue to be successful in these efforts.
Although we have experienced increased demand for some of our service offerings as a result of an accelerated shift
to electronic payments, we believe that the COVID-19 pandemic, the mitigation efforts and the resulting economic impact have
had, and may continue to have, an overall adverse effect on our business, results of operations and financial condition. The
actual further effect in any given future period is difficult to estimate, and it will depend on numerous evolving factors and
future developments that we are not able to predict, including: the duration, spread and severity of the outbreak (including
whether there are continued variants or other waves of infection); the nature, extent and effectiveness of mitigation measures;
the administration of vaccines and the availability of therapeutic treatments; the extent and duration of the effect on the
economy, unemployment, consumer confidence and consumer and business spending; and how quickly and to what extent
normal economic and operating conditions can resume.
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The effects of the COVID-19 pandemic, the mitigation efforts and the resulting economic impact on our business,
results of operations and financial condition have included and may continue to include the following with respect to the key
industry-oriented “vertical” markets that we serve:
A decrease in the origination of personal or automotive loans and a decrease in payments as a result of changes in
consumer behavior following receipt of government stimulus, tax credits or extra unemployment benefits.
A decrease in the amount of business-to-business payments as a result of the overall economic slowdown and
reduction in business spending.
The above effects have resulted in and are likely to continue to result in an adverse impact on the amount of fees we
can earn for processing payments and other transactions on behalf of our clients. There may be a delay in the timing of when
our business is impacted by these matters. As an example, we earned incremental fees from processing loan payments or payoffs
that result from consumers’ receipt of additional government stimulus or extra unemployment benefits, but our business, results
of operations and financial condition in subsequent periods were and could continue to be adversely affected from reduced loan
originations as result of such combination of government action and consumer behavior.
To the extent the COVID-19 pandemic, the mitigation efforts and the resulting economic impact continues to adversely
affect our business, results of operations and financial condition, such matters may also have the effect of heightening many of
the other risks described in the risk factors disclosed herein, such as those relating to our responsibility for the prevention of
unauthorized disclosure of consumer data and our ability to minimize losses relating to chargebacks, fraud and similar losses.
We are subject to economic and political risk, the business cycles of our clients 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.
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 COVID-19 pandemic) 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, continued uncertainty for
an extended period of time, due to the COVID-19 pandemic or otherwise, persistent inflation or further increases in interest
rates, could adversely affect our financial performance by reducing the number or aggregate volume of transactions made using
electronic payments. Our consumer finance and mortgage clients may be disproportionately impacted by further increased
interest rates or a general economic downturn, which could result in a decrease to our revenue and profits. If our consumer
finance or mortgage clients make fewer or smaller loans (or their borrowers fail to make required payments), or consumers and
businesses spend less money through electronic payments, we will have fewer transactions to process at lower dollar amounts,
resulting in lower revenue. Smaller tax refunds to consumers, due to the absence of additional stimulus or similar impacts or
otherwise, could also negatively impact our results of operations.
The U.S. and international markets are experiencing uncertain and volatile economic conditions, including from the
impacts of the COVID-19 pandemic, sustained inflation, recession concerns and supply chain disruptions. These conditions
make it extremely difficult for us to accurately forecast and plan future business activities. Together, these circumstances create
an environment in which it is challenging for us to predict future operating results. If these uncertain business, macroeconomic
or political conditions continue or further decline, our business, financial condition and results of operations could be materially
adversely affected.
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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 associated with providing payment processing solutions.
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 associated with providing payment processing solutions.
Some of our risk evaluation methods depend upon information provided by others and public information regarding markets,
clients 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 clients.
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’ client bases. As part of our 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, our ability to
continue to grow and profitably service clients 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 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 clients. Third parties have, and in the future 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
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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.
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. We experienced senior
management turnover in 2022 as a result of the departures of our chief operating officer and our chief revenue officer. It is
possible that the loss of the services of these executives or other 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 assignment of intellectual property rights, non-solicitation and non-competition may be ineffective or
unenforceable, and departing employees may share our proprietary information with competitors or seek to solicit our software
integration partners or clients 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 are capable of maintaining the
continuity of our operations, supporting the development of new services and solutions and expanding our client base. The
market for qualified personnel is highly 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. Our efforts to retain and develop
personnel may also result in significant additional expenses, which could adversely affect our profitability.
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 clients, 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 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.
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.
Although we expect to continue to execute our acquisition strategy:
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we may not be able to identify suitable acquisition candidates or acquire additional assets on favorable terms;
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;
competing bidders for such acquisitions may be larger, better-funded organizations with more resources and easier
access to capital;
we may experience difficulty in anticipating the timing and availability of acquisition candidates;
we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of our potential
acquisitions;
potential acquisitions may be subject to regulatory approvals, which may cause delays and uncertainties; and
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 and the anticipated benefits from our
acquisitions may not be realized on the expected timeline or at all.
We may experience various challenges associated with our acquired businesses, such as:
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;
the acquisition may have a material adverse effect on our business relationships with existing or future clients or
software integration partners;
we may assume substantial actual or contingent liabilities, known and unknown;
the acquisition may not meet our expectations of future financial performance on our expected timeline or at all;
we may experience delays or reductions in realizing expected synergies or benefits;
we 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;
we may be required to take write-downs or write-offs, restructuring and impairment or other charges;
we may be unable to achieve our intended objectives for the transaction; and
we may not be able to retain the key personnel, clients and suppliers of the acquired business.
These challenges and costs and expenses may adversely affect our business, financial condition and results of
operations.
Risks Related to Regulation
We and our clients 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 business, our clients’ businesses or the
electronic payments industry, or our or our clients’ actual or perceived failure to comply with such obligations, may have
an unfavorable impact on our business, financial condition and results of operations.
We and the clients we serve are subject to numerous federal and state regulations that affect the electronic payments
industry. Regulation of our industry has increased significantly in recent years and is constantly evolving. Changes to statutes,
regulations or industry standards, including interpretation and implementation of statutes, regulations or standards, could
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increase our cost of doing business or affect the competitive balance. Failure 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 clients, our business and results of operations could be materially and adversely affected because, among other matters,
our clients could have less capacity to purchase products and services from us, 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 products and services to our clients; and those regulations could directly or indirectly limit how
much we can charge for our services. We may not be able to update our existing products and services, or develop new ones,
to satisfy our client’ needs. Any of these events, if realized, could have a material adverse effect on our business, results of
operations and financial condition.
Interchange fees, which are typically paid 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 significantly changed
the U.S. financial regulatory system by regulating and limiting debit card fees charged by certain issuers, allowing merchants
to set minimum dollar amounts for the acceptance of credit cards and allowing merchants to offer discounts or other incentives
for different payment methods. These regulations (as well as any related modifications or changes in interpretation) could
negatively affect the number of debit transactions, and prices charged per transaction, which would negatively affect our
business.
Many of our clients desire to impose a convenience fee or a surcharge in connection with their customers’ use of a
credit or debit card or other form of electronic payment. Various state laws and regulations impose prohibitions or other
limitations on those types of fees or charges, and interpretation of those state laws and regulations is constantly evolving. State
laws and regulations (as well as any related modifications or changes in interpretation in the payment network rules related to
those fees and costs) could negatively the willingness of some of our clients to accept credit or debit card or other electronic
payment or result in less favorable terms to us in exchange for our clients to absorb those fees and costs, all of which would
negatively affect our business.
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
clients 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.
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 additional
jurisdictions (for example, our 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 clients and 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.
The businesses of many of our clients are strictly regulated in every jurisdiction in which they operate, and such regulations,
and our clients’ failure to comply with them, could have an adverse effect on our clients’ businesses and, as a result, our
results of operations.
A meaningful portion of our clients are consumer lenders that provide personal loans and automotive loans to
consumers that have varying degrees of credit risk. The regulatory environment that these clients operate in is very complex
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because applicable regulations are often enacted by multiple agencies in the state and federal governments. For example, the
CFPB previously proposed new rules applicable to such loans that could have an adverse effect on our clients’ businesses, and
numerous state laws impose similar requirements. Such clients 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 clients operate.
Similarly, our clients in the receivables management industry are typically subject to federal and state rules and
regulations that establish specific requirements and procedures that debt collectors must follow when collecting consumer
accounts. The CFPB and the FTC devote substantial attention to debt collection activities, and, as a result, the CFPB and the
FTC have brought multiple investigations and enforcement actions against debt collectors for violations of the FDCPA and
other applicable laws. Continued regulatory scrutiny by the CFPB and the FTC over debt collection practices may result in
additional investigations and enforcement actions against our clients in the receivables management industry. The FDCPA
also provides for private rights of action against debt collectors, and permits debtors to recover actual damages, statutory
damages and attorneys’ fees and costs for violations of its terms.
The combination of these factors, and in particular any changes implemented at the CFPB under the Biden
administration, could materially adversely affect the business of our clients and may force our consumer lender or receivables
management clients 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 clients is materially adversely affected by the uncertainties described above and if we or our
clients 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.
We may be required to become licensed under state money transmission statutes.
We provide payment processing services through our various operating subsidiaries. We, along with our third party
service providers, use structural arrangements designed to 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.
Any determination that we are in fact required to be licensed under the state money transmission statutes may require substantial
expenditures of time and money and could lead to liability in the nature of penalties or fines, which would have a materially
adverse effect on our business and our financial results.
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 clients 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 clients, 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 client through our services. Various federal and state regulatory enforcement agencies, including the
FTC 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 client suspected of
violating such laws, rules and regulations, we may face enforcement actions and incur losses and liabilities that may adversely
affect our business.
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. Applicable federal privacy laws may 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
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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. The state privacy law
framework is described under “Privacy and Information Security Regulations” in Item 1. Business above.
Further, we are obligated by our clients, sponsor banks and software integration partners to maintain the confidentiality
and security of non-public consumer information that our clients 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 clients and software integration partners and obtain
new clients 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 clients 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.
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 clients, 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 clients,
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.
Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on our results
of operation and financial condition.
Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively
prevent fraud, and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud,
our reputation and operating results would be harmed. As part of our ongoing monitoring of internal control, we have discovered
in the past and may discover in the future material weaknesses or significant deficiencies in internal control that require
remediation. 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 a company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
We have in the past discovered, and may in the future discover, material weaknesses and other areas of our internal
controls that need improvement. We continue to work to improve our internal controls. We cannot be certain that these measures
will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any
failure to maintain effective controls or to timely implement any necessary improvement of our internal and disclosure controls
could, among other things, result in losses from fraud or error, harm our reputation, or cause investors to lose confidence in the
reported financial information, all of which could have a material adverse effect on our results of operation and financial
condition. In addition, as a result of such material weaknesses and other matters raised or that may in the future be raised by
the SEC, we face potential for litigation or other disputes.
Risks Related to Our Indebtedness
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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.
On December 29, 2021, we increased our existing senior secured credit facilities to a $185.0 million revolving credit
facility pursuant to an amendment to the revolving credit agreement with Truist Bank and certain other lenders (as amended,
the “Amended Credit Agreement”). On January 19, 2021, we issued $440.0 million in aggregate principal amount of our 0.00%
convertible senior notes due 2026 (the “2026 Notes”). Our ability to service our obligations under our indebtedness, including
the 2026 Notes and any indebtedness we may incur under the Amended Credit Agreement, depends on our future performance,
which is subject to economic, financial, competitive and other factors beyond our control. If we are unable to generate the
necessary cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining
additional debt financing or equity capital on terms that may be onerous or highly dilutive.
Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time.
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a
default on our debt obligations, and such level of indebtedness could have important consequences to our stockholders.
We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect
our financial and operational flexibility.
Our indebtedness under the Amended Credit Agreement bears interest at a variable rate, which, as of December 31,
2022, was based on adjusted London Inter-bank Offer Rate (“LIBOR”). On February 9, 2023, we further amended the Amended
Credit Agreement to replace LIBOR with term Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark.
This benchmark replacement may be higher than the adjusted LIBOR previously available under the Amended Credit
Agreement, which could in turn increase our interest expense. This benchmark replacement may also include administrative
and operational changes that affect our borrowing practices under the Amended Credit Agreement.
Future operating flexibility is limited 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:
incur or guarantee additional debt;
pay dividends on capital stock or redeem, repurchase, retire or otherwise acquire any capital stock;
make certain payments, dividends, distributions or investments; and
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 not have the ability to raise the funds necessary to settle conversions of the 2026 Notes, or to repurchase the 2026
Notes upon a fundamental change, and our future debt may contain, limitations on our ability to pay cash upon conversion
or repurchase of the 2026 Notes.
Holders of the 2026 Notes have the right to require us to repurchase their 2026 Notes upon the occurrence of a
fundamental change at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. In
addition, upon conversion of the 2026 Notes, unless we elect to cause to be delivered solely shares of our Class A common
stock to settle such conversion, we will be required to make cash payments in respect of the 2026 Notes being converted.
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However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases
of the 2026 Notes surrendered therefor or to pay cash with respect to the 2026 Notes being converted.
In addition, our ability to repurchase the 2026 Notes or to pay cash upon conversion of the 2026 Notes may be limited
by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase the 2026 Notes
at a time when the repurchase is required by the indenture governing the 2026 Notes (the “indenture”) or to pay any cash
payable on future conversions of the 2026 Notes as required by the indenture, would constitute a default under the indenture.
A default under the indenture, or the fundamental change itself, could also lead to a default under our Amended Credit
Agreement and other agreements governing our existing or future indebtedness. If the repayment of the related indebtedness
were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness,
repurchase, make interest payments on or make cash payments upon conversion of the 2026 Notes.
The conditional conversion feature of the 2026 Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of the 2026 Notes is triggered, holders of the 2026 Notes will be entitled
to convert their 2026 Notes at any time during specified periods at their option. If one or more holders elect to convert their
2026 Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock, we
would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely
affect our liquidity. In addition, even if holders do not elect to convert their 2026 Notes, we could be required under applicable
accounting rules to reclassify all or a portion of the outstanding principal of the 2026 Notes as a current rather than long-term
liability, which would result in a material reduction of our net working capital.
Provisions in the indenture could delay or prevent an otherwise beneficial takeover of the Company
Certain provisions of the 2026 Notes and the indenture could make a third party attempt to acquire us more difficult
or expensive. For example, if a takeover constitutes a fundamental change, then we will be required to make an offer to the
holders of the 2026 Notes to repurchase for cash all or part of their outstanding 2026 Notes. In addition, if a takeover constitutes
a make-whole fundamental change, then we may be required to increase the conversion rate temporarily. In either case, and in
other cases, our obligations under the 2026 Notes could increase the cost of acquiring us or otherwise discourage a third party
from acquiring us or removing incumbent management, including in a transaction that you may view as favorable.
Risks Related to Our Ownership Structure
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, meet our
financial obligations under the 2026 Notes and pay dividends.
We are 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 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” or “TRA”) with the Repay Unitholders. Our ability to pay taxes, make payments
under the Tax Receivable Agreement, meet our financial obligations under the 2026 Notes 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,
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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
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 (including an
exchange in a sale for cash) 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, or in an exchange in a sale for cash. 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
31
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 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.
Risks Related to our Class A Common Stock
Future issuances or sales of substantial amounts of our Class A common stock in the public market, or the perception that
such issuances or sales may occur, could cause the market price for our Class A common stock to decline.
Hawk Parent has outstanding an aggregate of 7,861,271 Post-Merger Repay Units as of February 22, 2023. Pursuant
to the Exchange Agreement, Repay Unitholders have the right to elect to exchange such Post-Merger Repay Units into shares
of our Class A common stock on a one-for-one basis, subject to the terms of the Exchange Agreement. However, Hawk Parent
may elect to settle such exchange in cash in lieu of delivering shares of our Class A common stock pursuant to the terms of the
Exchange Agreement.
32
In addition, we have reserved a total of 13,826,728 shares of Class A common stock for issuance under our Repay
Holdings Corporation Omnibus Incentive Plan (as amended, the “Incentive Plan.”). Of these shares, 7,305,413 shares of Class
A common stock remain available for future issuance under the Incentive Plan as of February 22, 2023. 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.
If these stockholders exercise their sale or exchange rights and sell shares or are perceived by the market as intending
to sell shares, the market price of our shares of Class A common stock could drop significantly. These factors could also make
it more difficult for us to raise additional funds through offerings of our shares of Class A common stock or other securities at
a time and at a price that we deem appropriate.
We also have outstanding $440.0 million aggregate principal amount of our 2026 Notes which are convertible into
shares of our Class A common stock in certain circumstances. Investors will incur further dilution upon the conversion of any
of our 2026 Notes if we elect to deliver shares of Class A common stock upon such conversion. In the future, we may also
issue additional securities in connection with investments, acquisitions or capital raising activities, which could constitute a
material portion of our then-outstanding shares of our Class A common stock and may result in additional dilution to investors
or adversely impact the price of our Class A common stock.
Our stock price may be volatile, which could negatively affect our business and operations.
Historically, our Class A common stock has experienced substantial price volatility. For example, the closing price
per share of our Class A common stock on The Nasdaq Capital Market ranged from a low of $4.38 to a high of $19.54 during
the period from January 3, 2022 to December 30, 2022. This volatility could be the result of changes in our volumes, revenue,
earnings and margins or general market and economic factors. If our future operating results or margins are below the
expectations of stock market analysts or our investors, our stock price will likely decline.
Speculation and opinions in the press or investment community about our strategic position, financial condition,
results of operations or significant transactions can also cause changes in our stock price. In particular, speculation on our go-
forward strategy, competition in some of the markets we address and the effect of general economic and political conditions
(such as recession concerns, interest rate changes and inflation) on our business, may have a dramatic effect on our stock price.
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 or activist
shareholder matters.
Because we do not currently intend to pay dividends, holders of our Class A common stock will benefit from an investment
in our Class A common stock only if it appreciates in value.
We have never declared or paid any dividends on our Class A common stock, and do not expect to pay cash dividends
in the foreseeable future. As a result, the success of an investment in our common stock will depend entirely upon future
appreciation in its value. There is no guarantee that our Class A common stock will maintain its value or appreciate in value.
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.
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:
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 (until our 2024 annual meeting of stockholders, at
which time this provision will terminate);
33
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 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 (until our 2024 annual
meeting of stockholders, at which time this provision will terminate);
a prohibition on stockholder action by written consent (except in limited circumstances), 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 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.
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 stock from engaging in
certain business combination transactions with us for a specified period of time unless certain conditions are met.
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.
34
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The following table sets forth selected information concerning our principal facilities, as of December 31, 2022.
Location
Corporate Headquarters:
Atlanta, Georgia
Additional Facilities:
Atlanta, Georgia
Bettendorf, IA
Chattanooga, Tennessee
The Colony, Texas
East Moline, Illinois
Ft. Worth, Texas
Middleton, Massachusetts
Tempe, Arizona
Sandy, Utah
Sarasota, Florida
Scottsdale, Arizona
Owned/Leased
Approximate Square Footage
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
8,700
13,300
12,900
1,000
14,100
7,500
7,900
3,600
7,500
5,200
8,900
9,800
ITEM 3. LEGAL PROCEEDINGS.
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.
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 February 22, 2023, the closing
price for our Class A common stock was $8.91.
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 February 22, 2023, there were 12 holders of record of our Class A common stock, 24 holders of record of our
Class V common stock and 24 holders of record of Post-Merger Repay Units (not including the Company). 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.
