Repay Holdings Corp

1. Organizational Structure and Corporate Information

Repay Holdings Corporation was incorporated as a Delaware corporation on July 11, 2019 in connection with the closing of a transaction (the “Business Combination”) pursuant to which Thunder Bridge Acquisition Ltd., a special purpose acquisition company organized under the laws of the Cayman Islands (“Thunder Bridge”), (a) domesticated into a Delaware corporation and changed its name to “Repay Holdings Corporation” and (b) consummated the merger of a wholly owned subsidiary of Thunder Bridge with and into Hawk Parent Holdings, LLC, a Delaware limited liability company (“Hawk Parent”).

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

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

Business Overview

The Company provides integrated payment processing solutions to industry-oriented markets in which businesses have specific transaction processing needs. The Company refers to these markets as “vertical markets” or “verticals.” The Company’s proprietary, integrated payment technology platforms reduce the complexity of the electronic payments process for businesses. The Company charges its clients processing fees based on the volume of payment transactions processed and other transaction or service fees. The Company intends to continue to strategically target verticals where the Company believes its ability to tailor payment solutions to its clients’ needs, its deep knowledge of the Company’s vertical markets and the embedded nature of its integrated payment solutions will drive strong growth by attracting new clients and fostering long-term client relationships.

The Company provides payment processing solutions to clients primarily operating in the personal loans, automotive loans, receivables management, and business-to-business verticals. The Company’s payment processing solutions enable consumers and businesses in these verticals to make payments using electronic payment methods, rather than cash or check, which have historically been the primary methods of payment in these verticals. The Company believes that a growing number of consumers and businesses prefer the convenience and efficiency of paying with cards and other electronic methods and that the Company is poised to benefit from the significant growth opportunity of electronic payment processing as these verticals continue to shift from cash and check to electronic payments. The personal loans vertical is predominately characterized by installment loans, which are typically utilized by consumers to finance everyday expenses. The automotive loans vertical includes a diversified client base across the entire credit spectrum. The Company’s receivables management vertical relates to consumer loan collections, which typically enter the receivables management process due to delinquency on credit card bills or as a result of major life events, such as job loss or major medical issues. The business-to-business vertical relates to transactions occurring between a wide variety of enterprise clients, many of which operate in the retail automotive, education, field services, governments and municipalities, healthcare, media, HOA management and hospitality industries.

The Company’s go-to-market strategy combines direct sales with integrations with key software providers in its target verticals. The integration of the Company’s technology with key software providers in the verticals that the Company serves, including loan management systems, DMS, collection management systems, and enterprise resource planning software systems, allows the Company to embed its omni-channel payment processing technology into its clients’ critical workflow software and ensure seamless operation of the Company’s solutions within its clients’ enterprise management systems. The Company refers to these software providers as its “software integration partners.” This integration allows the Company’s sales force to readily access new client opportunities or respond to inbound leads because, in many cases, a business will prefer, or in some cases only consider, a payments provider that has already integrated or is able to integrate its solutions with the business’ primary enterprise management system. The Company has successfully integrated its technology solutions with numerous, widely-used enterprise management systems in the verticals that it serves, which makes its platform a more compelling choice for the businesses that use them. Moreover, the Company’s relationships with its software integration partners help it to develop deep industry knowledge regarding trends in client needs. The Company’s integrated model fosters long-term relationships with its clients, which supports its volume retention rates that the Company believes are above industry averages. As of December 31, 2024, the Company maintained approximately 280 integrations with various software providers.

The Company hastwo reportable segments: Consumer Payments and Business Payments. For additional information on segments, see Note 15. Segments to our consolidated financial statements.

The Consumer Payments segment provides payment processing solutions (including debit and credit card processing, ACH processing and other electronic payment acceptance solutions, as well as our loan disbursement product) that enable the Company’s clients to collect payments and disburse funds to consumers and includes the Company’s clearing and settlement solutions (“RCS”) offering. RCS is the Company’s proprietary clearing and settlement platform through which the Company markets customizable payment processing programs to other Independent Sales Organizations (“ISOs”) and payment facilitators. The strategic vertical markets served by the Consumer Payments segment primarily include personal loans, auto motive loans, receivables management, credit unions, mortgage servicing, consumer healthcare and diversified retail. The Consumer Payments segment represented approximately 83% of the Company’s total revenue after any intersegment eliminations for the year ended December 31, 2024.

The Business Payments segment provides payment processing solutions (including accounts payable automation, debit and credit card processing, virtual credit card processing, ACH processing and other electronic payment acceptance solutions) that enable the Company’s clients to collect or send payments to other businesses. The strategic vertical markets served within the Business Payments segment primarily include retail automotive, education, field services, governments and municipalities, healthcare, media, HOA management and hospitality. The Business Payments segment represented approximately 17%of the Company’s total revenue after any intersegment eliminations for the year ended December 31, 2024.

2. Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Repay Holdings Corporation and its 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 (“Media Payments”), Custom Payment Systems, LLC, Electronic Payment Providers, 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 consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company uses the accrual basis of accounting whereby revenues are recognized when earned, usually upon the date services are rendered, and expenses are recognized at the date services are rendered or goods are received.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported consolidated statements of operations during the reporting period. Actual results could differ materially from those estimates.

Reclassifications

The Company changed its presentation for Restricted cash to Current restricted cash and Noncurrent restricted cash within the Consolidated Balance Sheets. Prior period amounts have been revised to conform to the current presentation.

The Company changed its presentation for Interest income (expense), net to Interest income and Interest expense within the Consolidated Statements of Operations. Prior period amounts have been revised to conform to the current presentation.

Segment Reporting

The Company reports operating results throughtwo reportable segments: (1) Consumer Payments and (2) Business Payments, as further discussed in Note 15. Segments.

There are no significant concentrations by state or geographical location, nor are there any significant individual client concentrations by balance.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposit accounts, money market accounts and short‑term investments with original maturities of three months or less. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The amount of cash that the Company considers to be available for general purposes was$189.5 million and $118.1 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024, approximately 91% of the Company’s total balance of cash and cash equivalents was held within a small group of financial institutions, primarily large money center banks. Although the Company currently believes that the financial institutions with whom the Company does business will be able to fulfill their commitments to the Company, there is no assurance that those institutions will be able to continue to do so. The Company hasnot experienced any losses associated with the Company’s balances in such accounts for the years ended December 31, 2024, 2023 or 2022.

