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EVO Reports Third Quarter 2020 Results

·15 min read

EVO Payments, Inc. (NASDAQ: EVOP) ("EVO" or the "Company") today announced its third quarter 2020 financial results. For the third quarter ended September 30, 2020, reported revenue was $117.0 million compared to $122.4 million in the prior year. On a reported and currency neutral basis, revenue for the third quarter decreased 4%. On a GAAP basis for the quarter ended September 30, 2020, net income was $14.6 million compared to net loss of $5.0 million in the prior year. Net income for the current quarter includes an after-tax gain of $14.1 million on the Company’s investment in Visa Series A preferred stock. Adjusted EBITDA decreased 4% to $40.4 million for the quarter, and on a currency neutral basis, adjusted EBITDA declined 2% compared to the prior year.

For the nine months ended September 30, 2020, reported revenue was $322.4 million compared to $356.4 million in the prior year, a decrease of 10%. On a currency neutral basis, reported revenue for the nine months ended September 30, 2020 decreased 7%. On a GAAP basis for the nine months ended September 30, 2020, the Company recognized a net loss of $8.0 million, an improvement of 60% compared to the prior year. Adjusted EBITDA decreased 9% to $101.9 million for the nine months ended September 30, 2020. On a currency neutral basis, adjusted EBITDA declined 5% compared to the prior year.

"We have taken the appropriate steps to realign our cost structure, which has improved our cash flows, leverage, and margin," said James G. Kelly, Chief Executive Officer of EVO. "As a result, I am pleased with the financial results we delivered in the third quarter. In addition, we expanded our distribution through new merchant sales and additional referral partners and continued to invest in new products and solutions. We remain keenly focused on M&A opportunities and are well-positioned to capitalize on the acceleration we are seeing in digital payments."

Conference Call

EVO’s management will host a conference call for investors at 8:00 a.m. Eastern Time on Thursday, November 5, 2020 to discuss the results. Participants may register for the conference call via the investor relations section of the Company’s website at investor.evopayments.com or at http://www.directeventreg.com/registration/event/3399761. A recording of the call will be archived on the Company's investor relations website following the live call.

Additional Resources

To assist in understanding the impact COVID-19 is having on our business, the Company has posted a summary of its recent payment volume trends on its investor relations website at https://investor.evopayments.com/3Q20paymentvolume.