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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, 2022 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.
$
Repay Holdings
Corporation
S&P 500 Index
S&P Information
Technology Index
100.00 $
102.59
151.81
282.38
194.51
83.42
100.00 $
89.23
114.99
133.69
169.64
136.66
100.00
84.92
125.72
178.79
238.42
169.49
July 17, 2018
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
Recent Sales of Unregistered Securities
None.
36
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes purchases of Class A common stock made by the Company or any “affiliated
purchaser” (as defined in Rule 10b-18(a)(3) of the Exchange Agent) in connection with tax withholdings, under the ESPP and
pursuant to our share repurchase program for the three months ended December 31, 2022:
Total Number of
Shares
Purchased (1) (2)
12,479
467,558 (3)
5,940
485,977
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar
Value of Shares that
May yet be Purchased
Under the Plans or
Programs
$
$
6.25
7.78
8.19
7.75
— $
397,593
—
397,593 $
43,000,000
(3,000,000)
—
40,000,000
October 1-31, 2022
November 1-30, 2022
December 1-31, 2022
Includes 72,133 shares that we withheld pursuant to the Incentive Plan and the ESPP in order to satisfy employees’
tax withholding and payment obligations in connection with the vesting of awards of restricted stock under the
Incentive Plan and share purchases under the ESPP, which, in each case, we withheld at fair market value on the
applicable vesting date or purchase date.
Includes 397,593 shares purchased pursuant to the Share Repurchase Program. On May 16, 2022, our board of
directors approved the Share Repurchase Program under which we may repurchase up to $50 million of our
outstanding Class A common stock. The Share Repurchase Program has no expiration date but may be modified,
suspended or discontinued at any time at our discretion. Repurchases under the Share Repurchase Program may be
made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases
depending on market conditions and corporate needs.
Includes 15,000 shares purchased in the open market in November 2022 by a corporation controlled by John A. Morris,
our Chief Executive Officer, who could be deemed an affiliated purchaser.
Total
(1)
(2)
(3)
ITEM 6. [Reserved].
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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 Repay Holdings Corporation and its subsidiaries,
unless the context otherwise requires. Certain figures have been rounded for ease of presentation and may not sum due to
rounding.
Cautionary Note Regarding Forward-Looking Statements
Statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
regarding our financial position, business strategy and the plans and objectives of management for future operations, are
forward-looking statements. Actual results could differ materially from those contemplated by the forward-looking statements
as a result of certain factors, including those set forth under Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-
K.
Overview
We provide integrated payment processing solutions to industry-oriented markets in which clients have specific
transaction processing needs. We refer to these markets as “vertical markets” or “verticals.” Our proprietary, integrated payment
technology platform reduces the complexity of the electronic payments process for businesses, while enhancing their
consumers’ overall experience. We are a payments innovator, differentiated by our proprietary, integrated payment technology
platform and our ability to reduce the complexity of the electronic payments for businesses. We intend to continue to
strategically target verticals where we believe our ability to tailor payment solutions to our client needs, our deep knowledge
of our vertical markets and the embedded nature of our integrated payment solutions will drive strong growth by attracting new
clients and fostering long-term client relationships.
Since a significant portion of our revenue is derived from volume-based payment processing fees, card payment
volume is a key operating metric that we use to evaluate our business. We processed approximately $25.6 billion of total card
payment volume for the year ending December 31, 2022, and our year-over-year card payment volume growth was
approximately 25%.
Starting from December 31, 2022, we report our financial results based on two reportable segments.
Consumer Payments – Our Consumer Payments segment provides payment processing solutions (including debit and
credit card processing, ACH processing and other electronic payment acceptance solutions, as well as our loan disbursement
product) that enable our clients to collect payments and disburse funds to consumers and includes our clearing and settlement
solutions (“RCS”) and Blue Cow Software business (“BCS”). RCS is our proprietary clearing and settlement platform through
which we market customizable payment processing programs to other ISOs and payment facilitators. BCS provides enterprise
resource planning software solutions that are customized to propane and fuel oil dealers; however, BCS was sold on February
15, 2023. The strategic vertical markets served by our Consumer Payments segment primarily include personal loans,
automotive loans, receivables management, credit unions, mortgage servicing, consumer healthcare, diversified retail and
energy related software services.
Business Payments – Our Business Payments segment provides payment processing solutions (including accounts
payable automation, debit and credit card processing, virtual credit card processing, ACH processing and other electronic
payment acceptance solutions) that enable our clients to collect or send payments to other businesses. The strategic vertical
markets served within our Business Payments segment primarily include retail automotive, education, field services,
governments and municipalities, healthcare, HOA management and hospitality.
Macroeconomic Conditions and COVID-19
We have been monitoring the current economic environment in the U.S. and globally – characterized by heightened
inflation (including changes in wages), rising interest rates, supply chain issues and slower growth. Such macroeconomic
conditions may continue to evolve in ways that are difficult to fully anticipate and may also include increased levels of
unemployment and/or a recession. Some or all of these market factors have and could continue to adversely affect our payment
volumes from the consumer loan market, the receivables management industry and consumer and commercial spending. The
effect of these events on our financial condition, results of operations and cash flows is uncertain and cannot be predicted at
this time.
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In addition, the ultimate impact of the COVID-19 pandemic on our results remains uncertain. Although our operations
have continued effectively despite social distancing and other measures taken in response to the pandemic, it is possible that
we could be adversely affected if the COVID-19 pandemic (including the continued emergence of new variants) results in new
or additional mitigation efforts (including actions which could cause or exacerbate economic conditions described in the
preceding paragraph). However, the acceleration in the use of online payment solutions and continued economic recovery from
the effects from the COVID-19 pandemic may positively affect our financial results.
Finally, the impact of all of these various events on our results in 2022 may not be necessarily indicative of their
impact on our results in 2023.
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. On the closing of the Business
Combination, Thunder Bridge changed its name to “Repay Holdings Corporation.”
Key Factors Affecting Our Business
Key factors that we believe impact our business, results of operations and financial condition include, but are not
limited to, the following:
the dollar amount volume and the number of transactions that are processed by the clients that we currently serve;
our ability to attract new clients and onboard them as active processing clients;
our ability to (i) successfully integrate acquisitions and (ii) complete future acquisitions;
our ability to offer new and competitive payment technology solutions to our clients; and
general economic conditions and consumer finance trends.
Key Components of Our Revenues and Expenses
Revenues
Revenue. As our clients process increased volumes of payments, our revenues increase as a result of the fees we charge
for processing these payments. Most of our revenues are derived from volume-based payment processing fees (“discount fees”)
and other related fixed per transaction fees. Discount fees represent a percentage of the dollar amount of each credit or debit
transaction processed and include fees relating to processing and services that we provide. The transaction price for such
processing services is determined, based on the judgment of our management, considering factors such as margin objectives,
pricing practices and controls, client segment pricing strategies, the product life cycle and the observable price of the service
charged to similarly situated clients. We believe our chargeback rate was less than 1% of our card payment volume, during the
years ended December 31, 2022, 2021 and 2020.
Expenses
Costs of services. Costs of services primarily include commissions to our software integration partners and other third-
party processing costs, such as front and back-end processing costs and sponsor bank fees.
Selling, general and administrative. Selling, general and administrative expenses include salaries, share-based
compensation and other employment costs, professional service fees, rent and utilities and other operating costs.
Depreciation and amortization. Depreciation expense consists of depreciation on our investments in property,
equipment and computer hardware. Depreciation expense is recognized on a straight-line basis over the estimated useful life
of the asset. Amortization expense for software development costs and purchased software is recognized on the straight-line
method over a three-year estimated useful life, between eight to ten years estimated useful life for client relationships and
channel relationships, and between two to five years estimated useful life for non-compete agreements.
Interest expense. Interest expense consists of interest in respect of our indebtedness under the Successor Credit
Agreement, which was entered into in connection with the Business Combination and amended in February 2020, and the
Amended Credit Agreement, which replaced the Successor Credit Agreement in February 2021.
39
Change in fair value of warrant liabilities. This amount represents the change in fair value of the warrant liabilities.
The warrant liabilities are carried at fair value; so, any change to the valuation of this liability is recognized through this line
in other expense. The change in fair value results from the change of underlying publicly listed trading price of our Class A
common stock at each measurement date.
Change in fair value of tax receivable liability. This amount represents the change in fair value of the tax receivable
agreement liability. The TRA liability is carried at fair value; so, any change to the valuation of this liability is recognized
through this line in other expense. The change in fair value can result from the redemption or exchange of Post-Merger Repay
Units for Class A common stock of Repay Holdings Corporation, or through accretion of the discounted fair value of the
expected future cash payments.
Results of Operations
($ in thousands)
Revenue
Operating expenses
Costs of services (exclusive of depreciation and amortization shown
separately below)
Selling, general and administrative
Depreciation and amortization
Change in fair value of contingent consideration
Impairment loss
Total operating expenses
Loss from operations
Interest expense
Loss on extinguishment of debt
Change in fair value of warrant liabilities
Change in fair value of tax receivable liability
Other (expense) income
Other loss
Total other income (expense)
Income (loss) before income tax (expense) benefit
Income tax (expense) benefit
Net income (loss)
Net loss attributable to non-controlling interest
Net income (loss) attributable to the Company
Weighted-average shares of Class A common stock outstanding - basic
Weighted-average shares of Class A common stock outstanding - diluted
Income (loss) per Class A share - basic
Income (loss) per Class A share - diluted
$
$
$
$
$
$
$
$
2022
Year ended December 31,
2021
2020
279,227
$
219,258
$
155,036
$
64,826
149,061
107,751
(3,300)
8,090
326,428
$
(47,201) $
(4,375)
—
—
66,871
(135)
(245)
62,116
14,915
(6,174)
8,741
(4,095)
12,836
$
$
$
55,484
120,053
89,692
5,846
2,180
273,255
$
(53,997) $
(3,679)
(5,941)
—
(14,109)
97
(9,099)
(32,731)
(86,728)
30,691
(56,037) $
(5,953)
(50,084) $
41,447
87,302
60,807
(2,510)
—
187,046
(32,010)
(14,445)
—
(70,827)
(12,439)
(3)
—
(97,714)
(129,724)
12,358
(117,366)
(11,769)
(105,597)
88,792,453
110,671,731
83,318,189
83,318,189
52,180,911
52,180,911
0.14
0.12
$
$
(0.60) $
(0.60) $
(2.02)
(2.02)
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Revenue
Total revenue was $279.2 million for the year ended December 31, 2022 and $219.3 million for the year ended
December 31, 2021, an increase of $60.0 million or 27.4%. This increase was the result of newly signed clients, the growth of
our existing clients, as well as the acquisitions of BillingTree, Kontrol and Payix. For the year ended December 31, 2022,
incremental revenues of approximately $37.9 million are attributable to BillingTree, Kontrol and Payix.
Costs of Services
Costs of services were $64.8 million for the year ended December 31, 2022 and $55.5 million for the year ended
December 31, 2021, an increase of $9.3 million or 16.8%. This increase was the result of newly signed clients, the growth of
our existing clients, as well as the acquisitions of BillingTree, Kontrol and Payix. For the year ended December 31, 2022,
incremental costs of services of approximately $7.5 million are attributable to BillingTree, Kontrol and Payix.
Selling, General and Administrative
Selling, general and administrative expenses were $149.1 million for the year ended December 31, 2022 and $120.1
million for the year ended December 31, 2021, an increase of $29.0 million or 24.2%. This increase was primarily due to a
40
$19.4 million increase in compensation expenses with general business growth and increased employees related to acquisitions,
and a $7.0 million increase in software and technological services expenses related to the integration of acquired businesses.
Depreciation and Amortization
Depreciation and amortization expenses were $107.8 million for the year ended December 31, 2022 and $89.7 million
for year ended December 31, 2021, an increase of $18.1 million or 20.1%. The increase was primarily due to a $20.9 million
increase in depreciation and amortization of fixed assets and intangibles from the acquisitions of BillingTree, Kontrol, and
Payix.
Change in Fair Value of Contingent Consideration
Change in the fair value of contingent consideration was ($3.3) million for the year ended December 31, 2022, which
consisted of fair value adjustments related to the contingent consideration for the acquisitions of CPS, Kontrol, and Payix.
Impairment Loss
We incurred an impairment loss of $8.1 million for the year ended December 31, 2022, due to trade names write-offs
related to BillingTree, Kontrol and Payix. We incurred an impairment loss of $2.2 million for the year ended December 31,
2021, due to trade names write-offs related to TriSource, APS, Ventanex, cPayPlus and CPS. These trade names were
strategically phased out, and service offerings are marketed under the REPAY name.
Interest Expense
Interest expense was $4.4 million for the year ended December 31, 2022 and $3.7 million for the year ended
December 31, 2021, an increase of $0.7 million or 18.9%. This increase was due to a higher average outstanding principal
balance under our Amended Credit Agreement.
Loss on Extinguishment of Debt
We incurred a loss of $5.9 million on extinguishment of debt for the year ended December 31, 2021, due to the
termination in full of all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement.
Change in Fair Value of Tax Receivable Liability
We incurred a gain, related to accretion expense and fair value adjustment of the tax receivable liability of $66.9
million for the year ended December 31, 2022 compared to a net loss of $14.1 million for the year ended December 31, 2021,
an increase of $81.0 million. This increase was due to larger fair value adjustments related to the tax receivable liability,
primarily as a result of changes to the discount rate, or Early Termination Rate, used to determine the fair value of the liability.
Other Loss
We incurred a loss of $0.2 million on termination of lease and disposal of fixed assets for the year ended
December 31, 2022. We incurred a loss of $9.1 million on the settlement of interest rate swaps and disposal of property and
equipment for the year ended December 31, 2021.
Income Tax Expense and Benefit
The income tax expense was $6.2 million for the year ended December 31, 2022, reflecting the expected income tax
expense on the income generated over the same period. This was a result of the operating income incurred by the Company,
primarily driven by the change in fair value of the tax receivable liability and contingent consideration, offset by stock-based
compensation deductions and the amortization of assets acquired in the Business Combination and prior acquisitions. The
income tax benefit was $30.7 million for the year ended December 31, 2021, which reflected the expected income tax benefit
to be received on the net earnings related to the Company’s economic interest in Hawk Parent.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenue
Total revenue was $219.3 million for the year ended December 31, 2021 and $155.0 million for the year ended
December 31, 2020, an increase of $64.3 million or 41.4%. This increase was the result of newly signed clients, the growth of
41
our existing clients, as well as the acquisitions of BillingTree and Kontrol. For the year ended December 31, 2021, incremental
revenues of approximately $42.7 million are attributable to BillingTree, Kontrol and Payix.
Costs of Services
Costs of services were $55.5 million for the year ended December 31, 2021 and $41.4 million for the year ended
December 31, 2020, an increase of $14.1 million or 33.9%. For the year ended December 31, 2021, incremental costs of services
of approximately $8.4 million are attributable to BillingTree, Kontrol and Payix.
Selling, General and Administrative
Selling, general and administrative expenses were $120.1 million for the year ended December 31, 2021 and $87.3
million for the year ended December 31, 2020, an increase of $32.8 million or 37.5%. This increase was primarily due to
increased compensation expenses with general business growth and increased expenses relating to software and technological
services.
Depreciation and Amortization
Depreciation and amortization expenses were $89.7 million for the year ended December 31, 2021 and $60.8 million
for year ended December 31, 2020, an increase of $28.9 million or 47.5%. The increase was primarily due to depreciation and
amortization of fixed assets and intangibles from the acquisitions of BillingTree and Kontrol.
Change in Fair Value of Contingent Consideration
Change in the fair value of contingent consideration was $5.8 million for the year ended December 31, 2021, which
consisted of fair value adjustments related to the contingent consideration for the acquisitions of Ventanex, CPS, BillingTree
and Kontrol.
Impairment Loss
We incurred an impairment loss of $2.2 million for the year ended December 31, 2021, due to trade names write-offs
related to TriSource, APS, Ventanex, cPayPlus and CPS as we strategically phased out these trade names and marketed service
offerings under the REPAY name.
Interest Expense
Interest expense was $3.7 million for the year ended December 31, 2021 and $14.4 million for the year ended
December 31, 2020, a decrease of $10.7 million or 74.5%. This decrease was due to a lower average outstanding principal
balance under our Amended Credit Agreement as compared to the average outstanding principal balance under the Successor
Credit Agreement.
Loss on Extinguishment of Debt
We incurred a loss of $5.9 million on extinguishment of debt for the year ended December 31, 2021, due to the
termination in full of all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement.
Change in Fair Value of Warrant Liabilities
We incurred a change in the fair value of warrant liabilities of $70.8 million for the year ended December 31, 2020,
which was due to the mark-to-market valuation adjustments related to the increase in the publicly listed trading price of our
stock. In July 2020, we completed the redemption of all of our outstanding warrants.
Change in Fair Value of Tax Receivable Liability
We incurred a change in the fair value of the tax receivable liability of $14.1 million for the year ended December 31,
2021 compared to $12.4 million for the year ended December 31, 2020, an increase of $1.7 million. This increase was due to
lower fair value adjustments related to the tax receivable liability, primarily as a result of changes to the discount rate used to
determine the fair value of the liability, as well as final adjustments related to the value of the 2020 exchanges of Post-Merger
Repay Units.
42
Other Loss
We incurred a loss of $9.1 million on the settlement of interest rate swaps and disposal of property and equipment for
the year ended December 31, 2021.
Income Tax Benefit
The income tax benefit was $30.7 million for the year ended December 31, 2021 and $12.4 million for year ended
December 31, 2020, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s
economic interest in Hawk Parent. This was a result of the operating loss incurred by the Company, primarily driven by stock-
based compensation deductions, the amortization of assets acquired in the Business Combination and prior acquisitions, the
write-off of deferred debt issuance costs and the loss recognized as part of the settlement of interest rate swaps, in addition to,
the state rate change impact on deferred taxes.
Segments
We provided our services through two reportable segments: (1) Consumer Payments and (2) Business Payments.
The following table presents our segment revenue and selected performance measures.
($ in thousand)
Revenue
Consumer Payments
Business Payments
Elimination of intersegment revenues
Total revenue
Gross profit (1)
Consumer Payments
Business Payments
Elimination of intersegment revenues
Total gross profit
Total gross profit margin (2)
($ in thousand)
Revenue
Consumer Payments
Business Payments
Elimination of intersegment revenues
Total revenue
Gross profit (1)
Consumer Payments
Business Payments
Elimination of intersegment revenues
Total gross profit
Year Ended December 31,
2022
2021
248,191 $
42,600
(11,564)
279,227 $
195,542 $
30,423
(11,564)
214,401 $
77%
Year Ended December 31,
2021
75%
2020
194,044 $
33,818
(8,604)
219,258 $
148,614
23,764
(8,604)
163,774 $
194,044
33,818
(8,604)
219,258
148,614
23,764
(8,604)
163,774
140,844
20,620
(6,428)
155,036
106,016
14,001
(6,428)
113,589
$
$
$
$
$
$
$
Total gross profit margin (2)
75%
73%
(1) Gross profit represents revenue less cost of services.
