Repay Holdings Corp 10-Q

10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 98-1496050 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3 West Paces Ferry Road , Suite 200 Atlanta , GA 30305 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: ( 404 ) 504-7472 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Class A Common Stock, par value $0.0001 per share RPAY The NASDAQ Stock Market LLC Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of August 4, 2022, ther e are 91,333,050 s hares of the registrant’s Class A Common Stock, par value $0.0001 per share, outstanding (which number includes 2,398,645 sha res 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 August 4, 2022, the holders of such outstanding shares of Class V common stock also hold 7,883,048 units in a subsidiary of the registrant and such units are exchangeable into shares of the registrant’s Class A common stock on a one-for-one basis. REPAY HOLDINGS CORPORATION Quarterly Report on Form 10‑Q For the quarter ended June 30, 2022 TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 1 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk 38 Item 4. Controls and Procedures 39 PART II – OTHER INFORMATION Item 1. Legal Proceedings 40 Item 1A. Risk Factors 40 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40 Item 3. Defaults Upon Senior Securities 40 Item 4. Mine Safety Disclosures 40 Item 5. Other Information 40 Item 6. Exhibits 41 Signatures 42 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, anticipated benefits from our recent acquisitions, the effects of the COVID-19 pandemic, expected demand on our product offering, including further implementation of electronic payment options and statements regarding our market and growth opportunities, and our business strategy and the plans and objectives of management for future operations. You generally can identify these statements by the use of words such as “outlook,” “potential,” “continue,” “may,” “seek,” “approximately,” “predict,” “believe,” “expect,” “plan,” “intend,” “estimate” or “anticipate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would,” “likely” and “could.” These statements may be found under Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. These risks and uncertainties include, but are not limited to: exposure to economic conditions and political risk affecting the consumer loan market, the receivables management industry and consumer and commercial spending, including inflationary pressures, general economic slowdown or recession; the impacts of the ongoing COVID-19 pandemic, including the continued emergence of new variants, and the actions taken to control or mitigate its spread; a delay or failure to integrate and/or realize the benefits of our recent acquisitions; changes in the payment processing market in which we compete, including with respect to its competitive landscape, technology evolution or regulatory changes; changes in the vertical markets that we target, including the regulatory environment applicable to our clients; the ability to retain, develop and hire key personnel; risks relating to our relationships within the payment ecosystem; risk that we may not be able to execute our growth strategies, including identifying and executing acquisitions; risks relating to data security; changes in accounting policies applicable to us; the risk that we may not be able to maintain effective internal controls; and those risks described under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements. PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements REPAY HOLDINGS CORPORATION Consolidated Ba lance Sheets June 30, 2022 (Unaudited) December 31, 2021 Assets Cash and cash equivalents $ 60,374,827 $ 50,048,657 Accounts receivable 32,401,380 33,235,745 Prepaid expenses and other 13,598,748 12,427,032 Total current assets 106,374,955 95,711,434 Property, plant and equipment, net 4,513,877 3,801,199 Restricted cash 19,153,955 26,291,269 Intangible assets, net 535,796,229 577,693,902 Goodwill 827,802,003 824,081,632 Operating lease right-of-use assets, net 11,327,015 10,499,751 Deferred tax assets 133,813,455 145,259,883 Other assets 2,499,996 2,499,996 Total noncurrent assets 1,534,906,530 1,590,127,632 Total assets $ 1,641,281,485 $ 1,685,839,066 Liabilities Accounts payable $ 21,573,426 $ 20,082,651 Related party payable 774,543 17,394,125 Accrued expenses 21,568,148 26,819,083 Current operating lease liabilities 2,206,808 1,990,416 Current tax receivable agreement 24,454,088 24,495,556 Other current liabilities 91,417 1,565,931 Total current liabilities 70,668,430 92,347,762 Long-term debt 449,896,069 448,484,696 Noncurrent operating lease liabilities 9,765,876 9,090,867 Tax receivable agreement, net of current portion 177,469,519 221,332,863 Other liabilities 3,266,978 1,547,087 Total noncurrent liabilities 640,398,442 680,455,513 Total liabilities $ 711,066,872 $ 772,803,275 Commitments and contingenc ies ( Not e 12) Stockholders' equity Class A common stock, $ 0.0001 par value; 2,000,000,000 shares authorized, 88,993,722 issued and 88,892,919 outstanding as of June 30, 2022; 2,000,000,000 shares authorized, and 88,502,621 issued and outstanding as of December 31, 2021 8,889 8,850 Class V common stock, $ 0.0001 par value; 1,000 shares authorized and 100 shares issued and outstanding as of June 30, 2022 and December 31, 2021 — — Additional paid-in capital 1,107,431,623 1,100,012,082 Treasury stock, 100,803 and 0 shares as of June 30, 2022 and December 31, 2021, respectively ( 1,151,532 ) — Accumulated other comprehensive loss ( 2,205 ) ( 2,205 ) Accumulated deficit ( 212,352,930 ) ( 226,015,886 ) Total Repay stockholders' equity $ 893,933,845 $ 874,002,841 Non-controlling interests 36,280,768 39,032,950 Total equity $ 930,214,613 $ 913,035,791 Total liabilities and equity $ 1,641,281,485 $ 1,685,839,066 See accompanying notes to consolidated financial statements. 1 REPAY HOLDINGS CORPORATION Consolidated Statem ents of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue $ 67,434,781 $ 48,411,871 $ 134,998,836 $ 95,932,367 Operating expenses Costs of services (exclusive of depreciation and amortization shown separately below) 16,731,428 12,720,798 33,296,384 25,195,606 Selling, general and administrative 39,129,912 29,542,047 71,347,805 52,935,414 Depreciation and amortization 29,190,773 19,678,980 57,779,918 37,471,974 Change in fair value of contingent consideration ( 1,050,000 ) ( 1,200,000 ) ( 3,950,000 ) 1,448,786 Total operating expenses 84,002,113 60,741,825 158,474,107 117,051,780 Loss from operations ( 16,567,332 ) ( 12,329,954 ) ( 23,475,271 ) ( 21,119,413 ) Other income (expense) Interest expense ( 1,051,197 ) ( 816,621 ) ( 2,039,786 ) ( 1,999,978 ) Loss on extinguishment of debt — — — ( 5,940,600 ) Change in fair value of tax receivable liability 19,450,650 ( 4,355,183 ) 44,070,035 ( 3,312,450 ) Other income 10,764 34,389 16,824 62,536 Other loss ( 150,234 ) — ( 150,234 ) ( 9,080,410 ) Total other income (expense) 18,259,983 ( 5,137,415 ) 41,896,839 ( 20,270,902 ) Income (loss) before income tax (expense) benefit 1,692,651 ( 17,467,369 ) 18,421,568 ( 41,390,315 ) Income tax (expense) benefit ( 3,045,392 ) 4,117,474 ( 6,887,934 ) 10,059,247 Net income (loss) $ ( 1,352,741 ) $ ( 13,349,895 ) $ 11,533,634 $ ( 31,331,068 ) Less: Net loss attributable to non-controlling interests ( 1,362,153 ) ( 1,080,798 ) ( 2,129,322 ) ( 3,268,070 ) Net income (loss) attributable to the Company $ 9,412 $ ( 12,269,097 ) $ 13,662,956 $ ( 28,062,998 ) Income (loss) per Class A share attributable to the Company: Basic $ 0.00 $ ( 0.15 ) $ 0.15 $ ( 0.36 ) Diluted $ 0.00 $ ( 0.15 ) $ 0.12 $ ( 0.36 ) Weighted-average shares outstanding: Basic 88,903,674 79,781,185 88,756,482 78,200,752 Diluted 113,250,564 79,781,185 112,866,991 78,200,752 See accompanying notes to consolidated financial statements. 2 REPAY HOLDINGS CORPORATION Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income (loss) $ ( 1,352,741 ) $ ( 13,349,895 ) $ 11,533,634 $ ( 31,331,068 ) Other comprehensive income, before tax Reclassification of net unrealized loss on cash flow hedges to other loss — — — 9,317,244 Total other comprehensive income, before tax — — — 9,317,244 Income tax related to items of other comprehensive income: Tax expense on reclassification of net unrealized loss on cash flow hedges to other loss — — — ( 1,672,743 ) Total income tax expense on related to items of other comprehensive income — — — ( 1,672,743 ) Total other comprehensive income, net of tax — — — 7,644,501 Total comprehensive income (loss) $ ( 1,352,741 ) $ ( 13,349,895 ) $ 11,533,634 $ ( 23,686,567 ) Less: Comprehensive loss attributable to non-controlling interests ( 1,362,153 ) ( 1,080,798 ) ( 2,129,322 ) ( 2,060,332 ) Comprehensive income (loss) attributable to the Company $ 9,412 $ ( 12,269,097 ) $ 13,662,956 $ ( 21,626,235 ) See accompanying notes to consolidated financial statements. 3 REPAY HOLDINGS CORPORATION Consolidated Statements of Changes in Equity (Unaudited) Repay Stockholders Class A Common Stock Class V Common Stock Additional Paid-In Treasury Accumulated Accumulated Other Comprehensive Non-controlling Total Shares Amount Shares Amount Capital Stock Deficit (Loss) Income Interests Equity Balance at March 31, 2021 78,084,846 $ 7,809 100 $ - $ 839,589,351 $ - $ ( 191,725,614 ) $ - $ 43,399,802 $ 691,271,348 Issuance of new shares 10,051,302 1,005 - 228,636,942 - - - ( 387,947 ) 228,250,000 Exchange of Post-Merger Repay Units 25,267 2 - 135,128 - - - ( 135,128 ) 2 Release of share awards vested under Incentive Plan 91,136 9 - ( 9 ) - - - - - Shares repurchased under Incentive Plan ( 30,121 ) ( 3 ) - ( 704,586 ) - - - 2,216 ( 702,373 ) Stock-based compensation - - - 5,507,001 - - - ( 1,512 ) 5,505,489 Valuation allowance on Ceiling Rule DTA - - - ( 123 ) - - - - ( 123 ) Net loss - - - - - ( 12,269,097 ) - ( 1,080,798 ) ( 13,349,895 ) Balance at June 30, 2021 88,222,430 $ 8,822 100 $ - $ 1,073,163,704 $ - $ ( 203,994,711 ) $ - $ 41,796,633 $ 910,974,448 Balance at March 31, 2022 88,817,111 $ 8,881 100 $ - $ 1,101,431,734 $ - $ ( 212,362,342 ) $ ( 2,205 ) $ 38,241,500 927,317,568 Exchange of Post-Merger Repay Units 43,528 4 - 209,881 - - - ( 209,885 ) - Release of share awards vested under Incentive Plan and shares purchased under ESPP 146,615 15 - ( 15 ) - - - - - Shares repurchased under Incentive Plan and ESPP ( 13,532 ) ( 1 ) - ( 139,363 ) - - - ( 2,050 ) ( 141,414 ) Treasury shares repurchased ( 100,803 ) ( 10 ) - - ( 1,151,532 ) - - 6,194 ( 1,145,348 ) Stock-based compensation - - - 5,929,386 - - - ( 6,932 ) 5,922,454 Tax distribution from Hawk Parent - - - - - - - ( 385,906 ) ( 385,906 ) Net loss - - - - - 9,412 - ( 1,362,153 ) ( 1,352,741 ) Balance at June 30, 2022 88,892,919 $ 8,889 100 $ - $ 1,107,431,623 $ ( 1,151,532 ) $ ( 212,352,930 ) $ ( 2,205 ) $ 36,280,768 $ 930,214,613 See accompanying notes to consolidated financial statements. 4 REPAY HOLDINGS CORPORATION Consolidated Statements of Changes in Equity (Unaudited) (Continued) Repay Stockholders Class A Common Stock Class V Common Stock Additional Paid-In Treasury Accumulated Accumulated Other Comprehensive Non-controlling Total Shares Amount Shares Amount Capital Stock Deficit (Loss) Income Interests Equity Balance at December 31, 2020 71,244,682 $ 7,125 100 $ - $ 691,675,072 $ - $ ( 175,931,713 ) $ ( 6,436,763 ) $ 46,868,350 $ 556,182,071 Issuance of new shares 16,295,802 1,629 - 371,048,331 - - - ( 701,599 ) 370,348,361 Exchange of Post-Merger Repay Units 400,267 40 - 2,293,502 - - - ( 2,293,540 ) 2 Release of share awards vested under Incentive Plan 384,217 38 - ( 38 ) - - - - - Shares repurchased under Incentive Plan ( 102,538 ) ( 10 ) - ( 2,526,521 ) - - - 6,211 ( 2,520,320 ) Stock-based compensation - - - 10,678,545 - - - ( 22,457 ) 10,656,088 Valuation allowance on Ceiling Rule DTA - - - ( 5,187 ) - - - - ( 5,187 ) Net loss - - - - - ( 28,062,998 ) - ( 3,268,070 ) ( 31,331,068 ) Other comprehensive income - - - - - - 6,436,763 1,207,738 7,644,501 Balance at June 30, 2021 88,222,430 $ 8,822 100 $ - $ 1,073,163,704 $ - $ ( 203,994,711 ) $ - $ 41,796,633 $ 910,974,448 Balance at December 31, 2021 88,502,621 $ 8,850 100 $ - $ 1,100,012,082 $ - $ ( 226,015,886 ) $ ( 2,205 ) $ 39,032,950 $ 913,035,791 Exchange of Post-Merger Repay Units 43,528 4 - 209,881 - - - ( 209,885 ) - Release of share awards vested under Incentive Plan and shares purchased under ESPP 574,370 58 - ( 58 ) - - - - - Shares repurchased under Incentive Plan and ESPP ( 126,797 ) ( 13 ) - ( 1,842,168 ) - - - 2,334 ( 1,839,847 ) Treasury shares repurchased ( 100,803 ) ( 10 ) - - ( 1,151,532 ) - - 6,194 ( 1,145,348 ) Stock-based compensation - - - 9,051,886 - - - ( 35,597 ) 9,016,289 Tax distribution from Hawk Parent - - - - - - - ( 385,906 ) ( 385,906 ) Net income (loss) - - - - - 13,662,956 - ( 2,129,322 ) 11,533,634 Balance at June 30, 2022 88,892,919 $ 8,889 100 $ - $ 1,107,431,623 $ ( 1,151,532 ) $ ( 212,352,930 ) $ ( 2,205 ) $ 36,280,768 $ 930,214,613 See accompanying notes to consolidated financial statements. 