Restricted Cash

Current restricted cash consists of ACH settlement funds in transit (“Settlements”). Settlements are held in accounts maintained at the Company’s sponsor banks for the purpose of facilitating the clearing and settlement of funds associated with payments made by or to the Company’s clients via the ACH network. The Company records a corresponding liability for Settlements within Accrued expenses in the Consolidated Balance Sheets. Noncurrent restricted cash consists of collateral reserve funds (“Reserves”). Reserves are held on deposit by the Company’s sponsor banks to secure potential merchant chargebacks or other similar losses or obligations.

Accounts Receivable

Accounts receivable represent amounts due from clients and payment processors for services rendered. The Company has an established process for aging, provisioning and writing-off its uncollectible accounts receivable. Within this process the Company aggregates accounts receivable to the pools of receivables of similar risk characteristics. The allowance for credit losses on accounts receivables is estimated based on how long a receivable has been outstanding (e.g., under 30 days, 30–60 days, etc.). For accounts receivable outstanding more than 90 days, the Company evaluates and assesses whether the loss reserve percentage requires adjustment for reasonable and supportable forecast of relevant economic factors. For the year ended December 31, 2024, the Company’s estimated credit losses on accounts receivable was $1.1 million. For the years ended 2023 and 2022, the Company’s estimated credit losses on accounts receivable was immaterial.

Concentration of Credit Risk

The Company is highly diversified, andno single client represents greater than 10% of the business on a volume or profit basis. The Company holds cash and cash equivalents with various major financial institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.

Earnings per Share

Basic earnings per share of Class A common stock is computed by dividing net income (loss) attributable to the Company by the weighted average number of shares of Class A common stock outstanding during the period. Diluted earnings pershare of Class A common stock is computed by dividing net income attributable to the Company, by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements, including the assumed exchange of all limited liability company interests of Hawk Parent (“Post-Merger Repay Units”), unvested share-based awards, outstanding stock options, outstanding ESPP (“Employee Stock Purchase Program”) purchase rights and the Company’s convertible senior notes.

Property and Equipment

Property and equipment is carried at cost less accumulated depreciation and includes expenditures which substantially increase the useful lives of existing property and equipment. Maintenance, repairs, and minor renovations are charged to operations as incurred. When property and equipment is retired or otherwise disposed of, the related costs and accumulated depreciation are removed from their respective accounts, and any gain or loss on the disposition is credited or charged to operations.

The Company provides for depreciation of property and equipment using the straight-line method designed to amortize costs over estimated useful lives as follows:

The Company evaluates the recoverability of property and equipment at least annually or whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts. If the carrying amount of property and equipment is determined not to be recoverable, a write-down to fair value is recorded. No impairments were recognized for the years ended December 31, 2024, 2023 and 2022.

Intangible Assets

Intangible assets consist of internal-use software development costs, purchased software, channel relationships, client relationships, certain key personnel non-compete agreements, and trade names. The Company capitalizes internal-use software development costs when the Company has completed the preliminary project stage, management authorizes the project, management commits to funding the project, it is probable the project will be completed and the project will be used to perform the function intended. The Company is amortizing internal-use software development costs and purchased software on the straight‑line method over athree-year estimated useful life, aten-year estimated useful life for channel and client relationships, and an estimated useful life for non-compete agreements equal to the term of the agreement. Trade names are determined to have an indefinite useful life. The Company evaluates the recoverability of intangible assets at least annually or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts. No impairments were recognized during the year ended December 31, 2024. During the year ended December 31, 2023, the Company recognized an impairment of $0.1 million related to a trade name write-off of Media Payments, as the Company strategically phased out the trade name of the acquired business. During the year ended December 31, 2022, the Company recognized impairments of $8.1 million related to write-offs of certain trade names, as the Company strategically phased out the trade names of several acquired business, which included BillingTree, Kontrol and Payix.

Goodwill

Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities assumed arising from business combinations. Goodwill is generally allocated to reporting units based upon relative fair value (taking into consideration other factors such as synergies) when an acquired business is integrated into multiple reporting units. The Company’s reporting units are at the operating segment level or one level below the operating segment level for which discrete financial information is prepared and regularly reviewed by management. When a business within a reporting unit is disposed of, goodwill is allocated to the disposed business using the relative fair value method. Relative fair value is estimated using a combination of a discounted cash flow (“DCF”) analysis and market valuation approach.

The Company performs a qualitative goodwill assessment at the reporting unit level at least annually, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Factors considered in the Company’s qualitative assessment include financial performance, financial forecasts, macroeconomic conditions, industry and market conditions, cost factors, market capitalization, carrying value, and events affecting the reporting units. If, after considering all relevant events and circumstances, the Company determines it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then it is necessary to perform a quantitative impairment test. If the Company elects to bypass the qualitative analysis, or concludes from the Company’s qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is performed by comparing the fair value of each reporting unit with its carrying amount. If the fair value is greater than the carrying amount, then the reporting unit’s goodwill is deemed not to be impaired. If the fair value is less than the carrying amount, a non-cash impairment loss is recognized for the amount by which a reporting unit’s carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. Management estimates the fair value of the reporting units using a combination of a DCF calculation, which is a form of the income approach, and a market multiples calculation, which is a form of the market approach. The Company uses internal forecasts to estimate future cash flows expected to be generated by the reporting units when preparing DCF models under the income approach. To discount these cash flows, the Company uses an estimated weighted average cost of capital, which incorporates market and company-specific risk factors. The Company applies comparable publicly traded companies’ multiples (e.g., revenue or Adjusted EBITDA) to the Company’s reporting units’ financial forecasts when using market multiples under the market approach.

The Company determined that no impairment of goodwill existed for either the Consumer Payments or Business Payments segment as of the last testing date, December 31, 2024. Future impairment reviews may require write downs in the Company’s goodwill and could have a material adverse impact on the Company’s operating results for the periods in which such write downs occur.