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) the continuing impact of the COVID-19 pandemic on our business and our merchants, including the impact of social distancing, shelter-in-place, shutdowns of non-essential businesses and similar measures imposed or undertaken by governments; (2) our ability to anticipate and respond to changing industry trends and the needs and preferences of our customers and consumers; (3) the impact of substantial and increasingly intense competition; (4) the impact of changes in the competitive landscape, including disintermediation from other participants in the payments chain; (5) the effects of global economic, political, market, health and other conditions, including the impact of the COVID-19 pandemic; (6) our compliance with governmental regulations and other legal obligations, particularly related to privacy, data protection, information security, and consumer protection laws; (7) our ability to protect our systems and data from continually evolving cybersecurity risks or other technological risks; (8) failures in our processing systems, software defects, computer viruses, and development delays; (9) degradation of the quality of the products and services we offer, including support services; (10) risks associated with our ability to successfully complete, integrate and realize the expected benefits of acquisitions; (11) 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 consolidation; (12) increased customer, referral partner, or sales partner attrition; (13) the incurrence of chargebacks; (14) failure to maintain or collect reimbursements; (15) fraud by merchants or others; (16) the failure of our third-party vendors to fulfill their obligations; (17) failure to maintain merchant and sales relationships or financial institution alliances; (18) ineffective risk management policies and procedures; (19) our inability to retain smaller-sized merchants and the impact of economic fluctuations on such merchants, (20) damage to our reputation, or the reputation of our partners; (21) seasonality and volatility; (22) our inability to recruit, retain and develop qualified personnel; (23) geopolitical and other risks associated with our operations outside of the United States; (24) any decline in the use of cards as a payment mechanism or other adverse developments with respect to the card industry in general; (25) increases in card network fees; (26) failure to comply with card networks requirements; (27) a requirement to purchase our eService subsidiary in Poland; (28) changes in foreign currency exchange rates; (29) future impairment charges; (30) 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; (31) the planned phasing out of LIBOR and the transition to other benchmarks; (32) restrictions imposed by our credit facilities and outstanding indebtedness; (33) participation in accelerated funding programs; (34) failure to enforce and protect our intellectual property rights; (35) 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; (36) impact of new or revised tax regulations; (37) legal proceedings; (38) our dependence on distributions from EVO Investco LLC to pay our taxes and expenses, including certain payments to the Continuing LLC Owners (as defined in our public filings) and, in the event that any tax benefits are disallowed, our inability to be reimbursed for payments made to the Continuing LLC Owners; (39) 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; (40) the risk that we could be deemed an investment company under the Investment Company Act of 1940, as amended; (41) the significant influence the Continuing LLC Owners continue to have over us, including control over decisions that require the approval of stockholders; (42) certain provisions of Delaware law and antitakeover provisions in our organizational documents could delay or prevent a change of control; (43) 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; (44) our ability to establish and maintain effective internal control over financial reporting and disclosure controls and procedures; (45) changes in our stock price, including relating to downgrades, analyst reports, and future sales by us or by existing stockholders; and (46) the other risks and uncertainties included from time to time in our filings with the SEC, including those listed under "Risk Factors" contained in Part I of our Annual Report on Form 10-K for the year ended December 31, 2019.

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), earnings per share information and weighted average common shares determined in accordance with GAAP by providing these and other measures on an adjusted basis in this release. 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 facilitate 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 and costs related to transition, acquisition and integration matters, and giving effect to a normalized effective tax rate for the Company. 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 by excluding fluctuations caused solely by movements in 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.

Among other non-GAAP financial measures presented, this release contains a presentation of our adjusted EBITDA and adjusted net income, and adjusted net income per share information. These measures do not purport to be an alternative to cash flows from operating activities as a measure of liquidity, and are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as tax payments and, in the case of adjusted EBITDA, interest payments and debt service requirements. Further, adjusted EBITDA does not purport to be an alternative to net income as a measure of operating performance. These measures, or measures similar to them, are frequently used by analysts, investors and other interested parties to evaluate companies in the industry. Adjusted EBITDA is defined as net income (loss) before provision for income taxes, net interest expense, and depreciation and amortization, excluding the impact of net income attributable to non-controlling interests in consolidated entities (including related depreciation and amortization), share-based compensation, and transition, acquisition and integration costs. Adjusted net income is defined as net income (loss) adjusted to exclude income taxes, the impact of net income attributable to non-controlling interests in consolidated entities (including related depreciation and amortization), share-based compensation, transition, acquisition and integration costs, and amortization of acquisition intangibles and subsequently adjusted to give effect to a normalized tax rate for the Company. The calculation of adjusted EBITDA and adjusted net income have limitations as analytical tools, including: (a) they do not reflect the Company’s cash expenditures, or future requirements for capital expenditures or contractual commitments; (b) they do not reflect changes in, or cash requirements for, the Company’s working capital needs; (c) in the case of adjusted EBITDA, it does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on the Company’s indebtedness; (d) they do 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 these measures do not reflect any cash requirements for such replacements. Adjusted net income per share is defined as adjusted net income divided by pro forma weighted average shares. Pro forma weighted average shares is defined as GAAP common weighted average shares (equal to our weighted average Class A common shares) plus, our weighted average Class B common shares, weighted average Class C common shares, weighted average Class D common shares, dilutive equity awards measured under the treasury stock method, and weighted average preferred shares. Weighted average preferred shares is defined as the weighted average shares of Class A common stock issuable upon conversion of the Company’s Series A preferred stock.

