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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-10 · 128 added, 253 removed, 165 unchanged (70% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For purposes of this section, "Repay", the “Company", "we", or "our" refer to (i) Hawk Parent Holdings, LLC and its subsidiaries ("Predecessor") for the periods from January 1, 2019 through July 10, 2019 and July 1, 2019 through July 10, 2019 and (ii) Repay Holdings Corporation and its subsidiaries (the "Successor ") for the period from July 11, 2019 through September 30, 2019 and the three and nine month periods ended September 30, 2020 (the "Successor Period") after the consummation of the Business Combination, unless the context otherwise requires.

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.

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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 and under Part II, Item 1A “Risk Factors” in this Form 10-Q.

We are a leading payments technology company.

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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 $3.8 billion and $11.2 billion of total card payment volume in the three and nine months ended September 30, 2020, respectively, and our card payment volume growth over the same periods in 2019 was approximately 44% and 55%, respectively.

The impacts of the COVID-19 pandemic and related economic conditions on the Company’s results are highly uncertain.

The scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemic are evolving rapidly and in ways that are difficult to fully anticipate.

We processed approximately $4.6 billion of total card payment volume in the three months ended March 31, 2021, and our card payment volume growth over the same period in 2020 was approximately 20%.

The ultimate impacts of the COVID-19 pandemic and related economic conditions on the Company’s results remain uncertain.

The scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemic continue to evolve and in ways that are difficult to fully anticipate.

At this time, we cannot reasonably estimate the full impact of the pandemic on the Company, given the uncertainty over the duration and severity of the economic crisis.

In addition, because COVID-19 did not begin to affect the Company's financial results until late in the first quarter of 2020, its impact on the Company’s results in the first nine months of 2020 may not be indicative of its impact on the Company’s results for the remainder of 2020.

In addition, the impact of COVID-19 on the Company’s results in 2020 and in the first quarter of 2021 may not be necessarily indicative of its impact on the Company’s results in the remainder of 2021.

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as amended, we restated our previously issued consolidated financial statements for periods following the Business Combination through December 31, 2020 to make accounting corrections related to warrant accounting.

This Quarterly Report on Form 10-Q reflects the restated consolidated financial statements as of December 31, 2020 and for the quarter ended March 31, 2020.

Business Combination

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On the Closing Date, Thunder Bridge changed its name to “Repay Holdings Corporation.”

As a result of the Business Combination, the Company was identified as the acquirer for accounting purposes, and Hawk Parent, which is the business conducted prior to the closing of the Business Combination, is the acquiree and accounting Predecessor.

The acquisition was accounted for as a business combination using the acquisition method of accounting, and the Successor’s financial statements reflect a new basis of accounting that is based on the fair value of net assets acquired.

As a result of the application of the acquisition method of accounting as of the effective time of the Business Combination, the financial statements for the Predecessor period and for the Successor period are presented on different bases.

The historical financial information of Thunder Bridge prior to the Business Combination has not been reflected in the Predecessor period financial statements.

Key Factors Affecting Our Business

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general economic conditions and consumer finance trends.

Recent Acquisitions

On February 10, 2020, we announced the acquisition of CDT Technologies, LTD d/b/a Ventanex (“Ventanex”) for up to $50.0 million, which includes a $14.0 million performance-based earnout.

The closing of the acquisition was financed with a combination of cash on hand and new borrowings under our existing credit facility.

See Note 5 to the unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

On July 23, 2020, we announced the acquisition of cPayPlus, LLC (“cPayPlus”) for up to $16.0 million, which includes a $8.0 million performance-based earnout .

The closing of the acquisition was financed with cash on hand.

See Note 5 to the unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

On October 27, 2020, we announced the acquisition of CPS Payment Services (“CPS”) for up to $93 million, which includes up to $15 million in performance-based earnouts.

The acquisition closed on November 2, 2020 and was financed with cash on hand.

Key Components of Our Revenues and Expenses

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Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed and include fees relating to processing and services that we provide.

The transaction price for such processing services are determined, based on the judgment of our management, considering factors such as margin objectives, pricing practices and controls, customer segment pricing strategies, the product life cycle and the observable price of the service charged to similarly situated customers.

During the three and nine months ended September 30, 2020 and 2019, we believe our chargeback rate was less than 1% of our card payment volume.

The transaction price for such processing services are determined, based on the judgment of management, considering factors such as margin objectives, pricing practices and controls, customer segment pricing strategies, the product life cycle and the observable price of the service charged to similarly situated customers.

During the three months ended March 31, 2021 and 2020, we believe our chargeback rate was less than 1% of our card payment volume.

Other costs of services .

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Interest expense.

