EVO Reports Second Quarter 2019 Results
“In the second quarter, EVO delivered strong top and bottom line growth in our North American and European segments,” stated
Conference call
EVO’s management will host a conference call for investors at
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 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
Non-GAAP financial measures
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. (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.
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 June 30, | Six Months Ended June 30, | |||||||||||||||||||
2019 | 2018 | % change | 2019 | 2018 | % change | |||||||||||||||
Revenue | $ | 122,517 | $ | 140,891 | (13%) | $ | 234,035 | $ | 269,173 | (13%) | ||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of services and products, exclusive of depreciation and amortization shown separately below |
24,752 | 50,364 | (51%) | 48,835 | 94,878 | (49%) | ||||||||||||||
Selling, general and administrative | 66,306 | 115,567 | (43%) | 132,728 | 175,180 | (24%) | ||||||||||||||
Depreciation and amortization | 22,863 | 20,933 | 9% | 45,608 | 40,820 | 12% | ||||||||||||||
Impairment of intangible assets | - | - | NM | 6,632 | - | NM | ||||||||||||||
Total operating expenses | 113,921 | 186,864 | (39%) | 233,803 | 310,877 | (25%) | ||||||||||||||
Income (loss) from operations | 8,596 | (45,973 | ) | NM | 232 | (41,705 | ) | NM | ||||||||||||
Other (expense) income: | ||||||||||||||||||||
Interest income | 735 | 631 | 16% | 1,410 | 1,115 | 26% | ||||||||||||||
Interest expense | (11,269 | ) | (21,560 | ) | (48%) | (22,921 | ) | (36,870 | ) | (38%) | ||||||||||
Income from investment in unconsolidated investees | 53 | 246 | (79%) | 269 | 761 | (65%) | ||||||||||||||
Other income (expense), net | 516 | (2,620 | ) | NM | 1,610 | (3,175 | ) | NM | ||||||||||||
Total other expense | (9,965 | ) | (23,303 | ) | (57%) | (19,632 | ) | (38,169 | ) | (49%) | ||||||||||
Loss before income taxes | (1,369 | ) | (69,276 | ) | (98%) | (19,400 | ) | (79,873 | ) | (76%) | ||||||||||
Income tax benefit | 5,196 | 28,609 | (82%) | 4,208 | 24,181 | (83%) | ||||||||||||||
Net income (loss) | 3,827 | (40,667 | ) | NM | (15,192 | ) | (55,692 | ) | (73%) | |||||||||||
Less: Net income attributable to non-controlling interests in consolidated entities | (1,996 | ) | (1,233 | ) | 62% | (2,578 | ) | (2,001 | ) | 29% | ||||||||||
Net income (loss) attributable to non-controlling interests of EVO Investco, LLC | (1,368 | ) | 58,613 | NM | 12,943 | 74,406 | (83%) | |||||||||||||
Net income (loss) attributable to EVO Payments, Inc. | $ | 463 | $ | 16,713 | (97%) | $ | (4,827 | ) | $ | 16,713 | NM | |||||||||
Earnings per share | ||||||||||||||||||||
Basic | $0.01 | $0.97 | ($0.17 | ) | $0.97 | |||||||||||||||
Diluted | $0.01 | $0.96 | ($0.17 | ) | $0.96 | |||||||||||||||
Weighted average Class A common stock outstanding | ||||||||||||||||||||
Basic | 31,898,531 | 17,293,355 | 29,147,326 | 17,293,355 | ||||||||||||||||
Diluted | 31,898,531 | 17,432,722 | 29,147,326 | 17,432,722 | ||||||||||||||||
EVO PAYMENTS, INC. AND SUBSIDIARIES | ||||||||
Schedule 2 - Condensed Consolidated Balance Sheets (unaudited) | ||||||||
(in thousands, except share and interest data) | ||||||||
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 252,372 | $ | 350,697 | ||||
Accounts receivable, net | 12,835 | 13,248 | ||||||
Other receivables | 54,801 | 56,518 | ||||||
Due from related parties | 1,292 | 1,871 | ||||||
Inventory | 8,722 | 8,867 | ||||||
Settlement processing assets | 636,673 | 248,330 | ||||||
Other current assets | 12,087 | 11,817 | ||||||
Total current assets | 978,782 | 691,348 | ||||||
Equipment and improvements, net | 95,479 | 103,046 | ||||||
Goodwill | 354,454 | 353,011 | ||||||
Intangible assets, net | 270,174 | 290,139 | ||||||
Investment in unconsolidated investees | 1,893 | 1,753 | ||||||
Due from related parties | 55 | 915 | ||||||
Deferred tax asset | 125,236 | 72,296 | ||||||