Revenue

Repay provides integrated payment processing solutions to niche markets that have specific transaction processing needs; for example, personal loans, automotive loans, and receivables management. The Company contracts with its clients through contractual agreements that set forth the general terms and conditions of the service relationship, including rights of obligations of each party, line item pricing, payment terms and contract duration. Receivables are generally remitted directly from the sponsor bank within a short period of time, or are remitted based on customer invoices generally due 30 days from date of invoice. Most of our revenues are derived from volume-based payment processing fees (“discount fees”) and other related fixed per transaction fees. Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed and include fees relating to processing and services that we provide. As our clients process increased volumes of payments, our revenues increase as a result of the fees we charge for processing these payments.

The Company’s performance obligation in its contracts with clients is the promise to stand-ready to provide front-end authorization and back-end settlement payment processing services (“processing services”) for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the client’s use (e.g., number of transactions submitted and processed) of the related processing services. Accordingly, the total transaction price is variable. These services are stand-ready obligations, as the timing and quantity of transactions to be processed is not determinable. Under a stand-ready obligation, the Company’s performance obligation is satisfied over time throughout the contract term rather than at a point in time. Because the service of standing ready to perform processing services is substantially the same each day and has the same pattern of transfer to the client, the Company has determined that its stand-ready performance obligation comprises a series of distinct days of service. Discount fees and other fixed per transaction fees are recognized each day using a time-elapsed output method based on the volume or transaction count at the time the clients’ transactions are processed.

The Company has processing contracts that contain annual minimums to which the Company would be entitled to bill the shortfall between the actual processing revenue incurred during the annual period and the specified minimum in the contract. At the beginning of each annual period, the Company assesses the appropriate amount of the guaranteed minimums (either the fixed consideration or fixed consideration plus estimated overages) to recognize on a time-elapsed basis over the annual period.

Revenues are also derived from transaction or service fees (e.g. chargebacks, gateway) as well as other miscellaneous service fees. These services are considered immaterial in the overall context of our contractual arrangements and, as such, do not represent distinct performance obligations. Instead, the fees associated with these services are bundled with the processing services performance obligation identified.

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

The Company follows the requirements of ASC 606-10-55-36 through -40, Revenue from Contracts with Customers, Principal Agent Considerations, in determining the gross versus net revenue presentation for each performance obligation in the contract with a client. Revenue recorded by the Company in the capacity as a principal is reported on a gross basis equal to the full amount of consideration to which the Company expects in exchange for the good or service transferred. Revenue recorded with the Company acting in the capacity of an agent is reported on a net basis, exclusive of any consideration provided to the principal party in the transaction.

The principal versus agent evaluation is matter of judgment that depends on the facts and circumstances of the arrangement and is dependent on whether the Company controls the good or service before it is transferred to the client or whether the Company is acting as an agent of a third party. This evaluation is performed separately for each performance obligation identified. When the Company acts as an agent, the fees collected from clients on behalf of the payment networks and card issuer is netted with the gross fees collected so that the net revenue is presented within Revenue in the Consolidated Statements of Operations.

Indirect relationships

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

Contract Costs

The incremental costs of obtaining a contract are recognized as an asset if the cost is incremental to obtaining a contract, and whether the costs are recoverable from the client. If both criteria are not met, costs are expensed as incurred. If the amortization period of the capitalized commission cost asset is less than one year, the Company may elect a practical expedient per ASC 340-40-25-4 to expense commissions as incurred. The amortization period is consistent with the concept of useful life under other accounting guidance, which is defined as the period over which an asset is expected to contribute directly or indirectly to future cash flows.

The Company currently incurs costs to obtain a contract through payments made to external referral partners. Commission payments are made to the external referral partner on a monthly basis based on a percentage of the profit on the contract, for as long as the client and the external referral partner have agreements with the Company. Any capitalized commission cost assets have an amortization period of one year or less, therefore the Company utilizes the practical expedient to expense commissions as incurred. Internal salesforce commissions are expensed as incurred.

Costs to fulfill contracts with clients either give rise to an asset or are expensed as incurred. If the cost is not already covered by other applicable accounting literature, fulfillment costs are capitalized to the extent they directly relate to a specific contract, are used to generate or enhance resources used in satisfying performance obligations and are expected to be recovered. The Company does not have any costs incurred to fulfill a contract.

Practical Expedients

The Company has utilized the portfolio approach practical expedient per ASC 606-10-10-4, which allows the application of ASC 606 to a portfolio of contracts with similar characteristics provided the accounting does not differ materially to application of ASC 606 to the individual contract.

The Company has also utilized the practical expedient for immaterial goods and services per ASC 606-10-25-16A, which permits the Company not to recognize a promised good or service as a performance obligation if it is considered an immaterial promise in the context of the contract.

Transaction Costs

The Company expenses all transaction costs associated with business combinations and dispositions as incurred and such expenses are included in Selling, general, and administrative expenses in the Consolidated Statements of Operations. For the years ended December 31, 2024, 2023 and 2022, the Company incurred $0, $3.4 million and $13.7 million transaction costs, respectively.

Equity Units Awarded

The Repay Holdings Corporation 2019 Omnibus Incentive Plan (as amended, the “Incentive Plan”) provides for the grant of various equity-based incentive awards to employees, directors, consultants and advisors to the Company. The types of equity-based awards that may be granted under the Incentive Plan include: stock appreciation rights (“SARs”), performance stock units (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based stock options (“PSOs”) and other stock-based awards. As of December 31, 2024, there were 7,586,699 shares of Class A common stock available for future issuance under the Incentive Plan.

The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the employee’s requisite or derived service period.

PSUs, RSAs, RSUs and stock options granted under the Incentive Plan are measured based on the fair value of the awards on the date of the grant. Compensation expense is recognized for those awards over the requisite service period within Selling, general, and administrative in the Consolidated Statements of Operations. Forfeitures are accounted for as they occur.

Debt Issuance Costs

The Company accounts for debt issuance costs according to the Financial Accounting Standards Board Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs, to present debt issuance costs as a reduction of the carrying amount of the debt.

Fair Value of Financial Instruments

The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or the price paid to transfer a liability as of the measurement date. A three-tier, fair-value reporting hierarchy exists for disclosure of fair value measurements based on the observability of the inputs to the valuation of financial assets and liabilities. The three levels are:

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Level 1 — Quoted prices for identical instruments in active markets.

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Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

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Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximated their fair values as of December 31, 2024 and 2023, because of the relatively short maturity dates on these instruments. See Note 6. Fair Value of Assets and Liabilities for further discussion.

