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EVO Reports Third Quarter 2019 Results

EVO Reports Third Quarter 2019 Results

ATLANTA, Nov. 07, 2019 (GLOBE NEWSWIRE) -- EVO Payments, Inc. (EVOP) (“EVO” or the “Company”) today announced its third quarter 2019 financial results. For the third quarter ended September 30, 2019, reported revenue was $122.4 million, compared to $144.8 million in the prior year, which reflects the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), effective January 1, 2019. Adjusted revenue for the third quarter was $152.6 million, compared to $144.8 million in the prior year, an increase of 5%. On a currency neutral basis, adjusted revenue for the third quarter increased 8%. On a GAAP basis for the third quarter, net loss was $5.0 million or a loss of $0.05 per share, basic and diluted, attributable to EVO Payments, Inc. Adjusted EBITDA increased 10% to $42.2 million for the quarter, compared to $38.4 million in the prior year. On a currency-neutral basis, adjusted EBITDA grew 13% over the prior year.

“EVO delivered strong growth once again in the third quarter” stated James G. Kelly, Chief Executive Officer of EVO. “We expanded our tech-enabled businesses through enhanced capabilities and distribution in both Europe and North America to secure additional growth opportunities to complement our bank referral channels. This quarter we also announced the acquisition of Delego to support our B2B business in the U.S. and Canada, as there is a long runway in this fast-growing component of the payments market.”

Outlook
“Based on our financial performance in the nine months ended September 30, 2019, and our outlook for the remainder of the year, we are providing an update to our 2019 guidance,” stated James G. Kelly, Chief Executive Officer of EVO. We now expect reported revenue with the impact of ASC 606 to range from $486 million to $490 million. On an adjusted basis, adding back the impact of ASC 606, we now expect revenue to range from $596 million to $600 million for growth of 5% to 6% over 2018. On a currency neutral basis, we now expect adjusted revenue to grow 8% to 9% compared to 2018 results.

Net loss is expected to be in a range of $18 million to $13 million compared to a net loss of $99 million in 2018. Adjusted EBITDA is expected to be in a range of $159 million to $163 million, reflecting growth of 7% to 10% over 2018 adjusted EBITDA or 10% to 13% on a currency-neutral basis. Net loss per share attributable to EVO on a GAAP basis is now expected to be 19 cents to 15 cents, compared to a net loss per share attributable to EVO of 70 cents in 2018. Pro forma adjusted net income per share is now expected to be in the range of 58 cents to 61 cents, reflecting growth of 12% to 17%. These numbers are calculated based on a pro forma share count of 86.2 million shares, which includes all share classes.”

Conference call
EVO’s management will host a conference call for investors at 8:00 a.m. Eastern Time on Thursday, November 7, 2019 to discuss the results. Participants may access the conference call via the investor relations section of the Company’s website at www.evopayments.com, or participants may also dial (877) 356-5729 inside the U.S. and Canada and (629) 228-0718 outside the U.S. and Canada to listen. The conference ID number is 2555369. A recording of the call will be archived on the Company's investor relations website following the live call.