Prior to the closing of the Business Combination, interest expense consisted of interest in respect of our indebtedness under our Prior Credit Agreement (as defined below), which was terminated in connection with the closing of the Business Combination.

In periods after the closing of the Business Combination, interest expense consists of interest in respect of our indebtedness under the New Credit Agreement, which was entered into in connection with the Business Combination and amended in February 2020 .

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 warrant liabilities .

This amount represents the change in fair value of the warrant liabilities.

The warrant liabilities are carried at fair value;

so, any change to the valuation of this liability is recognized through this line in other expense.

The change in fair value results from the change of underlying publicly listed trading price of our Class A common stock at each measurement date.

Change in fair value of tax receivable liability .

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Results of Operations

Three Months ended March 31

(in $ thousands)

Three Months ended September 30, 2020

Nine Months ended September 30, 2020

July 11, 2019 through September 30, 2019

Operating expenses

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Income (loss) from operations

Other expenses

Interest expenses

Loss on extinguishment of debt

Change in fair value of warrant liabilities

Change in fair value of tax receivable liability

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Loss per Class A share - basic and diluted

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

For purposes of this results of operations discussion, we have combined the results of the Predecessor for the period from July 1, 2019 to July 10, 2019 with the results of the Successor for the period from July 11, 2019 to September 30, 2019 (“2019 three-month combined period”).

Total revenue was $37.6 million for the three months ended September 30, 2020 and $26.3 million for the 2019 three-month combined period, an increase of $11.4 million or 43.3%.

This increase was the result of newly signed customers, the growth of our existing customers, as well as the acquisitions of TriSource, APS, Ventanex, and cPayPlus.

For the three months ended September 30, 2020, incremental revenues of approximately $10.2 million are attributable to TriSource, APS, Ventanex, and cPayPlus.

Other Costs of Services

Other costs of services were $ 10 .

5 million for the three months ended September 30 , 2020 and $ 6 .

8 million for 2019 three-month c ombined period , an increase of $ 3 .

7 million or 5 3 .

For the three months ended September 30 , 2020, incremental costs of services of approximately $ 3.5 million are attributable to TriSource, APS, Ventanex , and cPayPlus .

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $28.6 million for the three months ended September 30, 2020 and $55.1 million for the 2019 three-month combined period, a decrease of $26.5 million or 48.1%.

This decrease was primarily due to one-time expenses associated with the Business Combination.

Depreciation and Amortization Expenses

Depreciation and amortization expenses were $15.4 million for the three months ended September 30, 2020 and $11.0 million for the 2019 three-month combined period, an increase of $4.4 million or 39.7%.

The increase was primarily due to fair value adjustments to intangibles resulting from the Business Combination, as well as additional depreciation and amortization of fixed assets and intangibles from the acquisitions of TriSource, APS, Ventanex and cPayPlus.

Change in the Fair Value of Contingent Consideration

Change in the fair value of contingent consideration was $3.8 million for the three months ended September 30, 2020, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of TriSource, APS, and Ventanex.

Interest Expense

Interest expense was $3.6 million for the three months ended September 30, 2020 and $2.9 million for the 2019 three-month combined period, an increase of $0.7 million or 24.4%.

This increase was due to a higher average outstanding principal balance under our New Credit Agreement as compared to the average outstanding principal balance under the Prior Credit Agreement.

Change in Fair Value of Tax Receivable Liability

We incurred a loss, related to accretion expense and fair value adjustment of the tax receivable liability of $1.5 million for the three months ended September 30, 2020 compared to $0.5 million for the 2019 three-month combined period, an increase of $1.0 million or 227.1%.

This increase was due to higher 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.

The income tax benefit was $3.4 million for the three months ended September 30, 2020 and $2.7 million for the period from July 11, 2019 to September 30, 2019, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent.

This was a result of the operating loss incurred by the Company, primarily driven by stock-based compensation deductions as well as the amortization of assets acquired in Business Combination and acquisitions of TriSource, APS, Ventanex, and cPayPlus.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

For purposes of this results of operations discussion, we have combined the results of the Predecessor for the period from January 1, 2019 to July 10, 2019 with the results of the Successor for the period from July 11, 2019 to September 30, 2019 (“2019 nine-month combined period”).

Total revenue was $113.6 million for the nine months ended September 30, 2020 and $71.0 million for the 2019 nine-month combined period, an increase of $42.6 million or 60.1%.

This increase was the result of newly signed customers, the growth of our existing customers, as well as the acquisitions of TriSource, APS, Ventanex, and cPayPlus.

For the nine months ended September 30, 2020, incremental revenues of approximately $ 3 3.7 million are attributable to TriSource, APS, Ventanex , and cPayPlus .

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Total revenue was $47.5 million for the three months ended March 31, 2021 and $39.5 million for the three months ended March 31, 2020, an increase of $8.1 million or 20.4%.