Other assets | 20,847 | 21,879 | ||||||
Total assets | $ | 1,846,920 | $ | 1,534,387 | ||||
Liabilities and Shareholders' Deficit | ||||||||
Current liabilities: | ||||||||
Settlement lines of credit | $ | 26,120 | $ | 41,819 | ||||
Current portion of long-term debt | 5,448 | 7,191 | ||||||
Accounts payable | 46,708 | 48,935 | ||||||
Accrued expenses | 100,534 | 112,281 | ||||||
Settlement processing obligations | 729,779 | 428,328 | ||||||
Due to related parties | 4,928 | 4,824 | ||||||
Total current liabilities | 913,517 | 643,378 | ||||||
Long-term debt, net of current portion | 670,239 | 676,865 | ||||||
Due to related parties | 385 | 385 | ||||||
Deferred tax liability | 15,092 | 13,519 | ||||||
Tax receivable agreement obligations, inclusive of related party liability of $71.3 million and $40.7 million at June 30, 2019 and December 31, 2018, respectively | 81,134 | 47,221 | ||||||
ISO reserves | 2,684 | 2,684 | ||||||
Other long-term liabilities | 2,179 | 2,924 | ||||||
Total liabilities | 1,685,230 | 1,386,976 | ||||||
Commitments and contingencies | ||||||||
Redeemable non-controlling interests | 1,248,448 | 1,010,093 | ||||||
Shareholders' deficit: | ||||||||
Class A common stock (par value $0.0001), Authorized - 200,000,000 shares, Issued and Outstanding - 32,487,522 and 26,025,189 shares at June 30, 2019 and December 31, 2018, respectively | 3 | 3 | ||||||
Class B common stock (par value $0.0001), Authorized - 40,000,000 shares, Issued and Outstanding - 35,413,538 and 35,913,538 shares at June 30, 2019 and December 31, 2018, respectively | 4 | 4 | ||||||
Class C common stock (par value $0.0001), Authorized - 4,000,000 shares, Issued and Outstanding - 2,369,955 and 2,461,055 shares at June 30, 2019 and December 31, 2018, respectively | - | - | ||||||
Class D common stock (par value $0.0001), Authorized - 32,000,000 shares, Issued and Outstanding - 11,764,992 and 16,785,552 shares at June 30, 2019 and December 31, 2018, respectively | 1 | 1 | ||||||
Additional paid-in capital | - | 178,176 | ||||||
Accumulated deficit attributable to Class A common stock | (419,722 | ) | (223,799 | ) | ||||
Accumulated other comprehensive loss | (1,153 | ) | (2,993 | ) | ||||
Total EVO Payments, Inc. shareholders' deficit | (420,867 | ) | (48,608 | ) | ||||
Nonredeemable non-controlling interests | (665,891 | ) | (814,074 | ) | ||||
Total deficit | (1,086,758 | ) | (862,682 | ) | ||||
Total liabilities and deficit | $ | 1,846,920 | $ | 1,534,387 | ||||
EVO PAYMENTS, INC. AND SUBSIDIARIES | ||||||||
Schedule 3 - Condensed Consolidated Statement of Cash Flows (unaudited) | ||||||||
(in thousands) | ||||||||
Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (15,192 | ) | $ | (55,692 | ) | ||
Adjustments to reconcile net loss to net cash (used in) | ||||||||
provided by operating activities: | ||||||||
Depreciation and amortization | 45,608 | 40,820 | ||||||
Amortization of deferred financing costs | 1,343 | 7,094 | ||||||
Change in fair value of contingent consideration | 1,953 | - | ||||||
Loss on extinguishment of debt | - | 2,042 | ||||||
Gain on sale of investment | (250 | ) | - | |||||
Share-based compensation expense | 4,822 | 52,134 | ||||||
Impairment of intangible assets | 6,632 | - | ||||||
Deferred taxes, net | (8,967 | ) | (28,418 | ) | ||||
Other | (119 | ) | (191 | ) | ||||
Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||
Accounts receivable, net | 391 | 9,230 | ||||||
Other receivables | (1,489 | ) | 3,913 | |||||
Inventory | 175 | 2,029 | ||||||
Other current assets | (788 | ) | (454 | ) | ||||
Other assets | (446 | ) | 665 | |||||
Related parties, net | 1,707 | (4,976 | ) | |||||
Accounts payable | (1,135 | ) | (12,325 | ) | ||||
Accrued expenses | (11,387 | ) | 7,864 | |||||
Settlement processing funds, net | (84,946 | ) | (8,644 | ) | ||||
Other | - | (7 | ) | |||||
Net cash (used in) provided by operating activities | (62,088 | ) | 15,084 | |||||
Cash flows from investing activities: | ||||||||