Forward-Looking Statements
This release and the accompanying earnings conference call contain statements about future events and expectations that constitute forward-looking statements. Forward-looking statements are often identified by words such as “anticipates,” “believes,” “continues,” “estimates,” “expects,” “goal,” “objectives,” “intends,” “may,” “opportunity,” “plans,” “potential,” “near-term,” “long-term,” “projections,” “assumptions,” “projects,” “guidance,” “forecasts,” “outlook,” “target,” “trends,” “should,” “could,” “would,” “will” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on our current beliefs, assumptions, estimates and expectations, taking into account the information currently available to us and are not guarantees of future results or performance. Forward-looking statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements, and you should not place undue reliance on such statements. Factors that could contribute to these differences include the following: (1) our ability to anticipate and respond to changing industry trends and the needs and preferences of our customers and consumers; (2) the impact of substantial and increasingly intense competition; (3) the impact of changes in the competitive landscape, including disintermediation from other participants in the payments chain; (4) the effects of global, domestic and local economic, political and other conditions; (5) our compliance with governmental regulations and other legal obligations, particularly related to privacy, data protection and information security, and consumer protection laws; (6) our ability to protect our systems and data from continually evolving cybersecurity risks or other technological risks; (7) failures in our processing systems, software defects, computer viruses and development delays; (8) degradation of the quality of the products and services we offer, including support services; (9) risks associated with our ability to successfully complete, integrate and realize the expected benefits of acquisitions; (10) continued consolidation in the banking and payment services industries, including the impact of the combination of Banco Popular and Grupo Santander and the related bank branch consolidations; (11) increased customer, referral partner, or sales partner attrition; (12) the incurrence of chargebacks; (13) failure to maintain or collect reimbursements; (14) fraud by merchants or others; (15) the failure of our third-party vendors to fulfill their obligations; (16) failure to maintain merchant and sales relationships and financial institution alliances; (17) ineffective risk management policies and procedures; (18) our inability to retain smaller-sized merchants and the impact of economic fluctuations on such merchants, (19) damage to our reputation, or the reputation of our partners; (20) seasonality and volatility; (21) our inability to recruit, retain and develop qualified personnel; (22) geopolitical and other risks associated with our operations outside of the United States; (23) any decline in the use of cards as a payment mechanism or other adverse developments with respect to the card industry in general; (24) increases in card network fees; (25) failure to comply with card networks requirements; (26) a requirement to purchase our eService subsidiary in Poland; (27) changes in foreign currency exchange rates; (28) future impairment charges; (29) risks relating to our indebtedness, including our ability to raise additional capital to fund our operations on economized terms or at all and exposure to interest rate risks; (30) changes to, or the potential phasing out of, LIBOR; (31) restrictions imposed by our credit facilities and outstanding indebtedness; (32) participation in accelerated funding programs; (33) failure to enforce and protect our intellectual property rights; (34) failure to comply with, or changes in, laws, regulations and enforcement activities, including those relating to corruption, anti-money laundering, data privacy and financial institutions; (35) impact of new or revised tax regulations; (36) legal proceedings; (37) our dependence on distributions from our subsidiary EVO Investco, LLC to pay our taxes and expenses, including certain payments to the Continuing LLC Owners (as defined in our periodic reports) and, in the event that any tax benefits are disallowed, our inability to be reimbursed for payments made to the Continuing LLC Owners; (38) our organizational structure, including benefits available to the Continuing LLC Owners that are not available to holders of our Class A common stock to the same extent; (39) the risk that we could be deemed an investment company under the Investment Company Act of 1940; (40) the significant influence the Continuing LLC Owners continue to have over us, including control over decisions that require the approval of stockholders; (41) certain provisions of Delaware law and antitakeover provisions in our organizational documents could delay or prevent a change of control; (42) the effect of the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), which allows us to reduce our SEC disclosure and postpone compliance with certain laws and regulations intended to protect investors; (43) the impact of no longer qualifying as an “emerging growth company” under the JOBS Act after December 31, 2019; (44) certain provisions in our organizational documents, including those that provide Delaware as the exclusive forum for litigation matters and that renounce the doctrine of corporate opportunity; (45) our ability to establish and maintain effective internal control over financial reporting and disclosure controls and procedures; (46) changes in our stock price, including relating to downgrades, analyst reports, and future sales by us or by existing stockholders; and (47) the other risks and uncertainties contained from time to time in our filings with the SEC, including our quarterly reports on Form 10-Q and our annual report on From 10-K. We qualify any forward-looking statements entirely by the cautionary factors listed above, among others. Other risks, uncertainties and factors, not listed above, could also cause our actual results to differ materially from those projected in any forward-looking statements we make. We assume no obligation to update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Non-GAAP financial measures