(2) Gross profit margin represents total gross profit / total revenue.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Consumer Payments
Revenue for the Consumer Payments segment was $248.2 million for the year ended December 31, 2022 and $194.0
million for the year ended December 31, 2021, representing a $54.2 million or 27.9%year-over-year increase. This increase
was the result of newly signed clients, the growth of existing clients, as well as the acquisitions of BillingTree and Payix. For
the year ended December 31, 2022, incremental revenues of approximately $34.3 million are attributable to BillingTree and
Payix.
43
Gross profit for the Consumer Payments segment was $195.5 million for the year ended December 31, 2022 and
$148.6 million for the year ended December 31, 2021, representing a $46.9 million or 31.6% year-over-year increase. This
increase was the result of newly signed clients, the growth of existing clients, as well as the acquisitions of BillingTree and
Payix. For the year ended December 31, 2022, incremental gross profit of approximately $27.9 million is attributable to
BillingTree and Payix.
Business Payments
Revenue for the Business Payments segment was $42.6 million for the year ended December 31, 2022 and $33.8
million for the year ended December 31, 2021, representing a $8.8 million or 26.0% year-over-year increase. This increase was
primarily driven by newly signed clients and growth of existing clients. For the year ended December 31, 2022, incremental
revenues of approximately $1.1 million are attributable to the acquisition of Kontrol.
Gross profit for the Business Payments segment was $30.4 million for the year ended December 31, 2022 and $23.8
million for the year ended December 31, 2021, representing a $6.6 million or 28.0% year-over-year increase. This increase was
primarily driven by newly signed clients and growth of existing clients. For the year ended December 31, 2022, incremental
gross profit of approximately $0.5 million is attributable to the acquisition of Kontrol.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Consumer Payments
Revenue for the Consumer Payments segment was $194.0 million for the year ended December 31, 2021 and $140.8
million for the year ended December 31, 2020, representing a $53.2 million or 37.8% year-over-year increase. This increase
was the result of newly signed clients, the growth of existing clients, as well as the acquisitions of BillingTree, Ventanex and
Payix. For the year ended December 31, 2021, incremental revenues of approximately $32.0 million are attributable to
BillingTree, Ventanex and Payix.
Gross profit for the Consumer Payments segment was $148.6 million for the year ended December 31, 2021 and
$106.0 million for the year ended December 31, 2020, representing a $42.6 million or 40.2% year-over-year increase. This
increase was the result of newly signed clients, the growth of existing clients, as well as the acquisitions of BillingTree,
Ventanex and Payix. For the year ended December 31, 2021, incremental gross profit of approximately $27.3 million is
attributable to BillingTree, Ventanex and Payix.
Business Payments
Revenue for the Business Payments segment was $33.8 million for the year ended December 31, 2021 and $20.6
million for the year ended December 31, 2020, representing a $13.2 million or 64.0% year-over-year increase. This increase
was the result of newly signed clients, the growth of existing clients, as well as the acquisitions of Ventanex, CPS, cPayPlus
and Kontrol. For the year ended December 31, 2021, incremental revenues of approximately $9.2 million are attributable to
Ventanex, CPS, cPayPlus and Kontrol.
Gross profit for the Business Payments segment was $23.8 million for the year ended December 31, 2021 and $14.0
million for the year ended December 31, 2020, representing a $9.8 million or 69.7% year-over-year increase. This increase was
the result of newly signed clients, the growth of existing clients, as well as the acquisitions of Ventanex, CPS, cPayPlus and
Kontrol. For the year ended December 31, 2021, incremental gross profit of approximately $6.0 million is attributable to
Ventanex, CPS, cPayPlus and Kontrol.
44
Non-GAAP Financial Measures
This report includes certain non-GAAP financial measures that our management uses to evaluate our operating
business, measure our performance and make strategic decisions.
Adjusted EBITDA is a non-GAAP financial measure that represents net income prior to interest expense, tax expense,
depreciation and amortization, as adjusted to add back certain charges deemed to not be part of normal operating expenses,
non-cash charges and/or non-recurring charges, such as loss on extinguishment of debt, loss on termination of interest rate
hedge, non-cash change in fair value of contingent consideration, non-cash change in fair value of assets and liabilities, share-
based compensation charges, transaction expenses, restructuring and other strategic initiative costs and other non-recurring
charges.
Adjusted Net Income is a non-GAAP financial measure that represents net income prior to amortization of acquisition-
related intangibles, as adjusted to add back certain charges deemed to not be part of normal operating expenses, non-cash
charges and/or non-recurring charges, such as loss on extinguishment of debt, loss on termination of interest rate hedge, non-
cash change in fair value of contingent consideration, non-cash change in fair value of assets and liabilities, share-based
compensation expense, transaction expenses, restructuring and other strategic initiative costs, other non-recurring charges, non-
cash interest expense and net of tax effect associated with these adjustments. Adjusted Net Income is adjusted to exclude
amortization of all acquisition-related intangibles as such amounts are inconsistent in amount and frequency and are
significantly impacted by the timing and/or size of acquisitions. Management believes that the adjustment of acquisition-related
intangible amortization supplements GAAP financial measures because it allows for greater comparability of operating
performance. Although we exclude amortization from acquisition-related intangibles from our non-GAAP expenses,
management believes that it is important for investors to understand that such intangibles were recorded as part of purchase
accounting and contribute to revenue generation.
Adjusted Net Income per share is a non-GAAP financial measure that represents Adjusted Net Income divided by the
weighted average number of shares of Class A common stock outstanding (on an as-converted basis assuming conversion of
the outstanding Post-Merger Repay Units) for the years ended December 31, 2022, 2021 and 2020 (excluding certain shares
that were subject to forfeiture).
We believe that Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share provide useful
information to investors and others in understanding and evaluating its operating results in the same manner as management.
However, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share are not financial measures calculated
in accordance with GAAP and should not be considered as a substitute for net income, operating profit, or any other operating
performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business
has material limitations because the calculations are based on the subjective determination of management regarding the nature
and classification of events and circumstances that investors may find significant. In addition, although other companies in our
industry may report measures titled Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share or similar
measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial
measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider
Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share alongside other financial performance measures,
including net income and our other financial results presented in accordance with GAAP.
The following tables set forth a reconciliation of our results of operations for the years ended December 31, 2022,
2021 and 2020.
45
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
($ in thousands)
Revenue
Operating expenses
Costs of services (exclusive of depreciation and amortization shown
separately below)
Selling, general and administrative
Depreciation and amortization
Change in fair value of contingent consideration
Impairment loss
Total operating expenses
Loss from operations
Interest expense
Loss on extinguishment of debt
Change in fair value of warrant liabilities
Change in fair value of tax receivable liability
Other (expense) income
Other loss
Total other income (expense)
Income (loss) before income tax (expense) benefit
Income tax (expense) benefit
Net income (loss)
Add:
Interest expense
Depreciation and amortization (a)
Income tax expense (benefit)
EBITDA
Loss on extinguishment of debt (i)
Loss on termination of interest rate hedge (j)
Non-cash change in fair value of warrant liabilities (k)
Non-cash change in fair value of contingent consideration (b)
Non-cash impairment loss (c)
Non-cash change in fair value of assets and liabilities (d)
Share-based compensation expense (e)
Transaction expenses (f)
Restructuring and other strategic initiative costs (g)
Other non-recurring charges (h)
Adjusted EBITDA
2022
Year Ended December 31,
2021
2020
$
279,227 $
219,258 $
155,036
64,826
149,061
107,751
(3,300)
8,090
326,428 $
(47,201) $
(4,375)
—
—
66,871
(135)
(245)
62,116
14,915
(6,174)
8,741 $
4,375
107,751
6,174
127,041 $
—
—
—
(3,300)
8,090
(66,871)
20,532
18,993
7,870
12,294
124,649 $
55,484
120,053
89,692
5,846
2,180
273,255 $
(53,997) $
(3,679)
(5,941)
—
(14,109)
97
(9,099)
(32,731)
(86,728)
30,691
(56,037) $
3,679
89,692
(30,691)
6,643 $
5,941
9,080
—
5,846
2,180
14,109
22,311
19,250
4,578
3,262
93,200 $
41,447
87,302
60,807
(2,510)
—
187,046
(32,010)
(14,445)
—
(70,827)
(12,439)
(3)
—
(97,714)
(129,724)
12,358
(117,366)
14,445
60,807
(12,358)
(54,472)
—
—
70,827
(2,510)
—
12,439
19,446
10,924
1,103
1,794
59,551
$
$
$
$
$
46
REPAY HOLDINGS CORPORATION
Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income
($ in thousands)
Revenue
Operating expenses
Costs of services (exclusive of depreciation and amortization shown
separately below)
Selling, general and administrative
Depreciation and amortization
Change in fair value of contingent consideration
Impairment loss
Total operating expenses
Loss from operations
Interest expense
Loss on extinguishment of debt
Change in fair value of warrant liabilities
Change in fair value of tax receivable liability
Other (expense) income
Other loss
Total other income (expense)
Income (loss) before income tax (expense) benefit
Income tax (expense) benefit
Net income (loss)
Add:
Amortization of acquisition-related intangibles (l)
Loss on extinguishment of debt (i)
Loss on extinguishment of interest rate hedge (j)
Non-cash change in fair value of warrant liabilities (k)
Non-cash change in fair value of contingent consideration (b)
Non-cash goodwill impairment loss (c)
Non-cash change in fair value of assets and liabilities (d)
Share-based compensation expense (e)
Transaction expenses (f)
Restructuring and other strategic initiative costs (g)
Other non-recurring charges (h)
Non-cash interest expense (m)
Pro forma taxes at effective rate (n)
Adjusted Net Income
Shares of Class A common stock outstanding (on an as-converted basis)
(o)
Adjusted Net Income per share
2022
Year Ended December 31,
2021
2020
$
279,227 $
219,258 $
155,036
64,826
149,061
107,751
(3,300)
8,090
326,428 $
(47,201) $
(4,375)
—
—
66,871
(135)
(245)
62,116
14,915
(6,174)
8,741 $
89,473
—
—
—
(3,300)
8,090
(66,871)
20,532
18,993
7,870
12,294
2,835
(18,871)
79,786 $
55,484
120,053
89,692
5,846
2,180
273,255 $
(53,997) $
(3,679)
(5,941)
—
(14,109)
97
(9,099)
(32,731)
(86,728)
30,691
(56,037) $
79,932
5,941
9,080
—
5,846
2,180
14,109
22,311
19,250
4,578
3,262
2,536
(39,219)
73,769 $
41,447
87,302
60,807
(2,510)
—
187,046
(32,010)
(14,445)
—
(70,827)
(12,439)
(3)
—
(97,714)
(129,724)
12,358
(117,366)
52,126
—
—
70,827
(2,510)
—
12,439
19,446
10,924
1,103
1,794
—
(11,883)
36,900
96,684,629
0.83 $
91,264,512
0.81 $
73,373,106
0.50
$
$
$
$
$
(a) See footnote (l) for details on our amortization and depreciation expenses.
(b) Reflects the changes in management’s estimates of future cash consideration to be paid in connection with prior
acquisitions from the amount estimated as of the most recent balance sheet date.
(c) For the year ended December 31, 2022, reflects impairment loss related to trade names write-offs of BillingTree
and Kontrol. For the year ended December 31, 2021, reflects impairment loss related to trade names write-offs of
TriSource, APS, Ventanex, cPayPlus and CPS.
(d) Reflects the changes in management’s estimates of the fair value of the liability relating to TRA.
(e) Represents compensation expense associated with equity compensation plans, totaling $20.5 million, $22.3
million and $19.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.
(f) Primarily consists of (i) during the year ended December 31, 2022, professional service fees and other costs
incurred in connection with the acquisitions of BillingTree, Kontrol and Payix, (ii) during the year ended
December 31, 2021, professional service fees and other costs incurred in connection with the acquisitions of
Ventanex, cPayPlus, CPS, BillingTree, Kontrol and Payix, as well as professional service expenses related to the
January 2021 equity and convertible notes offerings and (iii) during the year ended December 31, 2020,
professional service fees and other costs incurred in connection with the acquisition of CPS, and additional
transaction expenses incurred in connection with the Business Combination and the acquisitions of TriSource,
47
APS, Ventanex and cPayPlus, as well as professional service expenses related to the June and September 2020
equity offerings.
(g) Reflects costs associated with reorganization of operations, consulting fees related to our processing services and
other operational improvements, including restructuring and integration activities related to our acquired
businesses, that were not in the ordinary course during the years ended December 31, 2022, 2021 and 2020.
Additionally, for the year ended December 31, 2022, reflects one-time severance payments.
(h) For the year ended December 31, 2022, reflects one-time settlement payments to certain clients and partners,
payments made to third-parties in connection with expansion of our personnel, non-recurring performance
incentives to employees, franchise taxes and other non-income based taxes, other payments related to COVID-
19, non-cash rent expense, loss on termination of lease and loss on disposal of fixed assets. For the year ended
December 31, 2021, reflects one-time payments to certain clients and partners, other payments related to COVID-
19, non-cash rent expense and loss on disposal of fixed assets. For the year ended December 31, 2020, reflects
expenses incurred related to one-time accounting system and compensation plan implementation related to
becoming a public company, one-time payments to certain clients and other payments related to COVID-19.
Additionally, to be consistent with the current year presentation, for the year ended December 31, 2021 and 2020,
reflects payments made to third-parties in connection with expansion of our personnel, franchise taxes and other
non-income based taxes.
(i) Reflects write-offs of debt issuance costs relating to Term Loans.
(j) Reflects realized loss of our interest rate hedging arrangement which terminated in conjunction with the
repayment of Term Loans.
(k) Reflects the mark-to-market fair value adjustments of the warrant liabilities.
(l) For the years ended December 31, 2022 and 2021, reflects amortization of client relationships, non-compete
agreement, software, and channel relationship intangibles acquired through the Business Combination, and client
relationships, non-compete agreement, and software intangibles acquired through our acquisitions of TriSource,
APS, Ventanex, cPayPlus, CPS, BillingTree, Kontrol and Payix. For the year ended December 31, 2020 reflects
(i) amortization of the client 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, (ii) client relationships, non-compete
agreement, software, and channel relationship intangibles acquired through the Business Combination, and (iii)
client relationships, non-compete agreement, and software intangibles acquired through Repay Holdings, LLC’s
acquisitions of TriSource, APS, Ventanex, cPayPlus and CPS. 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 amortization (1)
Year ended December 31,
2021
2022
2020
$
$
$
89,473 $
15,921
—
105,394 $
2,357
107,751 $
79,932 $
8,464
—
88,396 $
1,296
89,692 $
52,126
7,467
58
59,651
1,156
60,807
(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 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.
(m) Represents amortization of non-cash deferred debt issuance costs.
(n) Represents pro forma income tax adjustment effect associated with items adjusted above.
(o) Represents the weighted average number of shares of Class A common stock outstanding (on an as-converted basis
assuming conversion of outstanding Post-Merger Repay Units) for the years ended December 31, 2022, 2021 and
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2020. These numbers do not include any shares issuable upon conversion of our 2026 Notes. See the reconciliation
of basic weighted average shares outstanding to the non-GAAP Class A common stock outstanding on an as-
converted basis for each respective period below:
Weighted average shares of Class A common stock outstanding -
basic
Add: Non-controlling interests
Weighted average Post-Merger Repay Units exchangeable
for Class A common stock
Shares of Class A common stock outstanding (on an as-
converted basis)
Year Ended December 31,
2021
2022
2020
88,792,453
83,318,189
52,180,911
7,892,176
7,946,323
21,192,195
96,684,629
91,264,512
73,373,106
Adjusted EBITDA for the years ended December 31, 2022 and 2021 was $124.6 million and $93.2 million,
respectively, representing a 33.7% year-over-year increase. Adjusted Net Income for the years ended December 31, 2022 and
2021 was $79.8 million and $73.8 million, respectively, representing a 8.2% year-over-year increase. Our net income (loss)
attributable to the Company for the years ended December 31, 2022 and 2021 was $12.8 million and ($50.1) million,
respectively, representing a 125.6% year-over-year increase.
These increases in Adjusted EBITDA, Adjusted Net Income and net income (loss) attributable to the Company for
the year ended December 31, 2022 are primarily due to the organic growth of our business, along with contributions from
acquisitions.
For discussion on Adjusted EBITDA, Adjusted Net income, and net income (loss) attributable to the Company for the
year ended December 31, 2021 compared to the year ended December 31, 2020, see Part II, Item 7 of the Company’s 2021
Form 10-K.
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. We also
finance our operations through proceeds from the issuance of our Class A common stock in June 2020 and our January 2021
convertible notes offering. As of December 31, 2022, we had $64.9 million of cash and cash equivalents and available
borrowing capacity of $165.0 million under the Amended Credit Agreement. This balance does not include restricted cash,
which reflects cash accounts holding reserves for potential losses and client settlement funds of $28.7 million as of
December 31, 2022. In February 2021, we used a portion of the proceeds from the January 2021 convertible notes offering to
prepay in full the entire principal amount of the term loans then outstanding under the Successor Credit Agreement and also
terminated in full all delayed draw term loan commitments then outstanding. At that time, we also amended and restated the
Successor Credit Agreement and entered into the Amended Credit Agreement, which established a $125.0 million senior
secured revolving credit facility in favor of Hawk Parent. In December 2021, we increased our existing senior secured credit
facilities by $60.0 million to a $185.0 million revolving credit facility pursuant to an amendment to the Amended Credit
Agreement.
Our primary cash needs are to fund working capital requirements, invest in technology development, fund acquisitions
and related contingent consideration, make scheduled principal payments and interest payments on our outstanding
indebtedness and pay tax distributions to members of Hawk Parent. We expect that our cash flow from operations, current cash
and cash equivalents and available borrowing capacity under the Amended Credit Agreement will be sufficient to fund our
operations and planned capital expenditures and to service our debt obligations for the next twelve months.
We may also from time to time depending on market conditions and prices, contractual restrictions, our financial
liquidity and other factors, seek to prepay outstanding debt or repurchase our outstanding debt through open market purchases,
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privately negotiated purchases, or otherwise. The amounts involved in any such transactions, individually or in the aggregate,
may be material and may be funded from available cash or from additional borrowings.
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.”
As of December 31, 2022, our material contractual obligations primarily consist of operating leases liabilities and
contingent considerations. See Note 5. Business Combinations and Note 12. Commitments and Contingencies to the financial
statements in Item 8 of this Annual Report on Form 10-K for more information related to contingent considerations and
operating leases liabilities, respectively. Contingent considerations are associated with the acquisition of CPS, which include
approximately $1.0 million due within the next twelve months. Based on our current lease terms, $2.3 million of operating
lease liabilities are due within the next twelve months, and the remaining lease liabilities of $8.3 million are due within the next
six years. We believe the cash flows from operations and available borrowing capacity from our existing revolving credit
facility will be sufficient to satisfy our cash requirement for the next twelve months and the following five years.
On May 16, 2022, our board of directors approved a share repurchase program under which we may repurchase up to
$50 million of our outstanding Class A common stock (the “Share Repurchase Program”). The Share Repurchase Program has
no expiration date but may be modified, suspended or discontinued at any time at our discretion. During the year ended
December 31, 2022, we repurchased 1,078,141 shares for a total of approximately $10.0 million under the Share Repurchase
Program.