Net Debt to Adjusted EBITDA ratio is a non-GAAP measure defined as total long-term debt less available cash (cash on the balance sheet less certain merchant settlement account balances and merchant reserves) divided by the trailing twelve month Adjusted EBITDA. This ratio is frequently used by investors, and management believes this measure provides relevant and useful information.

About EVO Payments, Inc.

EVO Payments, Inc. (NASDAQ: 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. 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,

2020

2019

% change

2020

2019

% change

Revenue

$

116,976

$

122,363

(4%)

$

322,428

$

356,398

(10%)

Operating expenses:

Cost of services and products

20,693

24,065

(14%)

63,034

72,900

(14%)

Selling, general and administrative

64,668

63,864

1%

191,579

196,592

(3%)

Depreciation and amortization

22,167

22,804

(3%)

64,116

68,412

(6%)

Impairment of intangible assets

-

3,872

NM

782

10,504

(93%)

Total operating expenses

107,528

114,605

(6%)

319,511

348,408

(8%)

Income from operations

9,448

7,758

22%

2,917

7,990

(63%)

Other income (expense):

Interest income

226

858

(74%)

857

2,268

(62%)

Interest expense

(6,717

)

(11,085

)

(39%)

(23,916

)

(34,006

)

(30%)

Income from investment in unconsolidated investees

95

167

(43%)

310

436

(29%)

Gain on investment in equity securities

15,750

-

NM

15,750

-

NM

Other income, net

2,558

888

188%

753

2,498

(70%)

Total other income (expense)

11,912

(9,172

)

NM

(6,246

)

(28,804

)

(78%)

Income (loss) before income taxes

21,360

(1,414

)

NM

(3,329

)

(20,814

)

(84%)

Income tax (expense) benefit

(6,775

)

(3,590

)

89%

(4,699

)

618

NM

Net income (loss)

14,585

(5,004

)

NM

(8,028

)

(20,196

)

(60%)

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

3,556

2,220

60%

5,644

4,798

18%

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

5,190

(5,380

)

NM

(10,932

)

(18,323

)

(40%)

Net income (loss) attributable to EVO Payments, Inc.

5,839

$

(1,844

)

NM

(2,740

)

$

(6,671

)

(59%)

Less: Accrual of redeemable preferred stock paid-in-kind dividends

2,360

4,131

Net income (loss) attributable to Class A common stock

$

3,479

$

(6,871

)

Earnings per share

Basic

$0.07

($0.05

)

($0.17

)

($0.22

)

Diluted

$0.07

($0.05

)

($0.17

)

($0.22

)

Weighted average Class A common stock outstanding

Basic

41,675,929

34,634,567

41,445,566

30,996,506

Diluted

42,636,616

34,634,567

41,445,566

30,996,506

EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 2 - Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share data)

September 30,

December 31,

2020

2019

Assets

Current assets:

Cash and cash equivalents

$

373,879

$

304,089

Accounts receivable, net

14,860

15,881

Other receivables

14,961

24,438

Due from related parties

630

1,125

Inventory

7,600

9,128

Settlement processing assets

288,598

328,637

Other current assets

14,371

12,867

Total current assets

714,899

696,165

Equipment and improvements, net

71,847

94,464

Goodwill, net

372,321

378,838

Intangible assets, net

213,805

257,560

Investment in unconsolidated investees

776

2,078

Deferred tax assets

217,399

210,275

Operating lease right-of-use assets

35,225

45,664

Investment in equity securities, at fair value

23,336

-

Other assets

14,731

21,360

Total assets

$

1,664,339

$

1,706,404

Liabilities and Shareholders' Equity (Deficit)

Current liabilities:

Settlement lines of credit

$

16,594

$

33,103

Current portion of long-term debt

4,628

8,744

Accounts payable

6,812

13,584

Accrued expenses

107,804

110,079

Settlement processing obligations

422,021

449,302

Current portion of operating lease liabilities, inclusive of related party liability of $1.1 million and $1.2 million at September 30, 2020 and December 31, 2019, respectively

6,211

7,087

Due to related parties

4,429

7,325

Total current liabilities

568,499

629,224

Long-term debt, net of current portion

580,164

693,169

Due to related parties

185

385

Deferred tax liabilities

14,218

17,260

Tax receivable agreement obligations, inclusive of related party liability of $142.3 million and $141.1 million at September 30, 2020 and December 31, 2019, respectively

151,807

...