This increase was the result of newly signed customers, the growth of our existing customers, as well as the acquisitions of Ventanex, cPayPlus and CPS.

For the three months ended March 31, 2021, incremental revenues of approximately $4.9 million are attributable to Ventanex, cPayPlus and CPS.

Other Costs of Services

Other costs of services were $30.0 million for the nine months ended September 30, 2020 and $16.6 million for the 2019 nine-month combined period, an increase of $13.4 million or 80.8%.

For the nine months ended September 30, 2020, incremental costs of services of approximately $12.7 million are attributable to TriSource, APS, Ventanex, and cPayPlus.

Other costs of services were $12.5 million for the three months ended March 31, 2021 and $10.8 million for the three months ended March 31, 2020, an increase of $1.7 million or 15.8%.

For the three months ended March 31, 2021, incremental costs of services of approximately $1.7 million are attributable to Ventanex, cPayPlus and CPS.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $65.8 million for the nine months ended September 30, 2020 and $72.2 million for the 2019 nine-month combined period, a decrease of $6.4 million or 8.9%.

This decrease was primarily due to one-time expenses associated with the Business Combination, offset by increases in share-based compensation and other operating costs.

Selling, general and administrative expenses were $23.3 million for the three months ended March 31, 2021 and $18.2 million for the three months ended March 31, 2020, an increase of $5.1 million or 28.0%.

This increase was primarily due to general business growth and increases in expenses relating to software and technological services.

Depreciation and Amortization Expenses

Depreciation and amortization expenses were $44.0 million for the nine months ended September 30, 2020 and $16.9 million for the 2019 nine-month combined period, an increase of $27.1 million or 160.1%.

Depreciation and amortization expenses were $17.8 million for the three months ended March 31, 2021 and $13.9 million for the three months ended March 31, 2020, an increase of $3.9 million or 28.8%.

Change in the Fair Value of Contingent Consideration

Change in the fair value of contingent consideration was $3.0 million for the nine months ended September 30, 2020, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of TriSource, APS, and Ventanex.

Change in the fair value of contingent consideration was $2.6 million for the three months ended March 31, 2021, which consisted of fair value adjustments related to the contingent consideration for the acquisitions of Ventanex, cPayPlus and CPS.

Interest Expense

Interest expense was $10.8 million for the nine months ended September 30, 2020 and $5.8 million for the 2019 nine-month combined period, an increase of $5.0 million or 86.0%.

This increase was due to a higher average outstanding principal balance under our New Credit Agreement as compared to the average outstanding principal balance under the Prior Credit Agreement.

Interest expense was $1.2 million for the three months ended March 31, 2021 and $3.5 million for the three months ended March 31, 2020, a decrease of $2.3 million or 66.4%.

This decrease was due to a lower average outstanding principal balance under our Amended Credit Agreement as compared to the average outstanding principal balance under the Successor Credit Agreement.

Loss on Extinguishment of Debt

We incurred a loss of $5.9 million on extinguishment of debt for the three months ended March 31, 2021, due to the termination in full of all outstanding Delayed Draw Term Loan commitments under the Successor Credit Agreement.

Change in Fair Value of Warrant Liabilities

We incurred a change in the fair value of warrant liabilities of $6.9 million for the three months ended March 31, 2020, which was due to the mark-to-market valuation adjustments related to the increase in the publicly listed trading price of our stock.

In July 2020, we completed the redemption of all of our outstanding warrants.

Change in Fair Value of Tax Receivable Liability

We incurred a loss, related to accretion expense and fair value adjustment of the tax receivable liability of $12.1 million for the nine months ended September 30, 2020 compared to only $0.5 million of accretion expense for the 2019 nine-month combined period, an increase of $11.6 million.

We incurred a loss, related to accretion expense and fair value adjustment of the tax receivable liability of $1.0 million for the three months ended March 31, 2021 compared to $0.5 million for the three months ended March 31, 2020, an increase of $1.5 million.

The income tax benefit was $8.4 million for the nine months ended September 30, 2020 and $2.7 million for the period from July 11, 2019 to September 30, 2019, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent.

We incurred a loss of $9.1 million on the settlement of interest rate swaps for the three months ended March 31, 2021.

The income tax benefit was $5.9 million for the three months ended March 31, 2021 and the income tax benefit was $1.1 million for the three months ended March 31, 2020, which reflected the expected income tax benefit to be received on the net earnings related to the Company’s economic interest in Hawk Parent.

This was a result of the operating loss incurred by the Company, primarily driven by stock-based compensation deductions, the amortization of assets acquired in the Business Combination and prior acquisitions, the write-off of deferred debt issuance costs and the loss recognized as part of the settlement of interest rate swaps.