Cash Flows
The following table presents a summary of cash flows from operating, investing and financing activities for the periods
indicated:
($ in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Cash Flow from Operating Activities
Year Ended December 31,
2021
2020
2022
$
74,223 $
(39,541)
(17,459)
53,330 $
(397,335)
313,840
28,487
(145,980)
186,097
Net cash provided by operating activities was $74.2 million for the year ended December 31, 2022.
Net cash provided by operating activities was $53.3 million for the year ended December 31, 2021.
Net cash provided by operating activities was $28.5 million for the year ended December 31, 2020.
Cash provided by operating activities for the years ended December 31, 2022, 2021 and 2020, 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 $39.5 million for the year ended December 31, 2022, due to the capitalization
of software development activities.
Net cash used in investing activities was $397.3 million for the year ended December 31, 2021, due to the acquisitions
of BillingTree, Kontrol and Payix, as well as the capitalization of software development activities.
Net cash used in investing activities was $146.0 million for the year ended December 31, 2020, due to the acquisition
of Ventanex, cPayPlus, and CPS, as well as capitalization of software development activities.
Cash Flow from Financing Activities
50
Net cash used in financing activities was $17.5 million for the year ended December 31, 2022, due to the shares
repurchased under the Incentive Plan, ESPP and Share Repurchase Program, as well as the Ventanex earnout payment.
Net cash provided by financing activities was $313.8 million for the year ended December 31, 2021, due to proceeds
from the issuance of new shares in the Equity Offering, and proceeds from the 2026 Notes, offset by repayment of the
outstanding revolver balance related to the Successor Credit Agreement, repayments of the Term Loan principal balance under
the Successor Credit Agreement and the cPayPlus earnout payment.
Net cash provided by financing activities was $186.1 million for the year ended December 31, 2020, due to proceeds
from the issuance of new shares in the June 2020 offering of Class A common stock, new borrowings related to the acquisition
of Ventanex under the Successor Credit Agreement, as well as funds received related to the exercise of warrants, offset by
repayment of the outstanding revolver balance related to the Successor Credit Agreement in connection with its amendment
and the acquisition of Ventanex, and repayments of the term loan principal balance under the Successor Credit Agreement.
Indebtedness
Successor Credit Agreement
In connection with the Business Combination, on July 11, 2019, TB Acquisition Merger Sub LLC, Hawk Parent and
certain subsidiaries of Hawk Parent, as guarantors, entered into a Revolving Credit and Term Loan Agreement (the “Successor
Credit Agreement”) with certain financial institutions, as lenders, and Truist Bank (formerly SunTrust Bank), as the
administrative agent.
On February 10, 2020, we announced the acquisition of Ventanex. The closing of the acquisition was financed partially
from new borrowings under our existing credit facility. As part of the financing for the transaction, we entered into an agreement
with Truist Bank and other members of its existing bank group to amend and upsize the Successor Credit Agreement.
On January 20, 2021, we used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the
outstanding term loans under the Successor Credit Agreement. We also terminated in full all outstanding delayed draw term
loan commitments under such credit facilities.
Amended Credit Agreement
In February 2021, we also amended and restated the Successor Credit Agreement and entered into the Amended Credit
Agreement, which establishes a $125.0 million senior secured revolving credit facility in favor of Hawk Parent.
In December 2021, we increased our existing senior secured credit facilities by $60.0 million to a $185.0 million
revolving credit facility pursuant to an amendment to the Amended Credit Agreement. We currently expect that we will remain
in compliance with the restrictive financial covenants of the Amended Credit Agreement, prospectively.
In February 2023, we further amended the Amended Credit Agreement to replace LIBOR with term SOFR as the
interest rate benchmark.
In February 2023, we repaid in full the entire amount of $20.0 million of the outstanding revolving credit facility. The
undrawn capacity of the existing revolving credit facility under the Amended Credit Agreement became $185.0 million after
the repayment.
As of December 31, 2022, the Amended Credit Agreement provides for a revolving credit facility of $185.0 million.
As of December 31, 2022, we had $20.0 million drawn against the revolving credit facility at a variable interest rate of 2.25%
plus 1-month LIBOR due 2026. We paid $0.6 million and $0.4 million in fees related to unused commitments for the years
ended December 31, 2022 and 2021, respectively. See Note 10. Borrowings to the financial statements in Item 8 of this Annual
Report on Form 10-K for more information.
Convertible Senior Debt
On January 19, 2021, we issued $440.0 million in aggregate principal amount of 0.00% Convertible Senior Notes due
2026 in a private placement (the “Notes Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities
Act of 1933, as amended. $40.0 million in aggregate principal amount of such 2026 Notes were sold in the Notes Offering in
connection with the full exercise of the initial purchasers’ option to purchase such additional 2026 Notes pursuant to the
purchase agreement. Upon conversion, the Company may choose to pay or deliver cash, shares of the Company’s Class A
51
Common Stock, or a combination of cash and shares of the Company’s Class A Common Stock. The 2026 Notes will mature
on February 1, 2026, unless earlier converted, repurchased or redeemed.
As of December 31, 2022, we had convertible senior debt outstanding of $433.1 million, net of deferred issuance
costs, under the 2026 Notes, and revolving credit facility debt outstanding of $18.2 million, net of deferred issuance costs,
under the Amended Credit Agreement. We were in compliance with the related restrictive financial covenants. Additionally,
we currently expect that we will remain in compliance with the restrictive financial covenants prospectively.
Tax Receivable Agreement
Upon the completion of the Business Combination, we entered into that certain Tax Receivable Agreement (the “Tax
Receivable Agreement” or “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.
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 the 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 Estimates
Recently Issued Accounting Standards
For information related to recent accounting pronouncements and the impact of these pronouncements on our
consolidated financial statements, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies, to our
Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.
Critical Accounting 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. We base
our estimates and judgments on historical experience and available relevant information that we believe to be reasonable under
the circumstances, and we continue to review and evaluate these estimates. Actual results may materially differ from these
estimates under different assumptions or conditions as new or additional information become available in future periods.
Accounting policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to
variations which may significantly affect our reported results and financial condition for the period or in future periods.
Subsequent changes in economic or market conditions could have a material impact on these estimates and our financial
condition and operating results in future periods. There have been no significant changes in our application of accounting
estimates during the year ended December 31, 2022.
Revenue Recognition
The consideration to be received in our contracts with clients consists of variable consideration where the timing and
quantity of transactions to be processed is not determinable at contract inception. Our performance obligation in our contracts
with clients 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 client’s use (e.g., number of transactions submitted and processed) of the related processing services.
52
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.
We follow the requirements of ASC 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 client.
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 client or whether we are
acting as an agent of a third party. This evaluation is performed separately for each performance obligation identified.
Business Combinations
We account for business combinations using the acquisition method of accounting. Under the acquisition method,
the consolidated financial statements reflect the operations of an acquired business starting from the closing date of the
acquisition.
All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. We allocate the
purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities
assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included within the purchase
price and is recognized at its fair value on the acquisition date. The application of the acquisition method of accounting for
business combinations and determination of fair value requires management to make judgments and may involve the use of
significant estimates, including assumptions related to estimated future revenues, growth rates, cash flows, and discount rates,
among other items. Management generally evaluates fair value at acquisition using three valuation techniques–the replacement
cost, market and income methods–and weights the valuation methods based on what is most appropriate in the circumstances.
The process of assigning fair values, particularly to acquired intangible assets, is highly subjective. Management also typically
utilizes third party valuation specialists to assist in the determination of the fair value of assets acquired and liabilities assumed.
Fair value estimates are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as
a result, actual results may differ from estimates. If the actual results differ from the estimates and judgments used, the amounts
recorded in the consolidated financial statements may be exposed to potential impairment of the intangible assets and goodwill
as discussed in the “Impairment” section below. The determination of fair value is considered a critical accounting estimate
because the valuation techniques mentioned use significant estimates and assumptions, including projected future revenues,
the expected economic life of the asset, tax rates and a discount rate that reflects the level of risk associated with the future
earnings attributable to the asset.
During the measurement period, which is up to one year from the acquisition date, adjustments to the assets
acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.
Impairment
We review goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of our
fiscal year, or more frequently as warranted by events or changes in circumstances which indicate that the carrying amount
may not be recoverable. We may first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. If, based on the results of the
qualitative assessment, it is concluded that it is not more likely than not that the fair value of a reporting unit or indefinite-lived
asset exceeds its carrying value, a quantitative test is performed. Under the quantitative test, we compare the carrying value of
the reporting unit or indefinite-lived intangible asset to its fair value, which we estimate using a discounted cash flow analysis
or by comparison to the market values of similar assets. If the carrying value exceeds its fair value, we record an impairment
charge equal to the excess of the carrying value over the related fair value. The assumptions used in such valuations such as
projected future cash flows, discount rates, growth rates, and determination of appropriate market comparables and recent
transactions, are subject to volatility and may differ from actual results. Under a qualitative assessment, we assess various
factors including industry and market conditions, macroeconomic conditions and performance of our businesses.
We review other long-lived assets, including ROU assets, for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset or an asset group may not be recoverable. In evaluating long-lived assets
for recoverability, we estimate the future cash flows at the individual asset or asset group level. Impairment losses are measured
and recorded for the excess of an asset's carrying value over its fair value. To determine the fair value of long-lived assets,
included ROU assets, we utilize the valuation technique or techniques deemed most appropriate based on the nature of the asset
or asset group, which may include the use of quoted market prices, prices for similar assets or other valuation techniques such
as discounted future cash flows or earnings.
53
The determination of fair value is considered a critical accounting estimate because the valuation techniques
mentioned use significant estimates and assumptions, including projected future cash flows, discount rates and growth rates.
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
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.
We record the TRA liability at fair value based on estimates of discounted future cash flows associated with the
estimated payments to the Post-Merger Repay Unit holders. These inputs are not observable in the market. Therefore, in
estimating fair value, management uses a discount rate, also referred to as the early termination rate, to determine the present
value based on a risk-free rate plus a spread pursuant to the TRA. A significant increase or decrease in the discount rate could
result in a lower or higher balance, respectively, as of the measurement date.
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, 2022, we had convertible senior debt of $433.1 million, net of deferred issuance costs, and
revolver borrowings of $18.2 million, net of deferred issuance costs, outstanding under the respective credit agreements. As of
December 31, 2021, we had convertible senior debt of $429.3 million, net of deferred issuance costs, and revolving credit
facility borrowings of $19.2 million, net of deferred issuance costs, outstanding. The borrowings accrue interest at either base
rate, described above under “Liquidity and Capital Resources — Indebtedness,” plus a margin of 1.50% to 2.50% or at an
adjusted LIBOR rate plus a margin of 2.50% to 3.50% under the Amended Credit Agreement, in each case depending on the
total net leverage ratio, as defined in the respective agreements governing the Amended Credit Agreement.
In October 2019, we entered into a $140.0 million notional interest rate swap agreement, and in February 2020, we
entered into a $30.0 million notional interest rate swap agreement, then a revised notional amount of $65.0 million beginning
on September 30, 2020. These interest rate swap agreements reduce 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.” These interest rate swaps effectively
converted $205.0 million of the outstanding term loan into to fixed rate payments for 57 months and 60 months, respectively.
Both interest rate swaps were settled in January 2021.
We may incur additional borrowings from time to time for general corporate purposes, including working capital and
capital expenditures.
54
In July 2017, the U.K. Financial Conduct Authority announced its intention to phase out LIBOR rates by the end of
2021. The deadline has been mostly extended and most U.S. dollar-denominated LIBOR maturity tenors will continue to be
published until June 30, 2023. It is not possible to predict the effect of any changes in the methods by which the LIBOR is
determined, or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Such developments may
cause LIBOR to perform differently than in the past, including sudden or prolonged increases or decreases in LIBOR, or cease
to exist, resulting in the application of a successor base rate under the Amended Credit Agreement, which in turn could have
unpredictable effects on our interest payment obligations under the Amended Credit Agreement.
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.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to the Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021, 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
57
60
61
62
63
64
66
56
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 sheets of Repay Holdings Corporation (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations,
comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022,
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, 2022 and 2021, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated March 1, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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. 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.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Revenue recognition
As described further in Note 2 to the consolidated financial statements, the Company’s revenue primarily consists of
transaction-based fees from payment processing services that are made up of a significant volume of low-dollar transactions,
sourced from multiple systems, platforms, and applications. The processing of such transactions and recording of revenue is
system-driven and based on contractual terms with merchants, financial institutions, payment networks, and other parties.
Because of the nature of the payment processing services, the Company relies on automated systems and third parties to process
and record its revenue transactions.
The principal consideration for our determination that the complexity of revenue recognition is a critical audit matter is the
increased extent of effort and involvement of professionals with specialized skills in information technology (IT) to identify,
test, and evaluate the Company’s systems and automated controls.
57
Our audit procedures related to the revenue recognized during the year ended December 31, 2022 included the following,
among others:
With the assistance of our IT professionals, we:
o Identified the significant systems used to process revenue transactions and tested the general IT controls over
each of these systems, including testing of user access controls, change management controls, and IT operations
controls.
o Tested system interface controls and automated controls within the relevant revenue streams, as well as the
controls designed to ensure the accuracy and completeness of revenue.
We tested internal controls within the relevant revenue business processes, including those in place to reconcile the various
reports extracted from the IT systems to the Company’s general ledger.
For a sample of revenue transactions, we tested selected transactions by agreeing the inputs to the calculation of revenue
recognized to source documents, including merchant contracts and processor reports and testing the mathematical accuracy
of the recorded revenue.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2018.
Atlanta, Georgia
March 1, 2023
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Repay Holdings Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Repay Holdings Corporation (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022,
based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our
report dated March 1, 2023 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report
on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
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 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 effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 1, 2023
59
REPAY HOLDINGS CORPORATION
Consolidated Balance Sheets
($ in thousands)
Assets
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other
Total current assets
Property, plant and equipment, net
Restricted cash
Intangible assets, net
Goodwill
Operating lease right-of-use assets, net
Deferred tax assets
Other assets
Total noncurrent assets
Total assets
Liabilities
Accounts payable
Related party payable
Accrued expenses
Current operating lease liabilities
Current tax receivable agreement
Other current liabilities
Total current liabilities
Long-term debt
Noncurrent operating lease liabilities
Tax receivable agreement, net of current portion
Other liabilities
Total noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders' equity
Class A common stock, $0.0001 par value; 2,000,000,000 shares authorized, 89,354,754 issued
and 88,276,613 outstanding as of December 31, 2022; 88,502,621 issued and outstanding as of
December 31, 2021
Class V common stock, $0.0001 par value; 1,000 shares authorized and 100 shares issued and
outstanding as of December 31, 2022 and 2021
Treasury stock, 1,078,141 and 0 shares as of December 31, 2022 and December 31, 2021,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Repay stockholders' equity
Non-controlling interests
Total equity
Total liabilities and equity
December 31,
2022
December 31,
2021
$
$
$
$
$
$
64,895 $
33,544
18,213
116,652
4,375
28,668
500,575
827,813
9,847
136,370
2,500
1,510,148
1,626,800 $
21,781
1,000
29,016
2,263
24,454
3,593
82,107
451,319
8,295
154,673
2,113
616,400
698,507 $
50,049
33,236
12,427
95,712
3,801
26,291
577,694
824,081
10,500
145,260
2,500
1,590,127
1,685,839
20,083
17,394
26,819
1,990
24,495
1,566
92,347
448,485
9,091
221,333
1,547
680,456
772,803
9
—
(10,000)
1,117,736
(3)
(213,180)
894,562
33,731
928,293 $
1,626,800 $
9
—
—
1,100,012
(2)
(226,016)
874,003
39,033
913,036
1,685,839
See accompanying notes to consolidated financial statements.
60
REPAY HOLDINGS CORPORATION
Consolidated Statements of Operations
($ in thousands, except per share data)
Revenue
Operating Expenses
Costs of services (exclusive of depreciation and
amortization shown separately below)
Selling, general and administrative
Depreciation and amortization
Change in fair value of contingent consideration
Impairment loss
Total operating expenses
Loss from operations
Other (expense) income
Interest expense
Loss on extinguishment of debt
Change in fair value of warrant liabilities
Change in fair value of tax receivable liability
Other income (expense)
Other loss
Total other income (expense)
Income (loss) before income tax (expense) benefit
Income tax (expense) benefit
Net income (loss)
Less: Net loss attributable to
non-controlling interests
Net income (loss) attributable to the Company
Income (loss) per Class A share attributable to the
Company:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
2022
Year Ended December 31,
2021
2020
$
279,227 $
219,258 $
155,036
64,826
149,061
107,751
(3,300)
8,090
326,428
(47,201)
(4,375)
—
—
66,871
(135)
(245)
62,116
14,915
(6,174)
8,741 $
(4,095)
12,836 $
55,484
120,053
89,692
5,846
2,180
273,255
(53,997)
(3,679)
(5,941)
—
(14,109)
97
(9,099)
(32,731)
(86,728)
30,691
(56,037) $
(5,953)
(50,084) $
41,447
87,302
60,807
(2,510)
—
187,046
(32,010)
(14,445)
—
(70,827)
(12,439)
(3)
—
(97,714)
(129,724)
12,358
(117,366)
(11,769)
(105,597)
0.14 $
0.12 $
(0.60) $
(0.60) $
(2.02)
(2.02)
88,792,453
110,671,731
83,318,189
83,318,189
52,180,911
52,180,911
$
$
$
$
See accompanying notes to consolidated financial statements.
61
REPAY HOLDINGS CORPORATION
Consolidated Statements of Comprehensive Income
($ in thousands)
Net income (loss)
Other comprehensive (loss) income, before tax
Year Ended December 31,
2021
2022
$
8,741
$
(56,037) $
2020
(117,366)
Change in fair value of cash flow hedges
Reclassification of net unrealized loss on cash flow hedges to other loss
Foreign currency translation adjustments
Total other comprehensive (loss) income, before tax
Income tax related to items of other comprehensive income:
Tax benefit on change in fair value of cash flow hedges
Tax expense on reclassification of net unrealized loss on cash flow
hedges to other loss
Tax benefit on foreign currency translation adjustments
Total income tax benefit (expense) related to items of other
comprehensive income
Total other comprehensive income (loss), net of tax
Total comprehensive income (loss)
Less: Comprehensive loss attributable to non-controlling interests
Comprehensive income (loss) attributable to the Company
$
$
—
—
(2)
(2)
—
—
1
1
(1)
$
8,740
(4,095)
12,835
$
—
9,317
(3)
9,314
(9,868)
—
—
(9,868)
—
1,673
(1,673)
1
—
—
(1,672)
7,642
(48,395) $
(4,745)
(43,650) $
1,673
(8,195)
(125,561)
(14,668)
(110,893)
See accompanying notes to consolidated financial statements.