150,274

ISO reserves

2,921

2,758

Operating lease liabilities, net of current portion, inclusive of related party liability of $2.5 million and $3.2 million at September 30, 2020 and December 31, 2019, respectively

31,287

41,703

Other long-term liabilities

2,346

1,830

Total liabilities

1,351,427

1,536,603

Commitments and contingencies

Redeemable non-controlling interests

1,008,491

1,052,448

Redeemable preferred stock (par value, $0.0001 per share), Authorized, Issued and Outstanding – 152,250 and 0 shares at September 30, 2020 and December 31, 2019, respectively. Liquidation preference: $156,285 and $0 at September 30, 2020 and December 31, 2019, respectively

151,721

-

Shareholders' equity (deficit):

Class A common stock (par value $0.0001), Authorized - 200,000,000 shares, Issued and Outstanding - 42,012,986 and 41,233,954 shares at September 30, 2020 and December 31, 2019, respectively

4

4

Class B common stock (par value $0.0001), Authorized - 40,000,000 shares, Issued and Outstanding - 34,163,538 and 34,163,538 shares at September 30, 2020 and December 31, 2019

3

3

Class C common stock (par value $0.0001), Authorized - 4,000,000 shares, Issued and Outstanding - 1,886,425 and 2,321,955 shares at September 30, 2020 and December 31, 2019, respectively

-

-

Class D common stock (par value $0.0001), Authorized - 32,000,000 shares, Issued and Outstanding - 4,567,508 and 4,354,978 shares at September 30, 2020 and December 31, 2019, respectively

-

-

Additional paid-in capital

-

-

Accumulated deficit attributable to Class A common stock

(555,089

)

(587,358

)

Accumulated other comprehensive loss

(9,712

)

(1,948

)

Total EVO Payments, Inc. shareholders' deficit

(564,794

)

(589,299

)

Nonredeemable non-controlling interests

(282,506

)

(293,348

)

Total deficit

(847,300

)

(882,647

)

Total liabilities, redeemable non-controlling interests, redeemable preferred stock, and shareholders' deficit

$

1,664,339

$

1,706,404

EVO PAYMENTS, INC. AND SUBSIDIARIES

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

(in thousands)

Nine Months Ended September 30,

2020

2019

Cash flows from operating activities:

Net loss

$

(8,028

)

$

(20,196

)

Adjustments to reconcile net loss to net cash provided by

(used in) operating activities:

Depreciation and amortization

64,116

68,412

Gain on sale of investment

(336

)

(250

)

Gain on fair value adjustment of equity securities

(15,750

)

-

Amortization of deferred financing costs

2,006

2,006

Change in fair value of contingent consideration

(74

)

2,362

Loss on disposal of equipment and improvements

1,239

-

Share-based compensation expense

15,391

7,841

Impairment of intangible assets

782

10,504

Accrued interest expense

(4,127

)

366

Deferred taxes, net

(1,086

)

(7,880

)

Other

543

(79

)

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

Accounts receivable, net

1,039

(2,546

)

Other receivables

7,898

32,739

Inventory

1,357

(1,487

)

Other current assets

(1,937

)

(2,816

)

Operating lease right-of-use assets

6,199

5,451

Other assets

(674

)

(666

)

Related parties, net

(2,506

)

2,288

Accounts payable

(6,707

)

(38,973

)