Leases

The Company evaluates each of its lease and service arrangements at inception to determine if the arrangement is, or contains, a lease and the appropriate classification of each identified lease. A lease exists if the Company obtains substantially all of the economic benefits of, and has the right to control the use of, an asset for a period of time. The Company has operating leases for real estate. Operating leases with an original lease term in excess of twelve months are included in Operating lease right-of-use assets, net, Current operating lease liabilities and Noncurrent operating lease liabilities in the Consolidated Balance Sheets. Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate to calculate the present value of lease payments. Lease terms consider options to extend or terminate based on the determination of whether such renewal or termination options are deemed reasonably certain. Lease agreements that contain non-lease components are generally accounted for as a single lease component.

Operating lease costs are recorded in Selling, general and administrative in the Consolidated Statements of Operations based on the underlying asset. Variable costs, such as maintenance expenses, property and sales taxes, association dues and index-based rate increases, are expensed as they are incurred. Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expenses in Selling, general and administrative in the Consolidated Statements of Operations.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases of all applicable class of underlying assets that have a lease term of twelve months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other Company leases.

ROU assets for operating leases are periodically reduced by impairment losses. As of December 31, 2024, the Company hasnot encountered any impairment losses. The Company monitors for events or changes in circumstances that require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in gain or loss in the Consolidated Statements of Operations.

Taxation

Income taxes are provided for in accordance with ASC 740. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to net operating losses, tax credits, and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of the enactment date. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company reports a liability or a reduction of deferred tax assets for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. When applicable, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

Noncontrolling Interest

As of December 31, 2024, 2023, and 2022 the Company held an interest of 94.5%,94.2%, and 92.0% in Hawk Parent, respectively. For the years ended December 31, 2024, 2023, and 2022, the noncontrolling interest in the net loss of subsidiaries was$0.2 million, $6.9 million, and $4.1 million, respectively.

Contingent Consideration

The Company estimates and records the acquisition date estimated fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value is recognized in the Consolidated Statements of Operations. An increase in the contingent consideration expected to be paid will result in a charge to operations in the period that the anticipated fair value of contingent consideration increases, while a decrease in the contingent consideration expected to be paid will result in a credit to operations in the period that the anticipated fair value of contingent consideration decreases. The estimate of the fair value of contingent consideration requires subjective assumptions to be made of future operating results, discount rates, and probabilities assigned to various potential operating result scenarios.

Incurred But Not Reported (“IBNR”) Reserve

IBNR reserve includes the estimated liability related to the claims of the Company’s self-funded medical insurance policy for employees. The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates for the development of IBNR claims using actuarial methods that are based on many variables, including historical patterns of claims, cost trends, and other factors. As of both December 31, 2024 and 2023, the Company recognized $0.9 millionof IBNR reserve recorded within Accrued expenses in the Consolidated Balance Sheets.

Recently Adopted Accounting Pronouncements

Segment Reporting

In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company adopted ASU 2023-07 as of December 31, 2024. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements. See Note 15. Segments for further discussion.

Recently Issued Accounting Pronouncements not yet Adopted

Income Taxes

In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the effects of ASU 2023-09 on its Consolidated Financial Statements.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued Accounting Standards Update No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)” (“ASU 2024-03”). ASU 2024-03 requires an entity to disclose specified information about certain costs and expense in the notes to financial statements at each interim and annual reporting period. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, with early adoption permitted. The Company is currently in the process of evaluating the effects of ASU 2024-03 on its Consolidated Financial Statements.

Induced Conversions of Convertible Debt Instruments

In November 2024, the FASB issued Accounting Standards Update No. 2024-04, “Debt - Debt with Conversion and Other Options (Subtopic 470-20)” (“ASU 2024-04”). ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual periods beginning after December 15, 2025, with early adoption permitted for all entities that have adopted the amendments in Accounting Standards Update No. 2020-06. The Company is currently in the process of evaluating the effects of ASU 2024-04 on its Consolidated Financial Statements.

3. Revenue

Disaggregation of Revenue

The Company’s revenue is from two types of relationships: (i) direct relationships and (ii) indirect relationships. The following table presents the Company’s revenue disaggregated by segment and by the type of relationship for the years ended December 31, 2024, 2023, and 2022.

(1)

Represents revenue eliminations between business units within the Consumer Payments segment and eliminations of intersegment revenues for consolidation purpose.

When the Company’s right to consideration for performance is contingent upon a future event or satisfaction of additional performance obligations, the amount of revenues the Company has recognized in excess of the amount the Company has billed to the client is recognized as a contract asset. The contract asset balance was $1.7 millionand $1.4 million as of December 31, 2024 and 2023, respectively, and is included within Prepaid expenses and other in the Consolidated Balance Sheets.

4. Earnings Per Share

During the years ended December 31, 2024 and 2023, basic and diluted net income (loss) per common share is the same since the inclusion of the assumed exchange of all Post-Merger Repay Units, unvested share-based awards, outstanding stock options, outstanding ESPP purchase rights and the Company’s convertible senior notes would have been anti-dilutive. During the year ended December 31, 2024, the aggregate principal amount of the 2029 Notes is not included in the computation of senior notes convertible into Class A Common Stock as the Company is required to settle such amount in cash. The Company may elect to settle the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2029 Notes being converted in cash, shares of the Company’s Class A common stock, or a combination of cash and shares. Because the average market price of the Company’s Class A common stock for the period was less than the conversion price, there are no incremental shares to be considered in the computation of senior notes convertible into Class A Common Stock.

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

For the years ended December 31, 2024 and 2023, 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:

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. Each share of the Company’s Class V common stock gives the holder the right to vote the number of shares corresponding to the number of Post-Merger Repay Units held by that holder, but shares of Class V common stock have no economic rights.

5. Business Dispositions

On February 15, 2023, the Company sold BCS within the Consumer Payments segment for cash proceeds of $41.9 million. During the year ended December 31, 2023, the Company recognized a loss of $10.0 million associated with the sale, comprised of the difference between the consideration received and the net carrying amount of the assets and liabilities of the business within Loss on business disposition in the Company’s Condensed Consolidated Statement of Operations.