5 REPAY HOLDINGS CORPORATION Consolidated Statem ents of Cash Flows (Unaudited) Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net income (loss) $ 11,533,634 $ ( 31,331,068 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 57,779,918 37,471,974 Stock based compensation 9,016,289 10,656,090 Amortization of debt issuance costs 1,411,373 1,197,917 Loss on disposal of property and equipment 54,463 — Loss on termination of lease 95,770 — Loss on extinguishment of debt — 5,940,600 Loss on sale of interest rate swaps — 9,317,243 Fair value change in tax receivable agreement liability ( 44,070,035 ) 3,312,450 Fair value change in other assets and liabilities ( 3,950,000 ) 1,448,786 Payment of contingent consideration liability in excess of acquisition-date fair value ( 8,895,626 ) — Deferred tax expense 6,887,934 ( 10,059,247 ) Change in accounts receivable 1,837,711 ( 3,603,491 ) Change in prepaid expenses and other ( 1,171,716 ) ( 702,976 ) Change in operating lease ROU assets ( 827,264 ) 576,505 Change in accounts payable 1,490,775 3,567,717 Change in related party payable 77,258 340,132 Change in accrued expenses and other ( 5,346,705 ) ( 2,945,543 ) Change in operating lease liabilities 891,401 ( 394,915 ) Change in other liabilities 245,377 ( 7,924,883 ) Net cash provided by operating activities 27,060,557 16,867,291 Cash flows from investing activities Purchases of property and equipment ( 1,824,474 ) ( 985,274 ) Purchases of intangible assets ( 14,824,912 ) ( 9,738,165 ) Acquisition of CPS, net of cash and restricted cash acquired — 1,510,778 Acquisition of BillingTree, net of cash and restricted cash acquired — ( 269,825,725 ) Acquisition of Kontrol, net of cash and restricted cash acquired — ( 7,471,194 ) Net cash used in investing activities ( 16,649,386 ) ( 286,509,580 ) Cash flows from financing activities Issuance of long-term debt — 440,000,000 Payments on long-term debt — ( 262,653,996 ) Public issuance of Class A Common Stock — 142,098,361 Shares repurchased under Incentive Plan and ESPP ( 1,839,847 ) ( 2,520,320 ) Treasury shares repurchased ( 1,145,348 ) — Distributions to Members ( 385,906 ) — Payment of loan costs — ( 13,247,617 ) Payment of contingent consideration liability up to acquisition-date fair value ( 3,851,214 ) — Net cash (used in) provided by financing activities ( 7,222,315 ) 303,676,428 Increase in cash, cash equivalents and restricted cash 3,188,856 34,034,139 Cash, cash equivalents and restricted cash at beginning of period $ 76,339,926 $ 106,504,734 Cash, cash equivalents and restricted cash at end of period $ 79,528,782 $ 140,538,873 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 628,413 $ 802,060 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of Kontrol in exchange for contingent consideration $ — $ 500,000 See accompanying notes to consolidated financial statements. 6 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 1. Organizational Structure and Corporate Information Repay Holdings Corporation was incorporated as a Delaware corporation on July 11, 2019 in connection with the closing of a transaction (the “Business Combination”) pursuant to which Thunder Bridge Acquisition Ltd., a special purpose acquisition company organized under the laws of the Cayman Islands (“Thunder Bridge”), (a) domesticated into a Delaware corporation and changed its name to “Repay Holdings Corporation” and (b) consummated the merger of a wholly owned subsidiary of Thunder Bridge with and into Hawk Parent Holdings, LLC, a Delaware limited liability company (“Hawk Parent”). Throughout this section, unless otherwise noted or unless the context otherwise requires, the terms “we”, “us”, “Repay” and the “Company” and similar references refer (1) before the Business Combination, to Hawk Parent and its consolidated subsidiaries and (2) from and after the Business Combination, to Repay Holdings Corporation and its consolidated subsidiaries. Throughout this section, unless otherwise noted or unless the context otherwise requires, “Thunder Bridge” refers to Thunder Bridge Acquisition. Ltd. prior to the consummation of the Business Combination. The Company is headquartered in Atlanta, Georgia. 2. Basis of Presentation and Summary of Significant Accounting Policies Unaudited Interim Consolidated Financial Statements These unaudited consolidated interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes, which are included in the Annual Report on Form 10-K for the year ended December 31, 2021. The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with instructions to Form 10-Q and Rule 10-01 of SEC Regulation S-X as they apply to interim financial information. Accordingly, the interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading. The interim consolidated financial statements are unaudited, but in the Company’s opinion include all adjustments of a normal recurring nature or a description of the nature and amount of any adjustments other than normal recurring adjustments, operations and cash flows as of and for the periods presented. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year. Principles of Consolidation The consolidated financial statements include the accounts of Repay Holdings Corporation and its (i) wholly owned subsidiary, BT Intermediate, LLC, and (ii) majority-owned subsidiary, Hawk Parent Holdings LLC, along with Hawk Parent Holdings LLC ' s wholly owned subsidiaries: Hawk Intermediate Holdings, LLC, Hawk Buyer Holdings, LLC, Repay Holdings, LLC, M&A Ventures, LLC, Repay Management Holdco Inc., Repay Management Services LLC, Sigma Acquisition, LLC, Wildcat Acquisition, LLC, Marlin Acquirer, LLC, REPAY International LLC, REPAY Canada Solutions ULC, TriSource Solutions, LLC (“TriSource”), Mesa Acquirer, LLC, CDT Technologies LTD (“Ventanex”), Viking GP Holdings, LLC, cPayPlus, LLC (“cPayPlus”), CPS Payment Services, LLC, Media Payments, LLC (“MPI”), Custom Payment Systems, LLC, Electronic Payment Providers, LLC, Blue Cow Software, LLC, Hoot Payment Solutions, LLC, Internet Payment Exchange, LLC, Stratus Payment Solutions, LLC, Clear Payment Solutions, LLC, Harbor Acquisition LLC , Payix Holdings Incorporated and Payix Incorporated. All significant intercompany accounts and transactions have been eliminated in consolidation. Basis of Financial Statement Presentation The accompanying interim consolidated financial statements of the Company were prepared in accordance with GAAP. The Company uses the accrual basis of accounting whereby revenues are recognized when earned, usually upon the date services are rendered, and expenses are recognized at the date services are rendered or goods are received. 7 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported Consolidated Statements of Operations during the reporting period. Actual results could differ materially from those estimates. Correction of Immaterial Error in Previously Issued Financial Statements During the preparation of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company identified an error in the presentation of the reclassification of net unrealized loss on cash flow hedges to other loss and its related tax expenses within the Consolidated Statements of Comprehensive Income in previous reporting periods beginning the three months ended March 31, 2021, which resulted in a decrease of Comprehensive loss attributable to the Company from ($ 28.1 ) million to ($ 21.6 ) million for the six months ended June 30, 2021. Comprehensive loss attributable to the Company for the three months ended June 30, 2021 was not impacted. Net income (loss) for the three and six months ended June 30, 2021 and Total equity as of June 30, 2021 were not impacted. The Company assessed the materiality of the misstatement both quantitatively and qualitatively in accordance with Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections, as well as SEC Staff Accounting Bulletins No. 99, Materiality, and No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded that the misstatement was not material to the Company’s previously issued unaudited interim consolidated financial statements for the prior periods and that amendments of previously filed reports were not required. Recently Issued Accounting Pronouncements not yet Adopted Business Combinations In August 2021, the FASB issued Accounting Standards Update No. 2021-08, “ Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue (Topic 606) , and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. Amendments within ASU No. 2021-08 are required to be applied prospectively to business combinations occurring on or after the effective date of the amendments. 3. Revenue Disaggregation of revenue The table below presents a disaggregation of revenue by direct and indirect relationships for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue Direct relationships $ 63,845,312 $ 47,286,567 $ 127,483,070 $ 94,042,003 Indirect relationships 3,589,469 1,125,304 7,515,766 1,890,364 Total Revenue $ 67,434,781 $ 48,411,871 $ 134,998,836 $ 95,932,367 4. Earnings Per Share During the three and six months ended June 30, 2021, basic and diluted net loss per common share are the same since the inclusion of the assumed exchange of all limited liability company interests of Hawk Parent (“Post-Merger Repay Units”), unvested restricted share awards and the Company’s Convertible Senior Notes due 2026 (“2026 Notes”) would have been anti-dilutive. The following table summarizes net income (loss) attributable to the Company and the weighted average basic and diluted shares outstanding: 8 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Income (loss) before income tax expense $ 1,692,651 $ ( 17,467,369 ) $ 18,421,568 $ ( 41,390,315 ) Less: Net loss attributable to non-controlling interests ( 1,362,153 ) ( 1,080,798 ) ( 2,129,322 ) ( 3,268,070 ) Income tax (expense) benefit ( 3,045,392 ) 4,117,474 ( 6,887,934 ) 10,059,247 Net (loss) income attributable to the Company $ 9,412 $ ( 12,269,097 ) $ 13,662,956 $ ( 28,062,998 ) Weighted average shares of Class A common stock outstanding - basic 88,903,674 79,781,185 88,756,482 78,200,752 Add weighted average effect of dilutive common stock equivalent shares: Post-Merger Repay Units exchangeable for Class A common stock 7,883,048 7,883,048 Unvested restricted share awards of Class A common stock 3,365,729 3,130,785 Outstanding ESPP purchase rights for Class A common stock 2,876 1,438 2026 Notes convertible into Class A common stock 13,095,238 13,095,238 Weighted average shares of Class A common stock outstanding - diluted 113,250,564 112,866,991 Income (loss) per share of Class A common stock outstanding - basic $ 0.00 $ ( 0.15 ) $ 0.15 $ ( 0.36 ) Income (loss) per share of Class A common stock outstanding - diluted $ 0.00 $ ( 0.15 ) $ 0.12 $ ( 0.36 ) For the three and six months ended June 30, 2021, the following common stock equivalent shares were excluded from the computation of the diluted loss per share, since their inclusion would have been anti-dilutive: Three Months Ended June 30, Six Months Ended June 30, 2021 2021 Post-Merger Repay Units exchangeable for Class A common stock 7,933,893 7,933,893 Unvested restricted share awards of Class A common stock 2,860,945 2,860,945 2026 Notes convertible into Class A common stock 13,095,238 13,095,238 Share equivalents excluded from earnings (loss) per share 23,890,076 23,890,076 Shares of the Company’s Class V common stock do not participate in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class V common stock under the two-class method has not been presented. 9 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 5. Business Combinations BillingTree On June 15, 2021, the Company acquired BT Intermediate, LLC (together with its subsidiaries, “BillingTree”). Under the terms of the agreement and plan of merger between BT Intermediate, LLC, the Company, two newly formed subsidiaries of the Company and the owner of BT Intermediate, LLC (“BillingTree Merger Agreement”), the aggregate consideration paid at closing by the Company was approximately $ 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: Cash consideration $ 277,521,139 Class A common stock issued 228,250,000 Total purchase price $ 505,771,139 The Company recorded an allocation of the purchase price to BillingTree’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the June 15, 2021 closing date. The purchase price allocation is as follows: Cash and cash equivalents $ 8,243,569 Accounts receivable 4,627,240 Prepaid expenses and other current assets 1,601,854 Total current assets 14,472,663 Property, plant and equipment, net 541,244 Restricted cash 274,954 Other assets 1,782,488 Identifiable intangible assets 236,810,000 Total identifiable assets acquired 253,881,349 Accounts payable ( 2,552,251 ) Accrued expenses and other liabilities ( 6,982,918 ) Deferred tax liability ( 36,095,307 ) Net identifiable assets acquired 208,250,873 Goodwill 297,520,266 Total purchase price $ 505,771,139 The values allocated to identifiable intangible assets and their estimated useful lives are as follows: Fair Value Useful life Identifiable intangible assets (in millions) (in years) Non-compete agreements $ 0.3 2 Trade names 7.8 Indefinite Developed technology 26.2 3 Merchant relationships 202.5 10 $ 236.8 Goodwill 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. 