Accrued expenses

2,639

(7,234

)

Settlement processing funds, net

12,788

(15,579

)

Operating lease liabilities

(6,934

)

(5,505

)

Other

163

67

Net cash provided by operating activities

68,001

28,825

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired

-

(38,832

)

Purchase of equipment and improvements

(12,719

)

(24,639

)

Acquisition of intangible assets

(5,023

)

(4,759

)

Net proceeds from sale of investments

-

250

Return of capital on equity method investment

906

-

Collection of deferred cash consideration

-

4,882

Collections of notes receivable

255

1,812

Net cash used in investing activities

(16,581

)

(61,286

)

Cash flows from financing activities:

Proceeds from long-term debt

185,250

316,479

Repayments of long-term debt

(316,659

)

(318,919

)

Deferred financing costs paid

-

(2

)

Contingent consideration paid

(1,105

)

(5,919

)

Deferred cash consideration paid

(887

)

-

Secondary offering proceeds

-

258,522

Purchase of LLC Interests, Class B and Class D common stock in connection with the April 2019 and the August 2019 Secondary Offerings

-

(239,538

)

Repurchases of shares to satisfy minimum tax withholding

(1,243

)

(1,716

)

Proceeds from issuance of redeemable preferred stock

149,250

-

Redeemable preferred stock issuance costs

(1,660

)

-

Proceeds from exercise of common stock options

5,521

810

Distribution to non-controlling interests holders

23

(6,493

)

Net cash provided by financing activities

18,490

3,224

Effect of exchange rate changes on cash and cash equivalents

(120

)

(9,651

)

Net increase (decrease) in cash and cash equivalents

69,790

(38,888

)

Cash and cash equivalents, beginning of period

304,089

350,697

Cash and cash equivalents, end of period

$

373,879

$

311,809

The presentation of cash flows from operating activities for the nine months ended September 30, 2019 was revised from the amounts previously reported to conform with the presentation required by the retroactive adoption of ASC 842 as of January 1, 2019.

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,

2020

2019

% change

2020

2019

% change

Revenue

$

116,976

$

122,363

(4%)

$

322,428

$

356,398

(10%)

Currency impact1

-

(1,039

)

NM

-

(9,384

)

NM

Currency-neutral revenue

$

116,976

$

121,324

(4%)

$

322,428

$

347,014

(7%)

Net income (loss)

$

14,585

$

(5,004

)

NM

$

(8,028

)

$

(20,196

)

(60%)

Net income attributable to non-controlling interests in consolidating entities

(3,556

)

(2,220

)

60%

(5,644

)

(4,798

)

18%

Income tax expense (benefit)

6,775

3,590

89%

4,699

(618

)

NM

Interest expense, net

6,491

10,227

(37%)

23,059

31,738

(27%)

Depreciation and amortization

22,167

22,804

(3%)

64,116

68,412

(6%)

Gain on investment in equity securities

(15,750

)

-

NM

(15,750

)

-

NM

Share-based compensation

5,916

3,019

96%

15,391

7,841

96%

Transition, acquisition and integration costs2

3,735

9,821

(62%)

24,069

29,803

(19%)

Adjusted EBITDA

40,363

42,238

(4%)

101,912

112,182

(9%)

Currency impact1

-

(849

)

NM

-

(4,902

)

NM

Currency-neutral adjusted EBITDA

$

40,363

$

41,388

(2%)

$

101,912

$

107,280

(5%)

1

Represents the impact of currency shifts by adjusting prior year results to current period average foreign exchange rates for the currencies in which EVO conducts operations.

2

For the three months ended September 30, 2020, earnings adjustments include $0.8 million of employee termination benefits, and $2.9 million of transition, acquisition and integration related costs.

For the three months ended September 30, 2019, earnings adjustments include $0.6 million of employee termination benefits, $5.3 million of transition, acquisition and integration costs and a $3.9 million impairment charge related to the write-down of a trademark.