Acquisition of businesses, net of cash acquired | (3,030 | ) | (13,890 | ) | ||||
Purchase of equipment and improvements | (13,303 | ) | (25,970 | ) | ||||
Acquisition of intangible assets | (4,452 | ) | (15,420 | ) | ||||
Net proceeds from sale of investments | 250 | - | ||||||
Issuance of notes receivable | - | (20 | ) | |||||
Collections of notes receivable | 1,419 | 31 | ||||||
Collection of deferred cash consideration | 4,406 | - | ||||||
Net cash used in investing activities | (14,710 | ) | (55,269 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt | 212,647 | 532,594 | ||||||
Repayments of long-term debt | (238,382 | ) | (623,732 | ) | ||||
Deferred financing costs paid | (2 | ) | (3,395 | ) | ||||
Contingent consideration paid | (5,578 | ) | (958 | ) | ||||
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, net of underwriter fees | 18,984 | - | ||||||
Tax withholdings related to net share settlement of share-based payments | (1,638 | ) | - | |||||
Proceeds from exercise of common stock options | 291 | - | ||||||
Distribution to non-controlling interests holders | (6,440 | ) | (5,104 | ) | ||||
Net cash (used in) provided by financing activities | (20,118 | ) | 48,989 | |||||
Effect of exchange rate changes on cash and cash equivalents | (1,409 | ) | (6,769 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (98,325 | ) | 2,035 | |||||
Cash and cash equivalents, beginning of period | 350,697 | 205,142 | ||||||
Cash and cash equivalents, end of period | $ | 252,372 | $ | 207,177 | ||||
EVO PAYMENTS, INC. AND SUBSIDIARIES | |||||||||||||||||||||
Schedule 4 - Reconciliation of GAAP to Non-GAAP measures | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||
Three months ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2019 | 2018 | % change | 2019 | 2018 | % change | ||||||||||||||||
Revenue | $ | 122,517 | $ | 140,891 | (13%) | $ | 234,035 | $ | 269,173 | (13%) | |||||||||||
Network fees1 | 27,470 | - | NM | 51,374 | - | NM | |||||||||||||||
Adjusted revenue | 149,987 | 140,891 | 6% | 285,409 | 269,173 | 6% | |||||||||||||||
Currency impact2 | - | (3,373 | ) | NM | - | (8,975 | ) | NM | |||||||||||||
Currency-neutral adjusted revenue | 149,987 | 137,518 | 9% | 285,409 | 260,197 | 10% | |||||||||||||||
Net income (loss) | 3,827 | (40,667 | ) | NM | (15,192 | ) | (55,692 | ) | (73%) | ||||||||||||
Less: Net income attributable to non-controlling interests in consolidated entities | (1,996 | ) | (1,233 | ) | 62% | (2,578 | ) | (2,001 | ) | 29% | |||||||||||
Income tax benefit | (5,196 | ) | (28,609 | ) | (82%) | (4,208 | ) | (24,181 | ) | (83%) | |||||||||||
Interest expense, net | 10,534 | 20,929 | (50%) | 21,511 | 35,755 | (40%) | |||||||||||||||
Depreciation and amortization | 22,863 | 20,933 | 9% | 45,608 | 40,820 | 12% | |||||||||||||||
Share-based compensation3 | 2,977 | 52,134 | (94%) | 4,822 | 52,134 | (91%) | |||||||||||||||
Transition, acquisition and integration costs4 | 6,306 | 13,516 | (53%) | 19,982 | 18,802 | 6% | |||||||||||||||
Adjusted EBITDA | 39,314 | 37,003 | 6% | 69,944 | 65,637 | 7% | |||||||||||||||
Currency impact2 | - | (778 | ) | NM | - | (2,193 | ) | NM | |||||||||||||
Currency-neutral adjusted EBITDA | $ | 39,314 | $ | 36,225 | 9% | $ | 69,944 | $ | 63,444 | 10% | |||||||||||
1 Effective January 1, 2019, EVO adopted Accounting Standards Topic 606, Revenue from Contracts with Customers, where certain amounts that we pay to third parties, including payment network fees are now netted against revenue. | |||||||||||||||||||||
The adjustment reflected here is for comparability to prior year as these expenses were reflected in operating expenses in 2018. There is no net effect on net income (loss) or adjusted EBITDA. | |||||||||||||||||||||
2 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. | |||||||||||||||||||||
3 Represents share-based compensation expense. For the three and six months ended June 30, 2018, the share-based compensation costs include vesting of awards at the time of the IPO. | |||||||||||||||||||||