EVO Payments, Inc. has supplemented revenue, segment profit, net income/(loss) and earnings per share information determined in accordance with GAAP by providing these and other measures on an adjusted basis in this release to assist with evaluating performance. The non-GAAP financial measures presented herein should not be considered in isolation of, as a substitute for, or superior to, financial information prepared in accordance with GAAP, and such measures may not be comparable to those reported by other companies. Management uses these adjusted financial performance measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Management also uses these non-GAAP financial measures, together with other metrics, to set goals for and measure the performance of the business and to determine incentive compensation. The Company believes that these adjusted measures provide useful information to investors about the Company’s ongoing underlying operating performance and enhance the overall understanding of financial performance of the Company’s core business by presenting the Company’s results without giving effect to equity-based compensation, giving pro forma effect to the Company’s going forward effective tax rate following its Up-C reorganization, costs related to restructuring transactions, acquisition costs and other transitionary costs. This release also contains information on various financial measures presented on a currency-neutral basis. The Company believes these currency-neutral measures provide useful information to investors about the Company’s performance without taking into account fluctuations caused by currency exchange rates in the non-U.S. jurisdictions where the Company operates. Reconciliations of each non-GAAP measure to the most directly comparable GAAP measure are included in the schedules to this release. The Company also presents adjustments to its reported segment profit in this release. Segment profit is adjusted to exclude the impact of share-based compensation, transition, acquisition-related and integration costs.

Adjusted EBITDA is a non-GAAP measure presented in this release. Adjusted EBITDA does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, adjusted EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA is included in this release because it is a key metric used by the Company’s management and board of directors to assess the Company’s financial performance. The presentation of Adjusted EBITDA is intended to provide additional information to investors about the Company’s results of operations that management utilizes on an ongoing basis to assess the Company’s core operating performance. Adjusted EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in the industry. Adjusted EBITDA is defined as income before provision for income taxes, net interest expense, and depreciation and amortization, excluding the impact of share-based compensation, transition, acquisition-related and integration costs. The calculation of adjusted EBITDA has limitations as an analytical tool, including: (a) it does not reflect the Company’s cash expenditures, or future requirements for capital expenditures or contractual commitments; (b) it does not reflect changes in, or cash requirements for, the Company’s working capital needs; (c) it does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on the Company’s indebtedness; (d) it does not reflect the Company’s tax expense or the cash requirements to pay the Company’s taxes; and (e) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements.

About EVO Payments, Inc.

EVO Payments, Inc. (EVOP) is a leading payment technology and services provider. EVO offers an array of innovative, reliable, and secure payment solutions to merchants ranging from small and mid-size enterprises to multinational companies and organizations across the globe. As a fully integrated merchant acquirer and payment processor in over 50 markets and 150 currencies worldwide, EVO provides competitive solutions that promote business growth, increase customer loyalty, and enhance data security in the international markets it serves.

EVO Payments, Inc.
Contact:
Sarah Jane Perry
Investor Relations & Corporate Communications Manager
770-709-7365
investor.relations@evopayments.com

EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 1 - Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

% change

2019

2018

% change

Revenue

$

122,363

$

144,758

(15

%)

$

356,398

$

413,931

(14

%)

Operating expenses:

Cost of services and products, exclusive of depreciation and amortization shown separately below

24,065

46,949

(49

%)

72,900

141,826

(49

%)

Selling, general and administrative

63,864

67,802

(6

%)

196,592

242,982

(19

%)

Depreciation and amortization

22,804

20,488

11

%

68,412

61,308

12

%

Impairment of intangible assets

3,872

-

NM

10,504

-

NM

Total operating expenses

114,605

135,239

(15

%)

348,408

446,116

(22

%)

Income (loss) from operations

7,758

9,519

(18

%)

7,990

(32,185

)

NM

Other (expense) income:

Interest income

858

507

69

%

2,268

1,622

40

%

Interest expense

(11,085

)

(10,583

)

5

%

(34,006

)

(47,453

)

(28

%)

Income (loss) from investment in unconsolidated investees

167

(36

)

(564

%)

436

725

(40

%)

Gain on acquisition of unconsolidated investee

-

8,659

NM

-

8,659

NM

Other income (expense), net

888

211

321

%

2,498

(2,963

)