For the nine months ended September 30, 2020, earnings adjustments include $5.9 million of employee termination benefits, $14.7 million of transition, acquisition and integration related costs, $2.7 million adjustment for foreign exchange remeasurement losses on intercompany assets and liabilities, and $0.8 million intangible asset impairment of a tradename.

For the nine months ended September 30, 2019, earnings adjustments include $2.7 million of employee termination benefits, $18.1 million of transition, acquisition and integration costs, and $9.0 million of impairment charges net of non-controlling interest.

EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 5 - Segment Information (unaudited)

(dollar amount in thousands, transactions in millions)

Three months ended September 30,

2020

% of
Segment
revenue

Gain on
investment

Adjustments1

2020
Adjusted

2019

% of
Segment
revenue

Adjustments2

Foreign
Exchange
impact3

2019
Adjusted

Adjusted
% change

Transactions

Americas

242.0

279.1

(13%)

Europe

747.5

667.3

12%

Total

989.5

946.4

5%

Segment revenue

Americas

$

68,788

59%

$

-

$

-

$

68,788

$

75,022

61%

$

-

$

(2,790

)

$

72,232

(5%)

Europe

48,188

41%

-

-

48,188

47,341

39%

-

1,751

49,092

(2%)

Revenue

116,976

100%

-

-

116,976

122,363

100%

-

(1,039

)

121,324

(4%)

Segment profit

Americas

28,869

-

1,838

30,707

23,086

5,376

(1,544

)

26,918

14%

Europe

34,446

(15,750

)

1,470

20,166

18,542

1,523

694

20,759

(3%)

Total segment profit

63,315

(15,750

)

3,308

50,873

41,628

6,899

(849

)

47,677

7%

Corporate

(10,937

)

-

427

(10,510

)

(9,212

)

2,923

-

(6,289

)

67%

Total

$

52,378

$

(15,750

)

$

3,735

$

40,363

$

32,415

$

9,821

$

(849

)

$

41,388

(2%)

Segment profit margin - Americas

42.0

%

44.6

%

30.8

%

37.3

%

Segment profit margin - Europe

71.5

%

41.8

%

39.2

%

42.3

%

Margin - Total

44.8

%

34.5

%

26.5

%

34.1

%

1

For the three months ended September 30, 2020, the Americas segment profit adjustments include $0.7 million of employee termination benefits, and $1.1 million of transition, acquisition and integration costs.

The Europe segment profit adjustments include $0.2 million of employee termination benefits and $1.3 million of transition, acquisition and integration costs, and excludes a gain on an investment in equity securities of $15.8 million.

Corporate adjustments include $0.4 million of transition, acquisition, and integration related costs.

2

For the three months ended September 30, 2019, the Americas segment profit adjustments include $0.5 million of employee termination benefits, and $1.0 million of transition, acquisition an integration costs, and a $3.9 million impairment charge related to the write-down of a trademark.

The Europe adjustments include $0.1 million in employee termination benefits and $1.4 million of transition, acquisition and integration costs.

The Corporate adjustments include $0.1 million in employee termination benefits and $2.8 million of transition, acquisition and integration costs.

3

Represents the impact of currency shifts by adjusting prior year results to current period average fx rates for the currencies in which EVO conducts operations.

Segment profit and Corporate exclude share-based compensation and therefore is not included in the Adjustments totals.

Segment profit margin is defined as segment profit divided by segment revenue. Total margin includes Corporate expenses.