62
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B
REPAY HOLDINGS CORPORATION
Consolidated Statements of Cash Flows
($ in thousands)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization
Stock based compensation
Amortization of debt issuance costs
Loss on disposal of property and equipment
Loss on extinguishment of debt
Loss on sale of interest rate swaps
Fair value change in warrant liability
Fair value change in tax receivable agreement liability
Fair value change in contingent consideration
Impairment loss
Payments of contingent consideration in excess of acquisition date fair value
Deferred tax expense (benefit)
Change in accounts receivable
Change in related party receivable
Change in prepaid expenses and other
Change in operating lease ROU assets
Change in accounts payable
Change in related party payable
Change in accrued expenses and other
Change in operating lease liabilities
Change in other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Purchases of intangible assets
Purchases of equity investment
Acquisition of APS, net of cash and restricted cash acquired
Acquisition of Ventanex, net of cash and restricted cash acquired
Acquisition of cPayPlus, net of cash and restricted cash acquired
Acquisition of CPS, net of cash and restricted cash acquired
Acquisition of BillingTree, net of cash and restricted cash acquired
Acquisition of Kontrol, net of cash and restricted cash acquired
Acquisition of Payix, net of cash and restricted cash acquired
Net cash used in investing activities
Cash flows from financing activities
Payment on line of credit
Issuance of long-term debt
Payments on long-term debt
Public issuance of Class A Common Stock
Shares repurchased under Incentive Plan and ESPP
Treasury shares repurchased
Exercise of warrants
Redemption of Post-Merger Repay Units
Distributions to Members
Payment of loan costs
Payments of contingent consideration up to acquisition date fair value
Net cash (used in) provided by financing activities
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
Year Ended December 31,
2021
2022
2020
$
8,741 $
(56,037 ) $
(117,366)
107,751
20,255
2,834
245
—
—
—
(66,871 )
(3,300 )
8,090
(8,896 )
4,192
696
—
(5,786 )
653
1,698
(347 )
2,197
(523 )
2,594
74,223
(3,176 )
(36,365 )
—
—
—
—
—
—
—
—
(39,541 )
89,692
22,311
2,536
19
5,941
9,316
—
14,109
5,846
2,180
(1,500 )
(30,728 )
(6,518 )
—
(3,801 )
2,013
4,771
1,336
637
(1,323 )
(7,470 )
53,330
(2,863 )
(20,643 )
(2,500 )
—
—
—
11
(269,003 )
(7,439 )
(94,898 )
(397,335 )
—
—
—
—
(2,657 )
(10,000 )
—
—
(951 )
—
(3,851 )
(17,459 )
17,223
76,340 $
93,563 $
—
460,000
(262,654 )
142,098
(4,042 )
—
—
—
(62 )
(14,051 )
(7,449 )
313,840
(30,165 )
106,505 $
76,340 $
$
$
60,807
19,446
1,416
—
—
—
70,827
12,439
(2,510)
—
(4,071)
(12,358)
(2,891)
563
542
(10,075)
38
(309)
371
10,364
1,254
28,487
(994)
(23,279)
—
(465)
(35,460)
(7,695)
(78,087)
—
—
—
(145,980)
(10,000)
60,426
(6,710)
509,900
(1,415)
—
86,800
(435,296)
(1,496)
(1,862)
(14,250)
186,097
68,604
37,901
106,505
64
REPAY HOLDINGS CORPORATION
Consolidated Statements of Cash Flows (Continued)
($ in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of TriSource in exchange for contingent consideration
Acquisition of APS in exchange for contingent consideration
Acquisition of Ventanex in exchange for contingent consideration
Acquisition of cPayPlus in exchange for contingent consideration
Acquisition of CPS in exchange for contingent consideration
Acquisition of BillingTree in exchange for Class A Common Stock
Acquisition of Kontrol in exchange for contingent consideration
Acquisition of Payix in exchange for contingent consideration
Year Ended December 31,
2021
2022
2020
$
1,540 $
1,143 $
11,487
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
228,250 $
500 $
2,850 $
1,750
6,581
4,800
6,500
4,500
—
—
—
See accompanying notes to consolidated financial statements.
65
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 of Thunder Bridge with and into Hawk Parent Holdings, LLC, a Delaware limited liability company (“Hawk
Parent”).
Throughout this section, unless otherwise noted or unless the context otherwise requires, the terms “we”, “us”,
“Repay” and the “Company” and similar references refer (1) before the Business Combination, to Hawk Parent and its
consolidated subsidiaries and (2) from and after the Business Combination, to Repay Holdings Corporation and its consolidated
subsidiaries. Throughout this section, unless otherwise noted or unless the context otherwise requires, “Thunder Bridge” refers
to Thunder Bridge Acquisition. Ltd. prior to the consummation of the Business Combination. Thunder Bridge issued public
warrants and private placement warrants (collectively, the “Warrants”), which were outstanding and recorded on the
Company’s consolidated financial statements at the time of the Business Combination. On July 27, 2020, the Company
completed the redemption of all outstanding Warrants.
The Company is headquartered in Atlanta, Georgia. The Company’s legacy business was founded as M & A Ventures,
LLC, a Georgia limited liability company doing business as REPAY: Realtime Electronic Payments (“REPAY LLC”), in 2006
by current executives John Morris and Shaler Alias. Hawk Parent was formed in 2016 in connection with the acquisition of a
majority interest in the successor entity of REPAY LLC and its subsidiaries by certain investment funds sponsored by, or
affiliated with, Corsair Capital LLC (“Corsair”).
Business Overview
The Company provides integrated payment processing solutions to industry-oriented markets in which businesses
have specific transaction processing needs. The Company refers to these markets as “vertical markets” or “verticals.” The
Company’s proprietary, integrated payment technology platform reduces the complexity of the electronic payments process
for business. The Company charges its clients processing fees based on the volume of payment transactions processed and
other transaction or service fees. The Company intends to continue to strategically target verticals where the Company believes
its ability to tailor payment solutions to its clients’ needs, its deep knowledge of the Company’s vertical markets and the
embedded nature of its integrated payment solutions will drive strong growth by attracting new clients and fostering long-term
client relationships.
The Company provides payment processing solutions to clients primarily operating in the personal loans, automotive
loans, receivables management, and business-to-business verticals. The Company’s 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. The Company believes that a growing number
of consumers and businesses prefer the convenience and efficiency of paying with cards and other electronic methods and that
the Company is 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. The Company’s 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 clients, many of which operate in the automotive, field services, healthcare, HOA
management and hospitality industries, as well as educational institutions and governments and municipalities.
The Company’s go-to-market strategy combines direct sales with integrations with key software providers in its target
verticals. The integration of the Company’s technology with key software providers in the verticals that the Company serves,
including loan management systems, DMS, collection management systems, and enterprise resource planning software
systems, allows the Company to embed its omni-channel payment processing technology into its clients’ critical workflow
software and ensure seamless operation of the Company’s solutions within its clients’ enterprise management systems. The
Company refers to these software providers as its “software integration partners.” This integration allows the Company’s sales
force to readily access new client opportunities or respond to inbound leads because, in many cases, a business will prefer, or
66
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
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. The Company has successfully integrated its technology solutions with
numerous, widely-used enterprise management systems in the verticals that it serves, which makes its platform a more
compelling choice for the businesses that use them. Moreover, the Company’s relationships with its partners help it to develop
deep industry knowledge regarding trends in client needs. The Company’s integrated model fosters long-term relationships
with its clients, which supports its volume retention rates that the Company believes are above industry averages. As of
December 31, 2022, the Company maintained approximately 240 integrations with various software providers.
The Company has two reportable segments: Consumer Payments and Business Payments. For additional information
on segments, see Note 16. Segments to our consolidated financial statements.
Consumer Payments
The Consumer Payments segment provides payment processing solutions (including debit and credit card processing,
ACH processing and other electronic payment acceptance solutions, as well as our loan disbursement product) that enable the
Company’s clients to collect payments and disburse funds to consumers and includes the Company’s clearing and settlement
solutions (“RCS”) and Blue Cow Software business (“BCS”). RCS is the Company’s proprietary clearing and settlement
platform through which the Company markets customizable payment processing programs to other ISOs and payment
facilitators. BCS provides enterprise resource planning software solutions that are customized to propane and fuel oil dealers.
BCS was sold for $41.0 million in cash on February 15, 2023. The strategic vertical markets served by the Consumer Payments
segment primarily include personal loans, automotive loans, receivables management, credit unions, mortgage servicing,
consumer healthcare, diversified retail and energy related software services. The Consumer Payments segment represented
approximately 85% of the Company’s total revenue after any intersegment eliminations for the year ended December 31, 2022.
Business Payments
The Business Payments segment provides payment processing solutions (including accounts payable automation,
debit and credit card processing, virtual credit card processing, ACH processing and other electronic payment acceptance
solutions) that enable the Company’s clients to collect or send payments to other businesses. The strategic vertical markets
served within the Business Payments segment primarily include retail automotive, education, field services, governments and
municipalities, healthcare, HOA management and hospitality. The Business Payments segment represented approximately 15%
of the Company’s total revenue after any intersegment eliminations for the year ended December 31, 2022.
The Company continues to closely monitor developments related to COVID-19 pandemic and macroeconomic
conditions. The ultimate impacts of the COVID-19 pandemic and related economic conditions on the Company’s results remain
uncertain. The scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemic continue to evolve
and in ways that are difficult to fully anticipate. At this time, the Company cannot reasonably estimate the full impact of the
pandemic on the Company, given the uncertainty over the duration and severity of the economic crisis.
2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Repay Holdings Corporation and its (i) wholly owned
subsidiary, BT Intermediate, LLC, and (ii) majority-owned subsidiary, Hawk Parent Holdings LLC, along with Hawk Parent
Holdings LLC’s wholly owned subsidiaries: Hawk Intermediate Holdings, LLC, Hawk Buyer Holdings, LLC, Repay Holdings,
LLC, M&A Ventures, LLC, Repay Management Holdco Inc., Repay Management Services LLC, Sigma Acquisition, LLC,
Wildcat Acquisition, LLC, Marlin Acquirer, LLC, REPAY International LLC, REPAY Canada Solutions ULC, TriSource
Solutions, LLC (“TriSource”), Mesa Acquirer, LLC, CDT Technologies LTD (“Ventanex”), Viking GP Holdings, LLC,
cPayPlus, LLC (“cPayPlus”), CPS Payment Services, LLC, Media Payments, LLC (“MPI”), Custom Payment Systems, LLC,
Electronic Payment Providers, LLC, Blue Cow Software, LLC (“Blue Cow”), Hoot Payment Solutions, LLC, Internet Payment
Exchange, LLC, Stratus Payment Solutions, LLC, Clear Payment Solutions, LLC, Harbor Acquisition LLC, Payix Holdings
Incorporated and Payix Incorporated. All significant intercompany accounts and transactions have been eliminated in
consolidation.
67
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
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
Effective December 31, 2022, the Company revised the presentation of segment information to reflect changes in the
way the Company manages and evaluates the business. Therefore, the Company now reports operating results through two
reportable segments: (1) Consumer Payments and (2) Business Payments, as further discussed in Note 16. Segments.
Accordingly, segment information for the comparable prior year periods has been revised.
There are no significant concentrations by state or geographical location, nor are there any significant individual client
concentrations by balance.
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 clients and payment processors for services rendered. The Company
has an established process for aging, provisioning and writing-off its uncollectible accounts receivable. Within this process the
Company aggregates accounts receivable to the pools of receivables of similar risk characteristics. The allowance for credit
losses on accounts receivables is estimated based on how long a receivable has been outstanding (e.g., under 30 days, 30–60
days, etc.). For accounts receivable outstanding more than 90 days, the Company evaluates and assesses whether the loss
reserve percentage requires adjustment for reasonable and supportable forecast of relevant economic factors. As of
December 31, 2022, the Company’s estimated credit losses on accounts receivable was immaterial.
Concentration of Credit Risk
The Company is highly diversified, and no single client 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 (loss) attributable to the
Company by the weighted average number of shares of Class A common stock outstanding during the period. Diluted 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 adjusted to give effect to potentially dilutive elements, including the
assumed exchange of all limited liability company interests of Hawk Parent (“Post-Merger Repay Units”), unvested restricted
share awards, outstanding ESPP (“Employee Stock Purchase Program”) purchase rights, and the Company’s Convertible Senior
Notes due 2026 (“2026 Notes”).
68
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
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
Estimated Useful Life
5 years
3 years
5 years
The Company evaluates the recoverability of property and equipment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of property and equipment 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. If the carrying
amount of property and equipment is determined not to be recoverable, a write-down to fair value is recorded. No impairments
were recognized for the years ended December 31, 2022, 2021 and 2020.
Intangible Assets
Intangible assets consist of internal-use software development costs, purchased software, channel relationships, client
relationships, certain key personnel non-compete agreements, and trade names. The Company capitalizes internal-use software
development costs when the Company has completed the preliminary project stage, management authorizes the project,
management commits to funding the project, it is probable the project will be completed and the project will be used to perform
the function intended. The Company is amortizing internal-use 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 client 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 at least annually or 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.
During the year ended December 31, 2022, the Company recognized impairments of $8.1 million related to write-offs of certain
trade names, as the Company strategically phased out the trade names of several acquired business, which included BillingTree,
Kontrol and Payix. During the year ended December 31, 2021, the Company recognized impairments of $2.2 million related
to write-offs of certain trade names, as the Company strategically phased out the trade names of several acquired business,
which included TriSource, APS, Ventanex, cPayPlus and CPS. No impairments were recognized for the year ended
December 31, 2020.
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 performs a qualitative goodwill assessment at the reporting unit level at least annually, or more
frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit
below its carrying amount. Factors considered in the Company’s qualitative assessment include financial performance, financial
forecasts, macroeconomic conditions, industry and market conditions, cost factors, market capitalization, carrying value, and
events affecting the reporting units. If, after considering all relevant events and circumstances, the Company determines it is
more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then it is necessary to perform a
69
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
quantitative impairment test. If the Company elects to bypass the qualitative analysis, or concludes from the Company’s
qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a
quantitative impairment test is performed by comparing the fair value of each reporting unit with its carrying amount. If the
fair value is greater than the carrying amount, then the reporting unit’s goodwill is deemed not to be impaired. If the fair value
is less than the carrying amount, an impairment loss is recognized for the amount by which a reporting unit’s carrying amount
exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit.
The Company determined that no impairment of goodwill existed as of the last testing date, December 31, 2022.
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 clients
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 clients process increased volumes of payments, our revenues increase as a result of the fees we charge
for processing these payments.
The Company’s performance obligation in its contracts with clients 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 client’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 client, 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 clients’ 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 is determined, based on the judgment of the Company’s
management, considering factors such as margin objectives, pricing practices and controls, client segment pricing strategies,
the product life cycle and the observable price of the service charged to similarly situated clients.
The Company follows the requirements of ASC 606-10-55-36 through -40, Revenue from Contracts with Customers,
Principal Agent Considerations, in determining the gross versus net revenue presentation for each performance obligation in
the contract with a client. Revenue recorded by the Company in the capacity as a principal is reported 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 client or
whether the Company is acting as an agent of a third party. This evaluation is performed separately for each performance
obligation identified. When the Company acts as an agent, the fees collected from clients on behalf of the payment networks
and card issuer is netted with the gross fees collected so that the net revenue is presented within Revenue in the Consolidated
Statements of Operations.
70
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
Indirect relationships
As a result of its past acquisitions, the Company has legacy relationships with Independent Sales Organizations (each
an “ISO”), whereby the Company acts as the merchant acquirer for the ISO. The ISO maintains a direct relationship with the
sponsor bank and the transaction processor, rather than the Company. Consequently, the Company recognizes revenue for these
relationships net of the residual amount remitted to the ISO, based on the fact that the ISO is primarily responsible for providing
the transaction processing services to the merchant. The Company is not focused on this sales model, and this relationship will
represent an increasingly smaller portion of the business over time.
Software Revenue
As a result of the acquisition of BillingTree, the Company has acquired a software revenue stream. Software revenue
is presented within Revenue in the Consolidated Statements of Operations.
Software revenue consists of term license fees related to software products, and software maintenance and support
(“PCS”). Clients typically enter into software contracts for contractual terms of three to twelve months. The term license and
PCS are each distinct performance obligations. The total consideration in the contract is allocated based on management’s
assessment of the relative standalone selling price for each performance obligation. The Company determines the standalone
selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not
observable through past transactions, the Company estimates the standalone selling price by making use of all reasonably
available data such as market conditions, type of deliverable, information about the client, current and historical pricing
practices and entity-specific factors such as labor hours and standard rates per labor hour.
Revenue is recognized when the related performance obligations are satisfied. Revenue from the term license is
recognized at a point in time, upon delivery to the client. Revenue from PCS is recognized over the term of the contract. When
the Company receives an up-front deposit, the revenue is deferred until such a time that the term license or PCS is provided to
the client. Deferred revenue is expected to be recognized as revenue within one year and is classified within Other current
liabilities in the Consolidated Balance Sheets.
Contract Costs
The incremental costs of obtaining a contract are recognized as an asset if the cost is incremental to obtaining a
contract, and whether the costs are recoverable from the client. If both criteria are not met, costs are expensed as incurred. If
the amortization period of the capitalized commission cost asset is less than one year, the Company may elect a practical
expedient per ASC 340-40-25-4 to expense commissions as incurred. The 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 client 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 clients either give rise to an asset or are expensed as incurred. If the cost is not already
covered by other applicable accounting literature, fulfillment 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.
Practical Expedients
The Company has utilized the portfolio approach practical expedient per ASC 606-10-10-4, which allows the
application of ASC 606 to a portfolio of contracts with similar characteristics provided the accounting does not differ materially
to application of ASC 606 to the individual contract.
The Company has also utilized the practical expedient for immaterial goods and services per ASC 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.
71
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
Transaction Costs
The Company expenses all transaction costs associated with a business combination as incurred and such expenses
are included in Selling, general, and administrative expenses in the Consolidated Statements of Operations. For the years ended
December 31, 2022, 2021 and 2020, the Company incurred $13.7 million, $9.3 million and $4.2 million transaction costs,
respectively.
Equity Units Awarded
The Repay Holdings Corporation 2019 Omnibus Incentive Plan (as amended, the “Incentive 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 Incentive Plan include: stock options, stock appreciation rights (“SARs”),
performance stock units (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and other stock-based
awards. As of December 31, 2022, there were 13,826,728 shares of Class A common stock reserved for issuance under the
Incentive 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.
PSUs, RSAs and RSUs granted under the Incentive Plan are measured based on the fair value of the awards on the
date of the grant. Compensation expense is recognized for those awards over the requisite service period within Selling, general,
and administrative in the Consolidated Statements of Operations. 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,
accounts receivable and accounts payable approximated their fair values as of December 31, 2022, and 2021, because of the
relatively short maturity dates on these instruments. See Note 6. Fair Value of Assets and Liabilities for further discussion.
Leases
The Company evaluates each of its lease and service arrangements at inception to determine if the arrangement is, or
contains, a lease and the appropriate classification of each identified lease. A lease exists if the Company obtains substantially
all of the economic benefits of, and has the right to control the use of, an asset for a period of time. The Company has operating
leases for real estate. Operating leases with an original lease term in excess of twelve months are included in Other assets and
Other liabilities in the Consolidated Balance Sheets. Right-of-use (“ROU”) assets represent the right to use an underlying asset
for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease
72
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease
term. The Company uses its incremental borrowing rate to calculate the present value of lease payments. Lease terms consider
options to extend or terminate based on the determination of whether such renewal or termination options are deemed
reasonably certain. Lease agreements that contain non-lease components are generally accounted for as a single lease
component.
Operating lease costs are recorded in Selling, general and administrative in the Consolidated Statements of Operations
based on the underlying asset. Variable costs, such as maintenance expenses, property and sales taxes, association dues and
index-based rate increases, are expensed as they are incurred. Variable lease payments associated with the Company’s leases
are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs.