For the six months ended June 30, 2019, represents $4.8 million of share-based compensation costs. For the six months ended June 30, 2018, represents $52.1 million of share-based compensation expenses which represents vesting of | |||||||||||||||||||||
awards at the IPO. | |||||||||||||||||||||
4 For the three months ended June 30, 2019, earnings adjustments include $0.7 million of employee termination benefits, and $5.6 million of acquisition and integration costs. | |||||||||||||||||||||
For the three months ended June 30, 2018, earnings adjustments include $2.4 million of employee termination benefits, $2.0 million of debt extinguishment costs, and $9.1 million of transaction and acquisition related costs. | |||||||||||||||||||||
For the six months ended June 30, 2019, earnings adjustments include $2.1 million of employee termination benefits, $5.1 million impairment of intangible assets, net of non-controlling interest, and $12.8 million of acquisition and integration | |||||||||||||||||||||
costs. | |||||||||||||||||||||
For the six months ended June 30, 2018, earnings adjustments include $2.4 million of employee termination benefits, $2.0 million of debt extinguishment costs, a $4.0 million strategic advisory fee, and $10.4 million of transaction and | |||||||||||||||||||||
acquisition related costs. | |||||||||||||||||||||
EVO PAYMENTS, INC. AND SUBSIDIARIES |
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Schedule 5 - Segment Information (unaudited) | ||||||||||||||||||||||||||||||
(dollar amount in thousands, transactions in millions) |
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Three months ended June 30, | ||||||||||||||||||||||||||||||
2019 | Adjustments1 | 2019 Adjusted | 2018 | Adjustments2 | Fx impact3 | 2018 Adjusted | Adjusted % change |
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Transactions | ||||||||||||||||||||||||||||||
North America | 270.8 | 242.6 | 12 | % | ||||||||||||||||||||||||||
Europe | 635.2 | 528.7 | 20 | % | ||||||||||||||||||||||||||
Total | 906.0 | 771.3 | 17 | % | ||||||||||||||||||||||||||
Segment revenue | ||||||||||||||||||||||||||||||
North America | $ | 77,656 | $ | 8,781 | $ | 86,437 | $ | 79,825 | $ | - | $ | 311 | $ | 80,136 | 8 | % | ||||||||||||||
Europe | 44,861 | 18,689 | 63,550 | 61,066 | - | (3,684 | ) | 57,382 | 11 | % | ||||||||||||||||||||
Total | 122,517 | 27,470 | 149,987 | 140,891 | - | (3,373 | ) | 137,518 | 9 | % | ||||||||||||||||||||
Segment profit | ||||||||||||||||||||||||||||||
North America | 27,650 | 2,291 | 29,941 | 21,774 | 5,598 | 117 | 27,489 | 9 | % | |||||||||||||||||||||
Europe | 13,623 | 1,467 | 15,089 | 14,568 | 220 | (895 | ) | 13,893 | 9 | % | ||||||||||||||||||||
Corporate | (8,264 | ) | 2,547 | (5,717 | ) | (13,727 | ) | 8,570 | - | (5,157 | ) | 11 | % | |||||||||||||||||
Total | $ | 33,009 | $ | 6,305 | $ | 39,314 | $ | 22,615 | $ | 14,388 | $ | (778 | ) | $ | 36,225 | 9 | % | |||||||||||||
Segment profit margin - North America | 35.6% | 34.6% | 27.3% | 34.3% | ||||||||||||||||||||||||||
Segment profit margin - Europe | 30.4% | 23.7% | 23.9% | 24.2% | ||||||||||||||||||||||||||
Segment profit margin - Total | 26.9% | 26.2% | 16.1% | 26.3% | ||||||||||||||||||||||||||
1 Effective January 1, 2019, EVO adopted Accounting Standards Topic 606, Revenue from Contracts with Customers, where certain amounts that we pay to third parties, including payment network fees are now netted against revenue. | ||||||||||||||||||||||||||||||
The adjustment reflected here is for comparability to prior year as these expenses were reflected in operating expenses in 2018. There is no net effect on net income (loss) or adjusted EBITDA. | ||||||||||||||||||||||||||||||
For the three months ended June 30, 2019, the North America segment profit adjustments include $0.5 million for employee termination benefits and $1.8 million of acquisition and integration costs. | ||||||||||||||||||||||||||||||