NM

Total other expense

(9,172

)

(1,242

)

638

%

(28,804

)

(39,410

)

(27

%)

(Loss) income before income taxes

(1,414

)

8,277

(117

%)

(20,814

)

(71,595

)

(71

%)

Income tax (expense) benefit

(3,590

)

(32,155

)

(89

%)

618

(7,974

)

(108

%)

Net loss

(5,004

)

(23,878

)

(79

%)

(20,196

)

(79,569

)

(75

%)

Less: Net income attributable to non-controlling interests in consolidated entities

(2,220

)

(2,433

)

(9

%)

(4,798

)

(4,434

)

8

%

Net income (loss) attributable to non-controlling interests of EVO Investco, LLC

5,380

(1,078

)

NM

18,323

73,328

(75

%)

Net loss attributable to EVO Payments, Inc.

$

(1,844

)

$

(27,389

)

(93

%)

$

(6,671

)

$

(10,675

)

(38

%)

Earnings per share

Basic

($0.05

)

($1.51

)

($0.22

)

($0.60

)

Diluted

($0.05

)

($1.51

)

($0.22

)

($0.60

)

Weighted average Class A common stock outstanding

Basic

34,634,567

18,163,344

30,996,506

17,901,484

Diluted

34,634,567

18,163,344

30,996,506

17,901,484


EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 2 - Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and interest data)

September 30,

December 31,

2019

2018

Assets

Current assets:

Cash and cash equivalents

$

311,809

$

350,697

Accounts receivable, net

16,149

13,248

Other receivables

18,530

56,518

Due from related parties

34

1,871

Inventory

9,899

8,867

Settlement processing assets

310,206

248,330

Other current assets

14,807

11,817

Total current assets

681,434

691,348

Equipment and improvements, net

91,712

103,046

Goodwill

371,523

353,011

Intangible assets, net

261,825

290,139

Investment in unconsolidated investees

2,034

1,753

Due from related parties

-

915

Deferred tax asset

171,016

72,296

Other assets

20,105

21,879

Total assets

$

1,599,649

$

1,534,387

Liabilities and Shareholders' Deficit

Current liabilities:

Settlement lines of credit

$

17,610

$

41,819

Current portion of long-term debt

5,618

7,191

Accounts payable

10,551

48,935

Accrued expenses

102,837

112,281

Settlement processing obligations

467,776

428,328

Due to related parties

4,596

4,824

Total current liabilities

608,988

643,378

Long-term debt, net of current portion

702,053

676,865

Due to related parties

385

385

Deferred tax liability

17,364

13,519

Tax receivable agreement obligations, inclusive of related party liability of $111.5 million and $40.7 million at September 30, 2019 and December 31, 2018, respectively

120,912

47,221

ISO reserves

2,751

2,684

Other long-term liabilities

1,758

2,924

Total liabilities

1,454,211

1,386,976

Commitments and contingencies

Redeemable non-controlling interests

1,108,644

1,010,093

Shareholders' deficit:

Class A common stock (par value $0.0001), Authorized - 200,000,000 shares, Issued and Outstanding - 36,711,625 and 26,025,189 shares at September 30, 2019 and December 31, 2018, respectively

4

3

Class B common stock (par value $0.0001), Authorized - 40,000,000 shares, Issued and Outstanding - 34,663,538 and 35,913,538 shares at September 30, 2019 and December 31, 2018, respectively

3

4

Class C common stock (par value $0.0001), Authorized - 4,000,000 shares, Issued and Outstanding - 2,333,955 and 2,461,055 shares at September 30, 2019 and December 31, 2018, respectively

-

-

Class D common stock (par value $0.0001), Authorized - 32,000,000 shares, Issued and Outstanding - 8,354,978 and 16,785,552 shares at September 30, 2019 and December 31, 2018, respectively

1

1

Additional paid-in capital

-

178,176

Accumulated deficit attributable to Class A common stock

(471,603

)

(223,799

)