Variable lease payments are presented as operating expenses in Selling, general and administrative in the Consolidated
Statements of Operations.
The Company has elected not to recognize ROU assets and lease liabilities for short-term leases of all applicable class
of underlying assets that have a lease term of twelve months or less. The Company recognizes the lease payments associated
with its short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with
these leases are recognized and presented in the same manner as for all other Company leases.
ROU assets for operating leases are periodically reduced by impairment losses. As of December 31, 2022, the
Company has not encountered any impairment losses. The Company monitors for events or changes in circumstances that
require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, a corresponding
adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount
of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU
asset balance is recorded in gain or loss in the Consolidated Statements of Operations.
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
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 December 31, 2022, 2021, and 2020 the Company held an interest of 92.0%, 91.9%, and 89.8% in Hawk Parent,
respectively. For the years ended December 31, 2022, 2021, and 2020, the noncontrolling interest in the net loss of subsidiaries
was $4.1 million, $6.0 million, and $11.8 million, respectively.
73
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
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 Statements of Operations. 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 contingent consideration 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.
Recently Issued Accounting Pronouncements not yet Adopted
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”)”, which provides optional expedients and exceptions to
contracts, hedging relationships, and other transactions affected by the transition away from LIBOR to alternative reference
rates. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope”, to expand the scope of
this guidance to include derivatives. The guidance was effective upon issuance and may be applied prospectively to contract
modifications made and hedging relationships entered into on or before December 31, 2022. In December 2022, the FASB
issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, which extends the period
of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022, to December
31, 2024. The Company will apply the guidance to impacted transactions during the transition period. The adoption of this
standard does not have a material impact on the Company’s Consolidated Financial Statements.
Business Combinations
In August 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”)”. ASU No. 2021-08 requires an entity
(acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance
with Revenue (Topic 606), and is effective for fiscal years, and for interim periods within those fiscal years, beginning after
December 15, 2022, with early adoption permitted. Amendments within ASU No. 2021-08 are required to be applied
prospectively to business combinations occurring on or after the effective date of the amendments.
3. Revenue
Disaggregation of Revenue
The Company’s revenue is from two types of relationships: (i) direct relationships and (ii) indirect relationships.
The following table presents the Company’s revenue disaggregated by segment and by the type of relationship for the years
ended December 31, 2022, 2021, and 2020.
($ in thousands)
Revenue
Direct relationships
Indirect relationships
Total Revenue
Year Ended December 31, 2022
Consumer
Payments
Business
Payments
Elimination of
intersegment
revenues
Total
$
$
234,905 $
13,286
248,191 $
41,610 $
990
42,600 $
(11,564) $
—
(11,564) $
264,951
14,276
279,227
74
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
Year Ended December 31, 2021
Consumer
Payments
Business
Payments
Elimination of
intersegment
revenues
Total
$
$
$
$
189,019 $
5,025
194,044 $
32,837 $
981
33,818 $
(8,604) $
—
(8,604) $
213,252
6,006
219,258
Year Ended December 31, 2020
Consumer
Payments
Business
Payments
Elimination of
intersegment
revenues
Total
138,718 $
2,126
140,844 $
19,957 $
663
20,620 $
(6,428) $
—
(6,428) $
152,247
2,789
155,036
($ in thousands)
Revenue
Direct relationships
Indirect relationships
Total Revenue
($ in thousands)
Revenue
Direct relationships
Indirect relationships
Total Revenue
4. Earnings Per Share
During the years ended December 31, 2021 and 2020, basic and diluted net loss per common share is the same since
the inclusion of the assumed exchange of all Post-Merger Repay Units, unvested restricted share awards, and 2026 Notes would
have been anti-dilutive.
The following table summarizes net loss attributable to the Company and the weighted average basic and diluted
shares outstanding:
($ in thousands, except per share data)
Income (loss) before income tax expense
Less: Net loss attributable to non-controlling interests
Income tax (expense) benefit
Net income (loss) attributable to the Company
Year Ended December 31,
2021
2022
$
$
14,915 $
(4,095)
(6,174)
12,836 $
(86,728) $
(5,953)
30,691
(50,084) $
2020
(129,724)
(11,769)
12,358
(105,597)
Weighted average shares of Class A common stock outstanding - basic
Add weighted average effect of dilutive common stock equivalent shares:
88,792,453
83,318,189
52,180,911
Post-Merger Repay Units exchangeable for Class A common stock
Unvested restricted share awards of Class A common stock
Outstanding ESPP purchase rights for Class A common stock
2026 Notes convertible into Class A common stock
Weighted average shares of Class A common stock outstanding - diluted
7,892,176
890,309
1,554
13,095,238
110,671,731
83,318,189
52,180,911
Income (loss) per share of Class A common stock outstanding - basic
Income (loss) per share of Class A common stock outstanding - diluted
$
$
0.14 $
0.12 $
(0.60) $
(0.60) $
(2.02)
(2.02)
For the years ended December 31, 2021 and 2020, the following common stock equivalent shares were excluded from
the computation of the diluted loss per share, since their inclusion would have been anti-dilutive:
Post-Merger Repay Units exchangeable for Class A common stock
Unvested restricted share awards of Class A common stock
2026 Notes convertible for Class A common stock
Share equivalents excluded from earnings (loss) per share
Year Ended December 31,
2021
7,926,576
2,515,634
13,095,238
23,537,448
2020
8,334,160
2,209,551
—
10,543,711
75
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
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
Ventanex
On February 10, 2020, the Company acquired all of the ownership interests of Ventanex. Under the terms of the
securities purchase agreement between Repay Holdings, LLC and the direct and indirect owners of CDT Technologies, LTD.
(“Ventanex Purchase Agreement”), the aggregate consideration paid at closing by the Company was approximately $36.0
million in cash. In addition to the closing consideration, the Ventanex Purchase Agreement contains a performance-based
earnout (the “Ventanex Earnout Payment”), which was based on future results of the acquired business and could result in an
additional payment to the former owners of Ventanex of up to $14.0 million. The Ventanex acquisition was financed with a
combination of cash on hand and committed borrowing capacity under the Company’s existing credit facility. The Ventanex
Purchase Agreement contains customary representations, warranties and covenants by Repay and the former owners of
Ventanex, as well as a customary post-closing adjustment provision relating to working capital and similar items.
The following summarizes the purchase consideration paid to the selling members of Ventanex:
($ in thousands)
Cash consideration
Contingent consideration (1)
Total purchase price
$
$
35,939
4,800
40,739
(1)
Reflects the fair value of the Ventanex Earnout Payment, the contingent consideration to be paid to the selling members
of Ventanex, pursuant to the Ventanex Purchase Agreement as of February 10, 2020. The selling partners of Ventanex
will have the contingent earnout right to receive a payment of up to $14.0 million dependent upon the Gross Profit, as
defined in the Ventanex Purchase Agreement, for the years ended December 31, 2020 and 2021. In February 2021 and
April 2022, the Company paid the Ventanex Earnout Payment of $0.9 million and $12.7 million, respectively.
The Company recorded an allocation of the purchase price to Ventanex’s tangible and identifiable intangible assets
acquired and liabilities assumed based on their fair values as of the February 10, 2020 closing date. The purchase price
allocation is as follows:
($ in thousands)
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
$
$
51
1,377
181
1,609
138
428
26,890
29,065
(152)
(373)
28,540
12,199
40,739
76
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
The 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)
$
$
0.1
0.4
4.1
22.3
26.9
Useful life
(in years)
5
Indefinite
3
10
Goodwill recognized of $12.2 million represents the excess of the gross consideration transferred over the fair value
of the underlying net tangible and identifiable intangible assets acquired, of which $8.3 million is expected to be deductible for
tax purposes. Goodwill was allocated 64% and 36% to the Company’s Consumer Payments segment and Business Payments
segment, respectively, based on the relative fair value of the Company’s reporting units as of December 31, 2022. 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 Ventanex.
cPayPlus
On July 23, 2020, the Company acquired all of the ownership interests of cPayPlus. Under the terms of the securities
purchase agreement between Repay Holdings, LLC and the direct and indirect owners of cPayPlus (“cPayPlus Purchase
Agreement”), the aggregate consideration paid at closing by the Company was approximately $8.0 million in cash. In addition
to the closing consideration, the cPayPlus Purchase Agreement contains a performance-based earnout (the “cPayPlus Earnout
Payment”), which was based on future results of the acquired business and could result in an additional payment to the former
owners of cPayPlus of up to $8.0 million. The cPayPlus acquisition was financed with cash on hand. The cPayPlus Purchase
Agreement contains customary representations, warranties and covenants by Repay and the former owners of cPayPlus, as well
as a customary post-closing adjustment provision relating to working capital and similar items.
The following summarizes the purchase consideration paid to the selling members of cPayPlus:
($ in thousands)
Cash consideration
Contingent consideration (1)
Total purchase price
$
$
7,957
6,500
14,457
(1)
Reflects the fair value of the cPayPlus Earnout Payment, the contingent consideration to be paid to the selling members
of cPayPlus, pursuant to the cPayPlus Purchase Agreement as of July 23, 2020. The selling partners of cPayPlus will
have the contingent earnout right to receive a payment of up to $8.0 million dependent upon the Gross Profit, as defined
in the cPayPlus Purchase Agreement, in the third quarter of 2021. In September, 2021, the Company paid the cPayPlus
Earnout Payment of $8.0 million.
The Company recorded an allocation of the purchase price to cPayPlus’s tangible and identifiable intangible assets
acquired and liabilities assumed based on their fair values as of the July 23, 2020 closing date. The purchase price allocation is
as follows:
77
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
($ in thousands)
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Identifiable intangible assets
Total identifiable assets acquired
Accounts payable
Accrued expenses
Net identifiable assets acquired
Goodwill
Total purchase price
$
$
262
165
38
465
21
7,720
8,206
(99)
(363)
7,744
6,713
14,457
The 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)
$
$
0.1
0.1
6.7
0.8
7.7
Useful life
(in years)
5
Indefinite
3
10
Goodwill recognized of $6.7 million represents the excess of the gross consideration transferred over the fair value of
the underlying net tangible and identifiable intangible assets acquired, of which $8.2 million is expected to be deductible for
tax purposes. Goodwill was allocated 100% to the Company’s Business Payments segment. 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 cPayPlus.
CPS
On November 2, 2020, the Company acquired all of the ownership interests of CPS. Under the terms of the securities
purchase agreement between Repay Holdings, LLC and the direct and indirect owners of CPS. (“CPS Purchase Agreement”),
the aggregate consideration paid at closing by the Company was approximately $83.9 million in cash. In addition to the closing
consideration, the CPS Purchase Agreement contains a performance-based earnout (the “CPS Earnout Payment”), which was
based on future results of the acquired business and could result in an additional payment to the former owners of CPS of up
to $15.0 million in two separate earnouts. The CPS acquisition was financed with cash on hand. The CPS Purchase Agreement
contains customary representations, warranties and covenants by Repay and the former owners of CPS, as well as a customary
post-closing adjustment provision relating to working capital and similar items.
The following summarizes the purchase consideration paid to the selling members of CPS:
($ in thousands)
Cash consideration
Contingent consideration (1)
Total purchase price
$
$
83,887
4,500
88,387
(1)
Reflects the fair value of the CPS Earnout Payment, the contingent consideration to be paid to the selling members of
CPS, pursuant to the CPS Purchase Agreement as of November 2, 2020. The selling partners of CPS will have the
contingent earnout right to receive a payment of up to $15.0 million in two separate earnouts, dependent upon the Gross
Profit, as defined in the CPS Purchase Agreement. As of December 31, 2022, the fair value of the CPS earnout was $1.0
million, which resulted in a $0.4 million adjustment included in the change in fair value of contingent consideration in
the Consolidated Statements of Operations for the year ended December 31, 2022.
78
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
The Company recorded an allocation of the purchase price to CPS’ and MPI’s tangible and identifiable intangible
assets acquired and liabilities assumed based on their fair values as of the November 2, 2020 closing date. The purchase price
allocation is as follows:
($ in thousands)
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
CPS
MPI
1,667 $
2,810
2,616
7,093
19
—
30,830
37,942
(2,004)
(2,143)
33,795
40,748
74,543 $
2,098
5,557
935
8,590
3
35
7,110
15,738
(4,496)
—
11,242
2,602
13,844
$
$
The 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)
CPS
MPI
$
$
0.1 $
0.5
7.2
23.0
30.8 $
Useful life
(in years)
4
Indefinite
3
10
0.1
0.1
0.7
6.3
7.2
Goodwill recognized of $43.3 million represents the excess of the gross consideration transferred over the fair value
of the underlying net tangible and identifiable intangible assets acquired, of which $38.8 million is expected to be deductible
for tax purposes. Goodwill was allocated 100% to the Company’s Business Payments segment. 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 CPS.
BillingTree
On June 15, 2021, the Company acquired BillingTree. Under the terms of the agreement and plan of merger between
BT Intermediate, LLC, the Company, two newly formed subsidiaries of the Company and the owner of BT Intermediate, LLC
(“BillingTree Merger Agreement”), the aggregate consideration paid at closing by the Company was approximately $505.8
million, consisting of approximately $277.5 million in cash and approximately 10 million shares of Class A common stock.
The BillingTree Merger Agreement contains customary representations, warranties and covenants by Repay and the former
owner of BillingTree, as well as a customary post-closing adjustment provision relating to working capital and similar items.
The following summarizes the purchase consideration paid to the seller of BillingTree:
($ in thousands)
Cash consideration
Class A common stock issued
Total purchase price
$
$
277,521
228,250
505,771
The Company recorded an allocation of the purchase price to BillingTree’s tangible and identifiable intangible assets
acquired and liabilities assumed based on their fair values as of the June 15, 2021 closing date. The purchase price allocation
is as follows:
79
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
($ in thousands)
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Restricted cash
Other assets
Identifiable intangible assets
Total identifiable assets acquired
Accounts payable
Accrued expenses and other liabilities
Deferred tax liability
Net identifiable assets acquired
Goodwill
Total purchase price
$
$
8,244
4,627
1,602
14,473
541
275
1,782
236,810
253,881
(2,552)
(6,983)
(36,095)
208,251
297,520
505,771
The 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)
$
$
0.3
7.8
26.2
202.5
236.8
Useful life
(in years)
2
Indefinite
3
10
Goodwill recognized of $297.5 million represents the excess of the gross consideration transferred over the fair value
of the underlying net tangible and identifiable intangible assets acquired, of which $66.5 million is expected to be deductible
for tax purposes. Goodwill was allocated 100% to the Company’s Consumer Payments segment. 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 BillingTree.
Kontrol
On June 22, 2021, the Company acquired substantially all of the assets of Kontrol LLC (“Kontrol”). Under the terms
of the asset purchase agreement between a newly formed subsidiary of Repay Holdings, LLC and the owner of Kontrol
(“Kontrol Purchase Agreement”), the aggregate consideration to be paid by the Company was up to $10.5 million, of which
$7.4 million was paid at closing. The Kontrol Purchase Agreement contains customary representations, warranties and
covenants by Repay and the former owner of Kontrol, as well as a customary post-closing adjustment provision relating to
working capital and similar items.
The following summarizes the purchase consideration paid to the owner of Kontrol:
($ in thousands)
Cash consideration
Contingent consideration (1)
Total purchase price
$
$
7,439
500
7,939
(1) Reflects the fair value of the Kontrol earnout payment, the contingent consideration to be paid to the selling members of
Kontrol, pursuant to the Kontrol Purchase Agreement as of June 22, 2021. The selling partners of Kontrol will have the
contingent earnout right to receive a payment of up to $3.0 million, dependent upon the Gross Profit, as defined in the
Kontrol Purchase Agreement. As of December 31, 2022, the fair value of the Kontrol earnout was $0, which resulted in a
80
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
($0.9) million adjustment included in the change in fair value of contingent consideration in the Consolidated Statements
of Operations for the year ended December 31, 2022.
The Company recorded an allocation of the purchase price to Kontrol’s tangible and identifiable intangible assets
acquired and liabilities assumed based on their fair values as of the June 22, 2021 closing date. The purchase price allocation
is as follows:
($ in thousands)
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Identifiable intangible assets
Total identifiable assets acquired
Accounts payable
Net identifiable assets acquired
Goodwill
Total purchase price
$
$
68
6
74
6,940
7,014
(665)
6,349
1,590
7,939
The values allocated to identifiable intangible assets and their estimated useful lives are as follows:
Identifiable intangible assets
Trade names
Merchant relationships
Fair Value
(in millions)
$
$
0.0
6.9
6.9
Useful life
(in years)
Indefinite
8
Goodwill of $1.6 million represents the excess of the gross consideration transferred over the fair value of the
underlying net tangible and identifiable intangible assets acquired, of which $1.1 million on a gross basis is expected to be
deductible for tax purposes. Goodwill was allocated 100% to the Company’s Business Payments segment. 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 Kontrol.
Payix
On December 29, 2021, the Company acquired Payix. Under the terms of the merger agreement with Payix. (“Payix
Purchase Agreement”), the aggregate consideration paid at closing by the Company was approximately $95.6 million in cash.
In addition to the closing consideration, the Payix Purchase Agreement contains a performance-based earnout (the “Payix
Earnout Payment”), which was based on future results of the acquired business and could result in an additional payment to the
former owners of Payix of up to $20.0 million. The Payix acquisition was financed with cash on hand and available revolver
capacity. The Payix Purchase Agreement contains customary representations, warranties and covenants by Repay and the
former owners of Payix, as well as a customary post-closing adjustment provision relating to working capital and similar items.
The following summarizes the purchase consideration paid to the sellers of Payix:
($ in thousands)
Cash consideration
Contingent consideration (1)
Total purchase price
$
$
95,628
2,850
98,478
(1) Reflects the fair value of the Payix earnout payment, the contingent consideration to be paid to the former owners of Payix,
pursuant to the Payix Purchase Agreement as of December 31, 2021. The former owners of Payix will have the contingent
earnout right to receive a payment of up to $20.0 million, dependent upon the Gross Profit, as defined in the Payix Purchase
Agreement. As of December 31, 2022, the fair value of the Payix earnout was $0, which resulted in a ($2.9) million
adjustment included in the change in fair value of contingent consideration in the Consolidated Statements of Operations
for the year ended December 31, 2022.
81
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
The Company recorded an allocation of the purchase price to Payix’s tangible and identifiable intangible assets
acquired and liabilities assumed based on their fair values as of the December 29, 2021 closing date. The purchase price
allocation is as follows:
($ in thousands)
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Restricted cash
Other assets
Identifiable intangible assets
Total identifiable assets acquired
Accounts payable
Accrued expenses and other liabilities
Deferred tax liability
Net identifiable assets acquired
Goodwill
Total purchase price
$
$
703
1,715
94
2,512
83
27
656
33,150
36,428
(214)
(2,023)
(6,944)
27,247
71,231
98,478
The values allocated to identifiable intangible assets and their estimated useful lives are as follows:
Identifiable intangible assets
Trade names
Developed technology
Merchant relationships
Fair Value
(in millions)
$
$
0.3
12.4
20.5
33.2
Useful life
(in years)
Indefinite
3
10
Goodwill recognized of $71.2 million represents the excess of the gross consideration transferred over the fair value
of the underlying net tangible and identifiable intangible assets acquired, none of which is expected to be deductible for tax
purposes. Goodwill was allocated 100% to the Company’s Consumer Payments segment. Qualitative factors that contribute to
the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets
apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market position and
the assembled workforce of Payix.