The Europe segment profit adjustments include $0.1 in employee termination benefits and $1.4 million of acquisition and integration costs. | ||||||||||||||||||||||||||||||
Corporate adjustments include $0.1 million of employee termination benefits and $2.4 million of acquisition and integration related costs. | ||||||||||||||||||||||||||||||
2 For the three months ended June 30, 2018, North America segment profit adjustment includes $2.4 million of employee termination benefits and $3.2 million of transaction and acquisition costs. | ||||||||||||||||||||||||||||||
The Europe segment includes $0.2 million of an employee termination charge. | ||||||||||||||||||||||||||||||
Corporate includes a $2.0 million of debt extinguishment costs, and $6.5 million of transaction and acquisition related 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 excludes share-based compensation and therefore is not included in the Adjustments totals. | ||||||||||||||||||||||||||||||
Segment profit margin is defined as segment profit divided by segment revenue. | ||||||||||||||||||||||||||||||
Six months ended June 30, | ||||||||||||||||||||||||||||||
2019 | Adjustments1 | 2019 Adjusted | 2018 | Adjustments2 | Fx impact3 | 2018 Adjusted | Adjusted % change |
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Transactions | ||||||||||||||||||||||||||||||
North America | 505.0 | 464.2 | 9 | % | ||||||||||||||||||||||||||
Europe | 1,193.2 | 1,005.2 | 19 | % | ||||||||||||||||||||||||||
Total | 1,698.2 | 1,469.4 | 16 | % | ||||||||||||||||||||||||||
Segment revenue | ||||||||||||||||||||||||||||||
North America | $ | 147,621 | $ | 17,468 | $ | 165,089 | $ | 153,201 | $ | - | $ | (326 | ) | $ | 152,875 | 8 | % | |||||||||||||
Europe | 86,414 | 33,906 | 120,320 | 115,972 | - | (8,650 | ) | 107,322 | 12 | % | ||||||||||||||||||||
Total | 234,035 | 51,374 | 285,409 | 269,173 | - | (8,976 | ) | 260,197 | 10 | % | ||||||||||||||||||||
Segment profit | ||||||||||||||||||||||||||||||
North America | 42,530 | 10,109 | 52,639 | 42,652 | 5,728 | (161 | ) | 48,219 | 9 | % | ||||||||||||||||||||
Europe | 23,316 | 5,787 | 29,103 | 26,672 | 220 | (2,032 | ) | 24,860 | 17 | % | ||||||||||||||||||||
Corporate | (15,883 | ) | 4,086 | (11,797 | ) | (23,360 | ) | 13,724 | - | (9,636 | ) | 22 | % | |||||||||||||||||
Total | $ | 49,962 | $ | 19,982 | $ | 69,944 | $ | 45,964 | $ | 19,672 | $ | (2,193 | ) | $ | 63,444 | 10 | % | |||||||||||||
Segment profit margin - North America | 28.8% | 31.9% | 27.8% | 31.5% | ||||||||||||||||||||||||||
Segment profit margin - Europe | 27.0% | 24.2% | 23.0% | 23.2% | ||||||||||||||||||||||||||
Segment profit margin - Total | 21.3% | 24.5% | 17.1% | 24.4% | ||||||||||||||||||||||||||
1 Effective January 1, 2019, EVO adopted Accounting Standards Topic 606, Revenue from Contracts with Customers, where certain amounts that we pay to third parties, including payment network fees are now netted against revenue. | ||||||||||||||||||||||||||||||
The adjustment reflected here is for comparability to prior year as these expenses were reflected in operating expenses in 2018. There is no net effect on net income (loss) or adjusted EBITDA. | ||||||||||||||||||||||||||||||
For the six months ended June 30, 2019, the North America segment profit adjustments include $1.9 million for employee termination benefits, a $2.1 million impairment of intangible assets, and $6.1 million of acquisition and integration costs. | ||||||||||||||||||||||||||||||
The Europe segment profit adjustments include $3.0 million of impairment of intangible assets, net of a non-controlling interest impact, $0.1 million of employee termination benefits and $2.7 million of acquisition and integration costs. | ||||||||||||||||||||||||||||||
Corporate adjustments include $0.2 million of employee termination benefits and $3.9 million of acquisition and integration related costs. | ||||||||||||||||||||||||||||||