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 non-cash and non-recurring charges, such as 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, management fees, legacy commission related charges, employee recruiting costs, other taxes, strategic initiative related costs and other non-recurring charges.

Adjusted Net Income is a non-GAAP financial measure that represents net income prior to amortization of acquisition-related intangibles, as adjusted to add back certain non-cash and non-recurring charges, such as 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, management fees, legacy commission related charges, employee recruiting costs, strategic initiative related costs and other non-recurring charges, net of tax effect associated with these adjustments.

Adjusted EBITDA is a non-GAAP financial measure that represents net income prior to interest expense, tax expense, depreciation and amortization, as adjusted to add back certain non-cash and non-recurring charges, such as loss on extinguishment of debt, loss on termination of interest rate hedge, non-cash change in fair value of warrant liabilities, 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 non-cash and non-recurring charges, such as loss on extinguishment of debt, loss on termination of interest rate hedge, non-cash change in fair value of warrant liabilities, 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.

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Although we exclude amortization from acquisition-related intangibles from our non-GAAP expenses, management believes that it is important for investors to understand that such intangibles were recorded as part of purchase accounting and contribute to revenue generation.

Adjusted Net Income per share is a non-GAAP financial measure that represents Adjusted Net Income divided by the weighted average number of shares of Class A common stock outstanding (on as-converted basis) for the three and nine months ended September 30, 2020 (excluding shares subject to forfeiture).

Adjusted Net Income per share is a non-GAAP financial measure that represents Adjusted Net Income divided by the weighted average number of shares of Class A common stock outstanding (on as-converted basis) for the three and ended March 31, 2021 and 2020 (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.

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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, and 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.

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.

You should be aware of additional limitations with respect to Adjusted Net Income per share because the GAAP presentation of net loss per share is only reflected for the three and nine months ended September 30, 2020.

The following tables set forth a reconciliation of our results of operations for the three and nine months ended September 30, 2020 and 2019.

Due to the Predecessor and Successor periods, for the convenience of readers, we have presented the three and nine months ended September 30, 2019 on both a Predecessor and Successor basis and a combined basis (reflecting simple arithmetic combination of the GAAP Predecessor and Successor periods with adjustments) in order to present a meaningful comparison against the corresponding periods.

REPAY HOLDINGS CORPORATION

Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA

For the three months ended September 30, 2020 and 2019

(in $ thousands)

Three Months Ended September 30, 2020

Adjustments (o)

Three Months Ended September 30, 2020

July 11, 2019 through September 30, 2019

July 1, 2019 through July 10, 2019

Adjustments (o)

Three Months Ended September 30, 2019

Operating expenses

Other costs of services

Selling, general and administrative

Depreciation and amortization

Change in fair value of contingent consideration

Total operating expenses

Income (loss) from operations

Other expenses

Interest expenses

Change in fair value of tax receivable liability

Total other (expenses) income

Income (loss) before income tax expense

Income tax benefit

Net income (loss)

Interest expense

Depreciation and amortization (a)

Income tax (benefit)

Loss on extinguishment of debt (b)

Non-cash change in fair value of contingent consideration (c)

Non-cash change in fair value of assets and liabilities (d)

Share-based compensation expense (e)

Transaction expenses (f)

Management Fees (g)

Legacy commission related charges (h)

Employee recruiting costs (i)

Other taxes (j)

Restructuring and other strategic initiative costs (k)

Other non-recurring charges (l)

Adjusted EBITDA

The following tables set forth a reconciliation of our results of operations for the three months ended March 31, 2021 and 2020.

REPAY HOLDINGS CORPORATION

Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA

For the nine months ended September 30, 2020 and 2019

For the three months ended March 31, 2021 and 2020

Three Months ended March 31, 2021

(in $ thousands)

Nine Months Ended September 30, 2020

Adjustments (o)

Nine Months Ended September 30, 2020

July 11, 2019 through September 30, 2019

January 1, 2019 through July 10, 2019

Adjustments (o)

Nine Months Ended September 30, 2019

Operating expenses

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Income (loss) from operations

Other expenses

Interest expenses

Loss on extinguishment of debt

Change in fair value of warrant liabilities

Change in fair value of tax receivable liability

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Loss on extinguishment of debt (b)

Non-cash change in fair value of contingent consideration (c)

Non-cash change in fair value of assets and liabilities (d)

Share-based compensation expense (e)

Transaction expenses (f)

Management Fees (g)

Legacy commission related charges (h)

Loss on termination of interest rate hedge (c)

Non-cash change in fair value of warrant liabilities (d)

Non-cash change in fair value of contingent consideration (e)

Non-cash change in fair value of assets and liabilities (f)