Nine Months Ended September 30,

2020

% of
Segment
revenue

Gain on
investment

Adjustments1

2020
Adjusted

2019

% of
Segment
revenue

Adjustments2

Foreign
Exchange
impact3

2019
Adjusted

Adjusted
% change

Transactions

Americas

717.4

784.1

(8%)

Europe

1,918.3

1,860.6

3%

Total

2,635.7

2,644.6

(0%)

Segment revenue

Americas

$

201,612

63%

$

-

$

-

$

201,612

$

222,643

62%

$

-

$

(7,841

)

$

214,802

(6%)

Europe

120,816

37%

-

-

120,816

133,755

38%

-

(1,543

)

132,212

(9%)

Revenue

322,428

100%

-

-

322,428

356,398

100%

-

(9,384

)

347,014

(7%)

Segment profit

Americas

71,649

-

11,697

83,346

65,616

15,485

(4,293

)

76,808

9%

Europe

50,063

(15,750

)

8,166

42,479

41,858

7,310

(609

)

48,558

(13%)

Total segment profit

121,712

(15,750

)

19,863

125,826

107,474

22,794

(4,902

)

125,366

0%

Corporate

(28,119

)

-

4,206

(23,914

)

(25,095

)

7,009

-

(18,087

)

32%

Total

$

93,593

$

(15,750

)

$

24,069

$

101,912

$

82,379

$

29,803

$

(4,902

)

$

107,280

(5%)

Segment profit margin - Americas

35.5

%

41.3

%

29.5

%

35.8

%

Segment profit margin - Europe

41.4

%

35.2

%

31.3

%

36.7

%

Margin - Total

29.0

%

31.6

%

23.1

%

30.9

%

1

For the nine months ended September 30, 2020, the Americas segment profit adjustments include $3.8 million of employee termination benefits, $5.4 million of transition, acquisition and integration costs, $1.7 million adjustment for foreign exchange remeasurement losses on intercompany assets and liabilities, and $0.8 million intangible asset impairment of a tradename.

The Europe segment profit adjustments include $1.5 million of employee termination benefits, $5.7 million of transition, acquisition and integration costs, $1.0 million adjustment for foreign exchange remeasurement losses on intercompany assets and liabilities and excludes a gain on an investment in equity securities of $15.8 million.

Corporate adjustments includes $0.6 million of employee termination benefits, and $3.6 million of transition, acquisition, and integration related costs.

2

For the nine months ended September 30, 2019, the Americas segment profit adjustments include $2.4 million of employee termination benefits, $7.1 million of transition, acquisition an integration costs and a $6.0 million impairment of intangible assets.

The Europe adjustments include $0.1 million in employee termination benefits, $4.2 million of transition, acquisition and integration costs, and $3.0 million impairment of intangible assets, net of non-controlling interest,

The Corporate adjustments include $0.2 million in employee termination benefits and $6.8 million of transition, acquisition and integration costs.

3

Represents the impact of currency shifts by adjusting prior year results to current period average foreign exchange rates for the currencies in which EVO conducts operations.

Segment profit and Corporate exclude share-based compensation and therefore is not included in the Adjustments totals.

Segment profit margin is defined as segment profit divided by segment revenue. Total margin includes Corporate expenses.

EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 6 - Adjusted Net Income (unaudited)

(in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

% change

2020

2019

% change

Net income (loss)

$

14,585

$

(5,004

)

NM

$

(8,028

)

$

(20,196

)

(60%)

Net income attributable to non-controlling interests in consolidating entities

(3,556

)

(2,220

)

60%

(5,644

)

(4,798

)

18%

Income tax expense (benefit)

6,775

3,590

89%

4,699

(618

)

NM

Gain on investment in equity securities

(15,750

)

-

NM

(15,750

)

-

NM

Share-based compensation

5,916

3,019

96%

15,391

7,841

96%

Transition, acquisition and integration costs1

3,735

9,821

(62%)

24,069

29,803

(19%)

Acquisition intangible amortization2

11,409

12,126

(6%)

32,121

35,086

(8%)

Non-GAAP adjusted income before taxes

23,114

21,332

8%

46,857

47,118

(1%)

Income taxes at normalized tax rate3

(5,224

)

(4,928

)

6%

(10,590

)

(10,884

)

(3%)

Adjusted net income

$

17,890

$

16,404

9%

$

36,267

$

36,233

0%

Adjusted net income per share4

$0.19

$0.20

(5%)

$0.41

$0.44

(7%)

1

For the three months ended September 30, 2020, earnings adjustments include $0.8 million of employee termination benefits, and $2.9 million of transition, acquisition and integration related costs.