Pro Forma Financial Information (Unaudited)
The supplemental consolidated results of the Company on an unaudited pro forma basis give effect to Ventanex,
cPayPlus, CPS, BillingTree, Kontrol and Payix acquisitions as if the transactions had occurred on January 1, 2020. The
unaudited pro forma information reflects adjustments for the issuance of the Company’s common stock, debt incurred in
connection with the transactions, the impact of the fair value of intangible assets acquired and related amortization and other
adjustments the Company believes are reasonable for the pro forma presentation. In addition, the pro forma earnings exclude
acquisition-related costs.
($ in thousands, except per share data)
Revenue
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to the Company
Loss per Class A share - basic
Loss per Class A share - diluted
Pro Forma Year
Ended
December 31, 2021
Pro Forma Year
Ended
December 31, 2020
234,656
(120,849)
(12,793)
(108,056)
257,014 $
(54,627)
(5,813)
(48,814)
(0.56) $
(0.56) $
(1.74)
(1.74)
$
$
$
82
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
6. Fair Value of Assets and Liabilities
The following table summarizes, by level within the fair value hierarchy, the 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
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.
($ in thousands)
Assets:
Other assets
Total assets
Liabilities:
Contingent consideration
Borrowings
Tax receivable agreement
Total liabilities
Assets:
Other assets
Total assets
Liabilities:
Contingent consideration
Borrowings
Tax receivable agreement
Total liabilities
Other Assets
Level 1
Level 2
Level 3
Total
December 31, 2022
—
— $
— $
—
—
— $
2,500
2,500 $
— $
344,280
—
344,280 $
—
— $
1,000 $
—
179,127
180,127 $
2,500
2,500
1,000
344,280
179,127
524,407
Level 1
Level 2
Level 3
Total
December 31, 2021
—
— $
— $
—
—
— $
2,500
2,500 $
— $
401,876
—
401,876 $
—
— $
17,047 $
—
245,828
262,875 $
2,500
2,500
17,047
401,876
245,828
664,751
$
$
$
$
$
$
Other assets contain a minority equity investment in a privately-held company. The Company elected a measurement
alternative for measuring this investment, in which the carrying amount is adjusted based on any observable price changes in
orderly transactions. The investment is classified as Level 2 as observable adjustments to value are infrequent and occur in an
inactive market.
Contingent Consideration
Contingent consideration relates to potential payments that the Company may be required to make associated with
acquisitions. The contingent consideration is recorded at fair value based on actuals or estimates of discounted future cash
flows associated with the acquired businesses. To the extent that the valuation of these liabilities is based on inputs that are less
observable or not observable in the market, the determination of fair value requires more judgment. Accordingly, the fair value
of contingent consideration is classified within Level 3 of the fair value hierarchy, under ASC 820. The change in fair value is
re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805, Business
Combinations (“ASC 805”).
As of December 31, 2022, the present value of contingent consideration reflects the actual anticipated payments. As
of December 31, 2021, the Company used a discount rate to determine the present value, based on a risk-free rate adjusted for
a credit spread, of the contingent consideration in the simulation approach.
The following table provides a rollforward of the contingent consideration related to previous business acquisitions.
Refer to Note 5. Business Combinations for more details.
83
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
Year Ended December 31,
2022
2021
$
$
17,047
—
—
(12,747)
(3,300)
1,000
$
$
15,800
4,350
(8,949)
5,846
17,047
($ in thousands)
Balance at beginning of period
Measurement period adjustment
Purchases
Payments
Valuation adjustment
Balance at end of period
Borrowings
The revolving credit facility, 2026 Notes and term loan are measured at amortized cost, which the carrying value is
unpaid principal net of unamortized debt discount and debt issuance costs. The estimated fair value of the 2026 Notes is
determined using the quoted prices from over-the-counter markets. The estimated fair value of the Company’s borrowings is
classified within Level 2 of the fair value hierarchy, as the market interest rates and quoted prices are generally observable and
do not contain a high level of subjectivity.
The following table provides the carrying value and estimated fair value of borrowings. See Note 10. Borrowings for
further discussion.
($ in thousands)
Revolving credit facility
2026 Notes
Total
Tax Receivable Agreement
December 31, 2022
December 31, 2021
Carrying value
$
18,177 $
$
433,142
451,319 $
Fair value
Carrying value
Fair value
20,000 $
324,280
344,280 $
19,210 $
429,275
448,485 $
20,000
381,876
401,876
Upon the completion of the Business Combination, the Company entered into the TRA with holders of Post-Merger
Repay Units. As a result of the TRA, the Company established a liability in its consolidated financial statements. The TRA is
recorded at fair value based on estimates of discounted future cash flows associated with the estimated payments to the Post-
Merger Repay Unit holders. These inputs are not observable in the market; thus, the TRA is classified within Level 3 of the
fair value hierarchy, under ASC 820. The change in fair value is re-measured at each reporting period with the change in fair
value being recognized in accordance with ASC 805.
The Company used a discount rate, also referred to as the early termination rate, to determine the present value, based
on a risk-free rate plus a spread, pursuant to the TRA. A rate of 6.48% was applied to the forecasted TRA payments as of
December 31, 2022, in order to determine the fair value. A significant increase or decrease in the discount rate could have
resulted in a lower or higher balance, respectively, as of the measurement date. The TRA balance was adjusted by $66.9 million
through accretion expense and a valuation adjustment, related to an increase in the discount rate, which was 1.58% as of
December 31, 2021.
The following table provides a rollforward of the TRA related to the Business Combination and subsequent acquisition
of Post-Merger Repay Units held by Corsair, pursuant to the Unit Purchase Agreements. See Note 15. Taxation for further
discussion on the TRA.
($ in thousands)
Balance at beginning of period
Purchases
Accretion expense
Valuation adjustment
Balance at end of period
2022
Year Ended December 31,
2021
2020
245,828
170
7,806
(74,677 )
179,127
$
$
229,228
2,491
5,065
9,044
245,828
$
$
67,176
149,613
2,955
9,484
229,228
$
$
84
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
7. Property and Equipment
Property and equipment consisted of the following:
($ in thousands)
Furniture, fixtures, and office equipment
Computers
Leasehold improvements
Total
Less: Accumulated depreciation and amortization
December 31, December 31,
2022
2021
$
$
4,014 $
4,889
659
9,562
5,187
4,375 $
2,763
3,408
431
6,602
2,801
3,801
Depreciation expense for property and equipment was $2.4 million, $1.3 million and $1.2 million for the years ended
December 31, 2022, 2021 and 2020, respectively.
8. Intangible Assets
The Company holds definite and indefinite-lived intangible assets. As of December 31, 2022, the indefinite-lived
intangible assets consist of two trade names, arising from the acquisitions of Hawk Parent and MPI. As of December 31, 2021,
the indefinite-lived intangible assets consist of five trade names, arising from the acquisitions of Hawk Parent, MPI,
BillingTree, Kontrol and Payix.
During the year ended December 31, 2022, the Company recorded an impairment loss of $8.1 million related to the
write-offs of certain trade names, of which $8.1 million and $0.0 million of the impairment loss related to the Consumer
Payments and Business Payments segments, respectively. The impairment loss was recognized within Impairment loss in the
Company’s Consolidated Statements of Operations.
During the year ended December 31, 2021, the Company recorded an impairment loss of $2.2 million related to the
write-offs of certain trade names, of which $1.0 million and $1.2 million of the impairment loss related to the Consumer
Payments and Business Payments segments, respectively. The impairment loss was recognized within Impairment loss in the
Company’s Consolidated Statements of Operations.
Intangible assets consisted of the following:
($ in thousands)
Client relationships
Channel relationships
Software costs
Non-compete agreements
Trade name
Balance as of December 31, 2022
Client relationships
Channel relationships
Software costs
Non-compete agreements
Trade name
Balance as of December 31, 2021
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average
Useful Life
(Years)
$
$
$
$
$
539,850
16,240
196,890
4,580
20,050
777,610 $
539,850
12,550
163,958
4,580
28,140
749,078
$
$
$
137,515
3,168
132,322
4,030
—
277,035 $
83,014
1,147
83,163
4,060
—
171,384
$
$
402,335
13,072
64,568
550
20,050
500,575
456,836
11,403
80,795
520
28,140
577,694
7.40
8.06
0.99
0.54
—
5.71
8.40
8.65
1.48
0.88
—
6.79
The Company’s amortization expense for intangible assets was $105.4 million, $88.4 million and $59.7 million for
the years ended December 31, 2022, 2021 and 2020, respectively.
85
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
The estimated amortization expense for the next five years and thereafter in the aggregate is as follows:
($ in thousands)
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
9. Goodwill
$
Estimated Future
Amortization Expense
92,820
78,797
61,868
55,641
55,941
135,458
As discussed in Note 16. Segments, management adjusted the Company’s segment reporting to reflect the Company’s
new organizational structure effective December 31, 2022. The Company’s reporting units for goodwill impairment evaluation
purposes are the same as its reportable segments. As of the December 31, 2022 change in reporting units, the Company
performed a quantitative impairment assessment of the Company’s former reporting unit structure and the new reporting unit
structure. The Company allocated goodwill to its reporting units using a relative fair value approach. The Company completed
an assessment of any potential goodwill impairment for all reporting units immediately prior and subsequent to the reallocation
and determined that no impairment existed as of December 31, 2022.
The following table presents changes to goodwill by business segment, for the years ended December 31, 2022 and
2021:
($ in thousands)
Balance at December 31, 2020
Acquisitions
Measurement period adjustment
Other
Balance at December 31, 2021
Measurement period adjustment
Reallocation
Balance at December 31, 2022
Consumer
Payments
Business
Payments
Total
$
$
$
378,577 $
365,031
—
—
743,608 $
3,732
(138,201)
609,139 $
80,393 $
1,591
(11)
(1,500)
80,473 $
—
138,201
218,674 $
458,970
366,622
(11)
(1,500)
824,081
3,732
—
827,813
During the year ended December 31, 2022, the Company recognized a $3.7 million measurement period adjustment
in accordance with the BillingTree acquisition, primarily related to a $4.7 million increase in deferred tax liability as a result
of the finalization of the tax basis balance sheet. An increase in accounts receivable of $1.0 million was also recognized related
to updated collection information on the acquired receivables. The goodwill reallocation of $138.2 million between the
Consumer Payments and Business Payments segments resulted from the relative fair value allocation of the new reporting units
structure as of December 31, 2022.
10. Borrowings
Successor Credit Agreement
The Company entered into a Revolving Credit and Term Loan Agreement (the “Successor Credit Agreement”) on
July 11, 2019, with Truist Bank (formerly SunTrust Bank) and the other lenders party thereto, which provided a revolving
credit facility (the “Revolving Credit Facility”), a term loan A (the “Term Loan”), and a delayed draw term loan at a variable
interest rate (the “Delayed Draw Term Loan”). The Successor Credit Agreement provided for an aggregate revolving
commitment of $20.0 million at a variable interest rate.
On February 10, 2020, as part of the financing for the acquisition of Ventanex, Repay entered into an agreement with
Truist Bank and other members of its existing bank group to amend and upsize its previous credit agreement from $230.0
million to $346.0 million. The Successor Credit Agreement was collateralized by substantially all of the Company’s assets,
and included qualitative and quantitative covenants, as defined in the Successor Credit Agreement.
86
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
The Successor Credit Agreement provided for a Term Loan of $256.0 million, a Delayed Draw Term Loan of $60.0
million, and a Revolving Credit Facility of $30.0 million. As of December 31, 2020, the Company had $14.4 million drawn
against the Delayed Draw Term Loan and had $0.0 million drawn against the Revolving Credit Facility.
On January 20, 2021, the Company used a portion of the proceeds from the 2026 Notes to prepay in full the entire
amount of the outstanding Term Loans under the Successor Credit Agreement. The Company also terminated in full all
outstanding Delayed Draw Term Loan commitments under such credit facilities.
The Company’s interest expense on the Term Loan totaled $11.5 million for the year ended December 31, 2020. The
Company’s interest expense on the line of credit totaled $0 and $0.1 million for the years ended December 31, 2021 and 2020,
respectively.
Amended Credit Agreement
On February 3, 2021, the Company announced the closing of a new undrawn $125.0 million senior secured revolving
credit facility through Truist Bank. The Amended Credit Agreement replaces the Company’s Successor Credit Agreement,
which included an undrawn $30.0 million Revolving Credit Facility.
On December 29, 2021, the Company increased its existing senior secured credit facilities by $60.0 million to a $185.0
million revolving credit facility pursuant to an amendment to the Amended Credit Agreement. The Company was in compliance
with its restrictive covenants under the Amended Credit Agreement at December 31, 2022.
As of December 31, 2022, the Company had $20.0 million drawn against the revolving credit facility at a variable
interest rate of 2.25% plus 1-month LIBOR due 2026. The Company paid $0.6 million and $0.4 million in fees related to
unused commitments for the years ended December 31, 2022 and 2021, respectively. The Company’s interest expense on the
revolving credit facility totaled $0.8 million for the year ended December 31, 2022.
Convertible Senior Debt
On January 19, 2021, the Company issued $440.0 million in aggregate principal amount of 0.00% Convertible Senior
Notes due 2026 in a private placement. The initial conversion rate of the 2026 Notes was 29.7619 shares of Class A common
stock per $1,000 principal amount of 2026 Notes (equivalent to an initial conversion price of approximately $33.60 per share
of Class A common stock). Upon conversion of the 2026 Notes, the Company may choose to pay or deliver cash, shares of the
Company’s Class A common stock, or a combination of cash and shares of the Company’s Class A common stock. The 2026
Notes will mature on February 1, 2026, unless earlier converted, repurchased or redeemed. Subject to Nasdaq requirements,
the Company controls the conversion rights prior to November 3, 2025, unless a fundamental change or an event of default
occurs.
During the year ended December 31, 2022, the conversion contingencies of the 2026 Notes were not met, and the
conversion terms of the 2026 Notes were not significantly changed.
The following table summarizes the total borrowings under the Amended Credit Agreement and 2026 Notes:
($ in thousands)
Non-current indebtedness:
Revolving Credit Facility (1)
Convertible Senior Debt
Total borrowings
Less: Long-term loan debt issuance cost (2)
Total non-current borrowings
December 31,
2022
December 31,
2021
$
$
20,000 $
440,000
460,000
8,681
451,319 $
20,000
440,000
460,000
11,515
448,485
(1) The revolving credit facility bears interest at variable rates, which were 6.63% and 2.35% as of December 31, 2022 and
December 31, 2021, respectively.
(2) The Company incurred $2.8 million, $2.5 million and $1.4 million of interest expense for the amortization of deferred debt
issuance costs for the years ended December 31, 2022, 2021 and 2020, respectively.
87
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
Following is a summary of principal maturities of the Term Loans outstanding as of December 31, 2022 for each of
the next five years ending December 31 and in the aggregate:
($ in thousands)
2023
2024
2025
2026
2027
$
$
—
—
—
460,000
—
460,000
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. Pre-tax gain (loss) reclassified from accumulated other
comprehensive income (loss) into interest expense was $1.4 million for the year ended December 31, 2020.
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, then a revised notional amount of $65.0 million beginning on
September 30, 2020. 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, then a revised notional amount of $65.0 million beginning on September 30, 2020.
Both interest rate swaps were settled in January 2021, with $6.4 million, net of taxes of $1.7 million reclassified from
Accumulated other comprehensive loss into Other loss in the Consolidated Statements of Operations for the year ended
December 31, 2021.
12. Commitments and Contingencies
Legal Matters
The Company is a party to various claims and lawsuits incidental to its business. In the Company’s opinion, the
liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, are not
expected to have a material adverse effect on its financial position, liquidity, results of operations or cash flows.
Leases
The Company has commitments under operating leases for real estate leased from third parties under non-cancelable
operating leases. The Company’s leases typically have lease terms between three years and ten years, with the longest lease
term having an expiration date in 2029. Most of these leases include one or more renewal options for six years or less, and
certain leases also include lessee termination options. At lease commencement, the Company assesses whether it is reasonably
certain to exercise a renewal option, or reasonably certain not to exercise a termination option, by considering various economic
factors. Options that are reasonably certain of being exercised are factored into the determination of the lease term, and related
payments are included in the calculation of the right-of-use asset and lease liability.
88
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
The components of lease costs are presented in the following table:
($ in thousands)
Components of total lease costs:
Operating lease costs
Short-term lease costs
Variable lease costs
Total lease costs
Year Ended December 31,
2021
2020
2022
$
$
2,678 $
52
—
2,730 $
2,370 $
101
—
2,471 $
1,746
48
—
1,794
Amounts reported in the Consolidated Balance Sheets were as follows:
($ in thousands)
Operating Leases:
Right-of-use assets
Lease liability, current
Lease liability, long-term
Total lease liabilities
Weighted-average remaining lease term (in years)
Weighted-average discount rate (annualized)
Other information related to leases are as follows:
($ in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease liabilities:
December 31,
2022
December 31,
2021
$
$
9,847
2,263
8,295
10,558
$
$
4.7
4.5%
10,500
1,990
9,091
11,081
5.2
4.3%
Year Ended December 31,
2021
2020
2022
$
2,592 $
2,169 $
1,504
Operating leases
2,511
2,438
11,430
The following table presents a maturity analysis of the Company’s operating leases liabilities as of December 31,
2022:
($ in thousands)
2023
2024
2025
2026
2027
Thereafter
Total undiscounted lease payments
Less: Imputed interest
Total lease liabilities
$
$
2,681
2,499
2,328
2,232
1,410
561
11,711
1,153
10,558
89
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
13. Related Party Transactions
Related party payables consisted of the following:
($ in thousands)
Ventanex accrued earnout liability
CPS accrued earnout liability
Kontrol accrued earnout liability
Payix accrued earnout liability
Other payables to related parties
December 31, December 31,
2022
2021
$
$
— $
1,000
—
—
—
1,000 $
12,747
600
850
2,850
347
17,394
The Company incurred transaction costs on behalf of related parties of $10.6 million, $8.2 million and $3.1 million
for the years ended December 31, 2022, 2021 and 2020, respectively. These costs consist of retention bonuses and other
compensation to employees, associated with the costs resulting from the integration of new businesses.
The Company held receivables from related parties of $0.3 million as of both December 31, 2022 and 2021. These
amounts were due from employees, related to tax withholding on vesting of equity compensation. See Note 14. Share Based
Compensation for more detail on these restricted share awards. Further, the Company owed employees $0.0 million for amounts
paid on behalf of the Company as of both December 31, 2022 and 2021.
The Company owed $1.0 million and $17.4 million to related parties, in the form of contingent consideration payable
to the sellers of Ventanex, CPS, Kontrol and Payix, who were employees of Repay, as of December 31, 2022 and 2021,
respectively.
14. Share Based Compensation
Omnibus Incentive Plan
In connection with the Business Combination, Thunder Bridge shareholders considered and approved the Incentive
Plan which resulted in the reservation of 7,326,728 shares of common stock for issuance thereunder. The Incentive Plan became
effective immediately upon the closing of the Business Combination. On June 8, 2022, the Company’s shareholders approved
an amendment and restatement of the Incentive Plan, which, among other modifications, increased the number of shares
available for awards by 6,500,000, so that the total reserved shares for issuance under the Incentive Plan is 13,826,728.