In connection with the disposition of BCS, the Company recognized a reduction in goodwill of $35.3 million within the Consumer Payments segment. See Note 9. Goodwill for further discussion. For the years ended December 31, 2023 and 2022, BCS contributed $1.2 million and $9.8 million tothe Consumer Payments segment revenue, respectively.

6. Fair Value of Assets and Liabilities

The following table summarizes, by level within the fair value hierarchy, the estimated fair values of our assets and liabilities measured at fair value on a recurring or nonrecurring basis or disclosed, but not carried, at fair value in the Consolidated Balance Sheets as of the dates presented. There were no transfers into, out of, or between levels within the fair value hierarchy during any of the periods presented.

Cash and cash equivalents

Cash and cash equivalents contains operating cash and money market funds. They are classified within Level 1 of the fair value hierarchy, as the price is obtained from quoted market prices in an active market. The carrying amounts of the Company’s cash and cash equivalents approximate their fair values due to the short maturities and highly liquid nature of these accounts.

Restricted Cash

Restricted cash is classified within Level 1 of the fair value hierarchy under ASC 820, as the primary component is cash that is used as collateral for debts. The carrying amounts of the Company’s restricted cash approximate their fair values due to the highly liquid nature.

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.

Borrowings

The revolving credit facility and convertible senior notes are measured at amortized cost, which the carrying value is unpaid principal net of unamortized debt discount and debt issuance costs (“DDIC”). The estimated fair value of the revolving credit facility approximates the unpaid principal because its interest rate approximates market interest rates. The estimated fair value of convertible senior notes is determined using the quoted prices from over-the-counter markets. The estimated fair value of the Company’s borrowings is classified within Level 2 of the fair value hierarchy, as the market interest rates and quoted prices are generally observable and do not contain a high level of subjectivity. As of December 31, 2024 and 2023, the Company had $0 drawn against the revolving credit facility.

The following table provides the carrying value and estimated fair value of borrowings. See Note 10. Borrowings for further discussion.

Tax Receivable Agreement

Upon the completion of the Business Combination, the Company entered into the TRA with holders of Post-Merger Repay Units. As a result of the TRA, the Company established a liability in its consolidated financial statements. The Company elected to measure TRA at fair value under ASC 825 Financial Instruments - Fair Value Option to better align its economic value with Company’s risk management strategies. The fair value of TRA is based on estimates of discounted future cash flows associated with the estimated payments to the Post-Merger Repay Unit holders. These inputs are not observable in the market; thus, the TRA is classified within Level 3 of the fair value hierarchy, under ASC 820. The change in fair value is re-measured at each reporting period with the change in fair value being recognized in accordance with ASC 805.

The Company used a discount rate, also referred to as the Early Termination Rate, to determine the present value, based on a risk-free rate plus a spread, pursuant to the TRA. A rateof 6.2% was applied to the forecasted TRA payments as of December 31, 2024, 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 $14.7 million through exchanges, a payment, accretion expense and a valuation adjustment, related to a decrease in the income tax rate used to measure the TRA as of the Early Termination Date and a decrease in the discount rate, which was 7.10% as of December 31, 2023.

The following table provides a rollforward of the TRA related to the Business Combination and subsequent exchanges of Post-Merger Repay Units. See Note 14. Taxation for further discussion on the TRA.

7. Property and Equipment

Property and equipment consisted of the following:

Depreciation expense for property and equipment was $1.7 million, $2.4 million and $2.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.

8. Intangible Assets

The Company holds definite and indefinite-lived intangible assets. As of December 31, 2024 and 2023, the indefinite-lived intangible assets consist ofone trade name, arising from the acquisitions of Hawk Parent.

During the year ended December 31, 2024, the Company capitalized $44.1 million of software costs related to business operations and software integrations. In addition, the Company wrote-off fully amortized software costs and associated accumulated amortization of $151.7 million and fully amortized non-compete agreements and associated accumulated amortization of $4.4 million.

During the year ended December 31, 2023, the Company recognized an impairment of $0.1 million related to a trade name write-off of Media Payments related to the Business Payments segment. The impairment loss was recognized within Impairment loss in the Company’s Consolidated Statements of Operations.

During the year ended December 31, 2022, the Company recorded an impairment loss of $8.1 million related to the write-offs of certain trade names, of which $8.1 million and $0.0 million of the impairment loss related to the Consumer Payments and Business Payments segments, respectively. The impairment loss was recognized within Impairment loss in the Company’s Consolidated Statements of Operations.

Intangible assets consisted of the following:

The Company’s amortization expense for intangible assets was $102.0 million, $101.4 million and $105.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The estimated amortization expense for the next five years and thereafter in the aggregate is as follows:

9. Goodwill

The Company’s reporting units for goodwill impairment evaluation purposes are the same as its reportable segments. The Company concluded that goodwill wasnot impaired for either the Consumer Payments or the Business Payments segment as of December 31, 2024. As of December 31, 2024 and 2023, accumulated impairment loss was $75.7 million for the Business Payments segment. As of December 31, 2022, there wereno accumulated impairment losses for either the Consumer Payments or Business Payments segment.

The following table presents changes to goodwill by business segment, for the year ended December 31,2023:

There wereno changes in the carrying amount of goodwill for either the Consumer Payments or Business Payments segment during the year ended December 31, 2024.

During the year ended December 31, 2023, the Company recognized a reduction in goodwill of $35.3 million related to the disposition of BCS. In addition, the Company recognized an impairment of $75.7 million related to the Business Payments reporting unit during the annual goodwill impairment testing. Determining the fair value of a reporting unit is subject to uncertainty, as the Business Payments reporting unit was primarily impacted by a change in the discount rate. The impairment loss was recognized within Impairment loss in the Company’s Consolidated Statements of Operations. The fair value of the Business Payments reporting unit is considered a Level 3 fair value measurement as it includes certain unobservable inputs.

10. Borrowings

Amended Credit Agreement

On February 3, 2021, the Company announced the closing of a new undrawn $125.0 million senior secured revolving credit facility through Truist Bank. The Amended Credit Agreement replaces the Company’s Successor Credit Agreement, which included an undrawn $30.0 million Revolving Credit Facility.

On December 29, 2021, the Company increased its existing senior secured credit facilities by $60.0 million to a $185.0 million revolving credit facility pursuant to an amendment to the Amended Credit Agreement. The Company was in compliance with its restrictive covenants under the Amended Credit Agreement at December 31, 2024.

On February 9, 2023, the Company further amended the Amended Credit Agreement to replace London Inter-bank Offer Rate (“LIBOR”) with term SOFR as the interest rate benchmark.

On February 28, 2023, the Company repaid in full the entire amount of $20.0 million of the outstanding revolving credit facility. The undrawn capacity of the existing revolving credit facility under the Amended Credit Agreement became $185.0 million after the repayment.

Second Amended Credit Agreement

On July 10, 2024, the Company entered into a Second Amended and Restated Revolving Credit Agreement (the “Second Amended Credit Agreement”) with certain financial institutions, as lenders, and Truist Bank, as administrative agent. The Second Amended Credit Agreement amends and restates the Amended Credit Agreement. The Second Amended Credit Agreement establishes a $250.0 million senior secured revolving credit facility. The borrowings accrue interest at either base rate plus a margin of 0.75% to 1.75% or at an adjusted SOFR rate plus a margin of 1.75% to 2.75%, in each case depending on the total net leverage ratio, as defined in the Second Amended Credit Agreement. The unused commitment fees accrue at 0.25% on the daily amount of unused commitment. This facility matures on the earlier of (a)July 10, 2029, (b) the date that is 91 days prior to the maturity date of the 2026 Notes (defined below) (subject to certain exceptions for adequate liquidity) and (c) the date that is 91 days prior to the maturity date of the 2029 Notes (defined below) (subject to certain exceptions for adequate liquidity). The maturity date may be extended, subject to certain terms and conditions.

As of December 31, 2024, the Company had $0 drawn against the revolving credit facility. The Company paid $0.6 million and $0.5 million in fees related to unused commitments for theyears ended December 31, 2024 and 2023, respectively.

Convertible Senior Notes

On January 19, 2021, the Company issued $440.0 million in aggregate principal amount of 0.00% Convertible Senior Notes due 2026 (the “2026 Notes”) in a private placement. The initial conversion rate of the 2026 Notes was 29.7619 shares of Class A common stock per $1,000 principal amount of the 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. On July 8, 2024, the Company repurchased $220.0 million in aggregate principal amount of the 2026 Notes at a discount based on the quoted prices from over-the-counter markets, with a cash payment of $205.2 million. The repurchase of the 2026 Notes resulted in a gain of $13.1 million, net of a write-off of debt issuance costs relating to the repurchased principal during the year ended December 31, 2024 and was recorded within Gain on debt extinguishment in the Company’s Condensed Consolidated Statements of Operations.

On July 8, 2024, the Company issued $287.5 million aggregate principal amount of 2.875% Convertible Senior Notes due 2029 (the “2029 Notes”) in a private placement to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. $27.5 million aggregate principal amount of the 2029 Notes were sold in connection with the full exercise of the initial purchasers’ option to purchase such additional 2029 Notes offering pursuant to the purchase agreement. The net proceeds of the 2029 Notes were $279.2 million after fees and expenses incurred. The 2029 Notes bear interest at a fixed rate of 2.875% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2025. The initial conversion rate of the 2029 Notes was 76.8182 of the Class A common stock per $1,000 principal amount of the 2029 Notes (equivalent to an initial conversion price of approximately $13.02 per share of Class A common stock). The conversion rate is subject to customary adjustments upon the occurrence of certain events. Prior to April 15, 2029, the 2029 Notes are convertible at the option of the holders, only under certain circumstances, into cash up to the aggregate principal amount of the 2029 Notes to be converted and cash, shares of the Company’s Class A common stock, or a combination of cash and shares, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2029 Notes being converted. On or after April 15, 2029 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert the 2029 Notes at any time, regardless of the foregoing circumstances. The 2029 Notes will mature on July 15, 2029, unless earlier repurchased, redeemed, or converted in accordance with their terms.

On July 8, 2024, in connection with the issuance of the 2029 Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers or their respective affiliates and certain other financial institutions. The Company used approximately $39.2 million of the net proceeds from the 2029 Notes to pay the cost of the capped call transactions. The capped call transactions are expected generally to reduce the potential dilution to the Class A common stock upon any conversion of the 2029 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted the 2029 Notes. The capped call had an initial strike price of $13.02 per share and a cap price of $20.42 per share. The capped call transactions meet the accounting criteria to be reflected in stockholders’ equity and not accounted for as derivatives. The cost of $39.2 million incurred in connection with the capped call transactions was reflected as a reduction to Additional paid-in-capital in Company’s Consolidated Balance Sheets at December 31, 2024, net of applicable income taxes.

During the year ended December 31, 2024, the conversion contingencies of the convertible senior notes were not met, and the conversion terms of the 2026 Notes and 2029 Notes were not significantly changed. The Company’s interest expense on the convertible senior notes was $4.0 million and $0 for the years ended December 31, 2024 and 2023, respectively.

The following table summarizes the total borrowings under the credit agreements and convertible senior notes:

(1)

The Company incurred $3.0 million, $2.8 million and $2.8 million of interest expense for the amortization of deferred debt issuance costs for the years ended December 31, 2024, 2023 and 2022, respectively.

Following is a summary of principal maturities of borrowings outstanding as of December 31, 2024 for each of the next five years ending December 31 and in the aggregate:

11. 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 andten years, with the longest lease term having an expiration date in 2035. Most of these leases include one or more renewal options forsix years or less, andcertain leases also include lessee termination options. At lease commencement, the Company assesses whether it is reasonably certain to exercise a renewal option, or reasonably certain not to exercise a termination option, by considering various economic factors. Options that are reasonably certain of being exercised are factored into the determination of the lease term, and related payments are included in the calculation of the right-of-use asset and lease liability.

On December 31, 2023, the Company entered into an amendment forone of the existing leases to relocate to another space within the building, commencing on August 1, 2024. The landlord provided a construction allowance, in the form of reimbursements, of up to $1.4 million related to approved improvements and renovations of the landlord’s property during the construction period. On July 25, 2024, the Company further amended and restated the agreement which modified the commencement date of the lease to September 1, 2024.

On July 12, 2024, the Company entered an agreement with a third party to sublease one of the operating leases. No impairment test was performed due to the anticipated sublease income exceeding the lease costs for the term of the sublease.

During the year ended December 31, 2024 and 2023, the Company recognized sublease income of $0.3 million and $0.1 million, respectively, within Other (loss) income in the Company’s Consolidated Statements of Operations.

The components of lease costs are presented in the following table:

Amounts reported in the Consolidated Balance Sheets were as follows:

Other information related to leases are as follows:

The following table presents a maturity analysis of the Company’s operating leases liabilities as of December 31, 2024:

12. Related Party Transactions

The Company incurred transaction costs on behalf of related parties of $0, $5.4 million and $10.6 million for the years ended December 31, 2024, 2023 and 2022, 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 TRA payables for related parties of $27.5 million and $25.4 million as of December 31, 2024 and 2023, respectively. These amounts were owed to holders of the Post-Merger Repay Units.

13. Share Based Compensation

Omnibus Incentive Plan

In connection with the Business Combination, Thunder Bridge shareholders considered and approved the Incentive Plan which resulted in the reservation of 7,326,728 shares of common stock for issuance thereunder. The Incentive Plan became effective immediately upon the closing of the Business Combination. On June 8, 2022, the Company’s shareholders approved an amendment and restatement of the Incentive Plan, which, among other modifications, increased the number of shares available for awards by 6,500,000. On May 30, 2024, the Company’s shareholders approved an amendment and restatement of the Incentive Plan, which, among other modifications, increased the number of shares available for awards by 8,400,000, so that the total reserved shares for issuance under the Incentive Plan is 22,226,728.

Under this plan, the Company currently has four types of share-based compensation awards outstanding: PSUs, RSAs, RSUs and PSOs.

The following table summarized share-based compensation expense and the related income tax benefit recognized for the Company’s share-based compensation awards:

RSAs and RSUs

The grant date fair value of RSAs and RSUs, which is based on the quoted market value of the Company’s Class A common stock on the grant date, is recognized as share-based compensation expense on a graded vesting basis over the requisite service period. Most RSAs vest in equal annual installments over the requisite service period (which is typically a four-year period). In limited cases, RSAs may vest on the grant date with a one-year holding period. RSUs vest at the first anniversary of the grant date. Restricted shares cannot be sold or transferred until they have vested.

Activity for RSAs for the year ended December 31, 2024 was as follows:

Activity for RSUs for the year ended December 31, 2024 was as follows:

(1)

The forfeited shares include shares forfeited as a result of employee terminations and shares withheld to satisfy employees’ tax withholding and payment obligations in connection with the vesting of restricted stock awards under the Incentive Plan during the year ended December 31, 2024; further, these forfeited shares are added back to the amount of shares available for grant under the Incentive Plan.

PSUs

The Company has two types of PSU grant agreements, with one vesting based on relative total stock return (“TSR PSUs”) and one vesting based on adjusted EBITDA growth (“EBITDA PSUs”). TSR PSUs are based on a performance condition, such that the Company’s total shareholder return relative to a comparator group for the applicable performance period determines the number of shares (if any) that is ultimately issued upon vesting. The grant date fair value of TSR PSUs is estimated using the Monte Carlo simulation. Compensation expense of TSR PSUs is recognized on a straight-line basis over the applicable performance period. The performance and service period for TSR PSUs is three years. EBITDA PSUs are based on a performance condition, such that the growth of the Company’s adjusted EBITDA during each fiscal year within the applicable performance period determines the number of shares (if any) that is ultimately issued upon vesting. The grant date fair value of EBITDA PSUs is based on the quoted market value of the Company’s Class A common stock on the grant date. As the Company determines that the performance condition associated with EBITDA PSUs is probable, the attributable compensation expense is recognized on a straight-line basis over the applicable performance period. If, in the future, it is determined that achieving the performance condition related to EBITDA PSUs is improbable, the Company would reverse any compensation expense recognized to date associated with EBITDA PSUs. The performance and service period for EBITDA PSUs is three years.

Activity for PSUs for the year ended December 31, 2024 was as follows:

(1)

Represent shares to be paid out at 100% target level.

The weighted average grant date fair value of TSR PSUs granted during the year ended December 31, 2024 and 2023 was $16.36 and $8.87, respectively. Fair value was estimated on the date of grant using Monte Carlo simulation with the following weighted average assumptions:

The risk-free interest rate was based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the contractual term of three years. The assumption on expected volatility was based on the average of historical peer group volatilities using daily prices. Correlation coefficients are calculated between the index and the peer group using the same daily stock prices that are used for the expected volatility assumptions. The dividend yield assumption was determined as 0% since the Company pays no dividends. Expected term was based on the time period from the grant date to the end of the performance period.

For PSUs, RSAs, and RSUs vested during the year ended December 31, 2024, the total fair value, based upon the Company’s Class A common stock price at the date vested, was $14.8 million. Unrecognized compensation expense related to unvested PSUs, RSAs and RSUs was $25.6 million as of December 31, 2024, which is expected to be recognized as expense over the weighted-average period of 1.76 years.

Stock Options

Stock options are granted with an exercise price equal to the market value of the Company’s common stock on the grant date and have a term ofseven years. Stock options vest in three tranches, and each tranche may vest upon the later of (i)

thedate that the market value of the Company’s common stock for a period of twenty consecutive trading days exceeds a stock price goal and (ii) the corresponding time based service requirement.

Activity for PSOsfor the year ended December 31, 2024 was as follows:

The Company recognized compensation expense for PSOs of $1.1 million during the year ended December 31, 2024. Unrecognized compensation expense related to outstanding PSOs was $0.5 million at December 31, 2024, which is expected to be recognized as expense over the weighted-average period of 1.0 year. During the year ended December 31, 2024, cash received from exercise of PSOs was $0.4 million, and $0.0 million of tax benefit was recognized from PSOs exercise.

The weighted average grant date fair value of PSOs granted during the year ended December 31, 2023 was $2.61. Fair value was estimated on the date of grant using Monte Carlo simulation with the following weighted average assumptions:

The risk-free interest rate was based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the contractual term of seven years. The assumption on expected volatility was based on the average of historical peer group volatilities using daily prices. The dividend yield assumption was determined as 0% since the Company pays no dividends. Expected term was based on the simplified method outlined in Staff Accounting Bulletin No. 14, Share-Based Payment due to the fact that Company does not have sufficient historical data upon which to estimate an expected term. Given that the Company’s Class A common stock has been publicly traded for less than seven years, the Company believes that the simplified method is an applicable methodology to estimate the expected term of the options as of the grant date.

14. Taxation

Repay Holdings Corporation is taxed as a corporation and is subject to paying corporate federal, state and local taxes on the income allocated to it from Hawk Parent, based upon Repay Holding Corporation’s economic interest held in Hawk Parent, as well as any stand-alone income or loss it generates. Hawk Parent is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Hawk Parent is not subject to U.S. federal and certain state and local income taxes. Hawk Parent’s members, including Repay Holdings Corporation, are liable for federal, state and local income taxes based on their allocable share of Hawk Parent’s pass-through taxable income.

The components of loss before income taxes are as follows:

The Company recorded a provision for income tax as follows:

A reconciliation of the United States statutory income tax rate to the Company’s effective income tax rate is as follows for the years indicated:

The Company’s effective tax rate was 5.3%,1.8% and 41.4% for the years ended December 31, 2024, 2023 and 2022, respectively. The comparison of the Company’s effective tax rate to the U.S. statutory tax rate of 21% was primarily influenced by the fact that the Company is not liable for the income taxes on the portion of Hawk Parent’s earnings that are attributable to noncontrolling interests, the calculation of the Federal and state research and development credit and its impact on income taxes and the excess tax shortfall related to share-based compensation. Further, the comparison is reflective of the effect of remeasuring net deferred tax assets for state tax rate changes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Details of the Company’s deferred tax assets and liabilities are as follows:

As a result of the finalization of 2023 income tax returns, Post-Merger Repay Unit exchanges during the year ended December 31, 2024, and estimates of current year activity, the Company recognized a reduction of the deferred tax asset (“DTA”) and offsetting deferred tax liability (“DTL”) in the amount of $3.2 million, compared to a reduction of $3.8 million during the year ended December 31, 2023, to account for the portion of the Company’s outside basis in the partnership interest that it will not recover through tax deductions, a ceiling rule limitation arising under Internal Revenue Code (the “Code”) sec. 704(c). As the ceiling rule causes taxable income allocations to be in excess of 704(b) book allocations the DTL will unwind, leaving only the DTA, which may only be recovered through the sale of the partnership interest in Hawk Parent. The Company has concluded, based on the weight of all positive and negative evidence, that all of the DTA associated with the ceiling rule limitation is not likely to be realized as of December 31, 2024. As such, a 100% valuation allowance was recognized.

As of December 31, 2024, the Company had net tax effected federal and state (net of federal benefit) net operating losses (“NOLs”) of $33.4 million, of which approximately $29.3 million have an indefinite life. NOLs of approximately $4.0 million and $0.1 million will begin to expire in 2034 and 2028, respectively. As of December 31, 2024, the Company had federal and state research tax credit carryforwards of $3.8 million and $1.3 million, respectively, which will begin to expire in 2039 and 2032, respectively. As of December 31, 2024, the Company had a federal foreign tax credit carryforward of $0.5 million. The Company believes as of December 31, 2024, based on the weight of all positive and negative evidence, it is more likely than not that the results of future operations will generate sufficient taxable income to realize the NOLs and tax credits and, as such, no valuation allowance was recorded.

The Company is no longer subject to U.S. Federal, state, or local examinations by tax authorities for years prior to 2020. No uncertain tax positions existed as of December 31, 2024.

Tax Receivable Agreement Liability

Pursuant to our election under Section 754 of the Code, we expect to obtain an increase in our share of the tax basis in the net assets of Hawk Parent when Post-Merger Repay Units are redeemed or exchanged for Class A common stock of Repay Holdings Corporation. The Company intends to treat any redemptions and exchanges of Post-Merger Repay Units as direct purchases for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

On July 11, 2019, the Company entered into a TRA that provides for the payment by the Company of 100% of the amount of any tax benefits realized, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of Hawk Parent resulting from any redemptions or exchanges of Post-Merger Repay Units and from our acquisition of the equity of the selling Hawk Parent members, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the“TRA Payments”). The TRA Payments are not conditioned upon any continued ownership interest in Hawk Parent or Repay. The rights of each party under the TRA other than the Company are assignable. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors.

As of December 31, 2024, the Company had a liability of$203.6 million related to the fair value of its projected obligations under the TRA, which is captioned as the tax receivable agreement liability in the Company’s Consolidated Balance Sheets. The increase of$14.7 million in the TRA liability for the year ended December 31, 2024, was primarily a result of the decrease in the Early Termination Rate, subsequent exchanges of Post-Merger Repay Units occurring during the period, and accretion, partially offset by a decrease in the tax rate and a payment of the current portion of the TRA liability, as reported at December 31, 2023, over the same period.

15. Segments

The Company organizes its business structure aroundtwo operating segments based on review of discrete financial results for each of the operating segments by the Company’s chief operating decision maker (“CODM”), for performance assessment and resource allocation purposes. Each of the Company’s operating segments represents a reportable segment based on ASC 280, Segment Reporting. The Company’stwo reportable segments are as follows: (1) Consumer Payments and (2) Business Payments. The Company’s CODM is the Chief Executive Officer. For both segments, the CODM uses the segment gross profit to allocate resources (including employees, property, and financial or capital resources) and assess performance of each segment predominantly in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a monthly basis for the gross profit measure when making decisions about allocating capital and personnel to the segments.

The following table presents revenue, cost of services and gross profit for each reportable segment.

(1)

Represents revenue eliminations between business units within the Consumer Payments segment and eliminations of intersegment revenues for consolidation purpose.

(2)

Represents revenue less costs of services (exclusive of depreciation and amortization).

(3)

Represents total operating expenses less costs of services (exclusive of depreciation and amortization).

Revenue and costs of services are attributed directly to each segment. There is no significant concentration of revenue or assets in foreign countries as of December 31, 2024. The CODM reporting package does not include interest income (expense), net, depreciation and amortization, income tax benefit (expense) and discrete asset details of the operating segments as this information is not considered by the CODM for resource allocation or other segment analysis purposes.

16. Subsequent Events

Management has evaluated subsequent events and their potential effects on these 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.