2 For the six months ended June 30, 2018, North America segment profit adjustment includes $2.5 million of employee termination benefits and $3.2 million of transaction and acquisition costs. | ||||||||||||||||||||||||||||||
The Europe segment includes $0.2 million of an employee termination charge. | ||||||||||||||||||||||||||||||
Corporate includes a $2.0 million of debt extinguishment costs, $4.0 million strategic advisory fee, and $7.7 million of transaction and acquisition related 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 excludes share-based compensation and therefore is not included in the Adjustments totals. | ||||||||||||||||||||||||||||||
Segment profit margin is defined as segment profit divided by segment revenue. | ||||||||||||||||||||||||||||||
EVO PAYMENTS, INC. AND SUBSIDIARIES | ||||||||||||||||||||||
Schedule 6 - Pro Forma Adjusted Net Income (unaudited) | ||||||||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||||
Three months ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
2019 | 2018 | % change | 2019 | 2018 | % change | |||||||||||||||||
Net income (loss) | $ | 3,827 | $ | (40,667 | ) | NM | $ | (15,192 | ) | $ | (55,692 | ) | (73%) | |||||||||
Net income attributable to non-controlling interests in consolidated entities | (1,996 | ) | (1,233 | ) | 62% | (2,578 | ) | (2,001 | ) | 29% | ||||||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||
Income tax benefit | (5,196 | ) | (28,609 | ) | (82%) | (4,208 | ) | (24,181 | ) | (83%) | ||||||||||||
Share-based compensation1 | 2,977 | 52,134 | (94%) | 4,822 | 52,134 | (91%) | ||||||||||||||||
Transition, acquisition and integration costs2 | 6,306 | 20,764 | (70%) | 19,982 | 26,050 | (23%) | ||||||||||||||||
Acquisition intangible amortization3 | 11,475 | 11,094 | 3% | 22,960 | 21,590 | 6% | ||||||||||||||||
Non-GAAP adjusted income before taxes | 17,392 | 13,483 | 29% | 25,785 | 17,899 | 44% | ||||||||||||||||
Income taxes at pro forma tax rate4 | (4,018 | ) | (3,146 | ) | 28% | (5,956 | ) | (4,176 | ) | 43% | ||||||||||||
Pro forma adjusted net income | $ | 13,375 | $ | 10,337 | 29% | $ | 19,829 | $ | 13,723 | 44% | ||||||||||||
Pro forma adjusted net income per share5 | $ | 0.16 | $ | 0.13 | 23% | $ | 0.23 | $ | 0.17 | 35% | ||||||||||||
1 For the three months ended June 30, 2019, represents $3.0 million of share-based compensation expense. For the three months ended June 30, 2018, represents $52.1 million of share-based compensation expenses which represents | ||||||||||||||||||||||
vesting of awards at the IPO. | ||||||||||||||||||||||
For the six months ended June 30, 2019, represents $4.8 million of share-based compensation costs. For the six months ended June 30, 2018, represents $52.1 million of share-based compensation expenses which represents vesting of | ||||||||||||||||||||||
awards at the IPO. | ||||||||||||||||||||||
2 For the three months ended June 30, 2019, earnings adjustments include $0.7 million of employee termination benefits, and $5.6 million of acquisition and integration costs. | ||||||||||||||||||||||
For the three months ended June 30, 2018, earnings adjustments include $2.4 million of employee termination benefits, $2.0 million of debt extinguishment costs, and $9.1 million of transaction and acquisition related costs, and a $7.2 million | ||||||||||||||||||||||
debt restructuring charge. | ||||||||||||||||||||||
For the six months ended June 30, 2019, earnings adjustments include $2.1 million of employee termination benefits, $5.1 million impairment of intangible assets, net of non-controlling interest, and $12.8 million of acquisition and integration costs. | ||||||||||||||||||||||
For the six months ended June 30, 2018, earnings adjustments include $2.4 million of employee termination benefits, $2.0 million of debt extinguishment costs, a $4.0 million strategic advisory fee, and $10.4 million of transaction and | ||||||||||||||||||||||
acquisition related costs, and a $7.2 million debt restructuring charge. | ||||||||||||||||||||||