Share-based compensation expense (g)

Transaction expenses (h)

Employee recruiting costs ( i )

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Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income

For the three months ended September 30, 2020 and 2019

(in $ thousands)

Three Months Ended September 30, 2020

Adjustments (o)

Three Months Ended September 30, 2020

July 11, 2019 through September 30, 2019

July 1, 2019 through July 10, 2019

Adjustments (o)

Three Months Ended September 30, 2019

Operating expenses

Other costs of services

Selling, general and administrative

Depreciation and amortization

Change in fair value of contingent consideration

Total operating expenses

Income (loss) from operations

Other expenses

Interest expenses

Change in fair value of tax receivable liability

Total other (expenses) income

Income (loss) before income tax expense

Income tax benefit

Net income (loss)

Amortization of Acquisition-Related Intangibles (m)

Loss on extinguishment of debt (b)

Non-cash change in fair value of contingent consideration (c)

Non-cash change in fair value of assets and liabilities (d)

Share-based compensation expense (e)

Transaction expenses (f)

Management Fees (g)

Legacy commission related charges (h)

Employee recruiting costs (i)

Restructuring and other strategic initiative costs (k)

Other non-recurring charges (l)

Pro forma taxes at effective rate (p)

Adjusted Net Income

Shares of Class A common stock outstanding (on an as-converted basis) (n)

Adjusted Net income per share

REPAY HOLDINGS CORPORATION

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income

For the nine months ended September 30, 2020 and 2019

For the three months ended March 31, 2021 and 2020

Three Months ended March 31, 2021

(in $ thousands)

Nine Months Ended September 30, 2020

Adjustments (o)

Nine Months Ended September 30, 2020

July 11, 2019 through September 30, 2019

January 1, 2019 through July 10, 2019

Adjustments (o)

Nine Months Ended September 30, 2019

Operating expenses

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Income (loss) from operations

Other expenses

Interest expenses

Loss on extinguishment of debt

Change in fair value of warrant liabilities

Change in fair value of tax receivable liability

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Net income (loss)

Amortization of Acquisition-Related Intangibles (m)

Amortization of Acquisition-Related Intangibles (n)

Loss on extinguishment of debt (b)

Non-cash change in fair value of contingent consideration (c)

Non-cash change in fair value of assets and liabilities (d)

Share-based compensation expense (e)

Transaction expenses (f)

Management Fees (g)

Legacy commission related charges (h)

Loss on termination of interest rate hedge (c)

Non-cash change in fair value of warrant liabilities (d)

Non-cash change in fair value of contingent consideration (e)

Non-cash change in fair value of assets and liabilities (f)

Share-based compensation expense (g)

Transaction expenses (h)

Employee recruiting costs ( i )

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Other non-recurring charges (l)

Non-cash interest expense (o)

Pro forma taxes at effective rate (p)

Adjusted Net Income

Shares of Class A common stock outstanding (on an as-converted basis) (n)

Shares of Class A common stock outstanding (on an as-converted basis) ( q)

Adjusted Net income per share

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

Reflects write-offs of debt issuance costs relating to Hawk Parent’s term loans and prepayment penalties relating to its previous debt facilities.

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

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

Reflects realized loss of our interest rate hedging arrangement which terminated in conjunction with the repayment of Term Loans.

Reflects the mark-to-market fair value adjustments of the warrant liabilities.

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.

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

Represents compensation expense associated with equity compensation plans, totaling $5,768, 2 2 0 and $14,766, 40 0 in the three and nine months ended September 30, 2020 , respectively, $658,195 and $908,97 8 in the Predecessor period s from July 1, 2019 to July 10, 2019 and January 1, 2019 to July 10, 2019 , respectively, and $9,750,821 as a result of new grants made in the Successor period from July 11, 2019 to September 30, 2019.

Primarily consists of (i) during the three and nine months ended September 30, 2020, professional service fees and other costs incurred in connection with the acquisition of cPayPlus, and additional transaction expenses incurred in connection with the Business Combination and the acquisitions of TriSource Solutions, APS Payments, and Ventanex, which closed in prior periods, as well as professional service expenses related to the Follow-on Offerings and (ii) during the three and nine months ended September 30, 2019, professional service fees and other costs in connection with the Business Combination and the acquisitions of TriSource Solutions, and APS Payments.

Reflects management fees paid to Corsair Investments, L.P.

pursuant to the management agreement, which terminated upon the completion of the Business Combination.

Represents payments made to certain employees in connection with significant restructuring of their commission structures.

These payments represented commission structure changes which are not in the ordinary course of business.

Represents compensation expense associated with equity compensation plans, totaling $5,150,598 and $3,522,731 in the three months ended March 31, 2021 and 2020, respectively.