Under this plan, the Company currently has three types of share-based compensation awards outstanding: PSUs, RSAs
and RSUs.
RSAs and RSUs
The grant date fair value of RSAs and RSUs, which is based on the quoted market value of the Company’s Class A
common stock on the grant date, is recognized as share-based compensation expense on a graded vesting basis over the requisite
service period. Most RSAs vest in equal annual installments over the requisite service period (which is typically a four-year
period). In limited cases, RSAs may vest on the grant date with a one-year holding period. RSUs vest at the first anniversary
of the grant date. Restricted shares cannot be sold or transferred until they have vested.
Activity for RSAs for the year ended December 31, 2022 is as follows:
Unvested at December 31, 2021
Granted
Forfeited (1)(2)
Vested
Unvested at December 31, 2022
Class A Common
Stock
Weighted Average
Grant Date Fair
Value
1,971,245 $
1,337,545
516,530
680,625
2,111,635
17.80
14.22
17.38
15.94
16.23
90
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
Activity for RSUs for the year ended December 31, 2022 is as follows:
Unvested at December 31, 2021
Granted
Forfeited
Vested
Unvested at December 31, 2022
Class A Common
Stock
Weighted Average
Grant Date Fair
Value
46,026 $
108,909
—
46,026
108,909
22.16
13.22
—
22.16
13.22
(1)
The forfeited shares include employee terminations during the year ended December 31, 2022; further, these forfeited
shares are added back to the number of shares available for grant under the Incentive Plan.
(2) Upon vesting, award-holders elected to sell shares to the Company in order to satisfy the associated tax obligations.
PSU
The grant date fair value of a PSU, which is based on quoted market value of the Company’s Class A common stock
on the grant date and the number of shares expected to be earned according to the level of achievement of performance
measures, is recognized on a graded vesting basis over the applicable performance or service period. The performance or
service period for awards granted is three years.
Activity for PSUs for the year ended December 31, 2022 is as follows:
Unvested at December 31, 2021
Granted
Forfeited
Vested
Unvested at December 31, 2022
(1)
Represent shares to be paid out at target level.
Class A Common
Stock (1)
Weighted Average
Grant Date Fair
Value
498,363 $
390,227
254,567
—
634,023
20.16
16.72
17.32
—
19.19
The following table summarized share-based compensation expense and the related income tax benefit recognized for
the Company’s share-based compensation awards:
($ in millions)
Share-based compensation expense
Income tax benefit
Year Ended December 31,
2022
2021
2020
$
20.3 $
2.1
22.3 $
3.4
19.4
0.5
Unrecognized compensation expense related to unvested PSUs, RSAs and RSUs was $21.0 million as of
December 31, 2022, which is expected to be recognized as expense over the weighted-average period of 1.58 years.
15. Taxation
Repay Holdings Corporation is taxed as a corporation and is subject to paying corporate federal, state and local taxes
on the income allocated to it from Hawk Parent, based upon Repay Holding Corporation’s economic interest held in Hawk
Parent, as well as any stand-alone income or loss it generates. Hawk Parent is treated as a partnership for U.S. federal and most
applicable state and local income tax purposes. As a partnership, Hawk Parent is not subject to U.S. federal and certain state
and local income taxes. Hawk Parent’s members, including Repay Holdings Corporation, are liable for federal, state and local
income taxes based on their allocable share of Hawk Parent’s pass-through taxable income.
The components of loss before income taxes are as follows:
91
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
($ in thousands)
Domestic
Foreign
Income (loss) before income tax expense (benefit)
2022
Year Ended December 31,
2021
2020
$
$
13,305 $
1,610
14,915 $
(87,353) $
625
(86,728) $
(129,267)
(457)
(129,724)
The Company recorded a provision for income tax as follows:
($ in thousands)
Current expense
Federal
State
Foreign
Total current expense
Deferred expense
Federal
State
Foreign
Total deferred expense (benefit)
Income tax expense (benefit)
2022
Year Ended December 31,
2021
2020
$
$
$
$
1,300 $
263
419
1,982 $
1,421 $
2,755
16
4,192
6,174 $
35 $
2
—
37 $
(18,113) $
(12,800)
185
(30,728)
(30,691) $
—
—
—
—
(10,524)
(1,709)
(125)
(12,358)
(12,358)
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:
Federal income tax expense
State taxes, net of federal benefit
Income attributable to noncontrolling interest
Excess tax benefit related to share-based compensation
Change in fair value of warrant liabilities
Change in fair value of contingent consideration
Foreign rate differential
R&D credit - Federal
Provision to return - Federal
State rate change impact on deferred taxes
Other, net
Effective tax rate
2022
Year Ended December 31,
2021
2020
21.0%
0.8%
5.8%
5.6%
0.0%
(4.0%)
1.4%
(4.8%)
(3.8%)
19.0%
0.5%
41.4%
21.0%
5.2%
(1.4%)
0.6%
0.0%
0.0%
0.0%
0.0%
0.0%
9.5%
0.5%
35.4%
21.0%
1.3%
(1.8%)
0.4%
(11.5%)
0.0%
0.0%
0.0%
0.0%
0.0%
0.1%
9.5%
The Company’s effective tax rate was 41.4%, 35.4% and 9.5% for the years ended December 31, 2022, 2021 and
2020, respectively. The comparison of the Company’s effective tax rate to the U.S. statutory tax rate of 21% 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. Further, the comparison is reflective of the effect of remeasuring net deferred tax assets
for state tax rate changes.
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:
92
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
($ in thousands)
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
Partnership basis tax differences
Total deferred tax asset
Valuation allowance
Total deferred tax asset, net of valuation allowance
Deferred tax liabilities
Other intangibles - Payix
Other liabilities
Total deferred tax liabilities
Net deferred tax assets
December 31,
2022
December 31,
2021
$
$
3,140 $
354
313
31,160
6,308
—
66
126,806
168,147
(15,468)
152,679
(6,230)
(10,079)
(16,309)
136,370 $
1,547
27
348
25,284
4,908
17
6,795
130,440
169,366
(16,394)
152,972
(7,712)
—
(7,712)
145,260
As a result of the finalization of 2021 income tax returns and Post-Merger Repay Unit exchanges during the year
ended December 31, 2022, the Company recognized a reduction of the deferred tax asset (“DTA”) and offsetting deferred tax
liability (“DTL”) in the amount of $0.9 million, compared to a reduction of $19.2 million as a result of equity offerings by the
Company, BillingTree acquisition and Post-Merger Repay unit exchanges during the year ended December 31, 2021, 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. The Company has concluded, based on the weight of all positive
and negative evidence, that all of the DTA associated with the ceiling rule limitation is not likely to be realized as of
December 31, 2022. As such, a 100% valuation allowance was recognized.
As of December 31, 2022, the Company had net tax effected federal and state (net of federal benefit) net operating
losses (“NOLs”) of $37.5 million, of which approximately $32.8 million have an indefinite life. NOLs of approximately $4.5
million and $0.2 million will begin to expire in 2034 and 2028, respectively. As of December 31, 2022, the Company had
federal and state tax credit carryforwards of $2.2 million and $0.9 million, respectively, which will begin to expire in 2037 and
2034. The Company believes as of December 31, 2022, based on the weight of all positive and negative evidence, it is more
likely than not that the results of future operations will generate sufficient taxable income to realize the NOLs and tax credits
and, as such, no valuation allowance was recorded.
No uncertain tax positions existed as of December 31, 2022.
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
93
REPAY HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
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, 2022, the Company had a liability of $179.1 million related to its projected obligations under the
TRA, which is captioned as the tax receivable agreement liability in the Company’s Consolidated Balance Sheets. The decrease
of $66.7 million in the TRA liability for the year ended December 31, 2022, was primarily a result of the change in the Early
Termination Rate.
16. Segments
Effective on December 31, 2022, the Company reorganized its business structure around two operating segments
based on review of discrete financial results for each of the operating segments by the Company’s chief operating decision
maker (“CODM”), for performance assessment and resource allocation purposes. Each of the Company’s operating segments
represents a reportable segment based on ASC 280, Segment Reporting. The Company’s two reportable segments are as
follows: (1) Consumer Payments and (2) Business Payments. Prior year amounts have been reclassified to conform to the
current presentation.
The following table presents revenue and gross profit for each reportable segment.
($ in thousand)
Revenue
Consumer Payments
Business Payments
Elimination of intersegment revenues (1)
Total revenue
Gross profit (2)
Consumer Payments
Business Payments
Elimination of intersegment revenues
Total gross profit
Total other operating expenses (3)
Total other income (expense)
Income (loss) before income tax (expense)
benefit
Income tax (expense) benefit
Net income (loss)
$
$
$
$
$
$
2022
Year Ended December 31,
2021
2020
248,191 $
42,600
(11,564)
279,227 $
195,542 $
30,423
(11,564)
214,401 $
261,602 $
62,116
14,915
(6,174)
8,741 $
$
194,044
33,818
(8,604)
$
219,258
$
148,614
23,764
(8,604)
$
163,774
217,771 $
(32,731)
(86,728)
30,691
(56,037) $
140,844
20,620
(6,428)
155,036
106,016
14,001
(6,428)
113,589
145,599
(97,714)
(129,724)
12,358
(117,366)
(1)
(2)
(3)
Represents intercompany eliminations between segments for consolidation purpose.
Represents revenue less costs of services.
Represents total operating expenses less costs of services.
Revenue and costs of services are attributed directly to each segment. There is no significant concentration of revenue
or assets in foreign countries as of December 31, 2022. The CODM reporting package does not include discrete asset details
of the operating segments as this information is not considered by the CODM for resource allocation or other segment analysis
purposes.
17. Subsequent Events
Management has evaluated subsequent events and their potential effects on these consolidated financial statements.
On February 15, 2023, the Company sold Blue Cow Software, LLC for a sale price of $41.0 million.
On February 28, 2023, the Company repaid in full the entire amount of $20.0 million of the outstanding revolving
credit facility. The undrawn capacity of the existing revolving credit facility under the Amended Credit Agreement became
$185.0 million after the repayment.
94
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, 2022. 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, 2022, our internal control over financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Grant
Thornton LLP, an independent registered public accounting firm, as stated in their Report of Independent Registered Certified
Public Accounting Firm on Internal Control Over Financial Reporting which is included with the Financial Statements in Part
II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2022, as part of our ongoing integration activities following the acquisition
of BillingTree, we applied our controls and procedures to the acquired operations of BillingTree and augmented our Company-
wide controls to address the risks inherent in a business combination of this magnitude.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
95
PART III
Information called for by Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K has been omitted
as we intend to file with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2022, an
amendment to this Form 10-K or a definitive Proxy Statement pursuant to Regulation 14A promulgated under the Exchange
Act relating to the Company’s annual meeting of stockholders to be held in 2023 (as applicable, the “Part III Filing”). Such
information will be set forth in such Part III Filing and is incorporated herein by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required to be included by Item 10 of Form 10-K will be included in our Part III Filing and such
information is incorporated by reference herein.
We have a code of ethics that applies to each of our directors and employees, including our Chief Executive Officer,
Chief Financial Officer and principal accounting officer. Our code of ethics is available on our website at www.repay.com
under the Investor Relations section titled Corporate Governance. We intend to disclose any amendment to, or waiver from, a
provision of our code of ethics that applies to our Chief Executive Officer, Chief Financial Officer or principal accounting
officer by posting such information on the Investors section of our website.
ITEM 11. EXECUTIVE COMPENSATION.
The information required to be included by Item 11 of the Form 10-K will be included in our Part III Filing and such
information is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required to be included by Item 12 of Form 10-K will be included in our Part III Filing and such
information is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required to be included by Item 13 of Form 10-K will be included in our Part III Filing and such
information is incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required to be included by Item 14 of Form 10-K will be included in our Part III Filing and such
information is incorporated by reference herein.
96
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(1) Financial Statements
The following Consolidated Financial Statements of Repay Holdings Corporation and the Report of the Independent
Registered Public Accounting Firm are included in Part II, Item 8 of this report.
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
57
60
61
62
63
64
66
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.
(3) Exhibits
Exhibit
Number
Description
2.1†
2.2†
2.3†
2.4†
2.5†
3.1
3.2
3.3
3.4
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).
Purchase Agreement, dated October 26, 2020, by and among Repay Holdings, LLC and CPS Holdings, LLC, CPS
Media, LLC, DB & AS Enterprises, Inc., and James F. Hughes, LLC (incorporated by reference to Exhibit 2.1 of the
Company’s Form 8-K (File No. 001-38531), filed with the SEC on October 27, 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).
Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the
Company’s Form 8-K (File No. 001-38351), filed with the SEC on June 9, 2022).
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Form
8-K (001-38531), filed with the SEC on February 24, 2023).
97
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12+
10.13+
10.14+
10.15+
10.16+
Indenture, dated as of January 19, 2021 between Repay Holdings Corporation and U.S. Bank National Association
(incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-38531), filed with the SEC on
January 19, 2021).
Description of Registrant’s Securities (incorporated by reference to Exhibit 4.1 of the Company’s Form S-3ASR
(Filed No. 333-266158), filed with the SEC on July 15, 2022).
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).
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).
Registration Rights Agreement, dated as of May 7, 2021, by and among Repay Holdings Corporation and BillingTree
Parent, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-385311), filed
with the SEC on May 10, 2021).
Amended and Restated Revolving Credit Agreement, dated February 3, 2021, by and among Repay Holdings
Corporation, Hawk Parent Holdings LLC, Truist Bank, as Administrative Agent, and the other parties thereto
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-38531), filed with the SEC on
February 5, 2021).
Limited Consent, Waiver and First Amendment to Amended and Restated Revolving Credit Agreement, dated June
15, 2021, by and among Repay Holdings Corporation, Hawk Parent Holdings LLC, Truist Bank, as administrative
agent, and the other parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No.
001-38531), filed with the SEC on January 3, 2022).
Second Amendment to Amended and Restated Revolving Credit Agreement, dated December 29, 2021, by and
among Repay Holdings Corporation, Hawk Parent Holdings LLC, Truist Bank, as Administrative Agent, and the
other parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-38531),
filed with the SEC on January 3, 2022).
Third Amendment to Amended and Restated Revolving Credit Agreement, dated February 9, 2023, by and among
Repay Holdings Corporation, Hawk Parent Holdings, LLC, Truist Bank, as Administrative Agent, and the other
parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-38531), filed
with the SEC on February 10, 2023).
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. 233879), filed with the
SEC on September 20, 2019).
Repay Holdings Corporation Omnibus Incentive Plan (as Amended and Restated Effective as of April 14, 2022)
(incorporated by reference to Annex A to the Company’s proxy statement (File No. 001-38531), filed with the SEC
on April 27, 2022).
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).
Amendment No. 1 to Employment Agreement, dated March 1, 2021, between Repay Management Services LLC (as
assignee of M & A Ventures, LLC) and John Morris (incorporated by reference to Exhibit 10.11 to the Company’s
Form 10-K/A (File No. 001-38531), filed with the SEC on April 23, 2021).
98
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+*
10.27+
10.28+
10.29+
10.30+
10.31+
10.32+
10.33+
10.34+
10.35+
Amendment No. 2 to Employment Agreement, dated March 1, 2022, between Repay Management Services LLC (as
assignee of M & A Ventures, LLC) and John Morris (incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K (File No. 001-38531), filed with the SEC on March 1, 2022).
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).
Amendment No. 1 to Employment Agreement, dated March 1, 2021, between Repay Management Services LLC (as
assignee of M & A Ventures, LLC) and Shaler Alias (incorporated by reference to Exhibit 10.13 to the Company’s
Form 10-K/A (File No. 001-38531), filed with the SEC on April 23, 2021).
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).
Amendment No. 1 to Employment Agreement, dated March 1, 2021, between Repay Management Services LLC (as
assignee of M & A Ventures, LLC) and Timothy J. Murphy (incorporated by reference to Exhibit 10.15 to the
Company’s Form 10-K/A (File No. 001-38531), filed with the SEC on April 23, 2021).
Employment Agreement dated September 1, 2019, between Repay Management Services LLC and Tyler B.
Dempsey (incorporated by reference to Exhibit 10.16 to the Company’s Form 10-K/A (File No. 001-38531), filed
with the SEC on April 23, 2021).
Amendment No. 1 to Employment Agreement, dated March 1, 2021, between Repay Management Services LLC
and Tyler B. Dempsey (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K/A (File No. 001-
38531), filed with the SEC on April 23, 2021).
Employment Agreement, dated January 21, 2019, between M & A Ventures, LLC and Michael F. Jackson
(incorporated by reference to Exhibit 10.29 of the Company’s Form S-4 (Registration No. 333-229616), filed with
the SEC on February 12, 2019).
Amendment No. 1 to Employment Agreement, dated March 1, 2021, between Repay Management Services LLC (as
assignee of M & A Ventures, LLC) and Michael F. Jackson (incorporated by reference to Exhibit 10.19 to the
Company’s Form 10-K/A (File No. 001-38531), filed with the SEC on April 23, 2021).
Transitional Consulting Agreement, dated November 28, 2022, between Repay Management Services LLC and
Michael F. Jackson.
Employment Agreement, dated April 1, 2020, between Repay Management Services and Jacob H. Moore
(incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q (Registration No. 001-38531), filed with
the SEC on May 10, 2022).
First Amendment to Employment Agreement, dated March 1, 2021, between Repay Management Services and Jacob
H. Moore (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q (Registration No. 001-38531),
filed with the SEC on May 10, 2022).
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 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 April 1, 2022.
Repay Holdings Corporation Form of Restricted Stock Award Agreement between the Company and the Grantee
named therein (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-38531) filed
with the SEC on March 17, 2020).
Repay Holdings Corporation Form of Performance-Based Restricted Stock Units Award Agreement between the
Company and the Grantee named therein (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K
(File No. 001-38531) filed with the SEC on March 17, 2020).
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).
Repay Holdings Corporation Form of Restricted Stock Award Agreement (2022) (incorporated by reference to
Exhibit 10.30 of the Company’s Form 10-K (File No. 011-38531) filed with the SEC on March 1, 2022).
21.1*
23.1*
31.1*
Subsidiaries of the registrant
Consent of Grant Thornton LLP
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.
99
31.2*
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*
Interactive Data File
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema
Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy
Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document In accordance with Rule 406T of
Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be
deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section and shall not be part of any registration or other document filed under the Securities Act or the Exchange
Act, except as shall be expressly set forth by specific reference in such filing.
Cover Page Interactive Data File (Included in Exhibits 101)
104*
*
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.
ITEM 16. FORM 10-K SUMMARY.
None.
100
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 1, 2023
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 1, 2023.
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
Chief Accounting Officer
Thomas Sullivan
/s/ Shaler Alias
Shaler Alias
/s/ Peter Kight
Peter Kight
/s/ Paul Garcia
Paul Garcia
(Principal Accounting Officer)
President, Director
Chairman of the Board
Director
/s/ Maryann Goebel
Director
Maryann Goebel
/s/ Robert H. Hartheimer
Director
Robert H. Hartheimer
/s/ William Jacobs
Director
William Jacobs
/s/ Richard Thornburgh
Director
Richard Thornburgh
/s/ Emnet Rios
Emnet Rios
Director
101