3 Represents amortization of intangible assets acquired through business combinations and other merchant portfolio and related asset acquisitions. | ||||||||||||||||||||||
4 Pro forma corporate income tax expense calculated using 23.1% and 23.3% for 2019 and 2018, respectively, based on blended federal and state tax rates and utilizing the Tax Reform Act for 2018 federal rates. | ||||||||||||||||||||||
5 Uses 85.7 million of shares outstanding including shares issuable upon exercise of the exchange of LLC Interests and Class B shares, Class C shares, and Class D shares, as well as Class A shares issuable for RSU's and options. | ||||||||||||||||||||||
EVO PAYMENTS, INC. AND SUBSIDIARIES | ||||||||||
Schedule 7 - Outlook summary (unaudited) | ||||||||||
(in millions, except per share data) | ||||||||||
Reported | Constant fx | |||||||||
2019 Outlook | 2018 Actual | % Change | % Change | |||||||
Revenue | $496 to $505 | NM | NM | |||||||
Network fees1 | 105 | |||||||||
Adjusted revenue | $601 to $610 | $565 | 6% - 8% | 10% - 12% | ||||||
GAAP net loss | ($19) to ($14) | ($99 | ) | |||||||
Adjustments2 | 178 to 177 | 247 | ||||||||
Adjusted EBITDA | $159 to $163 | $148 | 7% - 10% | 11% - 14% | ||||||
GAAP net loss per share attributable to EVO | ($0.29) to ($0.23) | ($0.70 | ) | |||||||
Adjustments3 | 0.84 to 0.81 | 1.21 | ||||||||
Pro forma adjusted net income per share4 | $0.55 to $0.58 | $0.52 | 6% - 11% | 12% - 18% | ||||||
1 Effective January 1, 2019, EVO adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. The new accounting standard changed the presentation of certain amounts that we pay to third parties, | ||||||||||
including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount. For 2018, payment network fees were presented within operating expenses and in 2019 payment network fees are presented as a reduction of revenues. As a result, adjusted revenue for 2019 is presented on a basis that is comparable to the prior year. | ||||||||||
2 2019 represents an estimated range of adjustments to reconcile net loss to adjusted EBITDA. These adjustments include a) net loss attributable to non-controlling interests in consolidating entities, b) income tax expense, c) net interest | ||||||||||
expense, d) depreciation and amortization, e) share-based compensation, and f) costs related to transition, acquisition or integration activities. | ||||||||||
3 2019 represents an estimated range of adjustments to reconcile net loss to pro forma adjusted net income per share. These adjustments include a) income tax expense, b) share-based compensation costs, c) costs related to transition, | ||||||||||
acquisition or integration activities, d) the inclusion of amortization of intangible assets acquired in business combinations and other customer portfolio and related asset acquisitions and e) adjustments to income to reflect an effective pro | ||||||||||
forma corporate tax rate of 23.1%. | ||||||||||
2018 includes adjustments as described in Schedule 6 which reconcile net loss to pro forma adjusted net income per share. | ||||||||||
GAAP net loss per share uses Class A share counts. Pro forma adjusted net income per share uses 85.7 million of shares outstanding including shares issuable upon exercise of the exchange of LLC Interests and Class B shares, Class C | ||||||||||
shares, and Class D shares, as well as Class A shares issuable for RSU's and options. | ||||||||||
4 2019 pro forma adjusted net income per share is impacted by $0.18 of additional depreciation expense associated with acquisitions, strong international growth including the Poland cashless initiative, and periodic terminal compliance upgrade requirements, offset by a net $0.04 related to lower interest expense associated with the partial year impact of the IPO-related debt payoff, and higher interest expense associated with the partial year impact of 2018 interest rate increases. | ||||||||||
Source: EVO Payments, Inc.