Primarily consists of (i) during the three months ended March 31, 2021, professional service fees and other costs incurred in connection with the acquisition of Ventanex, cPayPlus and CPS, as well as professional service expenses related to the January 2021 equity and convertible notes offerings, and (ii) during the three months ended March 31, 2020, professional service fees and other costs incurred in connection with the

acquisition of Ventanex , and additional transaction expenses incurred in connection with the Business Combination and the acquisitions of TriSource and APS.

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.

Reflects franchise taxes and other non-income based taxes.

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 nine months ended September 30, 2020 and 2019, and additionally one-time expenses related to the creation of a new entity in connection with equity arrangements for the members of Hawk Parent in connection with the Business Combination in the nine months ended September 30, 2019.

For the three and nine months ended September 30, 2020, reflects expenses incurred related to one-time accounting system and compensation plan implementation related to becoming a public company, as well as extraordinary refunds to customers and other payments related to COVID-19.

For the nine months ended September 30, 2019, reflects expenses incurred related to other one-time legal and compliance matters.

Additionally, for the three months ended September 30, 2019 reflects a one-time credit issued to a customer which was not in the ordinary course of business.

For the three and nine months ended September 30, 2020 reflects (i) amortization of the customer relationships intangibles acquired through Hawk Parent’s acquisitions of PaidSuite and Paymaxx during the year ended December 31, 2017 and the recapitalization transaction in 2016, through which Hawk Parent was formed in connection with the acquisition of a majority interest in Repay Holdings, LLC by certain investment funds sponsored by, or affiliated with, Corsair Capital LLC., (ii) customer relationships, non-compete agreement, software, and channel relationship intangibles acquired through the Business Combination, and (iii) customer relationships, non-compete agreement, and software intangibles acquired through Repay Holdings, LLC’s acquisitions of TriSource Solutions, APS Payments, Ventanex, and cPayPlus.

For the three and nine months ended September 30, 2019, reflects amortization of customer relationships intangibles acquired through Hawk Parent’s acquisitions and the recapitalization transaction in 2016 and the acquisition of TriSource Solutions described previously.

For the three months ended March 31, 2021 and 2020 reflects extraordinary refunds to customers and other payments related to COVID-19.

Additionally, in the three months ended March 31, 2021 reflects non-cash rent expense, and in the three months ended March 31, 2021, reflects expenses incurred related to one-time accounting system and compensation plan implementation related to becoming a public company.

Does not include adjustment for incremental depreciation and amortization recorded due to fair-value adjustments under ASC 805.

For the three months ended March 31, 2021, reflects amortization of customer relationships, non-compete agreement, software, and channel relationship intangibles acquired through the Business Combination, and customer relationships, non-compete agreement, and software intangibles acquired through Repay Holdings, LLC’s acquisitions of TriSource, APS, Ventanex, cPayPlus, and CPS.

For the three months ended March 31, 2020 reflects amortization of customer relationships, non-compete agreement, software, and channel relationship intangibles acquired through the Business Combination, and customer relationships, non-compete agreement, and software intangibles acquired through our acquisitions of TriSource, APS, and Ventanex.

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 September 30,

Nine months ended September 30,

Three months ended March 31,

(in $ thousands)

Acquisition-related intangibles

Reseller buyouts

Total Depreciation and amortization 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).

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.

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Any future acquisitions may result in the amortization of additional intangibles.

Represents the weighted average number of shares of Class A common stock outstanding (on as-converted basis) for the three and nine months ended September 30, 2020, as well as the Successor period from July 11, 2019 to September 30, 2019 (excluding shares that were subject to forfeiture).

Adjustment for incremental depreciation and amortization recorded due to fair-value adjustments under ASC 805 in the Successor period.

Represents non-cash interest expense (deferred debt issuance costs).

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

As Hawk Parent, as the accounting Predecessor, was not subject to income taxes, the tax effect above was calculated on the adjustments related to the Successor period only.

Adjusted EBITDA for the three months ended September 30, 2020 and 2019 was $15.6 million and $11.9 million, respectively, representing a 30.9% year-over-year increase.

Adjusted EBITDA for the nine months ended September 30, 2020 and 2019 was $49.2 million and $33.7 million, respectively, representing a 45.9% year-over-year increase.

Adjusted Net Income for the three months ended September 30, 2020 and 2019 was $9.5 million and $10.4 million, respectively, representing an 8.8% year-over-year decrease.

Adjusted Net Income for the nine months ended September 30, 2020 and 2019 was $31.1 million and $27.1 million respectively, representing a 14.5% year-over-year increase.

Our net income (loss) attributable to the Company for the three months ended September 30, 2020 and 2019 was $(9.5) million and $(41.2) million, respectively, representing a 77.0% year-over-year increase.