For the three months ended September 30, 2019, earnings adjustments include $0.6 million of employee termination benefits, $5.3 million of transition, acquisition and integration related costs, and a $3.9 million impairment charge related to the write-down of a trademark.

For the nine months ended September 30, 2020, earnings adjustments include $5.9 million of employee termination benefits, $14.7 million of transition, acquisition and integration related costs, $2.7 million adjustment for fx remeasurement losses on intercompany assets and liabilities, and $0.8 million intangible asset impairment of a tradename.

For the nine months ended September 30, 2019, earnings adjustments include $2.7 million of employee termination benefits, $18.1 million of transition, acquisition and integration related costs, and an impairment charge of $9.0 million, net of non-controlling interest.

2

Represents amortization of intangible assets acquired through business combinations and other merchant portfolio and related asset acquisitions.

3

Normalized corporate income tax expense calculated using 22.6% and 23.1% for 2020 and 2019, respectively, based on blended federal and state tax rates and utilizing the Tax Reform Act for 2018 federal rates.

4

Reflects pro forma weighted average shares for the period using GAAP weighted average common shares (equal to weighted average Class A common shares) plus weighted average Class B common shares, weighted average Class C common shares, weighted average Class D common shares, weighted average preferred shares including paid-in-kind dividends, and dilutive equity awards measured under the treasury stock method.

Three Months Ended Sept. 30,

Nine Months Ended Sept. 30,

(share count in millions)

2020

2019

2020

2019

Class A (GAAP weighted average common stock)

41.7

34.6

41.4

31.0

Class B

34.2

35.0

34.2

35.5

Class C

2.1

2.3

2.2

2.4

Class D

4.5

10.0

4.4

12.8

Stock options, RSUs, RSAs

1.0

0.9

0.7

0.8

Preferred shares (if converted)

9.8

-

5.8

-

Pro forma weighted average shares

93.2

82.9

88.7

82.5

EVO PAYMENTS, INC. AND SUBSIDIARIES

Schedule 7 - Net Debt to Adjusted EBITDA Ratio

(in thousands)

Year Ended

9 Months

9 Months

LTM1

12/31/2019

9/30/2019

9/30/2020

9/30/2020

Net loss

$

(23,366

)

$

(20,196

)

$

(8,028

)

$

(11,198

)

Net income attributable to non-controlling interests in consolidating entities

(7,877

)

(4,798

)

(5,644

)

(8,723

)

Income tax expense (benefit)

4,548

(618

)

4,699

9,865

Interest expense, net

41,139

31,738

23,059

32,461

Depreciation and amortization

92,059

68,412

64,116

87,764

Gain on investment in equity securities

-

-

(15,750

)

(15,750

)

Share-based compensation

10,921

7,841

15,391

18,471

Transition, acquisition and integration costs

42,825

29,803

24,069

37,091

Adjusted EBITDA

$

160,250

$

112,182

$

101,912

$

149,980

Ratio of Net Debt to LTM Adjusted EBITDA

9/30/2020

Gross debt

$

592,818

Less: available cash on 9/30/20202

(159,998

)

Net debt

$

432,821

Leverage Ratio as of 9/30/2020

2.9x

1

Reflects last twelve months Adjusted EBITDA by taking full year 2019, less nine-months ended September 30, 2019, plus the nine-months ended September 30, 2020. Amounts may differ due to rounding.

2

Available cash includes cash in transit from September 30th transaction date.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201105005058/en/

Contacts

Sarah Jane Perry
Investor Relations & Corporate Communications Manager
770-709-7365
investor.relations@evopayments.com