Accumulated other comprehensive loss

(8,855

)

(2,993

)

Total EVO Payments, Inc. shareholders' deficit

(480,450

)

(48,608

)

Nonredeemable non-controlling interests

(482,756

)

(814,074

)

Total deficit

(963,206

)

(862,682

)

Total liabilities and deficit

$

1,599,649

$

1,534,387


EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 3 - Condensed Consolidated Statement of Cash Flows (unaudited)

(in thousands)

Nine months ended September 30,

2019

2018

Cash flows from operating activities:

Net loss

$

(20,196

)

$

(79,569

)

Adjustments to reconcile net loss to net cash

provided by (used in) operating activities:

Depreciation and amortization

68,412

61,308

Amortization of deferred financing costs

2,006

7,856

Change in fair value of contingent consideration

2,362

-

Loss on extinguishment of debt

-

2,055

Gain on sale of investment

(250

)

-

Share-based compensation expense

7,841

53,893

Impairment of intangible assets

10,504

-

Deferred taxes, net

(7,880

)

504

Other

233

(8,053

)

Changes in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable, net

(2,546

)

5,822

Other receivables

32,739

3,993

Inventory

(1,487

)

3,555

Other current assets

(2,816

)

(5,165

)

Other assets

(666

)

53

Related parties, net

2,288

(3,001

)

Accounts payable

(38,973

)

(16,744

)

Accrued expenses

(7,234

)

28,900

Settlement processing funds, net

(15,579

)

10,899

Other

67

42

Net cash provided by operating activities

28,825

66,348

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired

(38,832

)

(48,547

)

Purchase of equipment and improvements

(24,639

)

(38,963

)

Acquisition of intangible assets

(4,759

)

(19,893

)

Net proceeds from sale of investments

250

-

Issuance of notes receivable

-

(20

)

Collections of notes receivable

1,812

91

Collection of deferred cash consideration

4,882

-

Net cash used in investing activities

(61,286

)

(107,332

)

Cash flows from financing activities:

Proceeds from long-term debt

316,479

655,732

Repayments of long-term debt

(318,919

)

(743,342

)

Deferred financing costs paid

(2

)

(3,899

)

Contingent consideration paid

(5,919

)

(1,621

)

Deferred cash consideration paid

-

(65,000

)

Acquisition of additional non-controlling interest

-

(16,916

)

IPO proceeds, net of underwriter fees

-

231,500

Secondary offering proceeds

258,522

24,967

Purchase of LLC Interests, Class B common stock, and Class D common stock in connection with Secondary Offerings

(239,538

)

-

Repurchases of shares to satisfy minimum tax withholding

(1,716

)

-

Proceeds from exercise of common stock options

810

-

Distribution to non-controlling interests holders

(6,493

)

(6,136

)

Net cash provided by financing activities

3,224

75,285

Effect of exchange rate changes on cash and cash equivalents

(9,651

)

(3,959

)

Net (decrease) increase in cash and cash equivalents

(38,888

)

30,342

Cash and cash equivalents, beginning of period

350,697

205,142

Cash and cash equivalents, end of period

$

311,809

$

235,484


EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 4 - Reconciliation of GAAP to Non-GAAP measures

(in thousands)

Three months ended September 30,

Nine Months Ended September 30,

2019

2018

% change

2019

2018

% change

Revenue

$

122,363

$

144,758

(15

%)

$

356,398

$

413,931

(14

%)

Network fees1

30,234

-

NM

81,608

-

NM

Adjusted revenue

152,597

144,758

5

%

438,006

413,931

6

%

Currency impact2

-

(3,674

)

NM

-

(12,649

)

NM

Currency-neutral adjusted revenue

152,597

141,084

8

%

438,006

401,282

9

%

Net loss

(5,004

)

(23,878

)

(79

%)

(20,196

)

(79,569

)

(75

%)

Less: Net income attributable to non-controlling interests in consolidated entities

(2,220

)

(2,433

)

(9

%)

(4,798

)

(4,434

)

8

%