Our net income (loss) attributable to the Company for the nine months ended September 30, 2020 and 2019 was $(25.6) million and $(32.2) million respectively, representing a 20.7% year-over-year increase.

These increases in Adjusted EBITDA and Adjusted Net Income, for the nine months ended September 30, 2020 are the result of the growing card payment volume and revenue figures described above, new customers, and same store sales growth from existing customers as well as the acquisitions of TriSource, APS, Ventanex, and cPayPlus.

The decrease in Adjusted Net Income for the three months ended September 30, 2020 is largely a result of the tax effect of the adjustments to the Net income (loss) incurred.

The increase in net income (loss) attributable to the Company for the three and nine months ended September 30, 2020, is primarily the result of one-time expenses incurred in connection with the Business Combination.

Represents the weighted average number of shares of Class A common stock outstanding (on as-converted basis) for the three months ended March 31, 2021, and the three months ended March 31, 2020.

Adjusted EBITDA for the three months ended March 31, 2021 and 2020 was $20.5 million and $17.4 million, respectively, representing a 17.9% year-over-year increase.

Adjusted Net Income for the three months ended March 31, 2021 and 2020 was $15.1 million and $12.4 million, respectively, representing an 22.4% year-over-year decrease.

Our net loss attributable to the Company for the three months ended March 31, 2021 and 2020 was $15.8 million and $10.3 million, respectively, representing a 52.9% year-over-year increase.

These increases in Adjusted EBITDA , Adjusted Net Income, and net income (loss) attributable to the Company for the three months ended March 31, 2021 are primarily due to the loss on extinguishment of debt and loss on termination of interest rate hedge.

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.

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We have historically financed our operations and working capital through net cash from operating activities.

As of September 30, 2020, we had $182.3 million of cash and cash equivalents and available borrowing capacity of $75.6 million under the New Credit Agreement.

This balance does not include restricted cash, which reflects cash accounts holding reserves for potential losses and customer settlement funds of $10.4 million at September 30, 2020.

Our primary cash needs are to fund working capital requirements, invest in technology development, fund acquisitions and related

contingent consideration, make scheduled principal payments and interest payments on our outstanding indebtedness and pay tax distributions to members of Hawk Parent.

We expect that our cash flow from operations, current cash and cash equivalents and available borrowing capacity under the New Credit Agreement will be sufficient to fund our operations and planned capital expenditures and to service our debt obligations for the next twelve months.

As of March 31, 2021, we had $390.9 million of cash and cash equivalents and available borrowing capacity of $125.0 million under the Amended Credit Agreement.

This balance does not include restricted cash, which reflects cash accounts holding reserves for potential losses and customer settlement funds of $19.5 million at March 31, 2021.

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 II, Item 1A "Risk Factors - Risks Related to Our Class A Common Stock" in our Annual Report on Form 10-K.

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, as amended.

The following table present a summary of cash flows from operating, investing and financing activities for the periods indicated:

Three Months ended March 31,

(in $ thousands)

Nine Months Ended September 30, 2020

July 11, 2019 through September 30, 2019

January 1, 2019 through July 10, 2019

Net cash provided by operating activities

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Cash Flow from Operating Activities

Net cash provided by operating activities was $6.7 million for the nine months ended September 30, 2020.

Net cash provided by operating activities was $4.9 million from July 11, 2019 to September 30, 2019.

Net cash provided by operating activities was $8.4 million from January 1, 2019 through July 10, 2019.

Cash provided by operating activities for the nine months ended September 30, 2020, the period from July 11, 2019 to September 30, 2019, and the period from January 1, 2019 to July 10, 2019, reflects net income as adjusted for non-cash operating items including depreciation and amortization, share-based compensation, and changes in working capital accounts.

Net cash provided by operating activities was $4.8 million for the three months ended March 31, 2021.

Net cash provided by operating activities was $8.6 million in the three months ended March 31, 2020.

Cash provided by operating activities for the three months ended March 31, 2021 and 2020, reflects net income as adjusted for non-cash operating items including depreciation and amortization, share-based compensation, and changes in working capital accounts.

Cash Flow from Investing Activities

Net cash used in investing activities was $55.2 million for the nine months ended September 30, 2020, due to the acquisition of Ventanex and cPayPlus, as well as capitalization of software development activities.

Net cash used in investing activities was $303.5 million from July 11, 2019 to September 30, 2019, due to the Business Combination whereby Hawk Parent was acquired, the acquisition of TriSource, and capitalization of software development activities.

Net cash used in investing activities was $4.0 million from January 1, 2019 through July 10, 2019, due to capitalization of software development activities.

Net cash used in investing activities was $5.2 million for the three months ended March 31, 2021, due to the capitalization of software development activities.