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. 10 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements Kontrol On June 22, 2021, the Company acquired substantially all of the assets of Kontrol LLC (“Kontrol”). Under the terms of the asset purchase agreement between a newly formed subsidiary of Repay Holdings, LLC and the owner of Kontrol (“Kontrol Purchase Agreement”), the aggregate consideration paid at closing by the Company was up to $ 10.5 million in cash, 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: Cash consideration $ 7,439,373 Contingent consideration (1) 500,000 Total purchase price $ 7,939,373 (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 June 30, 2022, the fair value of the Kontrol earnout was $ 0.1 million, which resulted in a ($ 0.2 ) million and ($ 0.8 ) million adjustment included in the change in fair value of contingent consideration in the Consolidated Statements of Operations for the three and six months ended June 30, 2022 , respectively. 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: Accounts receivable $ 67,510 Prepaid expenses and other current assets 5,572 Total current assets 73,082 Identifiable intangible assets 6,940,000 Total identifiable assets acquired 7,013,082 Accounts payable ( 664,932 ) Net identifiable assets acquired 6,348,150 Goodwill 1,591,223 Total purchase price $ 7,939,373 The values allocated to identifiable intangible assets and their estimated useful lives are as follows: Fair Value Useful life Identifiable intangible assets (in millions) (in years) Trade names $ 0.0 Indefinite Merchant relationships 6.9 8 $ 6.9 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. 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 Holdings Incorporated (together with its subsidiary, “Payix”). Under the terms of the merger agreement with Payix (“Payix Purchase Agreement”), the aggregate consideration 11 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements paid at closing by the Company was approximately $ 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 preliminary purchase consideration paid to the sellers of Payix: Cash consideration $ 95,627,972 Contingent consideration (1) 2,850,000 Total purchase price $ 98,477,972 (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 contin gent 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 June 30, 2022, the fair value of the Payix earnout was $ 0 , which resulted in a ($ 0.5 ) million and ($ 2.9 ) million a djustment included in the change in fair value of contingent consideration in the Consolidated Statements of Operations for the three and six months ended June 30, 2022 , respectively. The Company recorded a preliminary allocation of the purchase price to Payix’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the December 29, 2021 closing date. The preliminary purchase price allocation is as follows: Cash and cash equivalents $ 702,575 Accounts receivable 1,715,292 Prepaid expenses and other current assets 93,891 Total current assets 2,511,758 Property, plant and equipment, net 83,449 Restricted cash 27,177 Other assets 655,588 Identifiable intangible assets 33,150,000 Total identifiable assets acquired 36,427,972 Accounts payable ( 214,195 ) Accrued expenses and other liabilities ( 2,022,846 ) Deferred tax liability ( 6,943,998 ) Net identifiable assets acquired 27,246,933 Goodwill 71,231,039 Total purchase price $ 98,477,972 The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows: Fair Value Useful life Identifiable intangible assets (in millions) (in years) Trade names $ 0.3 Indefinite Developed technology 12.4 3 Merchant relationships 20.5 10 $ 33.2 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, no ne of which is expected to be deductible for tax purposes. 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. 12 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements Measurement Period The preliminary purchase price allocation for the acquisition of Payix is based on initial estimates and provisional amounts. The Company continues to refine its inputs and estimates inherent in the valuation of intangible assets, deferred income taxes, property and equipment and the accuracy and completeness of liabilities within the measurement period. Transaction Expenses The Company incurred transaction expenses of $ 1.8 million and $ 4.3 million for the three and six months ended June 30, 2022, respectively, related to the acquisitions of BillingTree, Kontrol, and Payix. The Company incurred transaction expenses of $ 2.7 million and $ 3.7 million for the three and six months ended June 30, 2021, respectively, related to the acquisitions of Ventanex, cPayPlus and CPS Payment Services, LLC (together with its affiliated companies, “CPS”), BillingTree, and Kontrol. Pro Forma Financial Information (Unaudited) The supplemental condensed consolidated results of the Company on an unaudited pro forma basis give effect to the BillingTree, Kontrol, and Payix acquisitions as if the transactions had occurred on January 1, 2021. The unaudited pro forma information reflects adjustments for the issuance of the Company’s common stock, debt incurred in connection with the transactions, the impact of the fair value of intangible assets acquired and related amortization and other adjustments the Company believes are reasonable for the pro forma presentation. In addition, the pro forma earnings exclude acquisition-related costs. Pro Forma Three Months Ended June 30, Pro Forma Six Months Ended June 30, 2022 2021 2022 2021 Revenue $ 67,434,781 $ 62,338,919 $ 134,998,836 $ 127,593,664 Net income (loss) ( 1,352,741 ) ( 18,153,420 ) 11,533,634 ( 30,120,131 ) Net loss attributable to non-controlling interests ( 1,362,153 ) ( 1,506,344 ) ( 2,129,322 ) ( 3,158,881 ) Net income (loss) attributable to the Company 9,412 ( 16,647,076 ) 13,662,956 ( 26,961,250 ) Income (loss) per Class A share - basic $ 0.00 $ ( 0.21 ) $ 0.15 $ ( 0.34 ) Income (loss) per Class A share - diluted $ 0.00 $ ( 0.21 ) $ 0.12 $ ( 0.34 ) 13 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 6. Fair Value The following table summarizes, by level within the fair value hierarchy, the carrying amounts and estimated fair values of the Company’s assets and liabilities measured at fair value on a recurring or nonrecurring basis or disclosed, but not carried, at fair value in the 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. June 30, 2022 Level 1 Level 2 Level 3 Total Assets: Other assets $ — $ 2,499,996 $ — $ 2,499,996 Total assets $ — $ 2,499,996 $ — $ 2,499,996 Liabilities: Contingent consideration $ — $ — $ 350,000 $ 350,000 Borrowings — 449,896,069 — 449,896,069 Tax receivable agreement — — 201,923,607 201,923,607 Total liabilities $ — $ 449,896,069 $ 202,273,607 $ 652,169,676 December 31, 2021 Level 1 Level 2 Level 3 Total Assets: Other assets $ — $ 2,499,996 $ — $ 2,499,996 Total assets $ — $ 2,499,996 $ — $ 2,499,996 Liabilities: Contingent consideration $ — $ — $ 17,046,840 $ 17,046,840 Borrowings — 448,484,696 — 448,484,696 Tax receivable agreement — — 245,828,419 245,828,419 Total liabilities $ — $ 448,484,696 $ 262,875,259 $ 711,359,955 Other assets Other assets contain a minority equity investment in a privately-held company. The Company elected a measurement alternative for measuring this investment, in which the carrying amount is adjusted based on any observable price changes in orderly transactions. The investment is classified as Level 2 as observable adjustments to value are infrequent and occur in an inactive market. Contingent consideration Contingent consideration relates to potential payments that the Company may be required to make associated with acquisitions. The contingent consideration is recorded at fair value based on estimates of discounted future cash flows associated with the acquired businesses within Related party payable in the Consolidated Balance Sheets. To the extent that the valuation of these liabilities is based on inputs that are less observable or not observable in the market, the determination of fair value requires more judgment. Accordingly, the fair value of contingent consideration is classified within Level 3 of the fair value hierarchy, under ASC 820, Fair Value Measurement (“ASC 820”). The change in fair value is re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805, Business Combinations (“ASC 805”). The Company used a 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. A range o f 8.2 % to 8.2 % and weighted average of 8.20 % was applied to the simulated contingent consideration payments, 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 following table provides a rollforward of the contingent consideration related to previous business acquisitions. Refer to Note 5 for more details. 14 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements Six Months Ended June 30, 2022 2021 Balance at beginning of period $ 17,046,840 $ 15,800,000 Purchases — 1,500,000 Payments ( 12,746,840 ) ( 948,786 ) Valuation adjustment ( 3,950,000 ) 1,448,786 Balance at end of period $ 350,000 $ 17,800,000 Borrowings The carrying value of the 2026 Notes, revolving credit facility and term loan is net of unamortized debt discount and debt issuance costs. The carrying amount of the Company’s borrowings approximates fair value because interest rates on these instruments approximate market interest rates. The fair value of the Company’s borrowings is classified within Level 2 of the fair value hierarchy, as the market interest rates are generally observable and do not contain a high level of subjectivity. See Note 10 for further discussion on borrowings. Tax Receivable Agreement Upon the completion of the Business Combination, the Company entered into the Tax Receivable Agreement (the “TRA”) with holders of Post-Merger Repay Units. As a result of the TRA, the Company established a liability in its consolidated financial statements. The TRA is recorded at fair value based on estimates of discounted future cash flows associated with the estimated payments to the Post-Merger Repay Unit holders. These inputs are not observable in the market; thus, the TRA is classified within Level 3 of the fair value hierarchy, under ASC 820. The change in fair value is re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805. The Company used a discount rate, also referred to as the Early Termination Rate, as defined in the TRA, to determine the present value, based on a risk-free rate plus a spread, pursuant to the TRA. A rate of 4.62 % was applied to the forecasted TRA payments at June 30, 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 $ 44.1 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 acquisition and exchanges of Post-Merger Repay Units. See Note 15 for further discussion on the TRA. Six Months Ended June 30, 2022 2021 Balance at beginning of period $ 245,828,419 $ 229,228,105 Purchases 165,223 2,424,107 Accretion expense 2,656,847 1,522,939 Valuation adjustment ( 46,726,882 ) 1,789,511 Balance at end of period $ 201,923,607 $ 234,964,662 15 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 7. Property and Equipment Property and equipment consisted of the following: June 30, December 31, 2022 2021 Furniture, fixtures, and office equipment $ 3,362,839 $ 2,763,380 Computers 4,468,782 3,408,336 Leasehold improvements 523,732 430,894 Total 8,355,353 6,602,610 Less: Accumulated depreciation and amortization 3,841,476 2,801,411 $ 4,513,877 $ 3,801,199 Depreciation expense for property and equipment was $ 0.6 million and $ 1.1 million for the three and six months ended June 30, 2022 , respectively. Depreciation expense for property and equipment was $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2021 , respectively. 8. Intangible Assets The Company holds definite and indefinite-lived intangible assets. As of June 30, 2022 and 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. Intangible assets consisted of the following: Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Useful Life (Years) Client relationships $ 539,850,000 $ 110,214,370 $ 429,635,630 7.90 Channel relationships 13,490,000 2,363,602 11,126,398 8.25 Software costs 177,842,473 111,707,683 66,134,790 0.99 Non-compete agreements 4,580,000 3,820,589 759,411 0.71 Trade name 28,140,000 — 28,140,000 — Balance as of June 30, 2022 $ 763,902,473 $ 228,106,244 $ 535,796,229 6.19 Customer relationships $ 539,850,000 $ 83,014,231 $ 456,835,769 8.40 Channel relationships 12,550,000 1,146,935 11,403,065 8.65 Software costs 163,957,560 83,162,612 80,794,948 1.48 Non-compete agreements 4,580,000 4,059,880 520,120 0.88 Trade name 28,140,000 — 28,140,000 — Balance as of December 31, 2021 $ 749,077,560 $ 171,383,658 $ 577,693,902 6.79 The Company’s amortization expense for intangible assets was $ 28.6 million and $ 56.7 million for the three and six months ended June 30, 2022 , respectively. The Company’s amortization expense for intangible assets was $ 19.1 million and $ 36.6 million for the three and six months ended June 30, 2021, respectively. The estimated amortization expense for the next five years and thereafter in the aggregate is as follows: Year Ending December 31, Estimated Future Amortization Expense 2022 $ 35,146,776 2023 64,956,890 2024 50,937,239 2025 35,462,081 2026 34,365,944 Thereafter 286,787,299 16 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 9. Goodwill The following table presents changes to goodwill for the six months ended June 30, 2022. Total Balance at December 31, 2021 $ 824,081,632 Acquisitions — Dispositions — Impairment Loss — Measurement period adjustment 3,720,371 Balance at June 30, 2022 $ 827,802,003 During the six months ended June 30, 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 Company has only one operating segment and, based on the criteria outlined in ASC 350, Intangibles – Goodwill and Other (“ASC 350”), only one reporting unit that needs to be tested for goodwill impairment. Accordingly, goodwill was reviewed for impairment at the consolidated entity level. The Company concluded that goodwill was no t impaired as of June 30, 2022. As of June 30, 2022 and December 31, 2021 , there were no accumulated impairment losses on the Company’s goodwill. 10. Borrowings Successor Credit Agreement The Company entered into a Revolving Credit and Term Loan Agreement (as the “Successor Credit Agreement”) on July 11, 2019, with Truist Bank (formerly SunTrust Bank) and the other lenders party thereto, which provided a revolving credit facility (the “Revolving Credit Facility”), a term loan A (the “Term Loan”), and a delayed draw term loan at a variable interest rate (the “Delayed Draw Term Loan”). The Successor Credit Agreement provided for an aggregate revolving commitment of $ 20.0 million at a variable interest rate. On February 10, 2020, as part of the financing for the acquisition of Ventanex, the Company entered into an agreement with Truist Bank and other members of its existing bank group to amend and upsize the Successor Credit Agreement from $ 230.0 million to $ 346.0 million. The Successor Credit Agreement is collateralized by substantially all of the Company’s assets, and includes restrictive qualitative and quantitative covenants, as defined in the Successor Credit Agreement. On January 20, 2021, the Company used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the outstanding Term Loans under the Successor Credit Agreement. The Company also terminated in full all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement. Amended Credit Agreement On February 3, 2021, the Company announced the closing of a new undrawn $ 125.0 million senior secured revolving credit facility through Truist Bank (the “Amended Credit Agreement”). 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 facility by $ 60.0 million to provide for a $ 185.0 million revolving credit facility in favor of Hawk Parent pursuant to an amendment to the Amended Credit Agreement. The revolving credit facility is guaranteed by Repay Holdings Corporation and certain of its subsidiaries. The Company was in compliance with its restrictive covenants under the Amended Credit Agreement at June 30, 2022. 17 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements As of June 30, 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 pai d $ 0.1 million and $ 0.3 million in fees related to unused commitments for the three and six months ended June 30, 2022 , respectively. The Company paid $ 0.1 million and $ 0.2 million in fees related to unused commitments for the three and six months ended June 30, 2021, respectively. The Company’s interest expense on the revolving credit facility tota led $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2022 , respectively. The Company’s interest expense on the line of credit totaled $ 0 for both the three and six months ended June 30, 2021. 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 conversion rate of any 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 six months ended June 30, 2022, the conversion contingencies of the 2026 Notes were not met, and the conversion terms of the 2026 Notes were not significantly changed. The shares issuable upon conversion of the 2026 Notes were excluded from the computation of the diluted loss per share, since their inclusion would have been anti-dilutive. The following table summarized the total borrowings under the Amended Credit Agreement and 2026 Notes: June 30, 2022 December 31, 2021 Non-current indebtedness: Revolving Credit Facility (1) $ 20,000,000 $ 20,000,000 Convertible Senior Debt 440,000,000 440,000,000 Total borrowings under credit facility and convertible senior debt 460,000,000 460,000,000 Less: Long-term loan debt issuance cost (2) 10,103,931 11,515,304 Total non-current borrowings $ 449,896,069 $ 448,484,696 (1) The revolving credit facility bears interest at variable rates, which were 3.92 % and 2.35 % as of June 30, 2022 and December 31, 2021 , respectively. (2) The Company incurr ed $ 0.7 million and $ 1.4 million of interest expense for the amortization of deferred debt issuance costs for the three and six months ended June 30, 2022 , respectively. The Company incurred $ 2.5 million of interest expense for the amortization of deferred debt issuance costs for the year ended December 31, 2021. The following is a summary of principal maturities of long‑term debt for each of the next five years ending December 31 and in the aggregate: 2022 $ — 2023 — 2024 — 2025 — 2026 460,000,000 $ 460,000,000 18 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 11. Derivative Instruments The Company does not hold or use derivative instruments for trading purposes. Derivative Instruments Designated as Hedges Interest rate fluctuations expose the Company’s variable-rate term loan to changes in interest expense and cash flows. As part of its risk management strategy, the Company may use interest rate derivatives, such as interest rate swaps, to manage its exposure to interest rate movements. In October 2019, the Company entered into a $ 140.0 million notional, five-year interest rate swap agreement, with Regions Bank, 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. 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, the Company made 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, the counterparty made 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 a realized loss of $ 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 (“ROU”) asset and lease liability. The components of lease cost are presented in the following table: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Components of total lease costs: Operating lease cost $ 678,528 $ 555,384 $ 1,368,334 $ 1,096,023 Short-term lease cost 21,900 15,841 33,907 27,241 Variable lease cost — — — — Total lease cost $ 700,428 $ 571,225 $ 1,402,241 $ 1,123,264 19 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements Amounts reported in the Consolidated Balance Sheets were as follows: June 30, 2022 December 31, 2021 Operating leases: ROU assets $ 11,327,015 $ 10,499,751 Lease liability, current 2,206,808 1,990,416 Lease liability, long-term 9,765,876 9,090,867 Total lease liabilities $ 11,972,684 $ 11,081,283 Weighted-average remaining lease term (in years) 4.5 5.2 Weighted-average discount rate (annualized) 4.5 % 4.3 % Other information related to leases are as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 684,020 $ 472,705 1,328,746 $ 931,353 ROU assets obtained in exchange for lease liabilities: Operating leases 979,720 — 2,511,409 — The following table presents a maturity analysis of the Company’s operating leases liabilities as of June 30, 2022: 2022 $ 1,299,115 2023 2,773,614 2024 2,591,509 2025 2,420,774 2026 2,324,416 Thereafter 2,009,075 Total undiscounted lease payments 13,418,503 Less: Imputed interest 1,445,819 Total lease liabilities $ 11,972,684 13. Related Party Transactions Related party payables consisted of the following: June 30, December 31, 2022 2021 Ventanex accrued earnout liability $ — $ 12,746,840 CPS accrued earnout liability 250,000 600,000 Kontrol accrued earnout liability 100,000 850,000 Payix accrued earnout liability — 2,850,000 Other payables to related parties 424,543 347,285 $ 774,543 $ 17,394,125 The Company incurred transaction costs on behalf of related parties of $ 2.7 million and $ 5.9 million for the three and six months ended June 30, 2022 , respectively. The Company incurred transaction costs on behalf of related parties of $ 1.7 million and $ 2.9 million for the three and six months ended June 30, 2021, 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 June 30, 2022 and December 31, 2021 . These amounts were due from employees, related to tax withholding on vesting of equity compensation. See Note 20 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 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 June 30, 2022 and December 31, 2021. The Company owed $ 0.8 million and $ 17.4 million to related parties, in the form of contingent consideration payable to the sellers of CPS, Kontrol and Payix, who were employees of REPAY, as of June 30, 2022 and December 31, 2021 , respectively. In April 2022, the Company paid the Ventanex earnout payment of $ 12.7 million. 14. Share Based Compensation Omnibus Incentive Plan At the 2019 Annual Shareholders Meeting of Thunder Bridge, the shareholders considered and approved the 2019 Omnibus Incentive Plan (the “Incentive Plan”) which resulted in the reservation of 7,326,728 shares of Class A common stock for issuance thereunder. The Incentive Plan initially became effective immediately upon the closing of the Business Combination. In June 2022, the Incentive Plan was amended and restated to reserve a total of 13,826,728 shares of Class A common stock for issuance thereunder. Under this plan, the Company currently has three types of share-based compensation awards outstanding: performance stock units (“PSUs”), restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). The following table summarized share-based compensation expense and the related income tax benefit recognized for the Company’s share-based compensation awards: Three Months Ended June 30, Six Months Ended June 30, ($ in millions) 2022 2021 2022 2021 Share-based compensation expense $ 5.9 $ 5.5 $ 9.0 $ 10.7 Income tax benefit 1.0 0.5 2.2 2.1 Activities for RSAs for the six months ended June 30, 2022 are as follows: Class A Common Stock Weighted Average Grant Date Fair Value Unvested at December 31, 2021 1,971,245 $ 17.80 Granted 1,091,759 15.78 Forfeited (1)(2) 199,309 17.84 Vested 393,494 15.89 Unvested at June 30, 2022 2,470,201 $ 17.17 Activities for RSUs for the six months ended June 30, 2022 are as follows: Class A Common Stock Weighted Average Grant Date Fair Value Unvested at December 31, 2021 46,026 $ 22.16 Granted 108,909 13.22 Forfeited — — Vested 46,026 22.16 Unvested at June 30, 2022 108,909 $ 13.22 21 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements Activities for PSUs for the six months ended June 30, 2022 are as follows: Class A Common Stock (3) Weighted Average Grant Date Fair Value Unvested at December 31, 2021 498,363 $ 20.16 Granted 390,227 16.72 Forfeited — — Vested — — Unvested at June 30, 2022 888,590 $ 18.65 (1) The forfeited shares include employee terminations during the six months ended June 30, 2022 ; further, these forfeited shares are added back to the amount 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. The awards are not deemed outstanding; further, these forfeited shares are added back to the amount of shares available for grant under the Incentive Plan. (3) Represent shares to be paid out at target level. Unrecognized compensation expense related to unvested PSUs, RSAs and RSUs was $ 34.7 million at June 30, 2022 , which is expected to be recognized as expense over the weighted-average period of 2.65 years. Unrecognized compensation expense related to unvested PSUs, RSAs and RSUs was $ 29.9 million at June 30, 2021 , which is expected to be recognized as expense over the weighted-average period of 2.74 years. Employee Stock Purchase Plan On August 18, 2021, the Company’s stockholders approved the Repay Holdings Corporation 2021 Employee Stock Purchase Plan (the “ESPP”). The purpose of the ESPP is to provide eligible employees with the opportunity to purchase the Company’s Class A common stock through accumulated payroll deductions. A total of 1,000,000 shares of the Company’s Class A common stock are available for issuance under the ESPP. Under the ESPP, participants are offered the right to purchase shares of our Class A common stock at a discount during a series of offering periods. The length of the offering periods under the ESPP will be determined by the administrator and may be up to twenty-seven months long. 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 Company’s effective tax rate was 181 % and 37.4 % f or the three and six months ended June 30, 2022, respectively. The Company recorded an income tax expense of $ 3.0 million and $ 6.9 million for the three and six months ended June 30, 2022 , respectively. The effective tax rate for the three and six months ended June 30, 2022 includes a stock-based compensation adjustments excess tax shortfall related to restricted stock awards vesting, which is required to be recorded discretely in the interim period in which it occurs. The effective tax rate of the Company differs from the federal statutory rate of 21 % primarily due to the tax structure of the Company, the relative weighting of the noncontrolling interest, and lower income from operations over the current relevant period. The Company’s effective tax rate was 23.6 % and 24.3 % for the three and six months ended June 30, 2021 , respectively. The Company recorded an income tax benefit of $ 4.1 million and $ 10.1 million for the three and six months ended June 30, 2021, respectively. The effective tax rate is dependent on many factors, including the estimated amount of income subject to income tax. As such, the effective tax rate can vary from period to period. The Company recognized $ 3.0 million and $ 6.9 million for the three and six months ended June 30, 2022 , respectively, of deferred tax assets related to the income tax expense derived from the net operating income generated over the same period. The Company recognized $ 4.1 million and $ 10.1 million for the three and six months ended June 30, 22 REPAY HOLDINGS CORPORATION Notes to the Unaudited Consolidated Financial Statements 2021, respectively, of deferred tax assets related to the income tax benefit derived from the net operating loss over the same period. Deferred tax assets, net of $ 133.8 million as of June 30, 2022, relates primarily to the basis difference in the Company’s investment in Hawk Parent. The basis difference arose primarily as a result of the subsequent purchase of Post-Merger Repay Units by the Company pursuant to the Unit Purchase Agreements entered into in 2020 with CC Payment Holdings, LLC, an entity controlled by Corsair, and the subsequent exchanges of Post-Merger Repay Units for shares of the Company’s Class A common stock in accordance with the Exchange Agreement. In addition, as a result of the merger with BillingTree on June 15, 2021, an estimated opening deferred tax liability n et of $ 36.1 million, a s adjusted, was recorded. The merger was recognized as a Qualified Stock Purchase within the meaning of Internal Revenue Code (the “Code”) Section 338(d)(3). As such, no step up in the tax asset basis was permitted creating an estimated net deferred tax liability related to the tax asset basis difference in the investment in Hawk Parent on the opening balance sheet date. The Company did not recognize any adjustment to the deferred tax asset (“DTA”) and offsetting deferred tax liability (“DTL”) recorded as a result of the ceiling rule limitation arising under Code Sec. 704(c) for the six months ended June 30, 2022, to account for the portion of the Company’s outside basis in the partnership interest that it will not recover through tax deductions. As the ceiling rule causes taxable income allocations to be in excess of 704(b) book allocations the DTL will unwind, leaving only the DTA, which may only be recovered through the sale of the partnership interest in Hawk Parent. The Company has concluded, based on the weight of all positive and negative evidence, that all of the DTA associated with the ceiling rule limitation is not likely to be realized. As such, a 100 % valuation allowance was recognized. No uncertain tax positions existed as of June 30, 2022. Tax Receivable Agreement Liability Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of Hawk Parent when Post-Merger Repay Units are redeemed or exchanged for Class A common stock of Repay Holdings Corporation. The Company intends to treat any redemptions and exchanges of Post-Merger Repay Units as direct purchases for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. On July 11, 2019, the Company entered into a TRA that provides for the payment by the Company of 100 % of the amount of any tax benefits realized, or in some cases are deemed to realize, as a result of (i) increases in its 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 its acquisition of the equity of the selling Hawk Parent members, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”). The TRA Payments are not conditioned upon any continued ownership interest in Hawk Parent or the Company. The rights of each party under the TRA other than the Company are assignable. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors. As of June 30, 2022, the Company had a liability of $ 201.9 million related to its projected obligations under the TRA, which is captioned as tax receivable agreement liability in the Company’s Unaudited Consolidated Balance Sheet. The decrease of $ 43.9 million in the TRA liability for the six months ended June 30, 2022, was primarily a result of the change in the Early Termination Rate. 16. Subsequent events Management has evaluated subsequent events and their potential effects on these unaudited consolidated financial statements. Based upon the review, management did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. 23 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS For purposes of this section, "Repay", the “Company", "we", or "our" refer to Repay Holdings Corporation and its subsidiaries, unless the context otherwise requires. Certain figures have been rounded for ease of presentation and may not sum due to rounding. Cautionary Note Regarding Forward-Looking Statements Statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 . Overview We are a leading payments technology company. We provide integrated payment processing solutions to industry-oriented markets in which clients have specific transaction processing needs. We refer to these markets as “vertical markets” or “verticals.” Our proprietary, integrated payment technology platform reduces the complexity of the electronic payments process for businesses, while enhancing their consumers’ overall experience. We are a payments innovator, differentiated by our proprietary, integrated payment technology platform and our ability to reduce the complexity of the electronic payments for businesses. We intend to continue to strategically target verticals where we believe our ability to tailor payment solutions to our client needs, our deep knowledge of our vertical markets and the embedded nature of our integrated payment solutions will drive strong growth by attracting new clients and fostering long-term client relationships. Since a significant portion of our revenue is derived from volume-based payment processing fees, card payment volume is a key operating metric that we use to evaluate our business. We processed approximately $6.2 billion and $12.6 billion of total card payment volume for the three and six months ended June 30, 2022, respectively, and our card payment volume growth over the same periods in 2021 was approximately 34% and 37%, respectively. Macroeconomic Conditions and COVID-19 We have been monitoring the current economic environment in the U.S. and globally – characterized by heightened inflation (including changes in wages), rising interest rates, supply chain issues and slower growth. Such macroeconomic conditions may continue to evolve in ways that are difficult to fully anticipate and may also include increased levels of unemployment and/or a recession. Some or all of these market factors could adversely affect our payment volumes from the consumer loan market, the receivables management industry and consumer and commercial spending. The effect of these events on our financial condition, results of operations and cash flows is uncertain and cannot be predicted at this time. In addition, the ultimate impact of the COVID-19 pandemic on our results remains uncertain. Although our operations have continued effectively despite social distancing and other measures taken in response to the pandemic, it is possible that we could be adversely affected if the COVID-19 pandemic (including the continued emergence of new variants) results in new or additional mitigation efforts (including actions which could cause or exacerbate economic conditions described in the preceding paragraph). Finally, the impact of all of these various events on our results in the first six months of 2022 may not be necessarily indicative of their impact on our results for the remainder of 2022. 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 24 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 recent 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 management, considering factors such as margin objectives, pricing practices and controls, client segment pricing strategies, the product life cycle and the observable price of the service charged to similarly situated clients. During the three and six months ended June 30, 2022 and 2021, our chargeback rate was less than 1% of our card payment volume. Expenses Costs of services . Costs of services primarily include commissions to our software integration partners and other third-party processing costs, such as front and back-end processing costs and sponsor bank fees. Selling, general and administrative . Selling, general and administrative expenses include salaries, share-based compensation and other employment costs, professional service fees, rent and utilities, and other operating costs. Depreciation and amortization . Depreciation expense consists of depreciation on our investments in property, equipment and computer hardware. Depreciation expense is recognized on a straight-line basis over the estimated useful life of the asset. Amortization expense for software development costs and purchased software is recognized on the straight-line method over a three-year estimated useful life, between eight to ten years estimated useful life for client relationships and channel relationships, and between two to five years estimated useful life for non-compete agreements. Interest expense. Interest expense consists of interest in respect of our indebtedness under the Successor Credit Agreement, which was entered into in connection with the Business Combination and amended in February 2020, and the Amended Credit Agreement, which replaced the Successor Credit Agreement in February 2021. Change in fair value of tax receivable liability . This amount represents the change in fair value of the tax receivable agreement liability. The TRA liability is carried at fair value; so, any change to the valuation of this liability is recognized through this line in other expense. The change in fair value can result from the redemption or exchange of Post-Merger Repay Units for Class A common stock of Repay Holdings Corporation, or through accretion of the discounted fair value of the expected future cash payments. 25 Results of Operations (Unaudited) Three Months ended June 30, Six Months ended June 30, (in $ thousands) 2022 2021 2022 2021 Revenue $ 67,435 $ 48,412 $ 134,999 $ 95,932 Operating expenses Costs of services (exclusive of depreciation and amortization shown separately below) 16,731 12,721 33,296 25,196 Selling, general and administrative 39,130 29,542 71,348 52,935 Depreciation and amortization 29,191 19,679 57,780 37,472 Change in fair value of contingent consideration (1,050 ) (1,200 ) (3,950 ) 1,449 Total operating expenses $ 84,002 $ 60,742 $ 158,474 $ 117,052 Loss from operations $ (16,567 ) $ (12,330 ) $ (23,475 ) $ (21,120 ) Interest expense (1,051 ) (817 ) (2,040 ) (2,000 ) Loss on extinguishment of debt — — — (5,941 ) Change in fair value of tax receivable liability 19,450 (4,355 ) 44,070 (3,312 ) Other income 10 34 17 63 Other loss (150 ) — (150 ) (9,080 ) Total other income (expense) 18,259 (5,138 ) 41,897 (20,270 ) Income (loss) before income tax (expense) benefit 1,692 (17,468 ) 18,422 (41,390 ) Income tax (expense) benefit (3,045 ) 4,117 (6,888 ) 10,059 Net income (loss) $ (1,353 ) $ (13,351 ) $ 11,534 $ (31,331 ) Net loss attributable to non-controlling interest (1,362 ) (1,081 ) (2,129 ) (3,268 ) Net income (loss) attributable to the Company $ 9 $ (12,270 ) $ 13,663 $ (28,063 ) Weighted-average shares of Class A common stock outstanding - basic 88,903,674 79,781,185 88,756,482 78,200,752 Weighted-average shares of Class A common stock outstanding - diluted 113,250,564 79,781,185 112,866,991 78,200,752 Income (loss) per Class A share - basic $ 0.00 $ (0.15 ) $ 0.15 $ (0.36 ) Income (loss) per Class A share - diluted $ 0.00 $ (0.15 ) $ 0.12 $ (0.36 ) Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 Revenue Total revenue was $67.4 million for the three months ended June 30, 2022 and $48.4 million for the three months ended June 30, 2021, an increase of $19.0 million or 39.3%. 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 three months ended June 30, 2022, incremental revenues of approximately $14.2 million are attributable to BillingTree, Kontrol and Payix. Costs of Services Costs of services were $16.7 million for the three months ended June 30, 2022 and $12.7 million for the three months ended June 30, 2021, an increase of $4.0 million or 31.5%. This increase was the result of the acquisitions of BillingTree, Kontrol, and Payix. For the three months ended June 30, 2022, incremental costs of services of approximately $2.6 million are attributable to BillingTree, Kontrol and Payix. Selling, General and Administrative Expenses Selling, general and administrative expenses were $39.1 million for the three months ended June 30, 2022 and $29.5 million for the three months ended June 30, 2021, an increase of $9.6 million or 32.5%, primarily due to a $6.1 million increase in compensation expenses with general business growth and increased employees related to acquisitions, and a $1.9 million increase in software and technological services expenses related to the integration of acquired businesses. Depreciation and Amortization Expenses Depreciation and amortization expenses were $29.2 million for the three months ended June 30, 2022 and $19.7 million for the three months ended June 30, 2021, an increase of $9.5 million or 48.3%, primarily due to a $9.4 million 26 increase in depreciation and amortization of fixed assets and intangibles from the acquisitions of BillingTree, Kontrol and Payix. Change in the Fair Value of Contingent Consideration Change in the fair value of contingent consideration was ($1.1) million for the three months ended June 30, 2022, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of CPS, Kontrol and Payix. Interest Expense Interest expense was $1.1 million for the three months ended June 30, 2022 and $0.8 million for the three months ended June 30, 2021, an increase of $0.2 million or 28.6%. This increase was due to a higher average outstanding principal balance under our Amended Credit Agreement. Change in Fair Value of Tax Receivable Liability We incurred a gain, related to accretion expense and fair value adjustment of the tax receivable liability of $19.5 million for the three months ended June 30, 2022 compared to a $4.4 million loss for the three months ended June 30, 2021, an increase of $23.8 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. Income Tax (Expense) Benefit The income tax expense was $3.0 million for the three months ended June 30, 2022, reflecting the expected income tax expense on the income generated over the same period. This was a result of the operating income incurred by the Company, primarily driven by the change in fair value of the tax receivable liability and contingent consideration, offset by stock-based compensation deductions and the amortization of assets acquired in the Business Combination and prior acquisitions. The income tax benefit was $4.1 million for the three months ended June 30, 2021, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent. Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021 Revenue Total revenue was $135.0 million for the six months ended June 30, 2022 and $95.9 million for the six months ended June 30, 2021, an increase of $39.1 million or 40.7%. 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 six months ended June 30, 2022, incremental revenues of approximately $31.4 million are attributable to BillingTree, Kontrol and Payix. Costs of Services Costs of services were $33.3 million for the six months ended June 30, 2022 and $25.2 million for the six months ended June 30, 2021, an increase of $8.1 million or 32.1%. This increase was the result of the acquisitions of BillingTree, Kontrol, and Payix. For the six months ended June 30, 2022, incremental costs of services of approximately $5.6 million are attributable to BillingTree, Kontrol and Payix. Selling, General and Administrative Expenses Selling, general and administrative expenses were $71.3 million for the six months ended June 30, 2022 and $52.9 million for the six months ended June 30, 2021, an increase of $18.4 million or 34.8%, primarily due to a $12.3 million increase in compensation expenses with general business growth and increased employees related to acquisitions, and a $3.6 million increase in software and technological services expenses related to the integration of acquired businesses. Depreciation and Amortization Expenses Depreciation and amortization expenses were $57.8 million for the six months ended June 30, 2022 and $37.5 million for the six months ended June 30, 2021, an increase of $20.3 million or 54.2%, primarily due to a $18.8 million 27 increase in depreciation and amortization of fixed assets and intangibles from the acquisitions of BillingTree, Kontrol and Payix. Change in the Fair Value of Contingent Consideration Change in the fair value of contingent consideration was ($4.0) million for the six months ended June 30, 2022, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of CPS, Kontrol and Payix. Interest Expense Interest expense was $2.0 million for the six months ended June 30, 2022 and $2.0 million for the six months ended June 30, 2021, an increase of $0.0 million or 2.0%. 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 six months ended June 30, 2021, due to the termination in full of all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement. Change in Fair Value of Tax Receivable Liability We incurred a gain, related to accretion expense and fair value adjustment of the tax receivable liability of $44.1 million for the six months ended June 30, 2022 compared to a $3.3 million loss for the six months ended June 30, 2021, an increase of $47.4 million. This increase was due to lower fair value adjustments related to the tax receivable liability, primarily as a result of changes to the discount rate used to determine the fair value of the liability. Other Loss We incurred a loss of $9.1 million on the settlement of interest rate swaps for the six months ended June 30, 2021. Income Tax (Expense) Benefit The income tax expense was $6.9 million for the six months ended June 30, 2022, reflecting the expected income tax expense on the income generated over the same period. This was a result of the operating income incurred by the Company, primarily driven by the change in fair value of the tax receivable liability and contingent consideration, offset by stock-based compensation deductions and the amortization of assets acquired in the Business Combination and prior acquisitions. The income tax benefit was $10.1 million for the six months ended June 30, 2021, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent. 28 Non-GAAP Financial Measures This report includes certain non-GAAP financial measures that management uses to evaluate our operating business, measure our performance and make strategic decisions. Adjusted EBITDA is a non-GAAP financial measure that represents net income prior to interest expense, tax expense, depreciation and amortization, as adjusted to add back certain charges deemed to not be part of normal operating expenses, non-cash charges and/or non-recurring charges, such as loss on extinguishment of debt, loss on termination of interest rate hedge, non-cash change in fair value of contingent consideration, non-cash change in fair value of assets and liabilities, share-based compensation charges, transaction expenses, employee recruiting costs, other taxes, 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, employee recruiting costs, restructuring and other strategic initiative costs, other non-recurring charges, non-cash interest expense and net of tax effect associated with these adjustments. Adjusted Net Income is adjusted to exclude amortization of all acquisition-related intangibles as such amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Management believes that the adjustment of acquisition-related intangible amortization supplements GAAP financial measures because it allows for greater comparability of operating performance. Although we exclude amortization from acquisition-related intangibles from our non-GAAP expenses, management believes that it is important for investors to understand that such intangibles were recorded as part of purchase accounting and contribute to revenue generation. Adjusted Net Income per share is a non-GAAP financial measure that represents Adjusted Net Income divided by the weighted average number of shares of Class A common stock outstanding (on an as-converted basis assuming conversion of the outstanding Post-Merger Repay Units) for the three and six months ended June 30, 2022 and 2021 (excluding shares subject to forfeiture). We believe that Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share provide useful information to investors and others in understanding and evaluating its operating results in the same manner as management. However, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for net income, operating profit or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per share or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP. The following tables set forth a reconciliation of our results of operations for the three and six months ended June 30, 2022 and 2021. 29 REPAY HOLDINGS CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA For the three months ended June 30, 2022 and 2021 (Unaudited) Three Months ended June 30, (in $ thousands) 2022 2021 Revenue $ 67,435 $ 48,412 Operating expenses Costs of services (exclusive of depreciation and amortization shown separately below) $ 16,731 $ 12,721 Selling, general and administrative 39,130 29,542 Depreciation and amortization 29,191 19,679 Change in fair value of contingent consideration (1,050 ) (1,200 ) Total operating expenses $ 84,002 $ 60,742 Loss from operations $ (16,567 ) $ (12,330 ) Interest expense (1,051 ) (817 ) Change in fair value of tax receivable liability 19,450 (4,355 ) Other income 10 34 Other loss (150 ) — Total other income (expense) 18,259 (5,138 ) Income (loss) before income tax (expense) benefit 1,692 (17,468 ) Income tax (expense) benefit (3,045 ) 4,117 Net income (loss) $ (1,353 ) $ (13,351 ) Add: Interest expense 1,051 817 Depreciation and amortization (a) 29,191 19,679 Income tax expense (benefit) 3,045 (4,117 ) EBITDA $ 31,934 $ 3,028 Non-cash change in fair value of contingent consideration (b) (1,050 ) (1,200 ) Non-cash change in fair value of assets and liabilities (c) (19,450 ) 4,355 Share-based compensation expense (d) 5,934 5,505 Transaction expenses (e) 7,069 6,978 Employee recruiting costs (f) 259 38 Other taxes (g) 548 420 Restructuring and other strategic initiative costs (h) 1,435 945 Other non-recurring charges (i) 957 334 Adjusted EBITDA $ 27,636 $ 20,403 30 REPAY HOLDINGS CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA For the six months ended June 30, 2022 and 2021 (Unaudited) Six Months ended June 30, (in $ thousands) 2022 2021 Revenue $ 134,999 $ 95,932 Operating expenses Costs of services (exclusive of depreciation and amortization shown separately below) $ 33,296 $ 25,196 Selling, general and administrative 71,348 52,935 Depreciation and amortization 57,780 37,472 Change in fair value of contingent consideration (3,950 ) 1,449 Total operating expenses $ 158,474 $ 117,052 Loss from operations $ (23,475 ) $ (21,120 ) Interest expense (2,040 ) (2,000 ) Loss on extinguishment of debt — (5,941 ) Change in fair value of tax receivable liability 44,070 (3,312 ) Other income 17 63 Other loss (150 ) (9,080 ) Total other income (expense) 41,897 (20,270 ) Income (loss) before income tax (expense) benefit 18,422 (41,390 ) Income tax (expense) benefit (6,888 ) 10,059 Net income (loss) $ 11,534 $ (31,331 ) Add: Interest expense 2,040 2,000 Depreciation and amortization (a) 57,780 37,472 Income tax expense (benefit) 6,888 (10,059 ) EBITDA $ 78,242 $ (1,918 ) Loss on extinguishment of debt (j) — 5,941 Loss on termination of interest rate hedge (k) — 9,080 Non-cash change in fair value of contingent consideration (b) (3,950 ) 1,449 Non-cash change in fair value of assets and liabilities (c) (44,070 ) 3,312 Share-based compensation expense (d) 9,292 10,656 Transaction expenses (e) 11,999 9,318 Employee recruiting costs (f) 459 174 Other taxes (g) 698 559 Restructuring and other strategic initiative costs (h) 2,681 1,573 Other non-recurring charges (i) 1,614 720 Adjusted EBITDA $ 56,965 $ 40,864 31 REPAY HOLDINGS CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income For the three months ended June 30, 2022 and 2021 (Unaudited) Three Months ended June 30, (in $ thousands) 2022 2021 Revenue $ 67,435 $ 48,412 Operating expenses Costs of services (exclusive of depreciation and amortization shown separately below) $ 16,731 $ 12,721 Selling, general and administrative 39,130 29,542 Depreciation and amortization 29,191 19,679 Change in fair value of contingent consideration (1,050 ) (1,200 ) Total operating expenses $ 84,002 $ 60,742 Loss from operations $ (16,567 ) $ (12,330 ) Interest expense (1,051 ) (817 ) Change in fair value of tax receivable liability 19,450 (4,355 ) Other income 10 34 Other loss (150 ) — Total other income (expense) 18,259 (5,138 ) Income (loss) before income tax (expense) benefit 1,692 (17,468 ) Income tax (expense) benefit (3,045 ) 4,117 Net income (loss) $ (1,353 ) $ (13,351 ) Add: Amortization of acquisition-related intangibles (l) 25,941 17,270 Non-cash change in fair value of contingent consideration (b) (1,050 ) (1,200 ) Non-cash change in fair value of assets and liabilities (c) (19,450 ) 4,355 Share-based compensation expense (d) 5,934 5,505 Transaction expenses (e) 7,069 6,978 Employee recruiting costs (f) 259 38 Restructuring and other strategic initiative costs (h) 1,435 945 Other non-recurring charges (i) 957 334 Non-cash interest expense (m) 709 802 Pro forma taxes at effective rate (n) (4,368 ) (7,693 ) Adjusted Net Income $ 16,083 $ 13,983 Shares of Class A common stock outstanding (on an as-converted basis) (o) 96,787,200 87,734,237 Adjusted Net income per share $ 0.17 $ 0.16 32 REPAY HOLDINGS CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income For the six months ended June 30, 2022 and 2021 (Unaudited) Six Months ended June 30, (in $ thousands) 2022 2021 Revenue $ 134,999 $ 95,932 Operating expenses Costs of services (exclusive of depreciation and amortization shown separately below) $ 33,296 $ 25,196 Selling, general and administrative 71,348 52,935 Depreciation and amortization 57,780 37,472 Change in fair value of contingent consideration (3,950 ) 1,449 Total operating expenses $ 158,474 $ 117,052 Loss from operations $ (23,475 ) $ (21,120 ) Interest expense (2,040 ) (2,000 ) Loss on extinguishment of debt — (5,941 ) Change in fair value of tax receivable liability 44,070 (3,312 ) Other income 17 63 Other loss (150 ) (9,080 ) Total other income (expense) 41,897 (20,270 ) Income (loss) before income tax (expense) benefit 18,422 (41,390 ) Income tax (expense) benefit (6,888 ) 10,059 Net income (loss) $ 11,534 $ (31,331 ) Add: Amortization of acquisition-related intangibles (l) 49,077 33,309 Loss on extinguishment of debt (j) — 5,941 Loss on termination of interest rate hedge (k) — 9,080 Non-cash change in fair value of contingent consideration (b) (3,950 ) 1,449 Non-cash change in fair value of assets and liabilities (c) (44,070 ) 3,312 Share-based compensation expense (d) 9,292 10,656 Transaction expenses (e) 11,999 9,318 Employee recruiting costs (f) 459 174 Restructuring and other strategic initiative costs (h) 2,681 1,573 Other non-recurring charges (i) 1,614 720 Non-cash interest expense (m) 1,411 1,338 Pro forma taxes at effective rate (n) (5,562 ) (16,473 ) Adjusted Net Income $ 34,485 $ 29,066 Shares of Class A common stock outstanding (on an as-converted basis) (o) 96,661,414 86,165,128 Adjusted Net income per share $ 0.36 $ 0.34 (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) Reflects the changes in management’s estimates of the fair value of the liability relating to TRA. (d) Represents compensation expense associated with equity compensation plans, totaling $5.9 million and $9.3 million for the three and six months ended June 30, 2022, respectively, and totaling $5.5 million and $10.7 million for the three and six months ended June 30, 2021, respectively. (e) Primarily consists of (i) during the three and six months ended June 30, 2022, professional service fees and other costs incurred in connection with the acquisitions of BillingTree, Kontrol and Payix, and (ii) during the three and six months ended June 30, 2021, professional service fees and other costs incurred in connection with the acquisition of Ventanex, cPayPlus, CPS, BillingTree and Kontrol, as well as professional service expenses related to the January 2021 equity and convertible notes offerings. (f) Represents payments made to third-party recruiters in connection with a significant expansion of our personnel, which we expect will become more moderate in subsequent periods. 33 (g) Reflects franchise taxes and other non-income based taxes. (h) Reflects 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 three and six months ended June 30, 2022 and 2021. (i) For the three and six months ended June 30, 2022 and 2021, reflects extraordinary refunds to clients and other payments related to COVID-19 and non-cash rent expense. Additionally, for the three and six months ended June 30, 2022, reflects loss on termination of lease and loss on disposal of fixed assets. (j) Reflects write-offs of debt issuance costs relating to Hawk Parent’s term loans. (k) Reflects realized loss of our interest rate hedging arrangement which terminated in conjunction with the repayment of Term Loans. (l) For the three and six months ended June 30, 2022, 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 three and six months ended June 30, 2021, reflects amortization of client relationships, non-compete agreement, software, and channel relationship intangibles acquired through the Business Combination, and client relationships, non-compete agreement, and software intangibles acquired through our acquisitions of TriSource, APS, Ventanex, cPayPlus, CPS, BillingTree and Kontrol. 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: Three months ended June 30, Six Months ended June 30, (in $ thousands) 2022 2021 2022 2021 Acquisition-related intangibles $ 25,941 $ 17,270 $ 49,077 $ 33,309 Software 2,700 2,120 7,646 3,291 Amortization $ 28,641 $ 19,390 $ 56,723 $ 36,600 Depreciation 550 289 1,057 872 Total Depreciation and amortization (1) $ 29,191 $ 19,679 $ 57,780 $ 37,472 (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 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 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 three and six months ended June 30, 2022 and 2021. 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: 34 Three months ended June 30, Six Months ended June 30, 2022 2021 2022 2021 Weighted average shares of Class A common stock outstanding - basic 88,903,674 79,781,185 88,756,482 78,200,752 Add: Non-controlling interests Weighted average Post-Merger Repay Units exchangeable for Class A common stock 7,883,526 7,953,052 7,904,932 7,964,376 Shares of Class A common stock outstanding (on an as-converted basis) 96,787,200 87,734,237 96,661,414 86,165,128 Adjusted EBITDA for the three months ended June 30, 2022 and 2021 was $27.6 million and $20.4 million, respectively, representing a 35.5% year-over-year increase. Adjusted EBITDA for the six months ended June 30, 2022 and 2021 was $57.0 million and $40.9 million, respectively, representing a 39.4% year-over-year increase. Adjusted Net Income for the three months ended June 30, 2022 and 2021 was $16.1 million and $14.0 million, respectively, representing a 15.0% year-over-year increase. Adjusted Net Income for the six months ended June 30, 2022 and 2021 was $34.5 million and $29.1 million, respectively, representing a 18.6% year-over-year increase. Our net income (loss) attributable to the Company for the three months ended June 30, 2022 and 2021 was $0.0 million and ($12.3) million, respectively, representing a 100.1% year-over-year increase. Our net income (loss) attributable to the Company for the six months ended June 30, 2022 and 2021 was $13.7 million and ($28.1) million, respectively, representing a 148.7% year-over-year increase. These increases in Adjusted EBITDA, Adjusted Net Income and net income (loss) attributable to the Company for the three and six months ended June 30, 2022 are primarily due to the organic growth of our business, along with contributions from acquisitions. Seasonality We have experienced in the past, and may continue to experience, seasonal fluctuations in our volumes and revenues as a result of consumer spending patterns. Volumes and revenues, per each client store, during the first quarter of the calendar year tend to increase in comparison to the remaining three quarters of the calendar year. This increase is due to consumers’ receipt of tax refunds and the increases in repayment activity levels that follow. Operating expenses show less seasonal fluctuation, with the result that net income is subject to the similar seasonal factors as our volumes and revenues. Liquidity and Capital Resources We have historically financed our operations and working capital through net cash from operating activities. As of June 30, 2022, we had $60.4 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 $19.2 million at June 30, 2022. Our primary cash needs are to fund working capital requirements, invest in technology development, fund acquisitions and related contingent consideration, make scheduled principal payments and interest payments on our outstanding indebtedness and pay tax distributions to members of Hawk Parent. We expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the Amended Credit Agreement will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for the next twelve months. We are a holding company with no operations and depend on our subsidiaries for cash to fund all of our consolidated operations, including future dividend payments, if any. We depend on the payment of distributions by our current subsidiaries, including Hawk Parent, which distributions may be restricted by law or contractual agreements, including agreements governing their indebtedness. For a discussion of those considerations and restrictions, refer to Part I, Item 1A “Risk Factors - Risks Related to Our Class A Common Stock” in our Annual Report on Form 10-K for the year ended December 31, 2021. 35 On May 16, 2022, our board of directors approved a share repurchase program under which we may repurchase up to $50 million of our outstanding Class A common stock (the “Share Repurchase Program”). The Share Repurchase Program has no expiration date but may be modified, suspended or discontinued at any time at our discretion. During the three months ended June 30, 2022, we repurchased 100,803 shares for a total of approximately $1.15 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: Six Months ended June 30, (in $ thousands) 2022 2021 Net cash provided by operating activities $ 27,061 $ 16,867 Net cash used in investing activities (16,649 ) (286,510 ) Net cash (used in) provided by financing activities (7,222 ) 303,676 Cash Flow from Operating Activities Net cash provided by operating activities was $27.1 million and $16.9 million for the six months ended June 30, 2022 and 2021, respectively, which reflects net income as adjusted for non-cash operating items including depreciation and amortization, share-based compensation, and changes in working capital accounts. Cash Flow from Investing Activities Net cash used in investing activities was $16.6 million for the six months ended June 30, 2022, due to the capitalization of software development activities. Net cash used in investing activities was $286.5 million for the six months ended June 30, 2021, due to the acquisitions of BillingTree and Kontrol, as well as the capitalization of software development activities. Cash Flow from Financing Activities Net cash used in financing activities was $7.2 million for the six months ended June 30, 2022, due to the shares repurchased under the Incentive Plan, ESPP and Share Repurchase Program, as well as the Ventanex earnout payment. Net cash provided by financing activities was $303.7 million for the six months ended June 30, 2021, due to proceeds from the issuance of new shares in the January 2021 equity offering and the 2026 Notes, offset by repayment of the outstanding revolver balance related to the Successor Credit Agreement and repayments of the term loan principal balance under the Successor Credit Agreement. 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 (as amended, the “Successor Credit Agreement”) with certain financial institutions, as lenders, and Truist Bank (formerly SunTrust Bank), as the administrative agent. On February 10, 2020, we announced the acquisition of Ventanex. The closing of the acquisition was financed partially from new borrowings under our existing credit facility. As part of the financing for the transaction, we entered into an agreement with Truist Bank and other members of our existing bank group to amend and upsize the Successor Credit Agreement. On January 20, 2021, we used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the outstanding term loans under the Successor Credit Agreement. We also terminated in full all outstanding delayed draw term loan commitments under such credit facilities. 36 Amended Credit Agreement On February 3, 2021, the Company announced the closing of a new undrawn $125.0 million senior secured revolving credit facility through Truist Bank. The Amended Credit Agreement replaced the Successor Credit Agreement, which included an undrawn $30.0 million revolving credit facility. On December 29, 2021, we increased our existing senior secured credit facilities by $60.0 million to provide for a $185.0 million revolving credit facility pursuant to an amendment to the Amended Credit Agreement. As of June 30, 2022, the Amended Credit Agreement provides for a revolving credit facility of $185.0 million. As of June 30, 2022, we had $20.0 million drawn against the revolving credit facility at a variable interest rate of 2.25% plus 1-month LIBOR due 2026. We paid $0.1 million and $0.3 million in fees related to unused commitments for the three and six months ended June 30, 2022, respectively. We paid $0.1 million and $0.2 million in fees related to unused commitments for the three and six months ended June 30, 2021, respectively. Convertible Senior Debt On January 19, 2021, we issued $440.0 million in aggregate principal amount of 0.00% Convertible Senior Notes due 2026 in a private placement (the “Notes Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. $40.0 million in aggregate principal amount of such 2026 Notes were sold in the Notes Offering in connection with the full exercise of the initial purchasers’ option to purchase such additional 2026 Notes pursuant to the purchase agreement. Upon conversion, the Company may choose to pay or deliver cash, shares of the Company’s Class A Common Stock, or a combination of cash and shares of the Company’s Class A Common Stock. The 2026 Notes will mature on February 1, 2026, unless earlier converted, repurchased or redeemed. As of June 30, 2022, we had convertible senior debt outstanding of $432.0 million, net of deferred issuance costs, under the 2026 Notes, and revolving credit facility debt outstanding of $17.9 million, net of deferred issuance costs, under the Amended Credit Agreement. We were in compliance with the related restrictive financial covenants. Additionally, we currently expect that we will remain in compliance with the restrictive financial covenants under the 2026 Notes and the Amended Credit Agreement, prospectively. Tax Receivable Agreement Upon the completion of the Business Combination, we entered into the Tax Receivable Agreement (the “TRA”) with holders 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 redemptions or exchanges of Post-Merger Repay Units for the Class A common stock of the Company, generally represents 100% of the estimated future tax benefit, if any, relating to the increase in tax basis that will result from redemptions or exchanges of the Post-Merger Repay Units for shares of Class A common stock pursuant to the Exchange Agreement and certain other tax attributes of the Company and tax benefits of entering into the TRA, including tax benefits attributable to payments under the TRA. Under the terms of the TRA, we may elect to terminate the TRA early but will be required to make an immediate payment equal to the present value of the anticipated future cash tax savings. As a result, the associated liability reported on our consolidated financial statements may be increased. We expect that the payment obligations of the Company required under the TRA will be substantial. The actual increase in tax basis, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of Post-Merger Repay Units, the price of the Class A common stock of the Company at the time of the redemption or exchange, whether such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future, the tax rate then applicable and the portion of our payments under the TRA constituting imputed interest. We expect to fund the payment of the amounts due under the TRA out of the cash savings that we actually realize in respect of the attributes to which TRA relates. However, the payments required to be made could be in excess of the actual tax benefits that we realize and there can be no assurance that we will be able to finance our obligations under the TRA. 37 Critical Accounting Policies and Recently Issued Accounting Pronouncements There have been no significant changes to our critical accounting policies and critical accounting estimates for the six months ended June 30, 2022. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021, for a complete discussion of critical accounting policies and critical accounting estimates. For information related to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies, to our Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITAT IVE DISCLOSURE ABOUT MARKET RISK Effects of Inflation While inflation may impact our revenues and cost of services, we believe the effects of inflation, if any, on our results of operations and financial condition have not been significant. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future. Interest Rate Risk Interest rates are highly sensitive to many factors, including U.S. fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. We are exposed to market risk from changes in interest rates on debt, which bears interest at variable rates. Our debt has floating interest rates. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates for its floating rate debt. Our floating rate debt requires payments based on variable interest rates such as the federal funds rate, prime rate, eurocurrency rate, and LIBOR. Therefore, increases in interest rates may reduce our net income or loss by increasing the cost of debt. As of June 30, 2022, we had convertible senior debt of $432.0 million, net of deferred issuance costs, and revolving credit facility borrowings of $17.9 million, net of deferred issuance costs, outstanding under the respective debt agreements. As of December 31, 2021, we had convertible senior debt of $429.3 million, net of deferred issuance costs, and revolving credit facility borrowings of $19.2 million, net of deferred issuance costs, outstanding. The borrowings under the Amended Credit Agreement accrue interest at either base rate, described above under “Liquidity and Capital Resources — Indebtedness ,” plus a margin of 1.50% to 2.50% or at an adjusted LIBOR rate plus a margin of 2.50% to 3.50% under the Amended Credit Agreement, in each case depending on the total net leverage ratio, as defined in the Amended Credit Agreement. In October 2019, we entered into a $140.0 million notional interest rate swap agreement, and in February 2020, we entered into a $30.0 million notional interest rate swap agreement, then a revised notional amount of $65.0 million beginning on September 30, 2020. These interest rate swaps effectively converted $205.0 million of the outstanding term loan into to fixed rate payments for 57 months and 60 months, respectively. A 1.0% increase or decrease in the interest rate applicable to borrowings under the Successor Credit Agreement during the year ended December 31, 2020 would have increased or decreased cash interest expense on our indebtedness by approximately $1.0 million per annum and $1.0 million per annum, respectively. Both interest rate swaps were settled in January 2021. We may incur additional borrowings from time to time for general corporate purposes, including working capital and capital expenditures. In July 2017, the U.K. Financial Conduct Authority announced its intention to phase out LIBOR rates by the end of 2021. The deadline has been mostly extended and most U.S. dollar-denominated LIBOR maturity tenors will continue to be published until June 30, 2023. It is not possible to predict the effect of any changes in the methods by which the LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Such developments may cause LIBOR to perform differently than in the past, including sudden or prolonged increases or decreases in LIBOR, or cease to exist, resulting in the application of a successor base rate under the Amended Credit Agreement, which in turn could have unpredictable effects on our interest payment obligations under the Amended Credit Agreement. 38 Foreign Currency Exchange Rate Risk Invoices for our services are denominated in U.S. dollars and Canadian dollars. We do not expect our future operating results to be significantly affected by foreign currency transaction risk. ITEM 4. CONTROLS AND PROCEDURES Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Changes in Internal Control over Financial Reporting During the quarter ended June 30, 2022, as part of our ongoing integration activities following the acquisition of BillingTree, we continued to apply our controls and procedures to the acquired operations of BillingTree and to augment our company-wide controls to address the risks inherent in a business combination of this magnitude. 39 PART II – OTHER INF ORMATION ITEM 1. LEGA L PROCEEDINGS From time to time we are named as a defendant in legal actions arising from our normal business activities. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations. ITE M 1A. RISK FACTORS There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. ITEM 2. UNREGISTERED SALES OF EQUI TY SECURITIES AND USE OF PROCEEDS The following table summarizes such purchases of Class A common stock made by the Company or any “affiliate purchaser” (as defined in Rule 10b-18(a)(3) of the Exchange Act) for the three months ended June 30, 2022: Total Number of Shares Purchased (1) (2) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares that May yet be Purchased Under the Plans or Programs April 1 - 30, 2022 3,322 $ 14.59 — $ — May 1 - 31, 2022 6,998 11.20 — — June 1 - 30, 2022 141,277 (3) 11.27 100,803 49,000,000 Total 151,597 $ 11.34 100,803 $ 49,000,000 (1) Includes 13,532 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. (2) Includes 100,803 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. (3) Includes 37,262 shares purchased in the open market on June 16, 2022 by Peter J. Kight, our Chairman of the Board, who could be deemed an affiliated purchaser. ITEM 3. DEFAULT UPON SENIOR SECURITIES None. ITEM 4. MINE SAF ETY DISCLOSURES None. ITEM 5. OTHER INFORMATION None. 40 ITEM 6. EXHIBITS The exhibits listed in the following exhibit index are furnished as part of this report. EXHIBIT INDEX Exhibit Number Exhibit Description 3.1 Certificate of Corporate Domestication of Repay Holdings Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on July 17, 2019). 3.2(a) Certificate of Incorporation of Repay Holdings Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed on July 17, 2019). 3.2(b) Amendment to the Certificate of Incorporation of Repay Holdings Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on June 9, 2022). 3.3 By-Laws of Repay Holdings Corporation (incorporated by reference to Exhibit 3.3 to the Company’s Form 8-K filed on July 17, 2019). 10.1 Omnibus Incentive Plan (incorporated by reference to the Company’s Proxy Statement filed on April 27, 2022). 31.1* Certification of Principal Executive Officer of Repay Holdings Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer of Repay Holdings Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer of Repay Holdings Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer of Repay Holdings Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 The following financial statements from the Company’s Form 10‑Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Changes In Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Consolidated Financial Statements. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REPAY HOLDINGS CORPORATION (Registrant) Date: August 9, 2022 By: /s/ John Morris John Morris Chief Executive Officer (Principal Executive Officer) Date: August 9, 2022 By: /s/ Timothy J. Murphy Timothy J. Murphy Chief Financial Officer (Principal Financial Officer) 42