Net cash used in investing activities was $38.3 million in the three months ended March 31, 2020, due to the acquisition of Ventanex, and capitalization of software development activities.

Cash Flow from Financing Activities

Net cash provided by financing activities was $203.2 million for the nine months ended September 30, 2020, due to proceeds from the issuance of new shares in the Follow-On Offerings, new borrowings related to the acquisition of Ventanex under the New Credit Agreement, as well as funds received related to the exercise of warrants, offset by

repayment of the outstanding revolver balance related to the New Credit Agreement in connection with its amendment and the acquisition of Ventanex, and repayments of the term loan principal balance under the New Credit Agreement.

Net cash provided by financing activities was $355.6 million from July 11, 2019 to September 30, 2019, due to borrowing under our New Credit Agreement of $210.0 million, offset by debt issuance costs of $6.1 million.

We received proceeds from the Business Combination of $148.9 million and a private placement offering of $135.0 million, offset by payments of $93.3 million to settle our Prior Credit Agreement and $38.7 million to repurchase outstanding Thunder Bridge warrants.

Net cash used in financing activities was $9.4 million from January 1, 2019 through July 11, 2019 due to $2.5 million of principal payments related to our Prior Credit Agreement and tax distributions of $6.9 million to Hawk Parent’s members.

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 “New Credit Agreement”) with certain financial institutions, as lenders, and Truist Bank (formerly SunTrust Bank), as the administrative agent.

Net cash provided by financing activities was $304.4 million for the three months ended March 31, 2021, due to proceeds from the issuance of new shares in the Equity Offerings, and proceeds from the 2026 Notes, offset by repayment of the outstanding revolver balance related to the Successor Credit Agreement in connection with its amendment and the acquisition of Ventanex, and repayments of the term loan principal balance under the Successor Credit Agreement.

Net cash provided by financing activities was $36.2 million in the three months ended March 31, 2020, due to new borrowings related to the acquisition of Ventanex under the Successor Credit Agreement, as well as funds received related to the exercise of warrants, offset by repayment of the outstanding revolver balance related to the Successor Credit Agreement in connection with its amendment and the acquisition of Ventanex, and repayments of the Term Loan principal balance under the Successor Credit Agreement.

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 its existing bank group to amend and upsize the New Credit Agreement.

As of September 30, 2020, the New Credit Agreement provides for a senior secured term loan facility of $255.0 million, a delayed draw term loan of $60.0 million, and a revolving credit facility of $30.0 million.

As of September 30, 2020, we had $0.0 million drawn against the revolving credit facility.

We paid $96,567, $231,168, and $19,444 in fees related to unused commitments for the three and nine months ended September 30, 2020 and the period from July 11, 2019 to September 30, 2019, respectively.

As of September 30, 2020, we had term loan borrowings of $258.1 million, net of deferred issuance costs, under the New Credit Agreement, and we were in compliance with its restrictive financial covenants.

Additionally, we currently expect that we will remain in compliance with the restrictive financial covenants of the New Credit Agreement, prospectively.

As part of the financing for the transaction, we entered into an agreement with Truist Bank and other members of its existing bank group to amend and upsize the Successor Credit Agreement.

On January 20, 2021, we used a portion of the proceeds from the 2026 Notes to prepay in full the entire amount of the outstanding term loans under the Successor Credit Agreement.

We also terminated in full all outstanding delayed draw term loan commitments under such credit facilities.

Amended Credit Agreement

On February 3, 2021, the Company announced the closing of a new undrawn $125 million senior secured revolving credit facility through Truist Bank.

The Amended Credit Agreement replaced the Successor Credit Agreement, which included an undrawn $30 million revolving credit facility.

We currently expect that we will remain in compliance with the restrictive financial covenants of the Amended Credit Agreement, prospectively.

As of March 31, 2021, the Amended Credit Agreement provides for a revolving credit facility of $125.0 million.

As of March 31, 2021, we had $0.0 million drawn against the revolving credit facility.

We paid $97,222 and $42,361 in fees related to unused commitments for the three months ended March 31, 2021 and 2020, 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 March 31, 2021, we had convertible senior debt of $427.3 million, net of deferred issuance costs, under the 2026 Notes, and 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 of the 2026 Notes, prospectively.

Tax Receivable Agreement

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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.

However, the payments required to be made could be in excess of the actual tax benefits that we realize and there can be no assurance that we will be able to finance our obligations under the TRA.

Critical Accounting Policies and Recently Issued Accounting Pronouncements

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for a complete discussion of critical accounting policies.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as amended, for a complete discussion of critical accounting policies.

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.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of September 30, 2020 or December 31, 2019.

We did not have any material off-balance sheet arrangements as of March 31, 2021 or December 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis