
				Shareholders' Equity (Deficit)
																		Accumulated				Total
																		deficit		Accumulated		EVO
	Redeemable															Additional		attributable to		other		Payments,		Nonredeemable				Redeemable
	Preferred Stock			Class A Common Stock			Class B Common Stock			Class C Common Stock			Class D Common Stock			paid-in		Class A		comprehensive		Inc. equity		non-controlling		Total equity		non-controlling
	Shares	Amounts		Shares	Amounts		Shares	Amounts		Shares	Amounts		Shares	Amounts		capital		common stock		loss		(deficit)		interests		(deficit)		interests
eService redeemable non-controlling interest fair value adjustment	—		—	—		—	—		—	—		—	—		—		(5,203)		—		—		(5,203)		(835)		(6,038)		6,038
Blueapple redeemable non-controlling interest fair value adjustment	—		—	—		—	—		—	—		—	—		—		(225,786)		—		—		(225,786)		(36,249)		(262,035)		262,035
Reclassification of additional paid-in capital to accumulated deficit	—		—	—		—	—		—	—		—	—		—		221,111		(221,111)		—		—		—		—		—
Balance, June 30, 2020	152		149,361	41,474		4	34,164		3	2,318		—	4,340		—		—		(471,843)		(16,093)		(487,929)		(279,506)		(767,435)		889,952

Net income	—		—	—		—	—		—	—		—	—		—		—		5,839		—		5,839		946		6,785		7,800
Cumulative translation adjustment	—		—	—		—	—		—	—		—	—		—		—		—		6,315		6,315		1,142		7,457		7,473
Return of prior distributions, net of current period distributions	—		—	—		—	—		—	—		—	—		—		—		—		—		—		97		97		—
Share-based compensation expense	—		—	—		—	—		—	—		—	—		—		5,916		—		—		5,916		—		5,916		—
Vesting of equity awards	—		—	6		—	—		—	—		—	—		—		(48)		—		—		(48)		—		(48)		—
Exercise of stock options	—		—	329		—	—		—	—		—	—		—		4,955		—		—		4,955		—		4,955		—
Exchanges of Class C common stock for Class A and Class D common stock	—		—	204		—	—		—	(432)		—	228		—		(8,543)		—		—		(8,543)		8,543		—		—
Deferred taxes in connection with increase in ownership of EVO Investco, LLC	—		—	—		—	—		—	—		—	—		—		200		—		—		200		—		200		—
Tax receivable agreement in connection with share exchanges	—		—	—		—	—		—	—		—	—		—		249		—		—		249		—		249		—
Accrual of redeemable preferred stock paid-in-kind dividends	—		2,360	—		—	—		—	—		—	—		—		(2,360)		—		—		(2,360)		—		(2,360)		—
Change in fair value of interest rate swap	—		—	—		—	—		—	—		—	—		—		—		—		66		66		14		80		70
eService redeemable non-controlling interest fair value adjustment	—		—	—		—	—		—	—		—	—		—		(22,638)		—		—		(22,638)		(3,477)		(26,115)		26,115
Blueapple redeemable non-controlling interest fair value adjustment	—		—	—		—	—		—	—		—	—		—		(66,816)		—		—		(66,816)		(10,265)		(77,081)		77,081
Reclassification of additional paid-in capital to accumulated deficit	—		—	—		—	—		—	—		—	—		—		89,085		(89,085)		—		—		—		—		—
Balance, September 30, 2020	152	$	151,721	42,013	$	4	34,164	$	3	1,886	$	—	4,568	$	—	$	—	$	(555,089)	$	(9,712)	$	(564,794)	$	(282,506)	$	(847,300)	$	1,008,491

See accompanying notes to unaudited condensed consolidated financial statements.

510

Table of Contents

EVO PAYMENTS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of ~~Operations and Comprehensive (Loss) Income~~

~~(In thousands, except share and per share data)~~

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018
Revenue

$
122,363

$
144,758

$
356,398

$
413,931
Operating expenses:

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

24,065

46,949

72,900

141,826
Selling, general and administrative

63,864

67,802

196,592

242,982
Depreciation and amortization

22,804

20,488

68,412

61,308
Impairment of intangible assets

3,872

—

10,504

—
Total operating expenses

114,605

135,239

348,408

446,116
Income (loss) from operations

7,758

9,519

7,990

(32,185)
Other (expense) income:

Interest income

858

507

2,268

1,622
Interest expense

(11,085)

(10,583)

(34,006)

(47,453)
Income (loss) from investment in unconsolidated investees

167

(36)

436

725
Gain on acquisition of unconsolidated investee

8,659

8,659
Other income (expense), net

888

211

2,498

(2,963)
Total other expense

(9,172)

(1,242)

(28,804)

(39,410)
(Loss) income before income taxes

(1,414)

8,277

(20,814)

(71,595)
Income tax (expense) benefit

(3,590)

(32,155)

618

(7,974)
Net loss

(5,004)

(23,878)

(20,196)

(79,569)
Less: Net income attributable to non-controlling interests in consolidated entities

(2,220)

(2,433)

(4,798)

(4,434)
Net income (loss) attributable to non-controlling interests of EVO Investco, LLC

5,380

(1,078)

18,323

73,328
Net loss attributable to EVO Payments, Inc.

$
(1,844)

$
(27,389)

$
(6,671)

$
(10,675)

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

Comprehensive income (loss):

Net loss

$
(5,004)

$
(23,878)

$
(20,196)

$
(79,569)
Unrealized loss on defined benefit plan,
net of tax (1)

(21)

—

(7)

—
Unrealized gain (loss) on foreign currency translation adjustment, net of tax (2)

(16,922)

9,494

(13,523)

334
Other comprehensive income (loss)

(16,943)

9,494

(13,530)

334
Comprehensive loss

(21,947)

(14,384)

(33,726)

(79,235)
Less: Comprehensive (income) loss attributable to non-controlling interests in consolidated entities

691

(5,272)

(2,013)

(3,120)
Other comprehensive (income) loss attributable to
non-controlling interests of EVO Investco, LLC

13,486

(1,078)

24,562

76,704
Comprehensive loss attributable to EVO Payments, Inc.

$
(7,770)

$
(20,734)

$
(11,177)

$
(5,651)

⁽¹⁾

~~Net of tax expense of less than $0.1 million for each of the three and nine months ended September 30, 2019.~~

⁽²⁾

~~Net of tax benefit of $5.1 million and $4.1 million for three and nine months ended September 30, 2019.~~

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Unaudited Condensed Consolidated Statements of Changes in Equity~~ Cash Flows

(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 investment in 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

Class A LLC Units

Class B LLC Units

Class C LLC Units

Class D LLC Units

Class E LLC Units

Class A Common Stock

Class B Common Stock

Interests

Amounts

Interests

Amounts

Interests

Amounts

Interests

Amounts

Interests

Amounts

Shares

Amounts

Shares

Amounts
Balance, January 1, 2018

6,374

$
54,453

3,506

$
—

375

$
9,463

1,107

$
—

1,012

$
71,250

—

$
—

—

$
—

Net income prior to Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Cumulative translation adjustment prior to Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Distributions prior to Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Acquisition of additional shares in a consolidated subsidiary

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Legacy deficit / accumulated comprehensive loss allocation (Class C&D)

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Legacy deficit / accumulated comprehensive loss allocation (Class B)

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Equity issued in connection with acquisition prior to Reorganization Transactions

(6,374)

(54,453)

(3,506)

—

(375)

(9,463)

(1,107)

—

(1,012)

(71,250)

1,319

—

35,914

4
Share-based compensation prior to Reorganization Transactions, net of share settlement

—

—

—

—

—

—

—

—

—

—

494

—

—

—
Class B redeemable non-controlling interests fair value adjustment in connection to Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Effect of Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

1,813

—

35,914

4

Sale of Class A common stock in initial public offering, net

—

—

—

—

—

—

—

—

—

—

15,434

2

—

—
Contingent consideration settled in Class A common stock

—

—

—

—

—

—

—

—

—

—

48

—

—

—
Deferred taxes in connection with the Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Tax receivable agreement obligations in connection with the Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Net income subsequent to the Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Cumulative translation adjustment subsequent to the Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Distributions subsequent to the Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Legacy redeemable non-controlling interests fair value adjustment

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Sale of Employee Ownership

—

—

—

—

—

—

—

—

—

—

22

—

—

—
Sale of Class A common stock in September 2018 Secondary Offering, net of underwriter fees

—

—

—

—

—

—

—

—

—

—

8,054

1

—

—
Sale of MDP Class D Shares

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Net deferred tax asset realized in September 2018 Secondary Offering

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Tax receivable agreement in connection with the September 2018 Secondary Offering

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Share-based compensation

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Additional redeemable non-controlling interest subsequent to the Reorganization Transactions

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Balance, September 30, 2018

—

$
—

—

$
—

—

$
—

—

$
—

—

$
—

25,371

$
3

35,914

$
4

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

Accumulated

Accumulated

Total

deficit

deficit

Accumulated

EVO

Additional

attributable to

attributable to

other

Payments,

Nonredeemable

Redeemable

Class C Common Stock

Class D Common Stock

paid-in

Class A

members of

comprehensive

Inc. (deficit)

non-controlling

Total

non-controlling

Shares

Amounts

Shares

Amounts

capital

common stock

EVO Investco, LLC

loss

/equity

interests

deficit

interests

Total
Balance, January 1, 2018

—

$
—

—

$
—

$
—

$
—

$
(237,330)

$
(67,679)

$
(169,843)

$
3,312

$
(166,531)

$
148,266

$
(18,265)

Net income prior to Reorganization Transactions

—

—

—

—

—

—

(24,412)

—

(24,412)

—

(24,412)

1,291

(23,121)
Cumulative translation adjustment prior to Reorganization Transactions

—

—

—

—

—

—

—

(6,337)

(6,337)

—

(6,337)

(2,104)

(8,441)
Distributions prior to Reorganization Transactions

—

—

—

—

—

—

—

—

—

(1,334)

(1,334)

(3,770)

(5,104)
Acquisition of additional shares in a consolidated subsidiary

—

—

—

—

—

—

(20,924)

—

(20,924)

(1,141)

(22,065)

—

(22,065)
Legacy deficit / accumulated comprehensive loss allocation (Class C&D)

—

—

—

—

—

—

132,181

34,612

166,793

(166,793)

—

—

—
Legacy deficit / accumulated comprehensive loss allocation (Class B)

—

—

—

—

—

—

150,485

39,404

189,889

—

189,889

(189,889)

—
Equity issued in connection with acquisition prior to Reorganization Transactions

2,561

—

24,305

2

135,160

—

—

—

—

—

—

—

—
Share-based compensation prior to Reorganization Transactions, net of share settlement

—

—

—

—

51,339

—

—

—

51,339

—

51,339

—

51,339
Class B redeemable non-controlling interests fair value adjustment in connection to Reorganization Transactions

—

—

—

—

—

—

—

—

—

(735,775)

(735,775)

735,775

—

Effect of Reorganization Transactions

2,561

—

24,305

2

186,499

—

—

—

186,505

(901,731)

(715,226)

689,569

(25,657)

Sale of Class A common stock in initial public offering, net of underwriter fees

—

—

—

—

219,167

—

—

—

219,169

—

219,169

—

219,169
Contingent consideration settled in Class A common stock

—

—

—

—

771

—

—

—

771

—

771

—

771
Deferred taxes in connection with the Reorganization Transactions

—

—

—

—

4,590

—

—

—

4,590

—

4,590

—

4,590
Tax receivable agreement obligations in connection with the Reorganization Transactions

—

—

—

—

389

—

—

—

389

—

389

—

389
Net income subsequent to the Reorganization Transactions

—

—

—

—

—

(10,675)

—

—

(10,675)

(20,714)

(31,389)

(25,059)

(56,448)
Cumulative translation adjustment subsequent to the Reorganization Transactions

—

—

—

—

—

—

—

293

293

852

1,145

(811)

334
Distributions subsequent to the Reorganization Transactions

—

—

—

—

—

—

—

—

—

(29)

(29)

—

(29)
Legacy redeemable non-controlling interests fair value adjustment

—

—

—

—

—

(3,824)

—

—

(3,824)

(5,918)

(9,742)

(1,004)

(10,746)
Sale of Employee Ownership

—

—

(22)

—

(857)

—
—

—
—

—

(857)

857

—

—

—
Sale of Class A common stock in September 2018 Secondary Offering, net of underwriter fees

—

—

—

—

190,161

—

—

—

190,161

—

190,161

—

190,161
Purchase of MDP Class D Shares

—

—

(7,000)

(1)

(435,850)

—

—

—

(435,850)

269,924

(165,926)

—

(165,926)
Net deferred tax asset realized in September 2018 Secondary Offering

—

—

—

—

2,045

—

—

26

2,071

—

2,071

—

2,071
Tax receivable agreement in connection with the September 2018 Secondary Offering

—

—

—

—

7,170

—

—

—

7,170

—

7,170

—

7,170
Share-based compensation

—

—

—

—

1,758

—

—

—

1,758

—

1,758

—

1,758
Additional redeemable non-controlling interest subsequent to the Reorganization Transactions

—

—

—

—

—

(116,559)

—

—

(116,559)

(180,280)

(296,839)

306,581

9,742
Balance, September 30, 2018

2,561

$
—

17,283

$
1

$
175,843

$
(131,058)

$
—

$
319

$
45,112

$
(837,039)

$
(791,927)

$
969,276

$
177,349

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

Accumulated

Total

deficit

Accumulated

EVO

Additional

attributable to

other

Payments,

Nonredeemable

Redeemable

Class A Common Stock

Class B Common Stock

Class C Common Stock

Class D Common Stock

paid-in

Class A

comprehensive

Inc. (deficit)

non-controlling

Total

non-controlling

Shares

Amounts

Shares

Amounts

Shares

Amounts

Shares

Amounts

capital

common stock

loss

/equity

interests

deficit

interests

Total
Balance, July 1, 2018

17,295

2

35,914

$
4

2,561
35,914
$
—
4
24,305
2,561
$
2
—

412,845

$
(55,076)

$
(1,631)

$
356,146

$
(1,035,973)

$
(679,827)

$
838,789

$
158,962

Net income (loss)

—

—

—

—

—

—

—

—

—

(27,388)

—

(27,388)

582

(26,806)

2,928

(23,878)
Cumulative translation adjustment

—

—

—

—

—

—

—

—

—

—

1,924

1,924

2,841

4,765

4,728

9,493
Distributions

—

—

—

—

—

—

—

—

—

—

—

—

(29)

(29)

(1,004)

(1,033)
Sale of Employee Ownership

22

—

—

—

—

—

(22)

—

(857)

—
—

—

(857)

857

—

—

—
September 2018 Secondary Offering

8,054

1

—

—

—

—

—

—

190,161

—

—

190,162

—

190,162

—

190,162
Purchase of MDP Class D Shares

—

—

—

—

—

—

(7,000)

(1)

(435,850)

—

—

(435,851)

269,924

(165,927)

—

(165,927)
Net deferred tax asset realized in September 2018 Secondary Offering

—

—

—

—

—

—

—

—

2,045

—

26

2,071

—

2,071

—

2,071
Tax receivable agreement in connection with the September 2018 Secondary Offering

—

—

—

—

—

—

—

—

7,170

—

—

7,170

—

7,170

—

7,170
Share-based compensation

—

—

—

—

—

—

—

—

1,758

—

—

1,758

—

1,758

—

1,758
eService redeemable non-controlling interest fair value adjustment

—

—

—

—

—

—

—

—

—

(5,928)

—

(5,928)

(9,170)

(15,098)

15,098

—
Blueapple redeemable non-controlling interest

—

—

—

—

—

—

—

—

—

(42,666)

—

(42,666)

(66,071)

(108,737)

108,737

—
Other

—

—

—

—

—

—

—

—

(1,429)

—

—

(1,429)

—

(1,429)

—

(1,429)
Balance, September 30, 2018

25,371

3

35,914

$
4

2,561

$
—

17,283

$
1

$
175,843

$
(131,058)

$
319

$
45,112

$
(837,039)

$
(791,927)

969,276

177,349

See accompanying notes to unaudited condensed consolidated financial statements.

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

~~Table of Contents~~

Accumulated

Total

deficit

Accumulated

EVO

Additional

attributable to

other

Payments,

Nonredeemable

Redeemable

Class A Common Stock

Class B Common Stock

Class C Common Stock

Class D Common Stock

paid-in

Class A

comprehensive

Inc. (deficit)

non-controlling

Total

non-controlling

Shares

Amounts

Shares

Amounts

Shares

Amounts

Shares

Amounts

capital

common stock

loss

/equity

interests

deficit

interests

Total
Balance, January 1, 2019

26,025

$
3

35,914

$
4

2,461

$
—

16,786

$
1

$
178,176

$
(223,799)

$
(2,993)

$
(48,608)

$
(814,074)

$
(862,682)

$
1,010,093

$
147,411

Prior period adjustment*

—

—

—

—

—

—

—

—

(20,629)

—

—

(20,629)

20,629

—

—

—
Net loss

—

—

—

—

—

—

—

—

—

(6,671)

—

(6,671)

(6,048)

(12,719)

(7,477)

(20,196)
Cumulative translation adjustment

—

—

—

—

—

—

—

—

—

—

(5,862)

(5,862)

(2,125)

(7,987)

(9,616)

(17,603)
Distributions

—

—

—

—

—

—

—

—

—

—

—

—

(284)

(284)

(6,209)

(6,493)
April 2019 Secondary Offering and August 2019 Secondary Offering

9,750

1

(1,250)

(1)

—

—

(7,750)

—

(303,400)

—

—

(303,400)

357,152

53,752

(34,768)

18,984
Fair value adjustment in connection with purchase of Blueapple Class B shares

—

—

—

—

—

—

—

—

—

1,721

—

1,721

739

2,460

(2,460)

—
Share-based compensation expense

—

—

—

—

—

—

—

—

7,841

—

—

7,841

—

7,841

—

7,841
Vesting of equity awards

80

—

—

—

—

—

—

—

(1,716)

—

—

(1,716)

—

(1,716)

—

(1,716)
Exercise of stock options

49

—

—

—

—

—

—

—

810

—

—

810

—

810

—

810
Exchange of Class C and Class D common stock for Class A common stock

808

—

—

—

(127)

—

(681)

—

(37,385)

—

—

(37,385)

37,385

—

—

—
Deferred taxes in connection with share exchanges

—

—

—

—

—

—

—

—

3,395

—

—

3,395

—

3,395

—

3,395
Tax receivable agreement in connection with share exchanges

—

—

—

—

—

—

—

—

13,005

—

—

13,005

—

13,005

—

13,005
eService redeemable non-controlling interest fair value adjustment

—

—

—

—

—

—

—

—

—

(5,817)

—

(5,817)

(2,563)

(8,380)

8,380

—
Blueapple redeemable non-controlling interest fair value adjustment

—

—

—

—

—

—

—

—

—

(77,134)

—

(77,134)

(73,567)

(150,701)

150,701

—
Reclassification of additional paid-in capital to accumulated deficit

—

—

—

—

—

—

—

—

159,903

(159,903)

—

—

—

—

—

—
Balance, September 30, 2019

36,712

$
4

34,664

$
3

2,334

$
—

8,355

$
1

$
—

$
(471,603)

$
(8,855)

$
(480,450)

$
(482,756)

$
(963,206)

$
1,108,644

$
145,438

~~See accompanying notes to unaudited condensed consolidated financial statements~~

~~Accumulated~~

~~Total~~

~~Table of Contents~~

deficit

Accumulated

EVO

Additional

attributable to

other

Payments,

Nonredeemable

Redeemable

Class A Common Stock

Class B Common Stock

Class C Common Stock

Class D Common Stock

paid-in

Class A

comprehensive

Inc. (deficit)

non-controlling

Total

non-controlling

Shares

Amounts

Shares

Amounts

Shares

Amounts

Shares

Amounts

capital

common stock

loss

/equity

interests

deficit

interests

Total
Balance, July 1, 2019

32,490

$
3

35,414

$
4

2,370

$
—

11,765

$
1

$
—

$
(419,722)

$
(1,153)

$
(420,867)

$
(665,891)

$
(1,086,758)

$
1,248,448

$
161,690

Net loss

—

—

—

—

—

—

—

—

—

(1,844)

—

(1,844)

(2,036)

(3,880)

(1,124)

(5,004)
Cumulative translation adjustment

—

—

—

—

—

—

—

—

—

—

(7,702)

(7,702)

(2,752)

(10,454)

(11,589)

(22,043)
Distributions

—

—

—

—

—

—

—

—

—

—

—

—

(53)

(53)

—

(53)
August 2019 Secondary Offering

4,000

1

(750)

(1)

—

—

(3,250)

—

(132,100)

—

—

(132,100)

153,288

21,188

(21,188)

—
Fair value adjustment in connection with purchase of Blueapple Class B shares

—

—

—

—

—

—

—

—

—

1,721

—

1,721

739

2,460

(2,460)

—
Share-based compensation expense

—

—

—

—

—

—

—

—

3,019

—

—

3,019

—

3,019

—

3,019
Vesting of equity awards

5

—

—

—

—

—

—

—

(78)

—

—

(78)

—

(78)

—

(78)
Exercise of stock options

21

—

—

—

—

—

—

—

519

—

—

519

—

519

—

519
Exchange of Class C and Class D common stock for Class A common stock

196

—

—

—

(36)

—

(160)

—

(10,615)

—

—

(10,615)

10,615

—

—

—
Deferred taxes in connection with share exchanges

—

—

—

—

—

—

—

—

1,323

—

—

1,323

—

1,323

—

1,323
Tax receivable agreement in connection with share exchanges

—

—

—

—

—

—

—

—

6,065

—

—

6,065

—

6,065

—

6,065
eService redeemable non-controlling interest fair value adjustment

—

—

—

—

—

—

—

—

—

(1,524)

—

(1,524)

(444)

(1,968)

1,968

—
Blueapple redeemable non-controlling interest fair value adjustment

—

—

—

—

—

—

—

—

—

81,633

—

81,633

23,778

105,411

(105,411)

—
Reclassification of additional paid-in capital to accumulated deficit

—

—

—

—

—

—

—

—

131,867

(131,867)

—

—

—

—

—

—
Balance, September 30, 2019

36,712

$
4

34,664

$
3

2,334

$
—

8,355

$
1

$
—

$
(471,603)

$
(8,855)

$
(480,450)

$
(482,756)

$
(963,206)

$
1,108,644

$
145,438

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

Table of Contents

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Unaudited Condensed Consolidated Statements of Cash Flows~~

~~(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 (used in) provided by 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
Proceeds from the secondary offerings

258,522

24,967
Purchase of LLC Interests, Class B common stock, and Class D common stock in connection with the 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

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(1)Description of Business and Summary of Significant Accounting Policies~~
(1)
Description of Business and Summary of Significant Accounting Policies
(a)
Description of Business

~~(a)Description of Business~~

~~EVO Payments, Inc. (“~~EVO, Inc.~~” or the~~ (the “Company”) is a Delaware corporation whose primary asset is its ownership of approximately ~~44.7%~~ of50.8%of the membership interests of EVO, ~~Investco,~~ LLC ~~(“EVO, LLC”)~~ as of September 30, ~~2019.~~2020. EVO, Inc. was incorporated on April 20, 2017 for the purpose of completing ~~a series of reorganization transactions (the “Reorganization Transactions”),~~the Reorganization Transactions, in order to consummate the ~~initial public offering of EVO, Inc.’s Class A common stock (“IPO”),~~IPO, and to carry on the business of EVO, LLC. EVO, Inc. is the sole managing member of EVO, LLC and operates and controls all of the businesses and affairs conducted by EVO, LLC and its ~~subsidiaries.~~subsidiaries (the “Group”).

The Company is a leading payment technology and services provider, offering an array of innovative, reliable and secure payment solutions to merchants across ~~North America~~the Americas and Europe and servicing ~~over~~more than 550,000 merchants across more than 50 markets. The Company supports all major card types in the markets it serves.

The Company provides card-based payment processing services to small and middle market merchants, multinational corporations, government agencies, and other business and nonprofit enterprises located throughout ~~North America~~the Americas and Europe. These services enable merchants to accept credit and debit cards and other electronic payment methods as payment for their products and services by providing terminal devices, card authorization, data capture, funds settlement, risk management, fraud detection, and chargeback services. The Company operates ~~two~~2 reportable segments: ~~North America~~the Americas and Europe.

(b)

Basis of Presentation and Use of Estimates

~~(b)Basis of Presentation and Use of Estimates~~

The accompanying unaudited condensed consolidated balance ~~sheet~~sheets as of September 30, ~~2019~~2020 and ~~audited consolidated balance sheet as of~~ December 31, ~~2018~~,2019, the unaudited condensed consolidated statements of operations and comprehensive income (loss) ~~income~~ for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the unaudited condensed consolidated ~~statements~~statement of changes in equity (deficit) for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019 reflect all adjustments that are of a normal, recurring nature and that are considered necessary for a fair presentation of the results for the periods shown in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) for interim financial reporting periods. Accordingly, certain information and footnote disclosures have been condensed or omitted in accordance with SEC rules that would ordinarily be required under U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

2019.

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported assets and liabilities, as of the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Estimates used for accounting purposes include, but are not limited to, valuation of redeemable non-controlling interests (“RNCI”), ~~calculation~~evaluation of ~~income taxes, and~~realizability of deferred tax assets, determination of liabilities under the tax receivable agreement, determination of liabilities and corresponding right-of-use assets arising from lease agreements, determination of assets or liabilities arising from derivative transactions, determination of fair value of share-based compensation, establishment of severance liabilities, establishment of allowance for doubtful accounts, and assessment of recoverability of long-lived assets.

1312

Table of Contents

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

(c)

Principles of Consolidation

~~Presentation of Consolidated Balance Sheet and Consolidated Statement of Changes in Equity at December 31, 2018:~~

The previously presented nonredeemable non-controlling interests, which relate to the portion of equity in a consolidated subsidiary not attributable, directly or indirectly, to the Company as of December 31, 2018, were retrospectively adjusted to reflect the exchange of certain Class C and D shares to Class A shares. The Company has deemed the correction to be immaterial as there is no impact to the Company’s results of operations, cash flows from operating, investing, or financing activities, or consolidated shareholders’ deficit. This immaterial adjustment decreased the previously reported amounts of $178.2 million and ($814.1) million of additional paid-in capital and nonredeemable non-controlling interests, as reported in the consolidated balance sheet and consolidated statement of changes in equity as of December 31, 2018, to $157.5 million and ($793.4) million, respectively.

~~(c)Principles of Consolidation~~

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. As the sole managing member of EVO, LLC, the Company exerts control over the Group. In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, EVO, Inc. consolidates the Group’s ~~consolidated~~ financial statements and records the interests in EVO, LLC that it does not own as non-controlling interests. All intercompany accounts and transactions have been eliminated in consolidation. The Company accounts for investments over which it has significant influence, but not a controlling financial interest using the equity method of accounting.

~~(d)Cash and Cash Equivalents and Merchant Reserves~~
(d)
Cash and Cash Equivalents, Settlement-Related Cash, and Merchant Reserves

Cash and cash equivalents include all cash balances and highly liquid securities with original maturities of three months or ~~less when acquired. Cash equivalents consist primarily of overnight money market funds.~~less. Cash balances often exceed federally insured limits; however, concentration of credit risk is limited due to the payment of funds on the day following receipt in satisfaction of the settlement process. Included in cash and cash equivalents are settlement-related cash and merchant ~~reserve~~reserves.

Settlement-related cash represents funds that the Company holds when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances ~~which~~are not restricted, however these funds are generally paid out in satisfaction of settlement processing obligations and therefore are not available for general purposes. As of September 30, 2020 and December 31, 2019, settlement-related cash balances were $132.9 million and $178.8 million, respectively.

Merchant reserves represent funds collected from the Company’s merchants that serve as collateral to minimize ~~the~~contingent liabilities associated with any losses that may occur under the respective merchant ~~agreements (“Merchant Reserves”).~~agreements. While this cash is not restricted in its use, the Company believes that maintaining the ~~Merchant Reserves~~merchant reserves to collateralize merchant losses strengthens its fiduciary standings with its card network sponsors (“Member Banks”) and is in accordance with the guidelines set by the card networks. As of September 30, ~~2019~~2020 and December 31, ~~2018, Merchant Reserves~~2019, merchant reserves were ~~$92.2~~$105.0 million and ~~$107.8~~$85.8 million, respectively.

(e)

Derivatives

The Company recognizes derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

~~(e)Recent Accounting Pronouncements~~

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the earnings effect of the hedged forecasted transactions in a cash flow hedge.

The Company entered into an interest rate swap to manage a portion of the exposure to the fluctuations in the London Interbank Offered Rate (“LIBOR”) interest rates associated with the Company’s variable-rate term loan. The Company designated the interest rate swap as a cash flow hedge involving the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement without exchange of the underlying notional amount. The Company also formally evaluates, both at the inception of the hedge and quarterly, whether the interest rate swap is highly effective in offsetting changes in cash flows of the related underlying exposure.

Changes in the fair value of a derivative that is designated as, and meets all the required criteria for, a cash flow hedge are recorded in accumulated other comprehensive loss and reclassified into earnings as the underlying hedged item affects earnings.

Refer to Note 14, “Derivatives,” and Note 18, “Fair Value,” for further information on the interest rate swap.

Table of Contents

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of LIBOR or by another reference rate expected to be discontinued. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the quarter ended June 30, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. The Company continues to evaluate the effect of ASU 2020-04 on its consolidated financial statements and may apply other elections as applicable as additional changes in the market occur.

Investments, Joint Ventures, and Derivatives and Hedging

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company does not expect that ASU 2020-01 will have a material impact on the Company’s consolidated financial statements.

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This update simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2021 with early adoption permitted. The Company is currently evaluating the impact of this ASU and does not expect that it will have a material impact on the Company’s consolidated financial statements.

(2)Revenue

The Company primarily earns revenue from payment processing services, and has contractual agreements with its customers that set forth the general terms and conditions of the service relationship, including line item pricing, payment terms and contract duration. Payment processing service revenue is based on a percentage of transaction value and on specified amounts per transaction or service, and is measured as the amount of consideration to which the Company expects to be entitled in exchange for providing services. The Company’s core performance obligation is to stand ready to provide continuous access to the Company’s processing services in order to be able to process as many transactions as its customers require on a daily basis over the contract term as the timing and quantity of transactions to be processed is not determinable. Under a stand-ready obligation, the Company’s performance obligation is defined by each time increment rather than by the underlying activities satisfied over time based on days elapsed. Because the service of standing ready is substantially the same each day and has the same pattern of transfer to the customer, the Company has determined that its stand-ready performance obligation comprises a series of distinct days of service.

The Company also earns revenue from the sale and rental of electronic point-of-sale (“POS”) equipment. The sale of equipment to a customer represents the transfer of a promised good that has a benefit to the customer in conjunction with the payment processing services provided by the Company and, therefore, is accounted for as a separate performance obligation.

The Company’s contractual agreements outline the pricing related to payment processing services and pricing related to the sale or rental of POS equipment. The Company allocates the variable fees charged for payment processing services to the day in which it has the contractual right to bill under the contract. Revenue from the sale of POS equipment is recognized at a point in time when the POS equipment is shipped and title passes to the customer. Revenue from the rental of electronic POS equipment is recognized monthly as earned. The revenue recognized from the sale and rental of POS equipment totaled ~~$12.2~~$10.1 million and ~~$10.8~~$12.2 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The revenue recognized from the sale and rental of POS equipment totaled ~~$32.4~~$29.4 million and ~~$32.1~~$32.4 million for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively.

1715

Table of Contents

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Commissions payable to referral and reseller partners are recognized as incurred. The Company does not capitalize costs to obtain contracts with customers or costs incurred to fulfill contracts with customers as such amounts are considered immaterial.

~~The Company follows the requirements of ASC 606-10,~~ ~~Principal Agent Considerations~~, which states that the determination of whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors should be considered in determining payment processing service revenue reporting.

The determination of gross versus net recognition for interchange, card network fees, commissions and other fees requires judgment that depends on whether the Company controls the good or service before it is transferred to the merchant or whether the Company is acting as an agent of a third party.

The Company frequently enters into agreements with third parties under which the third party engages the Company to provide payment processing services to all of their customers. Under these agreements the third party acts as supplier of products or services by achieving most of the shared risks and rewards of customer contracts; the Company passes the third party’s share of merchant receipts to them as commissions. The Company incurs interchange and card network pass-through charges from the card issuers and payment networks respectively, and does not have the ability to direct the use of or receive the benefits from the services provided by the card issuers or the payment networks. The Company has no discretion over which card issuing bank will be used to process a transaction and is unable to direct the activity of the merchant to another card issuing bank. Interchange and card network rates are pre-established by the card networks, and the Company has no latitude in determining these fees.

Based on these factors, the Company has determined that it is acting as an agent with respect to these services. Revenue generated from payment processing is presented net of interchange and card network fees paid to the card issuing banks and card networks respectively.

The table below presents a disaggregation of the Company’s revenue ~~from contracts with customers~~by segment and by division. The Company’s divisions are ~~defined~~ as follows:

●

Direct – ~~Includes~~Represents the direct solicitation of merchants through referral relationships, including financial institutions and the Company’s direct sales channel. The Company has long-term, exclusive referral relationships with leading financial ~~institutions. In the aggregate, these banks~~institutions that represent ~~more than 12,000~~thousands of branch locations which actively pursue new merchant relationships on the Company’s behalf. ~~These financial institutions provide the Company with access to their brands, significantly enhancing the Company’s credibility and recognition.~~ The Company also has referral arrangements with independent sales organizations (“ISO”) that refer merchants to the Company. The Company utilizes a direct sales ~~force~~team, including outbound telesales, to build and maintain ~~direct~~ relationships with its merchants and ~~other~~ referral ~~partners in order to control sales, price negotiation, underwriting, boarding, and support processes.~~

partners.

●

Tech-enabled – ~~Includes~~Represents merchants requiring a technical integration at the point of sale between the Company and a third party software vendor whereby the third party passes information to our systems to enable payment processing. These merchant acquiring arrangements are supported by partnerships with independent software ~~vendors,~~providers, integrated ~~software dealers, enterprise resource planning (“ERP”)~~ software dealers, and eCommerce gateway providers. ~~These partnerships function by way of a technical integration between~~In the ~~Company~~United States, this division also supports business-to-business customers via proprietary solutions sold directly to merchants and the third party in which the third party seamlessly passes information to the Company’s systems in order to streamline the merchant boarding process. The Company also drives growth through its own ERP integrations, which support its B2B offering,via enterprise resource planning software dealers and ~~its proprietary eCommerce gateway.~~

integrators.

●

Traditional – Represents the Company’s heritage ~~U.S.~~ United Statesportfolio composed primarily of ~~independent sales organization (“ISO”)~~ISO relationships.The Company is not focused on this sales model and it will represent an increasingly smaller portion of the business over time.


	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Americas		Europe		Total		Americas		Europe		Total

	(In thousands)						(In thousands)
Divisions:
Direct	$	31,561	$	37,714	$	69,275	$	93,548	$	94,479	$	188,027
Tech-enabled		31,248		10,474		41,722		88,569		26,337		114,906
Traditional		5,979		—		5,979		19,495		—		19,495
Totals	$	68,788	$	48,188	$	116,976	$	201,612	$	120,816	$	322,428


	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Americas		Europe		Total		Americas		Europe		Total

	(In thousands)						(In thousands)
Divisions:
Direct	$	38,025	$	36,383	$	74,408	$	113,246	$	105,248	$	218,494
Tech-enabled		28,914		10,958		39,872		84,912		28,507		113,419
Traditional		8,083		—		8,083		24,485		—		24,485
Totals	$	75,022	$	47,341	$	122,363	$	222,643	$	133,755	$	356,398

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

North America

Europe

Total

North America

Europe

Total

(In thousands)

(In thousands)
Divisions:

Direct

$
38,025

$
36,383

$
74,408

$
113,246

$
105,248

$
218,494
Tech-enabled

28,914

10,958

39,872

84,912

28,507

113,419
Traditional

8,083

—

8,083

24,485

—

24,485

$
75,022

$
47,341

$
122,363

$
222,643

$
133,755

$
356,398

Three Months Ended September 30, 2018

Nine Months Ended September 30, 2018

North America

Europe

Total

North America

Europe

Total

(In thousands)

(In thousands)
Divisions:

Direct

$
40,946

$
51,385

$
92,331

$
117,738

$
141,733

$
259,471
Tech-enabled

28,855

13,886

42,741

84,757

39,511

124,268
Traditional

9,686

—

9,686

30,192

—

30,192

$
79,487

$
65,271

$
144,758

$
232,687

$
181,244

$
413,931

(3)Settlement Processing Assets and ~~Liabilities~~Obligations

Settlement processing assets and obligations represent intermediary balances within the settlement process involving the movement of funds between consumers, card issuers, card networks, the Company, and its merchants. The Company processes funds settlement through two models, the sponsorship model and the direct membership model.

In certain markets, the Company ~~is a member~~operates under the sponsorship of ~~various~~Member Banks to process transactions through card networks ~~allowing it~~such as Visa and MasterCard. As such, the Company has an agreement with these banks which dictates the sponsorship services to ~~process and fund transactions without third-party sponsorship.~~ be provided to the Company. It is the responsibility of the Member Bank to ensure that the Company is in adherence with card network standards. The sponsoring Member Bank serves as the acquiring bank (“Acquiring Bank”) under this model.

Table of Contents

In other markets, the Company has ~~Member Banks for whom~~direct membership with the ~~Company facilitates payment transactions. These arrangements allow the Company to route transactions under the Member Banks’ control~~various card networks and ~~identification numbers to clear card transactions through card networks.~~

~~Funds settlement refers to~~performs the process of ~~transferring~~ funds ~~for sales and credits between card issuers and merchants. The~~settlement. As a direct member, it is the Company’s responsibility to adhere to the standards of the card networks. The Company serves as the Acquiring Bank under the direct membership model.

The card networks ~~restrict non-members~~operate as an intermediary between the card issuing banks and the Acquiring Banks, whereby funds are received by the card issuing banks and remitted to the Acquiring Bank via the card networks on a daily basis. The Company then remits these funds to its merchants, either through a Member Bank under the sponsorship model, or directly to merchants under the direct membership model. Incoming funds due from the card networks on behalf of the card issuing bank are classified as receivables from card networks in the table below, whereas the funds due from the Company to its merchants are classified as settlement liabilities due to merchants.

The Company enters into agreements with its merchants which outline the fees charged by the Company for processing payment transactions and performing funds settlement. Under the sponsorship model, these agreements are between the Company, the Member Bank, and the merchant, whereas under the direct membership model, these agreements are exclusively between the Company and the merchant. Fees are either settled daily or monthly on a net basis or monthly through an invoice arrangement. Receivables from merchants as presented below represent amounts either net settled or invoiced to the Company’s merchants related to the various fees associated with the payment processing and funds settlement ~~or accessing~~services provided by the Company.

As described in Note 1, “Description of Business and Summary of Significant Accounting Policies,” the Company collects funds from merchants that serve as collateral to mitigate potential future losses, and recognizes a corresponding liability which is presented as merchant reserves within the settlement ~~funds~~processing obligations. Refer to table below.

While receivables from card networks and ~~instead, require that these funds be~~settlement liabilities due to merchants represent intermediary balances in the ~~possession of the Member Banks until the merchant is funded. However, in certain markets and in accordance with the terms of the Company’s Bank Sponsorship Agreements with its Member Banks, funds~~transaction settlement ~~generally follows a net settlement process.~~

~~Timing~~process, timing differences, interchange expense, ~~Merchant Reserves~~merchant reserves and exception items cause differences between the amount the Member Banks receive from the card networks and the amount funded to ~~the~~ merchants. ~~Settlement~~

A summary of settlement processing assets and obligations ~~represent intermediary balances arising in the settlement process.~~

~~A summary of these amounts~~ is as follows:

September 30,

December 31,


2019

2018

(In thousands)
Settlement processing assets:




Receivable from card networks

$
219,654

$
195,817
Receivable from merchants

90,552

52,513
Totals

$
310,206

$
248,330

Settlement processing obligations:




Settlement liabilities

$
(375,552)

$
(320,492)
Merchant reserves

(92,224)

(107,836)
Totals

$
(467,776)

$
(428,328)


	September 30,		December 31,
	2020		2019

	(In thousands)
Settlement processing assets:
Receivable from card networks	$	199,710	$	232,458
Receivable from merchants		88,888		96,179
Totals	$	288,598	$	328,637

Settlement processing obligations:
Settlement liabilities due to merchants	$	(317,053)	$	(363,545)
Merchant reserves		(104,968)		(85,757)
Totals	$	(422,021)	$	(449,302)

(4)	Earnings Per Share

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(4)Earnings Per Share~~

On May 22, 2018, EVO, LLC’s limited liability company agreement (the “EVO LLC Agreement”) was amended and restated effective as of May 25, 2018, to, among other things, reclassify all of the then existing membership interests of EVO, LLC into a new single class of common membership interests. Additionally, the Company entered into a series of transactions that resulted in the issuanceBasic earnings per share of Class A common stock is calculated pursuant to the two-class method as a result of the issuance of the Series A Convertible Preferred Stock (the “Preferred Stock”) on April 21, 2020. The Preferred Stock is considered a participating security because the holders of Preferred Stock are entitled, on an as-converted basis, to participate in and receive any dividends declared or paid on the Class ~~B common stock, Class C~~A common stock, and ~~Class D common stock~~no dividends may be paid to ~~the~~ holders of ~~LLC Interests and commenced the IPO, resulting in the public issuance of additional shares of the Company’s~~ Class A common ~~stock.~~stock unless full participating dividends are concurrently paid to holders of Preferred Stock. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividend and participation rights in undistributed earnings.

Table of Contents

Under this method, all earnings, distributed and undistributed, are allocated to common stock and participating securities based on their respective rights to receive dividends. The Preferred Stock is not included in the computation of basic earnings per share in periods in which the Company reports a net loss, as the Preferred Stock holders are not contractually obligated to share in the net losses. However, the cumulative dividends that accrete on the Preferred Stock for the period reduce the net income or increase the net loss allocated to common stockholders. The Company applies a discrete-period basis to allocate the earnings in the interim period, under which each interim period is treated in the same manner as an annual period is treated in a year-to-date calculation of earnings per share. Earnings per share ~~information prior to May 23, 2018 is not presented since the ownership structure of EVO, LLC is not a common unit of ownership of the Company.~~

~~The following table sets forth the computation of the Company's basic and diluted net loss per Class A common share (in thousands, except share and per share data):~~

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

May 23 -  September 30

2019

2018

Numerator:

Net loss attributable to EVO Payments, Inc.

$
(1,844)

$
(6,671)

$
(27,389)

$
(10,675)

Denominator:

Weighted average Class A common stock outstanding

34,634,567

30,996,506

18,163,344

17,901,484
Effect of dilutive securities

—

—

—

—
Total dilutive securities

34,634,567

30,996,506

18,163,344

17,901,484

Earnings per share:

Basic

$
(0.05)

$
(0.22)

$
(1.51)

$
(0.60)
Diluted

$
(0.05)

$
(0.22)

$
(1.51)

$
(0.60)

Antidilutive securities:

Stock options

3,307,082

3,002,231

2,097,054

2,097,054
RSUs

844,616

790,719

499,510

499,510
RSAs

14,672

22,359

58,809

58,809
Convertible Class C common stock

2,327,511

2,399,326

2,560,955

2,560,955
Convertible Class D common stock

10,019,169

12,829,719

17,282,930

17,282,930

~~Earnings per share information~~ is not separately presented for Class B common stock, Class C common stock, and Class D common stock since they have no economic rights to the ~~income or loss~~earnings of the Company.

Diluted earnings per share of Class A common stock is calculated using the more dilutive of the (a) treasury stock method and as-converted method or (b) the two-class method. Class B common stock is not considered when calculating ~~dilutive EPS~~diluted earnings per share as this class of common stock may not ~~be exchanged for~~convert to Class A common stock. Class C common stock and Class D common stock are considered in the calculation of ~~dilutive EPS~~diluted earnings per share on an if-converted basis as these classes, together with the related LLC Interests, have exchange rights ~~into Class A common stock~~ that could result in additional shares of Class A common stock being issued. Potentially dilutive shares issuable upon conversion of the Preferred Stock are considered in the calculation of diluted earnings per share on an if-converted basis. All other potentially dilutive securities are determined based on the treasury stock method.

Refer to Note ~~18,~~16, “Redeemable Preferred Stock,” and Note 21, “Shareholders’ Equity,” for further information on ~~the~~ rights ofto each class of common stock and preferred stock.

The following table sets forth the computation of the Company's basic and diluted earnings per share of Class A common stock, as well as the anti-dilutive shares excluded (in thousands, except share and per share data):


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended September 30,		Nine Months Ended September 30,
	2020				2019

Numerator:
Net income (loss) attributable to EVO Payments, Inc.	$	5,839	$	(2,740)	$	(1,844)	$	(6,671)
Less: Accrual of redeemable preferred stock paid-in-kind dividends		2,360		4,131		—		—
Less: Allocation of undistributed earnings to preferred shares		663		—		—		—
Undistributed earnings (loss) attributable to shares of Class A common stock	$	2,816	$	(6,871)	$	(1,844)	$	(6,671)

Denominator:
Weighted-average Class A common stock outstanding		41,675,929		41,445,566		34,634,567		30,996,506
Effect of dilutive securities		960,687		—		—		—
Total dilutive securities		42,636,616		41,445,566		34,634,567		30,996,506

Earnings per share:
Basic	$	0.07	$	(0.17)	$	(0.05)	$	(0.22)
Diluted	$	0.07	$	(0.17)	$	(0.05)	$	(0.22)

Weighted-average anti-dilutive securities:
Redeemable preferred stock		152,250		90,572		—		—
Stock options		—		5,013,228		3,307,082		3,002,231
RSUs		—		1,169,696		844,616		790,719
RSAs		—		4,323		14,672		22,359
Class C common stock		2,103,664		2,246,332		2,327,511		2,399,326
Class D common stock		4,490,812		4,392,211		10,019,169		12,829,719

2018

Table of Contents

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(5)Tax Receivable Agreement~~

(5)

Tax Receivable Agreement

In connection with the IPO, the Company entered into a Tax Receivable Agreement ~~(the “TRA”~~(“TRA”) that requires the Company to make payments to the Continuing LLC Owners ~~as defined in Note 18, “Shareholders’ Equity,”~~ that are generally equal to 85% of the applicable cash tax savings, if any, realized as a result of favorable tax attributes that will be available to the Company as a result of the Reorganization Transactions, exchanges of LLC Interests and paired Class C common stock or paired Class D common stock for Class A common stock, purchases or redemptions of LLC Interests, and payments made under the TRA. Payments will occur only after the filing of U.S. federal and state income tax returns and realization of cash tax savings from the favorable tax attributes. Due to net losses attributable to the Company in ~~2018,~~prior years, there were no realized tax savings attributable to the TRA, therefore no0 payments have been made related to the TRA obligation.

As a result of the ~~exchange~~purchases of LLC Interests and the exchanges of LLC Interests and paired shares of Class C common stock and paired Class D common stock for shares of Class A common stock sold in connection with and following the IPO, ~~the September 2018 Secondary Offering, the April 2019 Secondary Offering, the August 2019 Secondary Offering and other member exchanges,~~ through September 30, ~~2019,~~2020, the Company’s deferred tax asset and payment liability pursuant to the TRA were approximately ~~$142.2~~$178.6 million ($164.8 million net of amortization) and $~~120.9~~$151.8 million, ~~respectively.~~respectively at September 30, 2020. The Company recorded a corresponding increase to paid-in capital for the difference between the TRA liability and the related deferred tax asset. The amounts recorded as of September 30, ~~2019,~~2020, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax ~~returns for the year ended December 31, 2019.~~returns. Future payments under the TRA with respect to subsequent exchanges would be in addition to these amounts.

For the TRA, the cash savings realized by the Company are computed by comparing the actual income tax liability of the Company to the amount of such taxes the Company would have been required to pay had there been no increase to the tax basis of the assets from member exchanges or sales of LLC Interests, and no tax benefit as a result of the Net Operating Losses (“NOLs”) generated by the increase in the Company’s tax basis of the assets in EVO, LLC. Subsequent adjustments of the TRA obligations due to certain events (e.g., changes to the expected realization of NOLs or changes in tax rates) will be recognized within other (expense) income in the unaudited condensed consolidated statements of operations and comprehensive income (loss) ~~income.~~.

~~(6)Acquisitions~~

(6) Acquisitions

The Company determined thethe pro forma impact of the acquisitions below was not ~~material~~significant individually and in the aggregate, to the Company’s ~~historical consolidated~~ operating results and is, therefore, not separately presented.

2019 Acquisitions

(a)

Delego Software ULC

In September 2019, a subsidiary of EVO, Inc. acquired 100% of the outstanding shares of Delego Software ULC (“Delego”), an unlimited liability company governed by the laws of the Province of British Columbia, Canada, for CAD 42.6 million ($32.4 million, based on the foreign exchange rate at the time of the acquisition), which was funded with cash drawn from the Company’s debt facilities and fully paid at closing. The acquisition of Delego expands the Company’s integrated payment solutions business as Delego is a provider of SAP integrated payments for business to business customers. The results of operations of Delego are included in the Company’s consolidated ~~results~~statement of operations and comprehensive income (loss) from the date of the acquisition in the ~~North America~~Company’s Americas segment through the end of the period.

2119

Table of Contents

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The ~~provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed are as follows:~~purchase price allocation, which was finalized during the quarter ended June 30, 2020, is provided within the table below:


	~~As of the~~
	~~acquisition date~~
	~~(In thousands )~~		~~Estimated Useful Life~~
~~Finite-lived intangible assets~~
~~Purchased software~~	$	~~8,513~~	~~7 years~~
~~Customer relationships~~		~~2,964~~	~~15 years~~
~~Tradename~~		~~836~~	~~2 years~~
~~Deferred tax liabilities~~		~~(3,116)~~
~~Other assets (liabilities), net~~		~~590~~
~~Goodwill~~		~~22,628~~
~~Total purchase price~~	$	~~32,415~~


	As of the		Estimated
	acquisition date		Useful Life
Finite-lived intangible assets	(In thousands )
Acquired software	$	8,513	7 years
Customer relationships		2,964	15 years
Trademarks		836	2 years
Deferred tax liabilities		(3,176)
Other assets, net		590
Goodwill		22,688
Total purchase price	$	32,415

Goodwill in the amount of ~~$22.6~~$22.7 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In the final purchase price allocation, the Company recorded an additional deferred tax liability with an increase to goodwill of less than $0.1 million based on the review of Delego’s historical tax records. Goodwill generated from the Delego acquisition is deductible for U.S. income tax purposes. Pro forma information for Delego acquisition is not presented, as the effect of this acquisition is not material to the Company’s consolidated operating results or North America segment. As of September 30, 2019, the Company considers the purchase price allocation to be preliminary and continues to gather the information to support the valuation of assets acquired and liabilities assumed.

(b)

SF Systems

In July 2019, a subsidiary of EVO, Inc. completed the acquisition of 100% of SF Systems, S.A.P.I. (“SF Systems”) for total consideration of $5.0 million, which ~~includes~~included an upfront payment of $4.0 million and a holdback liability of $1.0 million payable 18 months after the closing date. Net assets acquired in the SF Systems acquisition included purchased software of $2.6 million with a useful life of 5 years and goodwill of $2.4 million. Goodwill generated from the SF Systems acquisition is deductible for ~~U.S.~~United States income tax purposes. SF Systems is presented in the Company’s ~~North America~~Americas segment.

(c)

Way2Pay Ltd

In March 2019, a subsidiary of EVO, Inc. completed the acquisition of 100% of the outstanding shares of Way2Pay Ltd (“Way2Pay”) for total consideration of €3.0 million ($3.4 million, based on the foreign exchange rate at the time of the acquisition), which ~~includes~~included an upfront payment of €2.7 million and a holdback liability of €0.3 million payable 18 months after the date of the agreement. The holdback was paid in full during the quarter ended September 30, 2020. Net assets acquired in the Way2Pay acquisition included purchased software of $4.0 million with a useful life of 5 ~~years.~~years and liabilities of $0.6 million. Way2Pay is presented in the Company’s Europe segment.

~~2018 Acquisitions~~(7) Leases

~~(a)~~

~~ClearONE, S.L.~~

~~In October 2018,~~As of December 31, 2019, the Company retroactively adopted ASC 842 effective January 1, 2019, using the modified retrospective transition method. The Company elected to account for lease and nonlease components in a ~~subsidiary~~lease arrangement as a combined lease component for all classes of ~~EVO, Inc. acquired 100%~~leased assets. Refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the outstanding shares of ClearONE for €5.4 million ($6.3 million based on the foreign exchange rate at the time of the acquisition). The total consideration includes a holdback liability of €0.5 million. ClearONE is presentedconsolidated financial statements in the Company’s ~~Europe segment. Equipment and intangible assets consist of card processing equipment, merchant contract~~

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~portfolios, trademarks, internally developed software, and non-competition agreements with useful lives of 3 to 5 years, 5 years, 5 years, 5 years, and 2 to 3 years, respectively.~~

~~(b)~~

~~Federated Payment Systems, LLC/Federated Payment Canada Corp.~~

~~In September 2018, a subsidiary of EVO, Inc. acquired~~Annual Report on Form 10-K for the remaining 67% of the outstanding membership interests of Federated Payment Systems, LLC (“Federated US”) and 100% of the outstanding shares of Federated Payment Canada Corporation (“Federated Canada,” together with Federated US, “Federated”) for $38.2 million. The total consideration includes an aggregate holdback liability of $0.5 million. Certain acquisition-related expenses were incurred in conjunction with the Federated acquisition in the amount of $0.4 million. Federated maintains diverse sales channels which complement the Company’s strategic distribution relationships. As a result of this acquisition, the Company recognized goodwill. Federated is presented in the Company’s North America segment.

~~The purchase price allocation is as follows:~~

c

As of the

acquisition date

(in thousands)
Tangible assets acquired

$
1,702
Deferred tax liability

(1,357)
Amortizable intangible assets

Trademarks

1,200
Merchant contract portfolios

11,400
Goodwill

33,677
Total net assets acquired

$
46,622

Intangible assets of $12.6 million have been allocated to amortizable intangible assets consisting of trademarks and merchant contract portfolios, with estimated useful lives of 5 years and 10 years, respectively. The change in the estimated values of amortizable intangible assets is primarily due to obtaining information related to the merchant portfolio acquired from Federated and therefore, revising certain estimates in determining fair value.

On the date of acquisition, the book value of the investment in Federated US was zero. The Company recorded a gain on the acquisition of the unconsolidated investee of $8.4 million to step-up carrying value of the investment to fair value as of the acquisition date. The gain on acquisition of unconsolidated investee was recorded on the consolidated statements of ~~operations and comprehensive (loss) income for the~~fiscal year ended December 31, ~~2018.~~2019 for further discussion.

Goodwill, totaling $33.7 million, represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the Federated acquisition is deductible for U.S. income tax purposes.

~~(c)~~

~~Nodus Technologies, Inc.~~

In May 2018, a subsidiary of EVO, Inc. acquired 100% of the outstanding shares of Nodus Technologies, Inc. (“Nodus”) for $18.0 million. The total consideration includes a holdback liability of $0.8 million. Nodus is presented in the Company’s North America segment. Equipment and intangible assets consist of office equipment, computer software, merchant contract portfolios, trademarks, internally developed software, and non-competition agreements with useful lives of 5 to 7 years, 3 years, 15 years, 20 years, 10 years and 3 years, respectively.

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~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(d)~~

~~Liberbank, S.A.~~

~~In April 2018,~~The Company’s leases consist primarily of real estate and personal property leases throughout the markets in which the Company operates. At contract inception, the Company determines whether an arrangement is or contains a ~~subsidiary~~lease, and for each identified lease, evaluates the classification as operating or financing. The Company has no finance leases as of ~~EVO, Inc. acquired a portion of~~September 30, 2020 and December 31, 2019. Leased assets and obligations are recognized at the ~~merchant acquiring assets of Liberbank, S.A. and Banco de Castilla la Mancha, S.A. for €7.9 million ($9.5 million,~~lease commencement date based on the ~~foreign exchange rate at~~present value of fixed lease payments to be made over the ~~time~~term of the ~~acquisition). This asset acquisition~~lease. Renewal and termination options are factored into determination of the lease term only if the option is ~~presented~~reasonably certain to be exercised. The weighted-average remaining lease term was 6.94 years and 7.79 years at September 30, 2020 and December 31, 2019, respectively. The Company has no significant short-term leases as of September 30, 2020 and December 31, 2019.

The Company’s leases do not provide a readily determinable implicit interest rate and therefore, the Company uses its incremental borrowing rate to measure the lease liability and corresponding right-of-use asset. The incremental borrowing rates were determined based on a portfolio approach considering the Company’s current secured borrowing rate adjusted for market conditions and the length of the lease term. The weighted-average discount rates used in the ~~Company’s Europe segment. Equipment~~measurement of the lease liabilities were 6.46% and ~~intangible assets acquired consist~~6.67% as of ~~card processing equipment, merchant contract portfolios, marketing alliance agreements,~~September 30, 2020 and ~~trademarks with useful lives of 3 years, 5 years, 15 years,~~December 31, 2019, respectively.

Operating lease cost is recognized on a straight-line basis over the lease term. Operating lease costs for the three months ended September 30, 2020 and ~~15 years, respectively.~~

~~(e)~~

~~Nationwide Payment Solutions, LLC~~

~~In March 2018, a subsidiary of EVO, Inc. acquired the remaining 38% membership interest in Nationwide Payment Solutions, LLC (“NPS”) for an upfront payment of $16.9~~2019 were $2.7 million and ~~contingent consideration~~$3.1 million, respectively, in each period, and are included in selling, general and administrative expenses in the unaudited condensed consolidated statement of ~~$3.8 million paid on April 1, 2019. This transaction resulted in a reduction to members’ deficit~~operations and ~~nonredeemable non-controlling interests of $20.1~~comprehensive income (loss). Operating lease costs for the nine months ended September 30, 2020 and 2019 were $8.5 million and ~~$0.6~~$8.7 million, respectively. ~~NPS is presented in the Company’s North America segment.~~

~~(f)~~

~~EVO Payments International Corp. - Canada~~

~~In February 2018, a subsidiary~~Total lease costs include variable lease costs of EVO, Inc. acquired the remaining 30% membership interest in EVO Payments International Corp. - Canada (“EVO Canada”) from 7097794 Canada, Inc. for $0.9 million of contingent consideration. This transaction resulted in a reduction to members’ deficit and nonredeemable non-controlling interests of $0.4approximately $0.5 million and ~~$0.5 million, respectively. EVO Canada is presented in the Company’s North America segment.~~

~~(7)Equipment and Improvements~~

~~Equipment and improvements consist of the following:~~

Estimated

Useful

Lives in

September 30,

December 31,

Years

2019

2018

(In thousands)
Card processing

3-5

$
136,384

$
128,244
Office equipment

3-5

44,311

41,771
Computer software

3

47,266

44,373
Leasehold improvements

various

16,594

16,234
Furniture and fixtures

5-7

6,549

5,673
Totals

251,104

236,295
Less accumulated depreciation

(158,794)

(136,947)
Foreign currency translation adjustment

(598)

3,698
Totals

$
91,712

$
103,046

~~Depreciation expense related to equipment and improvements was $10.0 million and~~ $~~9.1~~0.7 million for the three months ended September 30, 2020 and 2019, respectively, which are primarily comprised of costs of maintenance and ~~2018, respectively. Depreciation expense related to equipment~~utilities, and

~~Table~~ are determined based on the actual costs incurred during the period. Total lease costs include variable lease costs of ~~Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~improvements was~~ $~~31.5~~ ~~million and $27.6~~1.6 million for the nine months ended September 30, 2020 and 2019. Variable payments are expensed in the period incurred and not included in the measurement of lease assets and liabilities.

Cash paid for amounts included in the measurement of operating lease liabilities for the nine months ended September 30, 2020 and 2019 was $8.1 million and ~~2018,~~$7.5 million, respectively, which is included as a component of cash provided by operating activities in the unaudited condensed consolidated statement of cash flows.

As of September 30, 2020, maturities of lease liabilities are as follows:



	(In thousands)
Years ending:
2020 (remainder of the year)	$	1,720
2021		8,600
2022		8,285
2023		6,178
2024		5,368
2025 and thereafter		17,130
Total future minimum lease payments (undiscounted)		47,281
Less: present value discount		(9,783)
Present value of lease liability	$	37,498

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(8) Equipment and Improvements

Equipment and improvements consisted of the following:


	Estimated
	Useful
	Lives in	September 30,		December 31,
	Years	2020		2019

		(In thousands)
Card processing equipment	3-5	$	138,694	$	137,190
Office equipment	3-5		44,539		42,561
Computer software	3		42,836		42,621
Leasehold improvements	various		19,090		17,870
Furniture and fixtures	5-7		4,518		6,019
Totals			249,677		246,261
Less accumulated depreciation			(177,106)		(155,323)
Foreign currency translation adjustment			(724)		3,526
Totals		$	71,847	$	94,464

Depreciation expense related to equipment and improvements were $9.9 million and $10.0 million for the three months ended September 30, 2020 and 2019, respectively. Depreciation expense related to equipment and improvements were $29.8 million and $31.5 million for the nine months ended September 30, 2020 and 2019, respectively.

In the nine months ended September 30, ~~2019,~~2020, equipment and improvements, gross, and accumulated depreciation were each reduced by ~~$10.8~~$9.3 million and ~~$10.7~~$8.0 million, respectively, and in the nine months ended September 30, ~~2018~~2019 by ~~$8.5~~$10.8 million and ~~$7.6~~$10.7 million, respectively, primarily related to asset retirements. The Company infrequently sells or disposes of assets that are not fully depreciated, and this activity represents an insignificant portion of the total reduction.

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~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(8)Goodwill and Intangible Assets~~
(9)
Goodwill and Intangible Assets

Intangible assets, net consist of the following:

September 30,

December 31,


2019

2018

(In thousands)
Intangible assets with finite lives:

Merchant contract portfolios and customer relationships:




Gross carrying value

$
296,033

$
293,069
Accumulated amortization

(157,394)

(139,159)
Accumulated impairment losses

(7,089)

(5,658)
Foreign currency translation adjustment

(29,441)

(27,975)
Net

102,109

120,277

Marketing alliance agreements:




Gross carrying value

191,879

191,879
Accumulated amortization

(56,650)

(47,777)
Accumulated impairment losses

(11,920)

(7,585)
Foreign currency translation adjustment

(20,488)

(18,634)
Net

102,821

117,883

Trademarks, finite-lived:




Gross carrying value

29,493

28,657
Accumulated amortization

(12,536)

(10,748)
Foreign currency translation adjustment

(4,639)

(4,446)
Net

12,318

13,463

Internally developed and acquired software:




Gross carrying value

80,881

60,876
Accumulated amortization

(23,375)

(15,794)
Accumulated impairment losses

(10,190)

(9,324)
Foreign currency translation adjustment

(3,417)

(2,260)
Net

43,899

33,498

Non-competition agreements:




Gross carrying value

6,462

6,462
Accumulated amortization

(5,782)

(5,316)
Foreign currency translation adjustment

(2)

—
Net

678

1,146
Total finite-lived, net

261,825

286,267

Trademarks, indefinite-lived:




Gross carrying value

18,499

18,499
Accumulated impairment losses

(18,499)

(14,627)
Net

—

3,872
Total intangible assets, net

$
261,825

$
290,139


	September 30, 2020
	Gross carrying value		Accumulated amortization		Accumulated impairment charges		Translation and other adjustments		Net

	(In thousands)
Merchant contract portfolios and customer relationships	$	293,581	$	(176,230)	$	(5,685)	$	(33,219)	$	78,447
Marketing alliance agreements		186,081		(66,518)		(7,557)		(23,856)		88,150
Trademarks, definite-lived		21,629		(10,583)		(901)		(3,442)		6,703
Internally developed and acquired software		89,083		(36,007)		(10,191)		(2,440)		40,445
Non-compete agreements		6,462		(6,403)		-		1		60
Total	$	596,836	$	(295,741)	$	(24,334)	$	(62,956)	$	213,805

	December 31, 2019
	Gross carrying value		Accumulated amortization		Accumulated impairment charges		Translation and other adjustments		Net

	(In thousands)
Merchant contract portfolios and customer relationships	$	296,033	$	(163,358)	$	(7,089)	$	(26,347)	$	99,239
Marketing alliance agreements		191,879		(59,545)		(11,920)		(17,468)		102,946
Trademarks, definite-lived		29,493		(13,129)		(2,631)		(4,600)		9,133
Internally developed and acquired software		84,060		(26,042)		(10,190)		(2,110)		45,718
Non-compete agreements		6,462		(5,938)		-		-		524
Trademarks, indefinite-lived		18,499		-		(18,499)		-		-
Total	$	626,426	$	(268,012)	$	(50,329)	$	(50,525)	$	257,560

~~Table~~As of ~~Contents~~September 30, 2020, the gross carrying value of merchant contract portfolios and customer relationships, marketing alliance agreements, and definite and indefinite-lived trademarks were reduced by $2.4 million, $5.8 million, $7.9 million, and $18.5 million, respectively, with an offset to accumulated amortization, accumulated impairment charges, and translation and other adjustments, for the write off of fully impaired intangible assets.

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Amortization expense related to intangible assets was ~~$12.8~~$12.3 million and ~~$11.5~~$12.8 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Amortization expense related to intangible assets was ~~$36.9~~$34.3 million and ~~$33.7~~$36.9 million for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively.In September 2019 the Company retired the indefinite-lived trademarks due to an internal reorganization. As a result, the Company recorded an impairment of $3.9 million for the nine months ended September 30, 2019. In March 2019 the Company’s marketing alliance agreement with Raiffeisen Bank Polska was terminated. As a result of the termination, the Company recorded an impairment of $4.4 million for the six months ended June 30, 2019. For the nine months ended September 30, 2019 additional impairments of $1.4 million and $0.8 million were recognized, related to merchant contract portfolios and internally developed and acquired software, respectively.

Estimated amortization expense to be recognized during each of the five years ~~and thereafter,~~ subsequent to September 30, ~~2019:~~2020:



	(In thousands)
Years ending:
2020 (remainder of the year)	$	11,920
2021		40,895
2022		33,704
2023		28,148
2024		17,388
2025 and thereafter		81,750
Total	$	213,805

For the three months ended September 30, 2020, there were 0 impairments. For the nine months ended September 30, 2020, the Company recognized an impairment charge of $0.8 million related to the retirement of certain trademarks driven by internal reorganization. Impairment charges related to intangible assets were $3.9 million and $10.5 million for the three and nine months ended September 30, 2019, respectively.

Amount

(In thousands)
Years ending:

2019 (remainder of the year)

$
12,400
2020

44,833
2021

40,015
2022

34,470
2023

26,951
2024 and thereafter

103,156
Total

$
261,825

Table of Contents

The following represents ~~net~~ intangible assets, net by segment:


					September 30,		December 31,
					2020		2019

	September 30,		December 31,
	2019		2018
	(In thousands)
					(In thousands)
Intangible assets, net:
North America
Americas
Merchant contract portfolios and customer relationships	$	77,197	$	88,141	$	58,398	$	74,791
Marketing alliance agreements		71,975		76,590		61,056		72,272
Trademarks, finite-lived		3,187		2,585
Internally developed software		29,488		20,167
Non-competition agreements		639		1,089
Trademarks, indefinite-lived		—		3,872
Trademarks, definite-lived						1,689		2,994
Internally developed and acquired software						25,161		28,697
Non-compete agreements						39		489
Total		182,486		192,444		146,343		179,243


Europe
Merchant contract portfolios and customer relationships		24,912		32,136		20,049		24,448
Marketing alliance agreements		30,846		41,293		27,094		30,674
Trademarks, finite-lived		9,131		10,878
Internally developed software		14,411		13,331
Non-competition agreements		39		57
Trademarks, definite-lived						5,014		6,139
Internally developed and acquired software						15,284		17,021
Non-compete agreements						21		35
Total		79,339		97,695		67,462		78,317


Total intangible assets, net	$	261,825	$	290,139	$	213,805	$	257,560

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Changes in goodwill~~Goodwill activity for the nine months ended September 30, ~~2019,~~2020, in total and by reportable segment, ~~were~~was as follows:


							Reportable Segment

							Americas		Europe		Total

	Reportable Segment
	North
	America		Europe		Total
	(In thousands)
Goodwill, gross, as of December 31, 2018	$	240,837	$	136,465	$	377,302
							(In thousands)
Goodwill, gross, as of December 31, 2019							$	268,049	$	135,080	$	403,129
Accumulated impairment losses		—		(24,291)		(24,291)		—		(24,291)		(24,291)
Goodwill, net, as of December 31, 2018		240,837		112,174		353,011
Goodwill, net, as of December 31, 2019								268,049		110,789		378,838
Business combinations		25,030		40		25,070		61		—		61
Foreign currency translation adjustment		35		(6,593)		(6,558)		(6,846)		268		(6,578)
Goodwill, net as of September 30, 2019	$	265,902	$	105,621	$	371,523
Goodwill, net, as of September 30, 2020							$	261,264	$	111,057	$	372,321

~~For~~

In June 2020, the ~~nine months ended September 30, 2019 and 2018 there was no~~Company recorded a measurement period adjustment related to the Delego acquisition which increased the goodwill ~~impairment.~~by less than $0.1 million. Refer to Note 6, “Acquisitions,” for further discussion.

~~(9)Accounts Payable and Accrued Expenses~~

Table of Contents

(10)	Accounts Payable and Accrued Expenses

The Company’s accounts payable and accrued expenses consisted of the following:


	September 30,		December 31,
	2020		2019

	(In thousands)
Compensation and related benefits	$	21,726	$	18,460
Third-party processing and payment network fees		42,003		36,409
Trade payables		5,741		11,571
Taxes payable		9,699		18,556
Commissions payable to third parties and agents		15,195		15,030
Unearned revenue		4,302		4,309
Other		15,950		19,328
Total accounts payable and accrued expenses	$	114,616	$	123,663

(11) Related Party Transactions

Related party balances consist of the following:


	September 30,		December 31,
	2020		2019

	(In thousands)
Due from related parties, current	$	630	$	1,125
Due to related parties, current		(4,429)		(7,325)
Due to related parties, long-term		(185)		(385)

September 30,

December 31,

2019

2018

(In thousands)
Compensation and related benefits

$
17,679

$
22,280
Third-party processing and payment network fees

37,056

37,702
Trade payables

8,336

44,581
Taxes payable

13,344

16,292
Commissions payable to third parties and agents

14,483

13,141
Unearned revenue

4,198

4,579
Other

18,292

22,641
Total accounts payable and accrued expenses

$
113,388

$
161,216

Due from related parties, current, consists of receivables due from non-controlling interest holders of consolidated subsidiaries.

~~(10)Related~~ ~~Party~~ ~~Transactions~~Due to related parties, current, consists of $3.3 million and $5.5 million as of September 30, 2020 and December 31, 2019, respectively, primarily due to non-controlling interest holders of consolidated subsidiaries, and $1.1 million and $1.8 million as of September 30, 2020 and December 31, 2019, respectively, representing commissions payable to unconsolidated investees of the Company.

Due to related parties, long-term, consists of ISO commission reserves.

The Company leases office space located at 515 Broadhollow Road in Melville, New York from 515 Broadhollow, LLC. 515 Broadhollow, LLC is majority owned, directly and indirectly, by the Company’s chairman. As of September 30, 2020 and December 31, 2019, the liability related to this lease amounted to $3.3 million and $4.1 million, respectively, and is included in the operating lease liabilities on the unaudited condensed consolidated balance sheets. The Company subleases a portion of this office space to an unconsolidated investee. Sublease income was less than $0.1 million for the three and nine months ended September 30, 2020 and 2019.

The Company leases vehicles from the non-controlling interest holder of a consolidated subsidiary. As of September 30, 2020 and December 31, 2019, these lease liabilities amounted to $0.3 million, respectively, and are included in the operating lease liabilities on the unaudited condensed consolidated balance sheets.

A portion of the TRA obligation is payable to members of management and current employees. Refer to Note 5, “Tax Receivable Agreement,” for further information on the tax receivable agreement.

Related party commission expense incurred with unconsolidated investees of the Company amounted to ~~$5.2~~$3.1 million and ~~$4.3~~$5.2 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Related party commission expense incurred with unconsolidated investees of the Company amounted to ~~$15.0~~$12.0 million and ~~$13.8~~ $15.0

Table of Contents

million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The sale of equipment and services to these unconsolidated investees amounted to less than $0.1 million and ~~less than~~ $0.1 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The sale of equipment and services to these unconsolidated investees amounted to ~~$0.3~~less than $0.1 million and ~~$0.2~~$0.3 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Related party balances consist of the following:~~

September 30,

December 31,

2019

2018

(In thousands)
Receivables from sale of POS devices and peripherals

$
—

$
303
Receivables from related companies

34

1,568
Due from related parties, current

$
34

$
1,871

Notes receivable, long term

—

915
Due from related parties, long term

$
—

$
915

Liabilities to related companies

4,596

4,824
Due to related parties, current

$
4,596

$
4,824

ISO commission reserve

385

385
Due to related parties, long term

$
385

$
385

Madison Dearborn Partners, LLC (“MDP”), a member of EVO, LLC and shareholder of EVO, Inc., provides the Company with consulting services related to business development, financing matters, and potential acquisition activities on an as-needed basis. In addition, the Company reimburses MDP for certain out of pocket expenses. The ~~Company made payments to MDP of less than $0.1 million for each of the~~ ~~nine months ended September 30, 2019 and 2018~~ ~~for consulting services and expense reimbursement. The Company made no payments for the three months ended September 30, 2019 and 2018.~~

~~Additionally, the~~ Company provides certain professional and other services to Blueapple Inc. (“Blueapple”), a member of EVO, LLC and owner of all outstanding shares of Class B common stock of EVO, Inc. Blueapple is controlled by entities affiliated with the Company’s founder and chairman, Rafik R. Sidhom. The expense related to these services was less than $0.1million for ~~each of~~ the three months ended September 30, ~~2019~~2020 and ~~2018.~~2019. The expense ~~relates~~related to these services was ~~$0.2~~$0.1 million and ~~$0.1~~$0.2 million for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively. During 2018, the Company paid Blueapple $2.4 million in satisfaction of the obligation to pay any further commissions associated with processing revenue to Blueapple and all such future revenue will be retained by the Company.

Prior to the Company’s acquisition of the remaining 67% membership interests of Federated US and 100% of the outstanding shares of Federated Canada in September 2018, the Company’s chairman owned one-third of the shares of Federated Canada and an entity wholly owned by relatives of the Company’s chairman owned one-third of the membership interests of Federated US. As a result of the ownership interests, the Company’s founder and chairman and relatives received $15.5 million of the September 2018 Federated acquisition purchase price. In addition, prior to the acquisition, the Company provided card-based processing services and risk assessment services to Federated US in the ordinary course of business for a nominal fee. For the three and nine months ended September 30, 2018, the Company received $0.1 million and $0.4 million, respectively, in revenues in connection with providing services to Federated US. In addition, prior to the acquisition, Federated Canada provided certain marketing services to the Company’s business in Canada. For the three and nine months ended September 30, 2018, the Company paid $1.9 million and $5.8 million, respectively, in fees to Federated Canada for these services.

The Company leases office space located at 515 Broadhollow Road in Melville, New York for $0.1 million per month from 515 Broadhollow, LLC. 515 Broadhollow, LLC is majority owned, directly and indirectly, by the Company’s founder and chairman.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Receivables from related companies include amounts receivable from the Company’s founder and chairman, or entities controlled by the Company’s founder and chairman, of less than $0.1million and $0.~~7 million as of September 30, 2019 and December 31, 2018, respectively. Liabilities held by related companies include payables to a minority held affiliate of $4.0 million and $3.0 million as of September 30, 2019 and December 31, 2018, respectively.

~~A portion of the TRA obligation is payable to members of management and current employees. Refer to Note 5, “Tax Receivable Agreement,” for further information on the tax receivable agreement.~~

The Company, through ~~one~~two wholly owned ~~subsidiary~~subsidiaries and one unconsolidated investee, conducts business under ISO agreements with a relative of the Company’s founder and chairman pursuant to which the relative of the Company’s founder and chairman provides certain marketing services and equipment in exchange for a commission based on the volume of transactions processed for merchants acquired by the relative of the Company’s founder and chairman. For ~~each of~~ the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company paid commissions of ~~$0.1~~$0.2 million and $0.1 million related to this ~~activity.~~activity, respectively. For ~~each of~~ the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company paid commissions of $0.4 million related to this activity.

NFP is the Company’s benefit and insurance broker and 401(k) manager. NFP is a portfolio company of MDP and one of the Company’s executive officers owns a minority interest in NFP. For the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company paid $0.1 million ~~and less than $0.1 million, respectively,~~ in commissions and other expenses to NFP. For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company paid ~~$0.2~~$0.3 million and ~~$0.1~~$0.2 million ~~respectively,~~ in commissions and other expenses to ~~NFP.~~NFP, respectively.

~~(11)Income Taxes~~On April 21, 2020, the Company issued 152,250 shares of Preferred Stock to an affiliate of MDP for a purchase price of $985.221685 per share. The Company also reimbursed MDP for $0.8 million of expenses in connection with the offer and sale of the Preferred Stock. Refer to Note 16, “Redeemable Preferred Stock,” for additional details regarding the transaction.

On August 4, 2020, the Company sold the entirety of its 25% equity interest in Omega Processing Solutions, L.L.C., one of its unconsolidated investees, for cash proceeds of $1.6 million. The Company recognized a net gain of $0.3 million on the sale of this investment.

(12)	Income Taxes

In accordance with ASC 740, Income Taxes, each interim period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, as adjusted for discrete taxable events that occur during the interim periods. If, however, the entity is unable to reliably estimate its annual effective tax rate, then the actual effective tax rate for the year-to-date may be the best estimate of the entity’s annual effective tax rate. For the three and nine months ended September 30, ~~2019,~~2020, the Company determined that it was unable to make a reliable estimate of its annual effective tax rate due to the sensitivity of the rate as it relates to its forecasted full year ~~2019 results.~~2020 results and uncertainty related to the COVID-19 global pandemic. Therefore, the Company recorded a tax expense ~~and tax benefit~~ for the three and nine months ended September 30, ~~2019, respectively~~2020 based on its actual year-to-date effective tax rate.

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The Company’s effective tax rate (“ETR”) was ~~(231.6~~)31.72% and (141.12)% for the three and nine months ended September 30, 2020, respectively.The Company’s ETR was (231.6)% and 2.8% for the three and nine months ended September 30, 2019, respectively. The ~~Company’s ETR was 388.5%~~Company recorded a tax expense of $0.4 million and ~~(11.1)% for~~a benefit of $2.2 million in the three and nine months ended September 30, ~~2018, respectively.~~2020 from a release of the U.S. interest limitation valuation allowance due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was enacted on March 27, 2020. The Company recorded a tax benefit in the three and nine months ended September 30, 2019 of $~~(8.2)~~$8.2 million as a result of a tax free reorganization to consolidate its foreign operation and reversed a deferred tax liability related to foreign tax withholding on unremitted foreign earnings. The variance in the ETR for the three and nine months ended September 30, 2020 and 2019 ~~primarily relates to~~was also impacted by the mix of U.S. and non-U.S. earnings and related tax ~~expense. The ETR for the three and nine months ended September 30, 2019 and 2018 differs from the statutory federal rate primarily due to foreign income taxes,~~expense, the tax treatment of income attributable to non-controlling interests and the exclusion of tax benefits related to losses recorded in certain foreign ~~operations, and the recognition of the tax benefit from a tax free reorganization.~~operations. The income attributable to the non-controlling interests is taxable to EVO, LLC’s individual owners other than the Company. Income tax liabilities are incurred with respect to foreign operations whereas income of EVO, LLC in the U.S. flows through and is taxable to EVO, LLC’s owners.

The Company’s deferred tax asset increased from December 31, 2018 to September 30, 2019 primarily due to the increase in the tax basis of the assets of EVO, LLC as a result of exchanges of LLC Interests for Class A common stock of the Continuing LLC Owners.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Management assesses the available and objectively verifiable evidence to estimate whether sufficient future taxable income will be generated to use existing deferred tax assets. A significant piece of objective, negative evidence evaluated was the cumulative loss incurred in certain jurisdictions over the preceding twelve quarters ended September 30, ~~2019.~~2020. Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections of future growth. OnAs a result, the ~~basis~~Company considered both (i) historical core earnings, after adjusting for certain nonrecurring items, and (ii) the projected future profitability of ~~this assessment,~~its core operations after taking into account the Company’s recovery from the COVID-19 pandemic and the impact of enacted changes in the application of the interest expense limitation rules beginning in 2022. The Company has established $6.5 million of valuation allowances ~~were established~~ in the current and prior periods to reduce the carrying amount of deferred tax assets to an amount that is more likely than not to be realized in certain European ~~jurisdictions.~~jurisdictions and the US interest limitation carryforward. Release of a valuation allowance would result in the realization of all or a portion of the related deferred tax assets and a decrease to income tax expense for the period in which the release is recorded. ~~Based on the Company’s assessment, no significant changes to the Company’s valuation allowances were recorded during the three and nine months ended September 30, 2019 and 2018.~~

~~(12)~~(13) Long-Term Debt and Lines of Credit

Credit Facility

The Company has entered into a first lien senior secured credit facility and a second lien senior secured credit facility pursuant to a credit agreement dated December 22, 2016, and amended on October 24, 2017, April 3, 2018, and June 14, 2018 (the “Senior Secured Credit Facilities”). On May 25, 2018, the Company repaid all outstanding amounts under the second lien credit facility using a portion of the proceeds from the IPO. As of September 30, ~~2019,~~2020, the Senior Secured Credit Facilities include revolver commitments of $200.0 million and a term loan of $665.0 million that are scheduled to mature in June 2023 and December 2023, respectively.

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s long-term debt consists of the following:


					September 30,		December 31,
					2020		2019

	September 30,		December 31,
	2019		2018
	(In thousands)
					(In thousands)
First lien term loan	$	649,794	$	654,775	$	592,818	$	650,891
First lien revolver		68,496		42,266		—		60,987
Less debt issuance costs		(10,619)		(12,985)		(8,026)		(9,965)
Total long-term debt		707,671		684,056		584,792		701,913
Less current portion of long-term debt		(5,618)		(7,191)
Less current portion of long-term debt, including accrued interest⁽¹⁾ of $4.1 million as of December 31, 2019						(4,628)		(8,744)
Total long-term debt, net of current portion	$	702,053	$	676,865	$	580,164	$	693,169

(1)

Accrued interest of approximately $0.3 million as of September 30, 2020 is presented within accrued expenses on the unaudited condensed consolidated balance sheet.

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On April 21, 2020, the Company repaid all outstanding amounts under the revolving credit facility using a portion of the proceeds from the issuance of Preferred Stock. On September 30, 2020, the Company repaid $50.0 million of the outstanding balance on the first lien term loan, in addition to the regular quarterly payment.

Principal payment requirements on the above obligations in each of the years remaining subsequent to September 30, ~~2019~~2020 are as follows:

Amounts

(In thousands)
Years ending December 31:

2019 (remainder of the year)

$
2,630
2020

6,593
2021

6,593
2022

6,593
2023

695,881
2024 and thereafter

—

$
718,290


Years ending:	(In thousands)
2020 (remainder of the year)	$	1,648
2021		6,593
2022		6,593
2023		577,984
2024		—
2025 and thereafter		—
Total	$	592,818

~~In addition, the~~The Senior Secured Credit Facilities contain certain customary representations and warranties, affirmative covenants and events of default. If an event of default occurs, the lenders under the Senior Secured Credit Facilities will be entitled to take various actions, including the acceleration of amounts due thereunder and exercise of the remedies on the collateral. As of September 30, ~~2019,~~2020, the Company was in compliance with all its financial covenants.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The Company maintains intraday and overnight facilities to fund its settlement obligations. These facilities are short-term in nature, have variable interest rates, are subject to annual review and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies.

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~$17.6~~$16.8 million and ~~$41.8~~$33.3 million outstanding under these lines of credit, respectively, with additional capacity of ~~$175.6~~$125.4 million and ~~$57.9~~$133.9 million, respectively, to fund its settlement obligations. The weighted-average interest ~~rate~~rates on these borrowings ~~was 3.02%~~were 3.1% and ~~4.52% at~~4.3% as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Refer to Note ~~11,~~14, "Long-Term Debt and Lines of ~~Credit"~~Credit," to the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, for discussion regarding the Company’s long-term debt and lines of credit.

(14)	Derivatives

In May 2020, the Company entered into an interest rate swap with a notional amount of $500.0 million to reduce a portion of exposure to fluctuations in LIBOR interest rates associated with our variable-rate term loan. The interest rate swap has a fixed rate of 0.2025% and a maturity date of December 31, 2022.

~~(13)~~

The interest rate swap is designated as an effective cash flow hedge involving the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement without exchange of the underlying notional amount.

The Company performed a regression analysis at inception of the hedging relationship in which it compared the historical monthly changes in the termination clean price of the actual designated interest rate swap to the historical monthly changes in the termination clean price of a hypothetically perfect interest rate swap with terms that exactly match the hedged transactions and a fair value of zero at its inception using 37 different forward curves. Based on the regression results, the Company determined that the hedging instrument was highly effective at inception. On an ongoing basis, the Company assesses hedge effectiveness prospectively and retrospectively. The hedge continued to be highly effective for the quarter ended September 30, 2020.

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The interest rate swap is recognized at fair value in the consolidated balance sheets. The table below presents the fair value of the interest rate swap and its classification on the unaudited condensed consolidated balance sheet as of September 30, 2020:


	September 30, 2020
	Balance Sheet		Fair Value
	Location		(In thousands)

Interest Rate Swap - current portion	Accrued expenses	$	(272)
Interest Rate Swap - long-term portion	Other long-term liabilities	$	(422)

Since the Company designated the swap as an effective cash flow hedge that qualifies for hedge accounting, unrealized gain or loss resulting from adjusting the swap to fair value is recorded as a component of other comprehensive income (loss) and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Cash flows resulting from settlements are presented as a component of cash flows from operating activities within the unaudited condensed consolidated statements of cash flows.

The table below presents the effect of hedge accounting on accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020
	(In thousands)
Beginning accumulated derivative loss in accumulated other comprehensive loss	$	(863)	$	—
Derivative gain (loss) recognized in the current period in accumulated other comprehensive income (loss)		131		(747)
Less: Derivative loss reclassified from accumulated other comprehensive loss to interest expense		(38)		(53)
Ending accumulated derivative loss in accumulated other comprehensive loss	$	(694)	$	(694)

The table below presents the effect of hedge accounting on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020
	(In thousands)
Total interest expense including the effects of cash flow hedges	$	(6,717)	$	(23,916)
Derivative loss reclassified from accumulated other comprehensive loss into interest expense	$	(38)	$	(53)

The Company estimates that an additional $0.3 million will be reclassified as an increase to interest expense over the next 12 months.

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(15) Supplemental Cash Flows Information

Supplemental cash flow disclosures and non-cash investing and financing activities are as follows for the nine months ended September 30, ~~2019~~2020 and ~~2018:~~

2019

2018


(In thousands)
Supplemental disclosure of cash flow data:



Interest paid

$
31,289

$
37,819

Income taxes paid

14,842

5,672

Supplemental disclosure of non-cash investing and financing activities:





Contingent consideration and acquisition holdback payable

1,337

6,400

Contingent consideration settled with the issuance of Class A common stock

—

771

Exchange of Class C and Class D common stock for Class A common stock

(20,985)

—

2019:


	2020		2019

	(In thousands)
Supplemental disclosure of cash flow data:
Interest paid	$	25,391	$	31,289
Income taxes paid		10,525		14,842

Supplemental disclosure of non-cash investing and financing activities:
Operating lease liabilities arising from obtaining new or modified right-of-use assets	$	2,763	$	16,799
Decrease in operating lease liabilities and corresponding right-of-use assets resulting from lease modifications		(6,798)		(623)
Acquisition holdback payable		—		1,337
Accrual of redeemable preferred stock paid-in-kind-dividends		4,131		—
Exchanges of Class C and Class D common stock for Class A common stock		9,425		20,985
Secondary offering		—		303,400

~~(14)~~

(16) Redeemable Preferred Stock

On April 21, 2020, the Company issued 152,250 shares of Preferred Stock. The Company received approximately $149.3 million in total net proceeds from the sale of the Preferred Stock and incurred approximately $1.7 million in stock issuance costs as part of the sale.

The Preferred Stock ranks senior to the Class A common stock with respect to dividends and distributions on liquidation, winding-up and dissolution. Each share of Preferred Stock had an initial liquidation preference of $1,000 per share. Holders of shares of Preferred Stock are entitled to cumulative, paid-in-kind (“PIK”) dividends, which are payable semi-annually in arrears by increasing the liquidation preference for each outstanding share of Preferred Stock. These PIK dividends accrue at an annual rate of (i) 6.00% per annum for the first ten years and (ii) 8.00% per annum thereafter, subject in each case to a 1.00% per annum increase in the event that approval of the investment by the Company’s stockholders as contemplated by Nasdaq listing rules (“Stockholder Approval”) is not obtained prior to the earlier of the Company’s 2021 annual meeting of stockholders and August 1, 2021. Holders of Preferred Stock are also entitled, on an as-converted basis, to participate in and receive any dividends declared or paid on the Class A Common Stock, and no dividends may be paid to holders of Class A Common Stock unless full participating dividends are concurrently paid to holders of Preferred Stock.

The Preferred Stock’s initial carrying value is recorded at a discount to its liquidation preference. In accordance with the SEC’s Staff Accounting Bulletin Topic 5.Q, Increasing Rate Preferred Stock, the discount is considered an unstated dividend cost that must be amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging the imputed dividend cost against retained earnings and increasing the carrying amount of the preferred stock by a corresponding amount. The discount is therefore being amortized over ten years using a 6.22% effective interest rate. The total PIK dividends and accretion of the discount combined represents a period’s total preferred stock dividend cost, which is subtracted from net income or added to net loss to arrive at net income (loss) available to Class A common stockholders on the unaudited condensed consolidated statements of operations and comprehensive income (loss). For the three months and nine months ended September 30, 2020, the initial carrying value of the preferred stock has been increased by $2.3 million and $4.1 million, respectively, for the accretion of the PIK dividend.

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Each holder of Preferred Stock has the right, at its option, to convert its Preferred Stock, in whole or in part, into fully paid and non-assessable shares of Class A Common Stock, at any time and from time to time after the receipt of Stockholder Approval or the consent of the holders of a majority of the Preferred Stock waiving the Company’s requirement to seek Stockholder Approval. The number of shares of Class A Common Stock into which a share of Preferred Stock will convert at any time is equal to the product of (i) the then-effective conversion rate and (ii) the quotient obtained by dividing the sum of the then-effective liquidation preference per share of Preferred Stock and the amount of any accrued and unpaid PIK dividends by the initial liquidation preference of $1,000. The conversion rate of the Preferred Stock was initially set at 63.2911 shares of Class A Common Stock, based on an implied conversion price of $15.80 per share of Class A Common Stock. The conversion rate is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events. The conversion rate is also subject to adjustment for certain antidilutive offerings occurring during the first nine months following the issuance of the Preferred Stock, subject to certain caps set forth in the certificate of designations for the Preferred Stock. The Company has the right to settle any conversion at the request of a holder of Preferred Stock in cash based on the last reported sale price of the Class A Common Stock.

Subject to certain conditions, the Company may, at its option, require conversion of all (but not less than all) of the outstanding shares of Preferred Stock to Class A Common Stock if, for at least 20 trading days during the 30 consecutive trading days immediately preceding notification of the election to convert, the last reported closing price of the Company’s Class A common stock is at least (i) 180% of the conversion price prior to the fourth semi-annual PIK dividend payment date, (ii) 170% of the conversion price on or after the fourth and prior to the sixth semi-annual PIK dividend payment date, (iii) 160% of the conversion price on or after the sixth and prior to the eighth semi-annual PIK dividend payment date, or (iv) 150% of the conversion price on or after the eighth semi-annual PIK dividend payment date. If the Company elects to mandatorily convert all outstanding shares of Preferred Stock prior to the sixth semi-annual PIK dividend payment date, then, for purposes of such conversion, the liquidation preference of each outstanding share of Preferred Stock will be increased by the compounded amount of all remaining scheduled PIK dividend payments on the Preferred Stock through, and including, the sixth semi-annual PIK dividend payment date.

The holders of the Preferred Stock are generally entitled to vote with the holders of the shares of Class A common stock on all matters submitted for a vote to the Class A common stockholders (voting together with the holders of shares of Class A common stock as one class) on an as-converted basis, subject to certain limitations.

The Preferred Stock may be redeemed by the Company at any time after ten years for a cash purchase price equal to the liquidation preference as of the redemption date plus accumulated and unpaid regular PIK dividends. If the Company undergoes a change of control (as defined in the certificate of designations for the Preferred Stock), each holder of Preferred Stock may require the Company to repurchase all or a portion of its then-outstanding shares of Preferred Stock for cash consideration equal to 150% of the then-current liquidation preference per share of Preferred Stock plus accumulated and unpaid dividends, if any (or, if the repurchase date for such change of control is on or after the sixth semi-annual PIK dividend payment date, 100% of the liquidation preference per share of Series A Preferred Stock plus accumulated and unpaid dividends, if any). Because the occurrence of a change of control may be outside of the Company’s control, the Company has classified the Preferred Stock as mezzanine equity on the consolidated balance sheets. If a change of control were to occur as of September 30, 2020, the Company might have been required to repurchase the Preferred Stock for $234.4 million. As of September 30, 2020, the Company believed that the occurrence of a change of control outside of the Company’s control that would trigger the right of the holder of Preferred Stock to require the Company to repurchase all or a portion of the Preferred Stock for cash was not probable. Therefore, the Preferred Stock is not accreted to the current redemption value.

(17) Redeemable Non-controlling Interests

The Company owns 66% of eService, the Company’s Polish subsidiary. The eService shareholders’ agreement includes a provision whereby PKO Bank Polski ~~beginning on January 1, 2018,~~ has the option to compel the Company to purchase ~~14% of~~ the shares of eService held by PKO Bank Polski, at a price per share based on ~~their~~the fair ~~value. Commencing~~value of the shares. The option expires on

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January 1, ~~2020, PKO Bank Polski may exercise an option to sell all of its remaining shares of eService to the Company.~~2024. Because the exercise of this option is not solely within the Company’s control, the Company has classified this interest as RNCI and presents the redemption value ~~as temporary~~ within the mezzanine equity section of the unaudited condensed consolidated balance sheets. ~~The change in~~At each balance sheet date, the RNCI is reported at its redemption value, which represents the estimated fair value, ~~at each measurement date is recorded~~ with a corresponding adjustment to accumulated ~~deficit, nonredeemable non-controlling interests, and redeemable non-controlling interests.~~ deficit.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

As of September 30, ~~2019,~~2020, EVO, Inc. owns ~~44.7% of the outstanding LLC Interests~~50.8% of EVO, LLC. The EVO, LLC operating agreement includes a provision whereby Blueapple may deliver a sale notice to EVO, Inc., upon receipt of which EVO, Inc. will use its commercially reasonable best efforts to pursue a public offering of shares of its Class A common stock and use the net proceeds therefrom to purchase LLC Interests from Blueapple. Upon receipt of such a sale notice, the Company may elect, at the Company’s option (determined solely by its independent directors (within the meaning of the rules of the NASDAQ stock market (“Nasdaq”)) who are disinterested), to cause EVO, LLC to instead redeem the applicable LLC Interests for cash; provided that Blueapple consents to any election by the Company to cause EVO, LLC to redeem the LLC Interests based on the fair value of the Company’s Class A common shares on such date. Because this option is not solely within the Company’s control, the Company has classified this interest as RNCI and reports the redemption value ~~as temporary~~ within the mezzanine equity section of the unaudited condensed consolidated balance ~~sheets. The change in~~sheets and is reported at redemption value, which represents fair value, ~~at each measurement date is recorded~~ with a corresponding adjustment to accumulated ~~deficit and nonredeemable non-controlling interests.~~ deficit.

The following table details the components of RNCI for the nine months ended September 30, ~~2019~~2020 and for the year ended December 31, ~~2018:~~2019:

Post-IPO

Pre-IPO

September 30, 2019

December 31

May 23,

Blueapple
eService
Total

2018

2018

(In thousands)
Beginning balance

$
885,986
$
124,107
$
1,010,093

$
689,569

$
148,266
Net income attributable to RNCI - eService

—

4,891

4,891

4,914

1,291
Net loss attributable to RNCI - Blueapple

(12,368)

—

(12,368)

(39,129)

—
Gain (loss) on OCI - eService

—

(3,621)

(3,621)

(2,368)

(2,104)
Gain (loss) on OCI - Blueapple

(5,999)

—

(5,999)

(3,935)

—
Gain (loss) on defined benefit plan revaluation - Blueapple

4

—

4

(192)

—
Legacy accumulated deficit allocation

—

—

—

—

(150,485)
Legacy AOCI allocation

—

—

—

—

(39,404)
Purchase of Blueapple Class B common stock in connection with secondary offerings

(34,768)

—

(34,768)

—

—
Decrease in maximum redemption amount in connection with purchase of Blueapple Class B common stock

(2,460)

—

(2,460)

—

—
Increase (decrease) in the maximum redemption amount of RNCI:

eService

—

14,749

14,749

(19,741)

—
Blueapple

150,701

—

150,701

374,616

735,775
Allocation of eService fair value RNCI adjustment to Blueapple

(6,369)

—

(6,369)

8,739

—
Distributions - eService

—

(6,209)

(6,209)

(2,380)

(3,770)
Ending balance

$
974,727
$
133,917
$
1,108,644

$
1,010,093

$
689,569


	September 30, 2020						December 31, 2019
	Blueapple		eService		Total		Blueapple		eService		Total

	(In thousands)
Beginning balance	$	902,258	$	150,190	$	1,052,448	$	885,986	$	124,107	$	1,010,093
Net (loss) income attributable to RNCI		(9,141)		5,320		(3,821)		(14,567)		7,855		(6,712)
Unrealized (loss) gain on foreign currency translation adjustment		(9,318)		(1,020)		(10,338)		241		(470)		(229)
Unrealized loss on change in fair value of interest rate swap		(288)		—		(288)		—		—		—
Purchase of Blueapple Class B common stock in connection with secondary offerings		—		—		—		(48,447)		—		(48,447)
Decrease in maximum redemption amount in connection with purchase of Blueapple Class B common stock		—		—		—		(2,843)		—		(2,843)
(Decrease) increase in the maximum redemption amount of RNCI		(32,558)		5,037		(27,521)		93,845		28,173		122,018
Allocation of eService fair value RNCI adjustment to Blueapple		(1,989)		—		(1,989)		(11,957)		—		(11,957)
Distributions		—		—		—		—		(9,475)		(9,475)
Ending balance	$	848,964	$	159,527	$	1,008,491	$	902,258	$	150,190	$	1,052,448

3332

Table of Contents

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(15)~~(18) Fair Value

The table below presents information about items, which are carried at fair value on a recurring basis:

September 30, 2019

(In thousands)


Level 1

     Level 2

Level 3

        Total

Cash equivalents

$
20,997

$
—

$
—

$
20,997
Contingent consideration

—

—

(3,200)

(3,200)
Blueapple RNCI

(974,727)

—

—

(974,727)
eService RNCI

—

—

(133,917)

(133,917)
Total

$
(953,730)

$
—

$
(137,117)

$
(1,090,847)


	December 31, 2018
	(In thousands)
	Level 1		Level 2		Level 3		Total


									September 30, 2020
									(In thousands)
									Level 1		Level 2		Level 3		Total

Cash equivalents	$	106,164	$	—	$	—	$	106,164	$	44,519	$	—	$	—	$	44,519
Contingent consideration		—		—		(8,189)		(8,189)		—		—		(1,147)		(1,147)
Blueapple RNCI		(885,986)		—		—		(885,986)		(848,964)		—		—		(848,964)
eService RNCI		—		—		(124,107)		(124,107)		—		—		(159,527)		(159,527)
Interest rate swap										—		(694)		—		(694)
Investment in equity securities										—		23,336		—		23,336
Total	$	(779,822)	$	—	$	(132,296)	$	(912,118)	$	(804,445)	$	22,642	$	(160,674)	$	(942,477)


	December 31, 2019
	(In thousands)
	Level 1		Level 2		Level 3		Total

Cash equivalents	$	7,715	$	—	$	—	$	7,715
Contingent consideration		—		—		(2,300)		(2,300)
Blueapple RNCI		(902,258)		—		—		(902,258)
eService RNCI		—		—		(150,190)		(150,190)
Total	$	(894,543)	$	—	$	(152,490)	$	(1,047,033)

Cash equivalents consist of a money market fund that is valued using a market price in an active market (Level 1). Level 1 instrument valuations are obtained from ~~real‑time~~real-time quotes for transactions in active exchange markets involving identical assets.

Contingent consideration relates to potential payments that the Company may be required to make associated with acquisitions. To the extent that the valuation of these liabilities are based on inputs that are less observable or not observable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for measures categorized in Level 3.

~~In the determination of the~~The fair value of Blueapple’s RNCI is derived from the closing stock price of the Company’s Class A common stock on the last day of the period.

The fair value of eService’s RNCI ~~in eService, the Company used~~is determined utilizing an income approach, weighted at 75%, based on ~~internal~~the forecasts of expected future cash ~~flows. Significant~~flows, and the market approach, weighted at 25%, based on guideline public company data. In applying the income approach, significant unobservable inputs included the ~~Weighted Average~~Weighted-Average Cost of Capital (“WACC”) used to discount the future cash flows, which was ~~15.0%~~13.5%, based on the markets in which the business operates and growth ~~rate~~rates used within the future cash flows, which were ~~between 3.0% and 10.7%~~up to 10.4%, based on historic trends, current and expected market conditions, and management’s forecast assumptions. A future increase in the WACC would result in a decrease in the fair value of RNCI in eService. Conversely, a decrease in the WACC would result in an increase in the fair value of RNCI in eService. In applying the market approach, the ranges of the valuation multiples as of September 30, 2020 were 3.50x-4.00x and 7.00x-7.50x for revenue and EBITDA, respectively.

In May 2020, the Company entered into an interest rate swap to reduce a portion of the exposure to fluctuations in LIBOR interest rates associated with our variable-rate debt. The fair value of the ~~RNCI in Blueapple is~~interest rate swap was determined based on the present value of the estimated future net cash flows using the LIBOR forward rate curve as of September 30, 2020. The future interest rates are derived from ~~the closing stock price~~observable market interest rate curves and thus fall within Level 2 of the valuation hierarchy. The credit valuation adjustment associated with the derivative, related to

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the likelihood of default by the Company and the counterparty, was not significant to the overall valuation. As a result, the fair value of the interest rate swap is classified as Level 2 of the fair value hierarchy. As described in Note 14 “Derivatives,” the fair value of the interest rate swap was a $0.7 million liability at September 30, 2020.

The Company was a member of Visa Europe Limited (“Visa Europe”) through certain of the Company’s subsidiaries in Europe. In 2016, Visa Inc. (“Visa”) acquired all of the membership interests in Visa Europe. In connection with the acquisition, one of the Company’s subsidiaries received shares of Visa Series C preferred stock and another subsidiary received economic rights relating to shares of Visa Series C preferred stock under a contractual arrangement with a former member of Visa Europe.

The Visa Series C preferred stock is convertible into Visa Series A preferred stock at periodic intervals over the 12 year period following the acquisition date at Visa’s discretion. In September 2020, Visa issued a partial conversion and conversion adjustment with respect to its Series C preferred stock. Pursuant to the partial conversion and conversion adjustment, holders of Series C preferred stock received shares of Series A preferred stock and the conversion ratio for such holder’s shares of Series C preferred stock was reduced. The Series A preferred stock is convertible into shares of Visa Class A common stock upon a transfer to any holder that is eligible to hold Visa Class A common stock. Holders of Series A preferred stock are able to effectuate a transfer to an eligible holder through a sales facility established by Visa’s transfer agent or through a third party broker.

The Visa Series A preferred stock, which is presented in investments in equity securities on the ~~last day~~unaudited condensed consolidated balance sheets, is reported at fair value. In connection with the partial conversion and the measurement of the ~~period.~~investment in Visa Series A preferred stock at fair value, the Company recognized a gain of $15.8 million for the three months ended September 30, 2020.

��

The ~~estimated~~ fair value of ~~receivables, settlement processing assets~~Visa Series A preferred stock is determined using a market approach based on the quoted market price of Visa Class A common stock, and ~~liabilities, due to and due from related parties and settlement lines~~as a result is classified as Level 2 of ~~credit approximate their respective carrying values due to their short term nature. The estimated~~the fair value ~~of total long term debt, which approximates its carrying value, is based on quoted bid-ask spreads within the lender syndicate (Level 2).~~hierarchy.

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~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The remaining Visa Series C preferred stock are carried at cost in the amount of €6.5 million and €12.9 million ($7.4 million and $14.7 million based on the foreign exchange rate at the time of the acquisition) as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and are presented in other assets on the unaudited condensed consolidated balance sheets. The estimated fair value of the remaining Visa Series C preferred stock of ~~$32.5~~$19.8 million and $37.8 million as of September 30, 2020 and December 31, 2019 is based upon inputs classified as Level 3 of the fair value hierarchy. These inputs include the fair value of Visa Class A common stock as of September 30, ~~2019 and~~2020, the conversion factor of Visa Series C preferred stock to Visa Class A common stock, ~~inclusive of~~and a discount ~~rate~~ due to the lack of liquidity, which represents a measure of fair value that is unobservable or requires management’s judgment.

~~(16)Commitments~~The estimated fair value of receivables, settlement processing assets and ~~Contingencies~~obligations, due to and from related parties and settlement lines of credit approximate their respective carrying values due to their short term nature. The estimated fair value of long-term debt as of September 30, 2020 and December 31, 2019 was $586.1 million and $711.9 million, respectively. The estimated fair value of long-term debt, which is classified as Level 2 in the fair value hierarchy, is based on quoted bid-ask spreads within the lender syndicate.

(19)

Commitments and Contingencies

Litigation

The Company is party to various claims and lawsuits incidental to its business. The Company does not believe the ultimate outcome of such matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

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~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(17)~~(20)Segment Information

Information on segments and reconciliations to revenue and net income (loss) attributable to the shareholders of EVO, Inc. and members of EVO, LLC are ~~as follows:~~

Three Months Ended September 30,

Nine Months Ended September 30,


2019

2018

2019

2018



(In thousands)

(In thousands)
Segment revenue:

North America

$
75,022

$
79,487

$
222,643

$
232,687

Europe

47,341

65,271

133,755

181,244

Revenue

$
122,363

$
144,758

$
356,398

$
413,931

Segment profit:









North America

$
23,086

$
30,962

$
65,616

$
73,616

Europe

18,542

15,985

41,858

42,657

Total segment profit

41,628

46,947

107,474

116,273

Corporate

(9,212)

(8,518)

(25,095)

(31,879)

Depreciation and amortization

(22,804)

(20,488)

(68,412)

(61,308)

Net interest expense

(10,227)

(10,076)

(31,738)

(45,831)

Provision for income tax (expense) benefit

(3,590)

(32,155)

618

(7,974)

Share-based compensation expense

(3,019)

(2,021)

(7,841)

(53,284)

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

5,380

(1,078)

18,323

73,328

Net loss attributable to EVO Payments, Inc.

$
(1,844)

$
(27,389)

$
(6,671)

$
(10,675)

Capital expenditures:

North America

$
5,393

$
7,010

$
12,948

$
19,802

Europe

5,943

5,983

11,691

19,161

Consolidated total capital expenditures

$
11,336

$
12,993

$
24,639

$
38,963

~~For~~set forth below. Segment profit, which is the ~~purpose~~measure used by our chief operating decision maker to evaluate the performance of ~~discussing segment operations, the Company refers~~and allocate resources to ~~“segment profit” which~~our segments, is calculated as segment revenue less (1) segment expenses, plus (2) segment income from unconsolidated investees, plus (3) segment other income, net, less (4) segment non-controlling ~~interests of EVO, LLC consolidating entities. The expenses related to certain Company-wide~~interests.

Certain corporate-wide governance functions, as well as depreciation and amortization, ~~share-based compensation expense, and EVO, LLC non-controlling interests~~ are not allocated to ~~segments; they are reported in the captions “Corporate”~~our segments. The Company does not evaluate performance or allocate resources based on segment assets, and ~~“Net income attributable to non-controlling interest of EVO Investco, LLC,” respectively.~~therefore, such information is not presented.

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~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Information on total assets by segment is as follows:~~

September 30,

December 31,

2019

2018

(In thousands)
Segment total assets:

North America

$
1,094,614

$
994,952
Europe

505,035

539,435
Total assets

$
1,599,649

$
1,534,387


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(In thousands)
Segment revenue:
Americas	$	68,788	$	75,022	$	201,612	$	222,643
Europe		48,188		47,341		120,816		133,755
Revenue	$	116,976	$	122,363	$	322,428	$	356,398

Segment profit:
Americas	$	28,869	$	23,086	$	71,649	$	65,616
Europe		34,446		18,542		50,063		41,858
Total segment profit		63,315		41,628		121,712		107,474
Corporate		(10,937)		(9,212)		(28,119)		(25,095)
Depreciation and amortization		(22,167)		(22,804)		(64,116)		(68,412)
Net interest expense		(6,491)		(10,227)		(23,059)		(31,738)
Provision for income tax (expense) benefit		(6,775)		(3,590)		(4,699)		618
Share-based compensation expense		(5,916)		(3,019)		(15,391)		(7,841)
Less: Net income (loss) attributable to non-controlling interests of EVO Investco, LLC		5,190		(5,380)		(10,932)		(18,323)
Net income (loss) attributable to EVO Payments, Inc.	$	5,839	$	(1,844)	$	(2,740)	$	(6,671)

Capital expenditures:
Americas	$	1,852	$	5,393	$	7,458	$	12,948
Europe		2,193		5,943		5,261		11,691
Consolidated total capital expenditures	$	4,045	$	11,336	$	12,719	$	24,639

Revenue ~~from external customers~~ is attributed to individual countries based on the location where the relationship is managed. For the three months ended September 30, 2020, revenue in the United States, Poland, and Mexico, as a percentage of total consolidated revenue, was 40.0%, 20.8%, and 16.1%, respectively. For the three months ended September 30, 2019, revenue ~~from external customers~~ in the United States, Mexico and Poland, as a percentage of total consolidated revenue, was 40.2%, 18.9%, and 18.2%, respectively. For the ~~three~~nine months ended September 30, ~~2018,~~2020, revenue ~~from external customers~~ in the United States, Poland, and Mexico, as a percentage of total consolidated revenue, was ~~37.1%~~42.4%, ~~24.1%~~18.2%, and ~~19.0%~~17.3%, respectively. For the nine months ended September 30, 2019, revenue ~~from external customers~~ in the United States, Mexico and Poland, as a percentage of total consolidated revenue, was 41.0%, 19.4%, and 18.0%, respectively. For the nine months ended September 30, 2018, revenue from external customers in the United States, Poland and Mexico, as a percentage of total revenue, was 35.7%, 24.2%, and 19.9%, respectively. For the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, there is no one customer that represents more than 10% of total revenue.

~~(18)Shareholders’ Equity~~

~~Organizational structure prior to the Reorganization Transactions~~

Prior to the completion of the Reorganization Transactions, EVO, LLC had limited liability company interests outstanding in the form of Class A units, Class B Units, Class C units, Class D units and Class E units. EVO, LLC also granted unit appreciation rights (“UARs”) to certain of its officers and certain current and former employees. Immediately prior to the completion of the Reorganization Transactions, the limited liability company interests of EVO, LLC were beneficially owned as set forth below. The percentage of economic interest in EVO, LLC set forth below is based on a hypothetical liquidation of EVO, LLC based on the IPO price per share of $16.00 and the underwriting discounts and commission paid in the IPO.

~~Blueapple owned 6,374,245 Class A units, representing a 54.0% economic interest in EVO, LLC on a fully-diluted basis.~~

~~MDP owned an aggregate of 3,506,087 Class B units, representing a 29.7% economic interest in EVO, LLC on a fully-diluted basis.~~

Current and former management and employees owned an aggregate of 374,559 Class C units and 1,106,528 Class D units, representing a combined 6.9% economic interest in EVO, LLC on a fully-diluted bases. The Class D units were granted pursuant to the EVO, LLC Incentive Equity Plan and contained certain vesting restrictions, including time-based and performance-based conditions. The Class D units also contained a participation threshold used to determine if a particular grant was eligible to participate in distributions, including distributions made in connection with a sale, liquidation event or public offering.

Blueapple, MDP and certain members of management and current and former employees owned an aggregated of 1,011,931 Class E units, representing a combined 8.6% economic interest in EVO, LLC on a fully-diluted basis.

Management and current and former employees owned 297,121 vested UAR awards. The UAR awards were granted pursuant to the EVO, LLC Unit Appreciation Equity Plan and provided a right to the recipient to receive an amount in cash or other consideration equal to the value of a hypothetical Class D unit in connection with a sale, liquidation event or public offering.

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~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Organizational structure subsequent to the Reorganization Transactions~~
(21)
Shareholders’ Equity

EVO, Inc. is a holding company and its principal ~~asset is~~assets are the LLC Interests and preferred membership interests (“Preferred LLC Interests”) in EVO, ~~LLC held by the Company.~~LLC. As the sole managing member of EVO, LLC, the Company operates and controls all of the business and affairs of EVO, LLC and its subsidiaries. ~~Although EVO, Inc. has a minority economic interest in EVO, LLC, the~~The Company has the sole voting interest in, and controls the management of, EVO, LLC. Therefore, EVO, Inc. has consolidated the financial results of EVO, LLC and its subsidiaries.

The Company has four classes of common stock outstanding: Class A common stock, Class B common stock (classified as redeemable non-controlling interest), Class C common stock (classified as non-redeemable non-controlling interest) and Class D common stock (classified as non-redeemable non-controlling interest). The Company has one class of preferred stock outstanding, its Preferred Stock, which is convertible (subject to certain limitations) into shares of Class A common stock. The Preferred Stock was issued on April 21, 2020 in connection with an investment by MDP. Refer to Note 16, “Redeemable Preferred Stock,” for additional details regarding the transaction.

The voting and economic rights associated with ~~the Company’s~~our classes of common stock are summarized in the following table:


Class of Common Stock	Holders	Voting rights*	Economic rights
~~Class of Common Stock~~	~~Holders~~	Voting rights*	~~Economic rights~~

Class A common stock	Public, MDP, Executive Officers, and Current and Former Employees	~~One~~NaN vote per share	Yes
Class B common stock	Blueapple	15.9%	No
Class C common stock	Executive Officers	3.5 votes per share, subject to aggregate cap	No
Class D common stock	MDP and Current and Former Employees	~~One~~NaN vote per share	No
Series A Preferred Stock	MDP	On an as-converted basis**	Yes

Subject to certain ownership requirements, on the third anniversary of the consummation of the IPO (i.e. May 25, 2021) the voting rights of our Class B common stock will cease and each share of our Class C common stock will automatically convert into a share of our Class D common stock.

** Subject to certain ~~ownership requirements, on~~voting caps as specified in the ~~third anniversary~~certificate of designations for the consummation of the IPO, the Company’s Class B common stock will cease to be outstanding and each share of the Company’s Class C common stock will automatically convert into a share of the Company’s Class D common stock.Preferred Stock

Blueapple has a sale right under the EVO LLC Agreement ~~providing~~that provides that, upon the receipt of a sale notice from Blueapple, the Company will use its commercially reasonable best efforts to pursue a public offering of shares of Class A common stock and use the net proceeds therefrom to purchase LLC Interests from Blueapple. Upon the Company’s receipt of such a sale notice, the Company may elect, at its option (determined solely by its independent directors (within the meaning of the rules of Nasdaq) who are disinterested), to cause EVO LLC to instead redeem the applicable LLC Interests for cash; provided that Blueapple consents to any election by the Company to cause EVO LLC to redeem the LLC Interests.

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Continuing LLC Owners (other than Blueapple) have an exchange right providing that, upon receipt of an exchange notice from such Continuing LLC Owners, the Company will exchange the applicable LLC Interests from such Continuing LLC Owners for newly issued shares of its Class A common stock on a ~~one-for-one~~1-for-one basis pursuant to an exchange agreement (the “Exchange Agreement”). Upon its receipt of such an exchange notice, the Company may elect, at its option (determined solely by its independent directors (within the meaning of the rules of Nasdaq)) who are ~~disinterested,~~disinterested), to cause EVO, LLC to instead redeem the applicable LLC Interests for cash; provided that such Continuing LLC Owners consents to any election by the Company to cause EVO, LLC to redeem the LLC Interests. In the event that Continuing LLC Owners do not consent to an election by the Company to cause EVO, LLC to redeem the LLC Interests, the Company is required to exchange the applicable LLC Interests for newly issued shares of Class A common stock.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

If the Company elects to cause EVO, LLC to redeem LLC Interests for cash in lieu of exchanging LLC Interests for newly issued shares of its Class A common stock, the Company will offer the other Continuing LLC Owners the right to have their respective LLC Interests redeemed in an amount up to such person’s pro rata share of the aggregate LLC Interests to be redeemed. The Company is not required to redeem any LLC Interests from Blueapple or any other Continuing LLC Owners in response to a sale notice from Blueapple if the Company elects to pursue, but is unable to complete, a public offering of shares of its Class A common stock.

Continuing LLC Owners also hold certain registration rights pursuant to a registration rights agreement. MDP holds demand registration rights that require the Company to register shares of Class A common stock held by it, including any Class A common stock received upon its exchange of Class A common stock for its LLC ~~Interests.~~Interests, or upon conversion of any shares of Preferred Stock held by MDP. All Continuing LLC Owners (other than Blueapple) hold customary piggyback registration rights, which includes the right to participate on a pro rata basis in any public offering the Company conducts in response to its receipt of a sale notice from Blueapple. Blueapple also has the right, in connection with any public offering the Company conducts (including any offering conducted as a result of an exercise by MDP of its registration rights), to request that the Company ~~use~~uses its commercially reasonable best efforts to pursue a public offering of shares of its Class A common stock and use the net proceeds therefrom to purchase a like amount of Blueapple’s LLC Interests.

(22)	Stock Compensation Plans and Share-Based Compensation Awards

~~(19)Stock Compensation Plans and Share-Based Compensation Awards~~

The Company provides share-based compensation awards to its employees under the Amended and Restated 2018 Omnibus Incentive Stock Plan (the “Amended and Restated 2018 Plan”). The original 2018 Omnibus Equity Incentive Plan (the “2018 Plan”)~~, which the Company~~ was adopted in conjunction with ~~its IPO. The 2018 Plan~~the Company’s IPO and became effective on May 22, 2018. ~~A total~~On February 25, 2020, the Company adopted the Amended and Restated 2018 Plan, which was approved by the Company’s stockholders at the Company’s 2020 annual meeting of ~~7,792,162~~stockholders held on June 11, 2020. The Amended and Restated 2018 Plan amended and restated the 2018 Plan in its entirety and increased the number of shares of the Company’s Class A common stock ~~are reserved~~available for grant and issuance under the 2018 ~~Plan.~~ Plan from 7,792,162 shares to 15,142,162 shares. The Amended and Restated 2018 Plan provides for accelerated vesting under certain conditions.

The following table summarizes share-based compensation expense, and the related income tax benefit recognized for share-based compensation awards. Share-based compensation expense is presented within selling, general, and administrative expenses within the unaudited condensed consolidated statements of ~~operations.~~operations and comprehensive income (loss):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(In thousands)
Share-based compensation expense	$	5,916	$	3,019	$	15,391	$	7,841
Income tax benefit	$	(676)	$	(289)	$	(1,752)	$	(688)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands)

Share-based compensation expense

$
3,019

$
1,758

$
7,841

$
53,893

Income tax benefit

$
289

$
68

$
688

$
3,914

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Unit appreciation rights/Restricted stock awards

The Company assumed EVO, LLC’s obligations under the EVO, LLC Unit Appreciation Rights Plan (“UAR Plan”) and converted all of the outstanding UARs held by members of management and current and former employees at the consummation of the IPO to restricted Class A common stock (“RSAs”). In connection with the Company’s assumption of EVO, LLC’s obligation under the UAR Plan and the issuance of the RSAs, on the IPO date, the Company recorded share-based compensation expense based on the modification date fair value of the RSAs of $16.00 per share. The Company recognized share-based compensation expense related to RSAs of less than ~~$0.1 million and $0.3~~$0.1 million for the three months ended September 30, ~~2019~~2020 and ~~2018, respectively.~~2019. The Company recognized share-based compensation expense related to RSAs of ~~$0.2~~less than $0.1 million and ~~$9.0~~$0.2 million ~~respectively,~~ for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Prior to the consummation of the IPO, no liquidity event was probable and, as such, no0 share-based compensation expense had been recognized for these awards. On the modification date, there were 35 members of management and current and former employees who held UARs.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

A summary of ~~RSA~~RSAs activity is as follows (in thousands, except per share data):


	Number of RSAs	Weighted average grant date fair value

Balance at December 31, 2018	42	$	16.00

				Number of RSAs	Weighted-average grant date fair value

Balance at December 31, 2019				8	$	16.00
Granted	—		—	—		—
Vested	(25)		16.00	(4)		16.00
Forfeited	(2)		16.00	—		—
Balance at September 30, 2019	15	$	16.00
Balance at September 30, 2020				4	$	16.00

As of September 30, 2020 and 2019, total unrecognized share-based compensation expense related to outstanding RSAs was less than $0.1 million and $0.1 million, respectively. The total fair value of shares vested during the nine months ended September 30, 2020 and 2019, was less than $0.1 million and $0.4 million, respectively.

Restricted stock units

The Company recognized share-based compensation expense for ~~unvested restricted stock units (“RSUs”)~~RSUs granted of ~~$1.3~~$2.2 million and ~~$0.6~~$1.3 million, for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company recognized share-based compensation expense for ~~unvested~~ RSUs granted of $6.2 million and $3.4 million ~~and $0.8 million, respectively,~~ for the nine months ended September 30, 2020 and 2019, ~~and 2018.~~respectively.

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A summary of ~~RSU~~RSUs activity is as follows (in thousands, except per share data):


	Number of RSUs	Weighted average grant date fair value

Balance at December 31, 2018	506	$	16.30

				Number of RSUs	Weighted-average grant date fair value

Balance at December 31, 2019				876	$	22.30
Granted	515		26.21	617		23.20
Vested	(139)		16.27	(249)		21.64
Forfeited	(36)		21.79	(81)		22.08
Balance at September 30, 2019	846	$	22.11
Balance at September 30, 2020				1,163	$	22.94

As of September 30, 2020 and 2019, total unrecognized share-based compensation expense related to outstanding RSUs was ~~$16.1 million. Each RSU vests~~$21.9 million and $16.1 million, respectively. RSUs settle in Class A common stock. RSUs granted in connection with the Company’s annual long-term incentive plan and ordinary course sign-on awards vest in equal annual vesting installments over a period of four years from the grant ~~date and~~date. RSUs granted as part of a special, one-time grant on March 29, 2020 will ~~settle in Class A common stock.~~cliff-vest upon the second anniversary of the grant date. The ~~weighted average~~weighted-average remaining vesting period ~~outstanding~~over which expense will be recognized for unvested RSUs is ~~3.0 years.~~2.6 years as of September 30, 2020 and 3.0 years as of September 30, 2019. The total fair value of shares vested during the nine months ended September 30, 2020 and 2019, was $5.4 million and $2.3 million respectively.

Stock options

The Company recognized share-based compensation expense for ~~unvested~~the stock options granted of ~~$1.7~~$3.7 million and ~~$0.9~~$1.7 million, for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company recognized share-based compensation expense for ~~unvested~~the stock options granted of ~~$4.2~~$9.1 million and ~~$1.3~~$4.2 million, ~~respectively,~~ for the nine months ended September 30, 2020 and 2019, ~~and 2018.~~respectively.

~~Table of Contents~~

~~EVO PAYMENTS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

A summary of stock option activity is as follows (in thousands, except per share and term data):


	Number of Options	Weighted-average grant date fair value		Weighted-average exercise price		Weighted-average remaining contractual term		Total Intrinsic Value

Balance at December 31, 2019	3,369	$	7.90	$	20.46		8.77	$	20,312
Granted	2,448		6.84		20.84		—		—
Exercised	(364)		5.60		15.16		—		4,414
Forfeited	(305)		7.58		20.60		—		—
Balance at September 30, 2020	5,148	$	7.58	$	21.01		8.60	$	22,307

Exercisable at September 30, 2020	1,341	$	7.06	$	18.07		8.11	$	9,490

Number of Options

Weighted average grant date fair value

Weighted average exercise price

Weighted average remaining contractual term

Balance at December 31, 2018

2,086

$
6.77

$
16.22

Granted

1,384

9.47

26.19

Exercised

(50)

6.80

16.32

Forfeited

(128)

8.07

20.78

Balance at September 30, 2019

3,292

$
7.85

$
20.24

8.98
Exercisable at September 30, 2019

455

$
6.70

$
16.06

8.65

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As of September 30, 2020 and 2019, total unrecognized share-based compensation expense related to unvested stock options was ~~$19.9 million.~~$24.5 million and $19.9 million, respectively. The ~~weighted average~~weighted-average remaining vesting period ~~outstanding~~over which expense will be recognized for unvested stock options is ~~3.3 years. Each stock option vests~~2.4 years in 2020 and 3.3 years in 2019. Stock options granted in connection with the Company’s annual long-term incentive plan and ordinary course sign-on awards vest in equal annual installments over a period of four years from grant ~~date, and~~date. NaN percent of stock options granted as part of a special, one-time grant on March 29, 2020 vested in August with the remaining 50% to vest upon the first anniversary of the grant date. Stock options expire no later than 10 years from the date of grant. For the purpose of calculating share-based compensation expense, the fair value of the stock option grants was determined through the application of the Black-Scholes model with the following assumptions:


	Nine Months Ended September 30,
	2019		2018


					Nine Months Ended September 30,
					2020		2019

Expected life (in years)		7.00		7.00		7.00		7.00
Weighted average risk-free interest rate		2.59%		3.04%
Weighted-average risk-free interest rate						0.86%		2.59%
Expected volatility		33.35%		34.28%		30.24%		33.35%
Dividend yield		0.00%		0.00%		0.00%		0.00%
Weighted average fair value at grant date	$	9.46	$	6.84
Weighted-average fair value at grant date					$	6.84	$	9.46

The risk-free interest rate is based on the yield of a zero coupon ~~U.S.~~United States Treasury security with a maturity equal to the expected life of the stock option from the date of the grant. The assumption for expected volatility is based on the historical volatility of a peer group of market participants as the Company has limited historical volatility. It is the Company’s intent to retain all profits for the operations of the business for the foreseeable future, as such the dividend yield assumption is ~~zero.~~0. The Company ~~applied~~applies the simplified method in determining the expected life of the stock options as the Company has limited historical basis upon which to determine historical exercise periods. The ~~Company based the assumptions~~Company’s assumption of the expected ~~term of~~life is determined based on the ~~options as the expected term~~general grant vesting period plus half of the remaining life through expiration. All stock options exercised will be settled in Class A common stock.

~~(20)Subsequent Events~~

~~Subsequent events have been evaluated from the balance sheet date through the date on which the unaudited condensed consolidated financial statements were available to be issued.~~

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) is intended to provide an understanding of our financial condition, changes in financial condition, cash flow, liquidity and results of operations. This MD&A should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to the accompanying unaudited condensed consolidated financial statements appearing elsewhere in this Form 10-Q and the Risk Factors included in Part II, Item 1A of this Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, as well as other cautionary statements and risks described elsewhere in this Form 10-Q.

Company background

The following discussion and analysis reflects the historical results of operations and financial position of EVO, LLC and its consolidated subsidiaries prior to the Reorganization Transactions and that of EVO, Inc. and its consolidated subsidiaries (including EVO, LLC) following the completion of the Reorganization Transactions. The historical results of operations and financial condition of EVO, LLC prior to the completion of the Reorganization Transactions, including the IPO, do not reflect certain items that affected our results of operations and financial condition after giving effect to the Reorganization Transactions and the use of proceeds from the IPO.

In addition to historical information, the following discussion contains forward-looking statements. Our actual results may differ materially from those contained in or implied by any forward-looking statements as a result of various factors, including those set forth under “Forward-Looking Statements.”

~~Overview~~

We are a leading payments technology and services provider offering an array of payment solutions to merchants ranging from small and mid-size enterprises to multinational companies and organizations across the ~~globe.~~Americas and Europe. As a fully integrated merchant acquirer and payment processor ~~in over~~across more than 50 markets and 150 currencies worldwide, we provide competitive solutions that promote business growth, increase customer loyalty and enhance data security in the markets we serve.

~~Executive overview~~

Revenue for the three months ended September 30, 2019, decreased 15.5% to $122.4 million from $144.8 million for the three months ended September 30, 2018. Excluding the $30.2 million impact of the reclassification of network processing fees following the adoption of ASC 606, revenue for the three months ended September 30, 2019 increased $7.8 million to $152.6 million. This increase was driven by a 4.3% increase in Europe segment revenue and a 6.3% increase in North America segment revenue.

~~Revenue for~~ ~~the nine months ended September 30, 2019 decreased 13.9% to $356.4 million~~ from the nine months ended September 30, 2018. Excluding the $81.6 million impact of the reclassification of network processing fees following the adoption of ASC 606, revenue for the nine months ended September 30, 2019 increased $24.1 million to $438.0 million. This increase was driven by a 4.0% increase in Europe segment revenue and a 7.3% increase in North America segment revenue.

North America segment profit for the three months ended September 30, 2019 was $23.1 million, 25.4% lower than the three months ended September 30, 2018. North America segment profit for the nine months ended September 30, 2019 was $65.6 million, 10.9% lower than the nine months ended September 30, 2018.

Europe segment profit for the three months ended September 30, 2019 was $18.5 million, 16.0% higher than the three months ended September 30, 2018. Europe segment profit for the nine months ended September 30, 2019 was $41.9 million, 1.9% lower than the nine months ended September 30, 2018.

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~~Recent acquisitions~~

~~See Note 6, “Acquisitions”~~Founded in 1989 as an individually owned, independent sales organization in the ~~notes to~~United States, we have transformed into a publicly traded Company that today derives approximately 60% of its revenues from markets outside of the ~~accompanying unaudited condensed consolidated financial statementsfor information about recent acquisitions.~~United States.

~~Our segments~~

We ~~classify our business into two segments: North America~~are one of only a few global, omni-channel merchant acquirers and payment processors, with approximately 2,000 employees on four continents, servicing over 550,000 merchants in the Americas and Europe. ~~The alignment~~We differentiate ourselves from our competitors through (1) a highly productive and scaled sales distribution network, including exclusive global financial institution referral partnerships, (2) our three proprietary, in-market processing platforms that are connected through a single point of integration and (3) a comprehensive suite of payment and commerce solutions.

We maintain referral partnerships with a number of leading financial institutions, including Deutsche Bank USA, Deutsche Bank Group, Grupo Santander, PKO Bank Polski, Bank of Ireland, Raiffeisenbank, Moneta, Citibanamex, Sabadell, and Liberbank, among others. In several markets, we operate with more than one financial institution partner.

In addition to establishing key bank partnerships, we are actively ensuring that we remain competitive in terms of technology and capabilities, including Integrated Software Vendors (“ISV”) solutions. We are focused on delivering products and services that provide value and convenience to our merchants. Our payment and eCommerce solutions consist of our segments is designed to establish lines of business that support the geographical markets in which we operate and allow us to further globalize our solutions while working seamlessly with our teams across these markets. Both segments provide businesses with merchant acquiring solutions, including integrated solutions for retail transactions at physical business locations,own products, as well as ~~eCommerce~~other services that we enable through technical integrations with third-party providers, all of which are available to merchants through a single integration to EVO. Our value-added solutions include gateway solutions, online fraud prevention and ~~mobile transactions.~~management reporting, online hosted payments page capabilities, cellphone-based SMS integrated payment collection services, security tokenization and encryption solutions at the POS, dynamic currency conversion (“DCC”), loyalty offers, and other ancillary solutions. We offer processing capabilities tailored to specific industries and provide merchants with recurring billing, multi-currency authorization and settlement, and cross-border processing. Our global footprint and ease of integration attract new partner relationships, allowing us to develop a robust integrated solutions partner network and positioning us to address major trends in each of our markets.

~~The business segment measurements provided to and evaluated by the segment leaders are computed in accordance with the principles described below:~~

~~The accounting policies of the operating segments are the same as those described in the summary of the significant accounting policies.~~

Segment profit, which is the measure used by our chief operating decision maker to evaluate the performance of and to allocate resources to our segments, is calculated as segment revenue less (1) segment expenses, plus (2) segment income from unconsolidated investees, plus (3) segment other income, net, less (4) segment non-controlling interests. Certain corporate-wide governance functions, as well as depreciation and amortization, and share based compensation expense, are not allocated to our segments.

~~North America~~

Our ~~North America segment is~~business operations are organized across two segments: the Americas and Europe; and are comprised of three sales distribution channels: the ~~United States, Canada~~Tech-enabled division, the Direct division, and Mexico. We distribute our products and services through a combination of bank referrals, a direct sales force, specialized integrated solution companies, sales agents and independent sales organizations (“ISOs”).

~~Europe~~

the Traditional division. Our ~~Europe~~European segment is comprised of Western Europe (Spain, ~~Germany,~~United Kingdom, Ireland, ~~United Kingdom~~Germany and Malta) and Eastern Europe (Poland and the Czech Republic). WeOur Americas segment is comprised of the United States, Canada, and Mexico. In both Europe and the Americas, our payment technology solutions enable our customers to accept all forms of digital payments, including credit and debit card, gift card, and ACH, among other forms of electronic payments, such as market-specific payment solutions. In both segments, we distribute our products and services through a combination of bank ~~referrals,~~ referral partnerships,

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a direct sales force, and specialized integrated solution ~~companies and ISOs. We~~companies. Our distribution in the Americas segment also leverages independent sales agents in the United States in our Traditional division. In our European segment, we also provide ATM acquiring and processing services to a financial ~~institution~~institutions and third-party ATM providers.

Our Tech-enabled division includes our integrated, B2B and eCommerce businesses. Our Direct division includes long-term, exclusive referral relationships with leading financial institutions as well as our direct sales force, such as our direct salespersons and call center representatives. In markets where we do not have an active bank referral network, such as the United States, our direct sales force represents the entirety of this division. Our Traditional division, unlike our Direct and Tech-enabled divisions, represents a merchant portfolio which is not actively managed by the Company. This division only exists in the United States, as it represents our heritage independent sales organization (“ISO”) relationships, and its profits are used to invest in our growth opportunities, such as tech-enabled capabilities and M&A.

~~Key~~

The majority of our revenue is generated from transaction-based fees, calculated as a percentage of transaction value or as a standard fee per transaction.

We plan to continue to grow our business and improve our operations by expanding market share in our existing markets and entering new markets. In our current markets, we seek to grow our business through broadening our distribution network, leveraging our innovative payment and technology solutions, and acquiring additional merchant portfolios and tech-enabled businesses. We seek to enter new markets through acquisitions and partnerships in Latin America, Europe, and certain other markets.

Executive overview

Although this year’s performance has been adversely impacted by the COVID-19 pandemic and ensuing government restrictions, we delivered solid financial ~~definitions~~performance in the three and nine months ended September 30, 2020, as demonstrated by the highlights below:

●

Revenue for the three months ended September 30, 2020 was $117.0 million, a decrease of 4.4% compared to the three months ended September 30, 2019. Revenue for the nine months ended September 30, 2020 was $322.4 million, a decrease of 9.5% compared to the nine months ended September 30, 2019. The decrease in revenue for the three months and nine months ended September 30, 2020 was primarily due to the unfavorable impact of COVID-19, as well as changes in foreign exchange rates.

●

Americas segment profit for the three months ended September 30, 2020 was $28.9 million, 25.0% higher than the three months ended September 30, 2019. Americas segment profit for the nine months ended September 30, 2020 was $71.7 million, 9.2% higher than the nine months ended September 30, 2019. The increase in Americas segment profit was due to the decrease in expenses, primarily due to cost reductions that we implemented in the second quarter.

●

Europe segment profit for the three months ended September 30, 2020 was $34.4 million, 85.8% higher than the three months ended September 30, 2019. Europe segment profit for the nine months ended September 30, 2020 was $50.1 million, 19.6% higher than the nine months ended September 30, 2019. The increase in Europe segment profit was due to the decrease in expenses, primarily due to cost reductions that we implemented in the second quarter, and the recognition of a gain related to our investment in Visa Series A preferred stock.

●

The Company processed approximately 1.0 billion transactions in the three months ended September 30, 2020, an increase of 4.6% from the three months ended September 30, 2019. The Company processed approximately 2.6 billion transactions in the nine months ended September 30, 2020, a decrease of 0.4% from the nine months ended September 30, 2019.

COVID-19

~~Revenue~~ ~~consists primarily~~

The COVID-19 pandemic and related government actions to control its spread began to impact our operating results in March of ~~fees derived~~2020. At the onset of the pandemic, year-over-year volumes declined in most of our markets and across most industry verticals, reaching a low point in mid-April. Since then, volumes steadily improved through July. Starting in

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August, payment volumes in certain of our markets began to flatten, particularly in Europe. This trend continued through September, and in October volumes in some of our European markets began to decline as certain COVID-19 related restrictions were reinstated in response to an increase in infection rates. For October 2020, overall payment volumes in our Americas segment were approximately 2% below October 2019, excluding Canada as well as our United States Traditional division, and volumes in our Europe segment were also approximately 2% below October 2019, excluding ATM transactions processed in Germany. It is likely that our volumes will continue to exhibit volatility as the effects of the pandemic extend into next year.

In the first quarter of 2020, we implemented a number of business continuity plans and formed a crisis management team to address challenges arising from the ~~monetary value~~COVID-19 pandemic, including those related to the health and safety of our employees and partners, and to minimize disruption to our merchants. Beginning in early April 2020, we took a number of ~~transactions processed for~~steps to align our ~~merchants, as defined through contractual agreements~~cost structure and cash flows with the ~~merchants. We also receive revenues~~expected near-term revenue impact of COVID-19. These actions included a series of initiatives to reduce fixed costs, including significant reductions in payroll expenses through a combination of furloughs, terminations, and salary reductions, and certain non-payroll related ~~to other fees for certain services and products.~~

~~We follow guidance provided in~~ ~~Accounting Standards Codification~~ ~~606,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”)~~, ~~which establishes guidance for whether revenue is recognized based~~costs. Based on ~~the gross amount billed to~~these actions, we estimate that we have reduced our cost structure on a ~~customer or the net amount retained.~~

~~Table~~go forward basis by approximately 10% of ~~Contents~~

~~Following the adoption of ASC 606, revenues are presented net of interchange fees paid to issuers, certain fees and assessments paid to the card networks (e.g., Visa, Mastercard, American Express and Discover), as these costs are controlled by the networks in which we effectively act as a clearing house collecting and remitting fees, and commissions paid to~~ our distribution partners. Revenues earned from processing merchant transactions are recognized at the time merchant transactions are processed. These revenues include a rate charged to the merchant based on the percentage of the value of the transaction processed, a rate per transaction or some combination thereof.

~~Cost of services and products, exclusive of depreciation and amortization~~ ~~consists primarily of fees paid to card networks, front-end and back-end fees paid to third-party network service providers and hardware vendors (such as vendors~~core selling, ~~terminals or mobile devices) and payments to third parties for other product offerings. These expenses exclude any depreciation or amortization, which is described below.~~

~~Selling,~~ general and administrative ~~consists primarily~~expenses. In addition, we reduced our capital expenditures for 2020 through the deferral of ~~sales, customer support, advertising~~non-critical projects.

We will continue to actively manage our expenses and other administrative costs. Sales expenses are comprised of salaries, commissions for internal sales personnel, payroll-related benefits and office infrastructure expenses. General and administrative expenses are comprised of compensation, benefits and other expenses associated with corporate management, finance, human resources, shared services, information technology and other activities.

~~Depreciation and amortization~~ consists of depreciation and amortization expenses related to card processing equipment, office equipment, computer software, leasehold improvements, furniture and fixtures, merchant contract portfolios, marketing alliance agreements, finite-lived trademarks, internally developed software, and non-competition agreements.

~~Interest income~~ ~~consists of interest earned by investing excess~~ cash ~~balances.~~

~~Interest expense~~ ~~consists of interest cost incurred from~~flows based on our ~~borrowings~~revenues and the ~~amortization of financing costs.~~

~~Income from investment~~economic activity in ~~unconsolidated investees~~ ~~consists of income earned from the investment in businesses in which~~our markets. The actions we have ~~a minority ownership stake and under which~~taken allowed us to realign our ~~share~~cost structure resulting in the ~~investees’~~ financial capacity to invest in our business and support our customers while also increasing our margins.

We expect that the COVID-19 pandemic will continue to negatively impact our business and results ~~are not consolidated for reporting purposes.~~

~~Other income~~ ~~consists primarily~~ of ~~other income items not considered part~~operations through the rest of the ~~normal course~~year and beyond. The extent of ~~business operations.~~

~~Income tax (expense) benefit~~ ~~represents federal, state, local~~the impact on our future financial condition and ~~foreign taxes based on income~~operating results remains highly uncertain; however, we are confident in ~~multiple domestic~~the financial condition of the Company and ~~foreign jurisdictions.~~

~~Net income attributable~~our ability to ~~non-controlling interests~~ ~~arises from net income from~~manage through this period. Longer term, we believe the non-owned portion of businesses where we have a controlling interest but less than 100% ownership. This represents both the non-controlling interests that are consolidating entities of EVO, Inc., inclusive of income attributable to the Continuing LLC Ownerspandemic will serve as a ~~result~~catalyst for greater utilization of ~~their proportional ownership of LLC Interests.~~digital payments, a trend we are seeing in our markets.

Factors impacting our business and results of operations

In general, our revenue is impacted by factors such as global consumer spending trends, foreign exchange rates, the pace of adoption of commerce-enablement and payment solutions, acquisitions and dispositions, types and quantities of products and services provided to enterprises, timing and length of contract renewals, new enterprise wins, retention rates, mix of payment solution types employed by consumers, and changes in card network fees, including interchange rates and size of enterprises served. In addition, we may pursue acquisitions from time to time. These acquisitions could result in redundant costs, such as increased interest expense resulting from ~~any~~ indebtedness incurred to finance ~~any~~such acquisitions, or could require us to incur ~~losses~~additional costs as we restructure or reorganize our operations following these acquisitions.

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~~Seasonality~~

We have experienced in the past, and expect to continue to experience, seasonality in our ~~revenue~~revenues as a result of consumer spending patterns. In ~~North America,~~both the Americas and Europe, our revenue has been strongest in our fourth quarter and weakest in our first quarter as many of our ~~merchant categories~~merchants experience a seasonal lift during the traditional vacation and holiday months. ~~In Europe, our revenue has been strongest in our third quarter and weakest in our first quarter.~~ Operating expenses do not typically fluctuate seasonally. The government restrictions and changes in consumer spending resulting from the COVID-19 pandemic have disrupted these typical seasonal patterns.

Foreign currency translation impact on our operations

Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues recognized and expenses incurred by our non-U.S. operations. It is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our ~~unaudited condensed~~ consolidated statements of operations and comprehensive income (loss) ~~income~~ in the future. As a result of the relative size of our international operations, these fluctuations may be material on individual balances. Our revenues and expenses from our international operations are generally

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denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of currency fluctuations on our operating results and margins is partially mitigated.

Financial Institution Partners

Since 2012, we have established partnerships with leading financial institutions around the world. We rely on our various financial institution relationships to grow and maintain our business. These relationships are structured in various ways, such as commercial alliance relationships, equity method investments, and joint ventures. We enter into long-term relationships with our bank partners where these partners typically provide exclusive referrals and credit facilities to fund our daily settlement obligations. Our relationships with our financial institution partners may be impacted by, among other things, consolidations in the banking and payments industries.

Grupo Santander’s (“Santander”) acquisition of our financial institution referral partner Grupo Banco Popular (“Popular”) in June 2017 has adversely impacted our business in Spain. Revenues from this channel have declined significantly due primarily to reduced merchant referrals following Santander’s consolidation of Popular branches and the bank’s lack of performance of certain of its obligations under our agreements. We believe our agreements with Santander, including the bank’s referral obligations, remain in full force and effect and we continue to work to resolve these and other matters in a manner consistent with our rights under the agreements. However, there can be no assurance that we will be able to successfully resolve this matter with Santander or that the bank will comply with its obligations under the agreements.

Increased regulations and compliance

We, our partners and our merchants are subject to various laws and regulations that affect the electronic payments industry in the many countries in which our services are used, including numerous laws and regulations applicable to banks, financial institutions, and card issuers. A number of our subsidiaries in our European segment hold a Payments Institution (“PI”) license, allowing them to operate in the European Union (“EU”) member states in which such subsidiaries do business. As a PI, we are subject to regulation and oversight in the applicable EU member states, which includes, among other obligations, a requirement to maintain specific regulatory capital and adhere to certain rules regarding the conduct of our business, including the European Payment Services Directive of 2015 (“PSD2”). PSD2 contains a number of additional regulatory mandates, such as provisions relating to Strong Customer Authentication (“SCA”), which requires industry-wide systems upgrades. In the second half of 2019, we began updating our systems in preparation for the new SCA compliance requirements, which are generally scheduled to go into effect on December 31, 2020. From an operations perspective, we remain focused on developing, coordinating and implementing necessary updates with our merchants and third party providers, including hardware vendors, card issuers and the card networks. The EU has also enacted certain legislation relating to the offering of DCC services, which went into effect in April 2020. These new rules require additional disclosures to consumers in connection with our DCC product offerings. As a result of the COVID-19 pandemic, the EU Commission and other national regulators have indicated that enforcement of these regulations will be delayed in order to allow providers additional time to fully implement changes necessary to meet these regulations. Compliance with current and upcoming regulations and compliance deadlines remains a focus for the remainder of 2020 and beyond. In addition, we continue to closely monitor the impact of the United Kingdom’s withdrawal from the European Union (“Brexit”) on our operations as further details emerge regarding the post-Brexit regulatory landscape. We will avail ourselves of the United Kingdom’s temporary permissions regime, which will allow us to continue to operate in that market under our current regulatory permissions for a period of up to 3 years.

Key performance indicators

Transactions Processed

Transactions processed refers to the number of transactions we processed during any given period of time and is a meaningful indicator of our business and financial performance, as a significant portion of our revenue is driven by the number of transactions we process. In addition, transactions processed provides a valuable measure of the level of economic activity across our merchant base. In our ~~North America~~Americas segment, transactions include acquired Visa and Mastercard credit and signature debit, American Express, Discover, UnionPay, PIN-debit, electronic benefit transactions and gift

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card transactions. In our Europe segment, transactions include acquired Visa and Mastercard credit and signature debit, other card network merchant acquiring transactions, and ATM transactions.

For the three months ended September 30, ~~2019,~~2020, we processed ~~0.3~~approximately 1.0 billion transactions, which included 0.2 billion transactions in ~~North America~~the Americas and ~~0.7~~0.8 billion transactions in Europe. This represents ana decrease of 13.3% in the Americas and a increase of ~~14.2%~~12.0% in ~~North America and~~Europe for an aggregate increase of ~~19.0% in Europe over~~4.6% compared to the three months ended September 30, ~~2018.~~2019. Transactions processed in the Americas and Europe accounted for 24.5% and 75.5%, respectively, of the total transactions we processed for the three months ended September 30, 2020.

For the nine months ended September 30, ~~2019,~~2020, we processed ~~0.8~~approximately 2.6 billion transactions, which included 0.7 billion transactions in ~~North America~~the Americas and 1.9 billion transactions in Europe. This represents ~~an increase~~a decrease of ~~10.6%~~8.5% in ~~North America~~the Americas and an increase of ~~18.8%~~3.0% in Europe ~~over~~for an aggregate decrease of 0.4% compared to the nine months ended September 30, ~~2018.~~2019. Transactions processed in the Americas and Europe accounted for 27.2% and 72.8%, respectively, of the total transactions we processed for the nine months ended September 30, 2020.

~~Table~~The changes in the transactions processed in the three and nine months ended September 30, 2020 were primarily driven by government restrictions related to COVID-19 in many of ~~Contents~~our markets, changes in consumer spending, and an increase in debit card usage particularly in Europe.

Comparison of results for the three months ended September 30, ~~2019~~2020 and ~~2018~~2019

The following table sets forth the unaudited condensed consolidated statements of operations in dollars and as a percentage of revenue for the period presented.

Three Months Ended



Three Months Ended




(dollar amounts in thousands)

September 30, 2019

% of revenue

September 30, 2018

% of revenue

$ change

    % change
Segment revenue:












North America

$
75,022

61.3%

$
79,487

54.9%

$
(4,465)

(5.6%)
Europe

47,341

38.7%

65,271

45.1%

(17,930)

(27.5%)
Revenue

$
122,363

100.0%

$
144,758

100.0%

$
(22,395)

(15.5%)












Operating expenses:












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

$
24,065

19.7%

$
46,949

32.4%

$
(22,884)

(48.7%)
Selling, general and administrative

63,864

52.2%

67,802

46.8%

(3,938)

(5.8%)
Depreciation and amortization

22,804

18.6%

20,488

14.2%

2,316

11.3%
Impairment of intangible assets

3,872

3.2%

—

0.0%

3,872

-
Total operating expenses

114,605

93.7%

135,239

93.4%

(20,634)

(15.3%)
Income (loss) from operations

$
7,758

6.3%

$
9,519

6.6%

$
(1,761)

(18.5%)

Segment profit: (1)(2)












North America

$
23,086

30.8%

$
30,962

39.0%

$
(7,876)

(25.4%)
Europe

$
18,542

39.2%

$
15,985

24.5%

$
2,557

16.0%

₍₁₎

_{Beginning in 2019 segment profit margin is calculated as a percentage of segment revenue, which is reflected in both periods presented in this table.}

₍₂₎

_Segmen_{t profit}_{is calculated as segment revenue less (1) segment expenses, plus (2) segment income from unconsolidated investees, plus (3) segment other income, net, less (4) segment non-controlling interests. Certain corporate-wide governance functions, as well as depreciation and amortization, and share based compensation expense, are not allocated to our segments.}


	Three Months Ended			Three Months Ended
(dollar amounts in thousands)	September 30, 2020		% of revenue	September 30, 2019		% of revenue	$ change		% change
Segment revenue:
Americas	$	68,788	58.8%	$	75,022	61.3%	$	(6,234)	(8.3%)
Europe		48,188	41.2%		47,341	38.7%		847	1.8%
Revenue	$	116,976	100.0%	$	122,363	100.0%	$	(5,387)	(4.4%)

Operating expenses:
Cost of services and products	$	20,693	17.7%	$	24,065	19.7%	$	(3,372)	(14.0%)
Selling, general and administrative		64,668	55.3%		63,864	52.2%		804	1.3%
Depreciation and amortization		22,167	19.0%		22,804	18.6%		(637)	(2.8%)
Impairment of intangible assets		—	0.0%		3,872	3.2%		(3,872)	(100.0%)
Total operating expenses		107,528	91.9%		114,605	93.7%		(7,077)	(6.2%)
Income from operations	$	9,448	8.1%	$	7,758	6.3%	$	1,690	21.8%

Segment profit:
Americas	$	28,869	42.0%	$	23,086	30.8%	$	5,783	25.0%
Europe	$	34,446	71.5%	$	18,542	39.2%	$	15,904	85.8%

~~Revenue~~

Revenue

Revenue was ~~$122.4~~$117.0 million for the three months ended September 30, ~~2019,~~2020, a decrease of ~~$22.4~~$5.4 million, or ~~15.5%~~4.4%, compared to the three months ended September 30, 2019.

Americas segment revenue ~~of $144.8~~was $68.8 million for the three months ended September 30, 2018. Excluding the $30.2 million impact of the reclassification of network processing fees following the adoption of ASC 606, revenue for the three months ended September 30, 2019 increased 5.4% to $152.6 million. This increase was driven primarily by the impact of acquisitions, organic growth in Mexico, Poland, Ireland, and the U.S. Tech-enabled division, partially offset by the impact of changes in foreign exchange rates and a decline in transactions in Spain.

~~North America segment revenue was $75.0 million for the three months ended September 30, 2019,~~2020, a decrease of ~~$4.5~~$6.2 million, or ~~5.6%~~8.3%, compared to the three months ended September 30, ~~2018. Excluding~~2019, primarily due to the ~~$9.5 million~~unfavorable impact of COVID-19, as well as the ~~reclassification~~unfavorable impact of network processing fees following the adoption of ASC 606, North America segment revenue for the three months ended September 30, 2019 increased 6.3% to $84.5 million. The increase was driven by organic growth in Mexico and the U.S. Tech-enabled division and the acquisition of Federated. North America transactions increased 14.2% for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, primarily driven by organic growth in Mexico and the U.S. Tech-enabled division, partially offset by a decline in transactions in the U.S. Traditional division. Changeschanges in foreign ~~currency~~ exchange ~~rates did not have a significant impact on revenue for the three months ended September 30, 2019.~~rates.

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Europe segment revenue was ~~$47.3~~$48.2 million for the three months ended September 30, ~~2019, a decrease~~2020, an increase of ~~$17.9~~$0.8 million, or ~~27.5%~~1.8%, compared to the three months ended September 30, ~~2018~~. ~~Excluding~~2019, primarily due to the ~~$20.8 million~~favorable impact of ~~the reclassification~~changes in

Table of ~~network processing fees following the adoption of ASC 606, Europe segment revenue for the three months ended September 30, 2019 increased 4.3% to $68.1 million~~. ~~The increase was driven by organic growth in Poland, Germany, Ireland and the United Kingdom and an overall 19.0% increase in transactions processed in Europe. These increases were partially~~Contents

foreign exchange rates, offset by ~~changes~~the unfavorable impact of COVID-19, a shift in ~~foreign currency exchange rates, which decreased reported revenue by $3.3~~customer mix toward larger, lower-margin merchants, and a decline in cross-border activity.

Operating expenses

Cost of services and products

Cost of services and products was $20.7 million for the three months ended September 30, ~~2019, and a decline in transactions in Spain.~~

~~Operating expenses~~

~~Cost of services and products, exclusive of depreciation and amortization~~

~~Cost of services and products, exclusive of depreciation and amortization, was $24.1 million for the three months ended September 30, 2019,~~2020, a decrease of ~~$22.9~~$3.4 million, or ~~48.7%~~14.0%, compared to the three months ended September 30, ~~2018. Excluding the $30.2 million impact of the reclassification of network~~2019, primarily due to lower processing fees following the adoption of ASC 606, cost of services and products, exclusive of depreciation and amortization for the three months ended September 30, 2019 increased 15.7% to $54.3 million. This increase was due primarily to the increase in transactions processed.costs. Our cost of services and products includes both fixed and variable components, with variable components dependent upon the number and/or volume of transactions ~~processed, among other secondary measures.~~processed. The ~~increase~~decrease in cost was due to the variable component from the ~~increase~~decrease in transactions processed.

Selling, general and administrative expenses

Selling, general and administrative ~~expense~~

~~Selling, general and administrative expense was $63.9~~expenses were $64.7 million for the three months ended September 30, ~~2019, a decrease~~2020, an increase of ~~$3.9~~$0.8 million, or ~~5.8%~~1.3%, compared to the three months ended September 30, ~~2018.~~2019. The ~~decrease~~increase was due primarily to ~~integration expenses incurred in~~share-based employee compensation and severance costs recognized during the ~~prior~~ period, ~~related to our consolidation efforts.~~which offset the savings resulting from the cost reduction initiatives.

Depreciation and amortization

Depreciation and amortization was ~~$22.8~~$22.2 million for the three months September 30, 2020, a decrease of $0.6 million, or 2.8%, compared to the three months ended September 30, 2019. This decrease was primarily driven by lower amortization due to the accelerated amortization method of merchant contract portfolios acquired in prior periods and the lower value of the intangible assets due to an impairment recognized in 2019.

Impairment of intangible assets

There was no impairment of intangibles assets for the three months ended September 30, 2020, which represents a decrease of $3.9 million, compared to the three months ended September 30, 2019. The 2019 impairment charge related to the retirement of certain trademarks driven by an internal reorganization.

Interest expense

Interest expense was $6.7 million for the three months ended September 30, 2020, a decrease of $4.4 million, or 39.4%, compared to $11.1 million for the three months ended September 30, 2019. The decrease was primarily due to lower variable interest rates as well as the paydown of our revolving credit facility.

Income tax expense

Income tax expenserepresents federal, state, local and foreign taxes based on income in multiple domestic and foreign jurisdictions. Historically, as a limited liability company treated as a partnership for U.S. federal income tax purposes, EVO, LLC’s income was not subject to corporate tax in the United States, but only on income earned in foreign jurisdictions. In the United States, our members were taxed on their proportionate share of income of EVO, LLC. However, following the Reorganization Transactions, we incur corporate tax on our share of taxable income of EVO, LLC. Our income tax expense reflects such U.S. federal, state and local income tax as well as taxes payable in foreign jurisdictions by certain of our subsidiaries. The Company recorded a tax expense of $6.8 million in the three months ended September 30, 2020 which included an expense of $0.4 million from an increase of the U.S. interest limitation valuation allowance due to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was enacted on March 27, 2020.

Segment performance

Americas segment profit for the three months ended September 30, 2020 was $28.9 million, compared to $23.1 million for the three months ended September 30, 2019, an increase of ~~$2.3 million, or 11.3%, compared~~25.0%. The increase is primarily due to the cost reductions that we implemented at the beginning of the second quarter as a result of the pandemic. Americas segment profit margin was 42.0% for the three months ended September 30, ~~2018. This increase~~2020, compared to 30.8% for the three months ended September 30, 2019.

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Europe segment profit was ~~due primarily~~$34.4 million for the three months ended September 30, 2020, compared to purchases of POS terminals to support growth in certain of our international markets and other hardware and software purchases as well as the amortization of intangible assets acquired during the second half of 2018.

~~Interest expense~~

~~Interest expense was $11.1~~$18.5 million for the three months ended September 30, 2019, an increase of ~~$0.5 million, or 4.7%,~~85.8%. The increase is primarily due to the cost reductions that we implemented at the beginning of the second quarter as a result of the pandemic and the recognition of a gain related to our investment in Visa Series A preferred stock, partially offset by a decline in economic activity and a reserve for our exposure related to potential chargebacks.

Europe segment profit margin was 71.5% for the three months ended September 30, 2020, compared to ~~$10.6~~39.2% for the three months ended September 30, 2019.

Corporate expenses not allocated to a segment were $10.9 million for the three months ended September 30, ~~2018. The increase was due to higher outstanding debt balances associated with recent acquisitions, offset by lower average interest rates.~~

~~Income tax benefit~~

The Company’s effective tax rate (“ETR”) was (231.6%) and 388.5% for the three months ended September 30, 2019 and 2018, respectively. The variance in the ETR for the three months ended September 30, 2019 primarily relates to the mix of U.S. and non-U.S. earnings and related tax expense. The ETR for the three months ended September 30, 2019 and 2018 differs from the statutory federal rate primarily due to foreign income taxes, the tax treatment of income attributable to non-controlling interests, and the exclusion of tax benefits related to losses recorded in certain foreign operations. The income attributable to the non-controlling interests is taxable to EVO, LLC’s individual owners other than the Company. Income tax liabilities are incurred with respect to foreign operations whereas income of EVO, LLC in the U.S. flows through and is taxable to EVO, LLC’s owners.

~~Segment performance~~

~~North America segment profit was $23.1 million for the three months ended September 30, 2019,~~ 2020, compared to ~~$31.0 million for~~ ~~the three months ended September 30, 2018. The~~ decrease is primarily due to a $3.9 million trademark impairment in the three months ended September 30, 2019, and an $8.4 million gain on acquisition of an unconsolidated in conjunction with the Federated acquisition in the three months ended September 30, 2018, partially offset by organic growth in Mexico and the U.S. tech-enabled division. North America segment profit margin was 30.8% for the three months ended September 30, 2019, compared to 39.0% for the three months ended September 30, 2018. Excluding the impact of the $9.5 million reclassification of network processing fees following the adoption of ASC 606, North America

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segment profit margin for the three months ended September 30, 2019 was 27.3%. The increase in North America segment profit was primarily due to organic growth in Mexico and the U.S. Tech-enabled division, the acquisition of Federated, and ongoing operating efficiencies.

Europe segment profit was $18.5 million for the three months ended September 30, 2019, compared to $16.0 million for the three months ended September 30, 2018. The increase is primarily due to one-time charges in the prior year period related to employee termination and integration costs. The Europe segment profit margin was 39.2% for the three months ended September 30, 2019, compared to 24.5% for the three months ended September 30, 2018. Excluding the impact of the $20.8 million reclassification of network processing fees following the adoption of ASC 606, Europe segment profit margin for the three months ended September 30, 2019 was 27.2%. The increase in Europe profit margin was primarily due to organic growth in Poland, Germany, Ireland and the UK and continuing platform and operational consolidation efforts.

~~Corporate expenses not allocated to segments were~~ $9.2 million for the three months ended September 30, ~~2019, compared to $8.5 million for the three months ended September 30, 2018.~~ 2019. The increase ~~in expense~~ is primarily due to ~~increased public company costs and additional insurance expenses.~~the share-based compensation, as well as employee compensation accruals recognized during the period that approximate the effect of returning to our historical compensation structure.

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Comparison of results for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019

The following table sets forth the unaudited condensed consolidated statements of operations in dollars and as a percentage of revenue for the period presented.

Nine Months Ended


Nine Months Ended




(dollar amounts in thousands)

September 30, 2019

% of revenue

September 30, 2018

% of revenue

$ change

% change
Segment revenue:















North America

$
222,643

62.5%

$
232,687

56.2%

$
(10,044)

(4.3%)
Europe

133,755

37.5%

181,244

43.8%

(47,489)

(26.2%)
Revenue

$
356,398

100.0%

$
413,931

100.0%

$
(57,533)

(13.9%)











Operating expenses:












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

$
72,900

20.5%

$
141,826

34.3%

$
(68,926)

(48.6%)
Selling, general and administrative

196,592

55.2%

242,982

58.7%

(46,390)

(19.1%)
Depreciation and amortization

68,412

19.2%

61,308

14.8%

7,104

11.6%
Impairment of intangible assets

10,504

2.9%

—

0.0%

10,504

100.0%
Total operating expenses

348,408

97.8%

446,116

107.8%

(97,708)

(21.9%)
Income (loss) from operations

$
7,990

2.2%

$
(32,185)

(7.8%)

$
40,175

(124.8%)












Segment profit: (1)(2)












North America

$
65,616

29.5%

$
73,616

31.6%

$
(8,000)

(10.9%)
Europe

$
41,858

31.3%

$
42,657

23.5%

$
(799)

(1.9%)

₍₁₎

_{Beginning in 2019 segment profit margin is calculated as a percentage of segment revenue, which is reflected in both periods presented in this table.}

₍₂₎

_{Segment profit is calculated as segment revenue less (1) segment expenses, plus (2) segment income from unconsolidated investees, plus (3) segment other income, net, less (4) segment non-controlling interests. Certain corporate-wide governance functions, as well as depreciation and amortization, and share based compensation expense, are not allocated to our segments.}


	Nine Months Ended			Nine Months Ended
(dollar amounts in thousands)	September 30, 2020		% of revenue	September 30, 2019		% of revenue	$ change		% change
Segment revenue:
Americas	$	201,612	62.5%	$	222,643	62.5%	$	(21,031)	(9.4%)
Europe		120,816	37.5%		133,755	37.5%		(12,939)	(9.7%)
Revenue	$	322,428	100.0%	$	356,398	100.0%	$	(33,970)	(9.5%)

Operating expenses:
Cost of services and products	$	63,034	19.5%	$	72,900	20.5%	$	(9,866)	(13.5%)
Selling, general and administrative		191,579	59.4%		196,592	55.2%		(5,013)	(2.5%)
Depreciation and amortization		64,116	19.9%		68,412	19.2%		(4,296)	(6.3%)
Impairment of intangible assets		782	0.2%		10,504	2.9%		(9,722)	(92.6%)
Total operating expenses		319,511	99.1%		348,408	97.8%		(28,897)	(8.3%)
Income from operations	$	2,917	0.9%	$	7,990	2.2%	$	(5,073)	(63.5%)

Segment profit:
Americas	$	71,649	35.5%	$	65,616	29.5%	$	6,033	9.2%
Europe	$	50,063	41.4%	$	41,858	31.3%	$	8,205	19.6%

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Revenue

~~Revenue~~

Revenue was ~~$356.4~~$322.4 million for the nine months ended September 30, ~~2019,~~2020, a decrease of ~~$57.5~~$34.0 million, or 13.9%, compared to revenue of $413.9 million for the nine months ended September 30, 2018. Excluding the $81.6 million impact of the reclassification of network processing fees following the adoption of ASC 606, revenue for the nine months ended September 30, 2019 increased 5.8% to $438.0 million. This increase was driven primarily by organic growth in Poland, Ireland, the United Kingdom, Mexico, and the U.S. Tech-enabled division and the acquisition of Federated, partially offset by the impact of changes in foreign exchange rates and a decline in transactions in Spain.

~~North America segment revenue was $222.6 million for the nine months ended September 30, 2019, a decrease of $10.0 million, or 4.3%~~9.5%, compared to the nine months ended September 30, ~~2018. Excluding the $27.0 million impact of the reclassification of network processing fees following the adoption of ASC 606, North America~~2019.

Americas segment revenue ~~for the nine months ended September 30, 2019 increased 7.3% to $249.6 million. The increase~~ was driven by organic growth in our Mexico business, the U.S. Tech-enabled division and the acquisition of Federated, partially offset by a decline in the U.S. Traditional division. North America transactions increased 10.6% for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. Changes in foreign currency exchange rates, which decreased reported revenue by $1.1$201.6 million for the nine months ended September 30, ~~2019.~~

~~Europe segment revenue was $133.8 million for the nine months ended September 30, 2019,~~2020, a decrease of ~~$47.5~~$21.0 million, or ~~26.2%~~9.4%, compared to the nine months ended September 30, ~~2018~~. ~~Excluding~~2019.

Europe segment revenue was $120.8 million for the ~~$54.7~~nine months ended September 30, 2020, a decrease of $12.9 million, ~~impact of~~or 9.7%, compared to the ~~reclassification of network processing fees following the adoption of ASC 606,~~nine months ended September 30, 2019.

The decrease in both Americas and Europe segment revenue for the nine months ended September 30, ~~2019, increased 4.0%~~2020 is primarily due to ~~$188.5 million~~. ~~The increase~~the unfavorable impact of COVID-19, a shift in customer mix toward larger, lower-margin merchants, and a decline in economic activity, including cross-border activity in Europe.

Operating expenses

Cost of services and products

Cost of services and products was driven by organic growth in Poland, Germany, Ireland and the United Kingdom, and an overall 18.8% increase in transactions processed in Europe. These increases were partially offset by changes in foreign currency exchange rates, which decreased reported revenue by $13.1$63.0 million for the nine months ended September 30, ~~2019, and a decline in transactions in Spain.~~

~~Operating expenses~~

~~Cost of services and products, exclusive of depreciation and amortization~~

~~Cost of services and products, exclusive of depreciation and amortization, was $72.9 million for the nine months ended September 30, 2019,~~2020, a decrease of ~~$68.9~~$9.9 million, or ~~48.6%~~13.5%, compared to the nine months ended September 30, ~~2018. Excluding~~2019, primarily due to lower processing costs related to declines in volumes during the $81.6 million impact of the reclassification of network processing fees following the adoption of ASC 606, cost of services and products, exclusive of depreciation and amortization for the nine months ended September 30, 2019, increased to $154.5 million. This increase was due primarily to the increase in transactions processed.period. Our cost of services and products includes both fixed and variable components, with variable components dependent upon the number and/or volume of transactions ~~processed, among other secondary measures.~~processed. The ~~increase~~decrease in cost was due to the variable component from the ~~increase~~decrease in transactions processed.

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Selling, general and administrative expenses

Selling, general and administrative ~~expense~~

~~Selling, general and administrative expense was $196.6~~expenses were $191.6 million for the nine months ended September 30, ~~2019,~~2020, a decrease of ~~$46.4~~$5.0 million, or ~~19.1%~~2.5%, compared to the nine months ended September 30, ~~2018.~~2019. The decrease was due primarily to ~~a $46.1 million decrease in share-based~~the employee compensation ~~expense related to awards which vested upon~~cost savings resulting from the ~~IPO.~~

~~Depreciation~~cost reduction initiatives and ~~amortization~~

~~Depreciation and amortization was $68.4 million for~~lower third party expenses recognized during the nine months ended September 30, ~~2019,~~2020, offset by an increase in share-based compensation costs, severance costs, and compensation accruals recognized during the period that approximate the effect of ~~$7.1~~returning to our historical compensation structure.

Depreciation and amortization

Depreciation and amortization was $64.1 million for the nine months September 30, 2020, a decrease of $4.3 million, or ~~11.6%~~6.3%, compared to the nine months ended September 30, ~~2018.~~2019. This ~~increase~~decrease was primarily driven by lower amortization due to the accelerated amortization method of merchant contract portfolios acquired in prior periods and the lower value of the intangible assets due to an impairment recognized in 2019.

Impairment of intangible assets

Impairment of intangibles assets was $0.8 million for the nine months ended September 30, 2020, a decrease of $9.7 million, or 92.6%, compared to the nine months ended September 30, 2019. In the nine months ended September 30, 2020, we recognized an impairment charge related to the retirement of certain trademarks driven by an internal reorganization. In the nine months ended September 30, 2019, we recognized an impairment charge related primarily to ~~purchases~~the termination of POS terminals to support growth in certain of our international markets and other hardware and software purchases as well as the amortization of intangible assets acquired during the second half of 2018.a marketing alliance agreement.

Interest expense

Interest expense was $23.9 million for the nine months ended September 30, 2020, a decrease of $10.1 million, or 29.7%, compared to $34.0 million for the nine months ended September 30, ~~2019,~~2019. The decrease was primarily due to lower variable interest rates, as well as the paydown of our revolving credit facility.

Income tax expense

Income tax expenserepresents federal, state, local and foreign taxes based on income in multiple domestic and foreign jurisdictions. Historically, as a ~~decrease~~limited liability company treated as a partnership for U.S. federal income tax purposes, EVO, LLC’s income was not subject to corporate tax in the United States, but only on income earned in foreign jurisdictions. In the United States, our members were taxed on their proportionate share of ~~$13.5~~income of EVO, LLC. However, following the Reorganization Transactions, we incur corporate tax on our share of taxable income of EVO, LLC. Our income tax expense reflects such U.S. federal, state and local income tax as well as taxes payable in foreign jurisdictions by certain of our subsidiaries. The Company recorded a tax expense of $4.7 million ~~or 28.4%, compared to $47.5 million for~~in the nine months ended September 30, ~~2018. The decrease was due to lower debt balances~~2020 which included a benefit of $ 2.2 million from a partial release of the U.S. interest limitation valuation allowance due to the ~~use of IPO proceeds for debt repayment during Q2 2018 and lower average interest rates, partially offset by use of debt for recent acquisitions.~~

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~~Income tax benefit~~

~~The Company’s effective tax rate (“ETR”) was 2.8% and (11.1%) for the nine months ended September 30, 2019 and 2018, respectively.~~CARES Act. The Company recorded a tax benefit in the nine months ended September 30, 2019 of ~~($8.2)~~$8.2 million as a result of a tax free reorganization to consolidate its foreign operation and reversed a deferred tax liability related to foreign tax withholding on unremitted foreign earnings. ~~The variance in~~

Segment performance

Americas segment profit for the ~~ETR~~nine months ended September 30, 2020 was $71.7 million, compared to $65.6 million for the nine months ended September 30, 2019, an increase of 9.2%. The increase is primarily ~~relates~~due to lower expenses from our system simplification efforts, cost reductions implemented in the ~~mix~~second quarter as a result of ~~U.S.~~the pandemic, and ~~non-U.S. earnings and related tax expense. The ETR~~the impact of an asset impairment charge in the three months ended March 31, 2019, offset by the previously discussed decline in revenue. Americas segment profit margin was 35.5% for the nine months ended September 30, 2019 and 2018 differs from the statutory federal rate primarily due to foreign income taxes, the tax treatment of income attributable to non-controlling interests, the exclusion of tax benefits related to losses recorded in certain foreign operations, and the recognition of the tax benefit from a tax free reorganization. The income attributable to the non-controlling interests is taxable to EVO, LLC’s individual owners other than the Company. Income tax liabilities are incurred with respect to foreign operations whereas income of EVO, LLC in the U.S. flows through and is taxable to EVO, LLC’s owners.

~~Segment performance~~

~~North America segment profit was $65.6 million for~~ ~~the nine months ended September 30, 2019,~~2020, compared to ~~$73.6 million forthe nine months ended September 30, 2018.~~ For the nine months ended September 30, 2019, the decrease in North America segment profit is primarily due a $3.9 million trademark impairment in the three months ended September 30, 2019 and a $8.4 million gain on acquisition and unconsolidated investee in the three months ended September 30, 2018, partially offset by organic growth in Mexico and the U.S. tech-enabled division. North America segment profit margin was 29.5% for the nine months ended September 30, ~~2019, compared to 31.6%~~2019.

Europe segment profit was $50.1 million for the nine months ended September 30, 2018. Excluding the impact of the $27.0 million reclassification of network processing fees following the adoption of ASC 606, North America segment profit margin for the nine months ended September 30, 2019 was 26.3%. The increase in North America segment profit margin was primarily due2020, compared to ~~organic growth in Mexico and the U.S. Tech-enabled division and on-going operating efficiencies.~~

~~Europe segment profit was~~ $41.9 million for the nine months ended September 30, 2019, an increase of 19.6%. The increase is primarily due to the cost reductions implemented in response to the pandemic and the recognition of a gain related to our investment in Visa Series A preferred stock, offset by an increase in chargeback reserves and the previously discussed decline in revenue. Europe segment profit margin was 41.4% for the nine months ended September 30, 2020, compared to ~~$42.7~~31.3% for the nine months ended September 30, 2019.

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Corporate expenses not allocated to a segment were $28.1 million for the nine months ended September 30, 2018. The decrease is primarily due to an increase in selling, general and administrative expenses in Poland related to restructuring, organic growth and acquisitions. The Europe segment profit margin was 31.3% for the nine months ended September 30, 2019,2020, compared to 23.5% for the nine months ended September 30, 2018. Excluding the impact of the $54.7 million reclassification of network processing fees following the adoption of ASC 606, Europe segment profit margin for the nine months ended September 30, 2019 was 22.2%.

~~Corporate expenses not allocated to segments were~~ $25.1 million for the nine months ended September 30, ~~2019, compared~~2019. The increase is primarily due to ~~$31.9 million~~the share-based compensation, as well as employee compensation accruals recognized during the period that approximate the effect of returning to our historical compensation structure.

Liquidity and capital resources for the nine months ended September 30, ~~2018.~~ ~~The decrease in expense is due to decrease in~~ ~~share-based compensation expense as well as a decrease in~~ ~~professional fees incurred in connection with the IPO during 2018.~~2020 and 2019

~~Liquidity and capital resources~~Overview

~~Overview~~

We have historically funded our operations primarily with cash flow from operations and, when needed, with borrowings, including under our Senior Secured Credit Facilities. Our principal uses for liquidity have been debt service, capital expenditures, working capital and funds required to finance acquisitions.

We expect to continue to use capital to innovate and advance our products as new technologies ~~emerge.~~emerge and to accommodate new regulatory requirements in the markets in which we process transactions. We expect these strategies to be funded primarily through cash flow from operations and borrowings from our Senior Secured Credit Facilities, as needed. Short-term liquidity needs will primarily be funded through the revolving credit facility portion of our Senior Secured Credit Facilities. As of September 30, 2019, our capacity under the revolving credit facility portion of our Senior Secured Credit Facilities was $200.0 million, with availability of $131.5 million for additional borrowings. To the extent that additional funds are necessary to finance future acquisitions, and to meet our long-term liquidity needs as we continue to execute on our strategy, we anticipate that they will be obtained through additional indebtedness, equity or debt issuances, or both.

~~Table~~As of ~~Contents~~September 30, 2020, our capacity under the revolving credit facility portion of our Senior Secured Credit Facilities was $200.0 million, with availability of $198.6 million for additional borrowings.

On April 21, 2020 we completed the offer and sale of shares of Preferred Stock to MDP for an aggregate $149.3 million in net proceeds. We used $69.3 million of the proceeds to repay the balance on our revolving credit facility. On September 30, 2020, we repaid $50.0 million of the outstanding balance on the first lien term loan, in addition to the regular quarterly payment.

On May 5, 2020, the Company entered into a Limited Waiver (“Limited Waiver”) with respect to its Senior Secured Credit Facilities. The Limited Waiver effects certain changes applicable to the Company’s revolving credit facility, including: (1) waiver of any default or event of default resulting from noncompliance with the consolidated leverage ratio for the period beginning June 30, 2020 and ended on September 30, 2021 (such period of time, the “Covenant Waiver Period”), and during the Covenant Waiver Period the Company will be subject to (1) a consolidated leverage ratio of 6.0x for each fiscal quarter from the quarter ended June 30, 2020 through and including March 31, 2021, a consolidated leverage ratio of 5.5x for the fiscal quarter ended June 30, 2021 and a consolidated leverage ratio of 5.25x for the fiscal quarter ended September 30, 2021 and (2) increased limitations on restricted payments and the incurrence of indebtedness. Other than the items noted above, the Limited Waiver does not modify the significant terms of the Senior Secured Credit Facilities.

We have structured our operations in a manner to allow for cash to be repatriated through tax-efficient methods using dividends from foreign jurisdictions as our main source of repatriation. We follow local government regulations and contractual restrictions ~~which regulate the nature of~~on cash as well as how much and when dividends can be repatriated. As of September 30, ~~2019,~~2020, cash and cash equivalents of ~~$311.8~~$373.9 million ~~include~~includes cash in the United States of ~~$127.9~~$151.3 million and ~~$183.9~~$222.6 million in foreign jurisdictions. Of the ~~foreign~~United States cash balances, ~~$67.7~~$33.8 million is available for general ~~purposes. The~~purposes, and the remaining ~~$116.2~~$117.5 million is considered ~~settlement and~~ merchant reserves ~~related~~and settlement-related cash and is therefore unavailable for the Company’s general use. Of the foreign cash balances, $102.2 million is available for general purposes, and the remaining $120.4 million is considered merchant reserves and settlement-related cash and is therefore unable to be ~~repatriated but not legally restricted.~~repatriated. Refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” in the notes to the accompanying unaudited condensed consolidated financial statements for additional information on our cash and cash equivalents.

We do not intend to pay cash dividends on our Class A common stock in the foreseeable future. EVO, Inc. is a holding company that does not conduct any business operations of its own. As a result, EVO, Inc.’s ability to pay cash dividends

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on its common stock, if any, is dependent upon cash dividends and distributions and other transfers from EVO, LLC. The amounts available to EVO, Inc. to pay cash dividends are subject to the covenants and distribution restrictions in its subsidiaries’ loan agreements. Further, EVO, Inc. may not pay cash dividends to holders of Class A common stock unless it concurrently pays full participating dividends to holders of the Preferred Stock on an “as converted” basis.

In connection with our IPO, we entered into anthe Exchange Agreement with certain of the Continuing LLC Owners, under which these Continuing LLC Owners have the right, from time to time, to exchange their units in EVO, LLC ~~Interests~~ and related shares of EVO, Inc. for shares of our Class A common stock or, at our option, cash. If we choose to satisfy the exchange in cash, we anticipate that we will fund such exchange through cash from operations, funds available under the revolving portion of our Senior Secured Credit Facilities, equity or debt issuances or a combination thereof.

In addition, in connection with the IPO,, we entered into a ~~TRA~~Tax Receivable Agreement (“TRA”) with the Continuing LLC Owners. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the payments that we will be required to make to the Continuing LLC Owners will be significant. Any payments made by us to non-controlling LLC owners under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest in accordance with the terms of the TRA until paid by us.

Under the eService shareholders’ agreement we may be compelled to purchase additional shares at the option of PKO Bank Polski. The execution of this option may adversely affect our liquidity in the future. Refer to Note ~~14, "Redeemable Non-Controlling Interests,"~~5, “Tax Receivable Agreement,” in the notes to the accompanying unaudited condensed consolidated financial statements for ~~further discussion~~additional information on the ~~eService redeemable non-controlling interest.~~TRA.

The following table sets forth summary cash flow information for the nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


	Nine Months Ended September 30,

					Nine Months Ended September 30,
(in thousands)	2019		2018		2020		2019
Net cash provided by operating activities	$	28,825	$	66,348	$	68,001	$	28,825
Net cash used in investing activities		(61,286)		(107,332)		(16,581)		(61,286)
Net cash provided by financing activities		3,224		75,285		18,490		3,224
Effect of exchange rate changes on cash and cash equivalents		(9,651)		(3,959)		(120)		(9,651)
Net (decrease) increase in cash and cash equivalents	$	(38,888)	$	30,342
Net increase (decrease) in cash and cash equivalents					$	69,790	$	(38,888)

Operating activities

Net cash provided by operating activities was $68.0 million for the nine months ended September 30, 2020, an increase of $39.2 million compared to net cash provided by operating activities of $28.8 million for the nine months ended September 30, ~~2019,~~2019. This increase was due primarily to a ~~change~~reduction in our net loss and changes in working capital, including the timing of ~~$37.5 million compared to~~settlement-related assets and liabilities.

Investing activities

Net cash ~~provided by operating~~used in investing activities ~~of $66.3~~was $16.6 million for the nine months ended September 30, ~~2018. This~~2020, a decrease ~~was due primarily to the timing~~ of ~~settlement-related assets and liabilities.~~

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~~Investing activities~~

~~Net cash used in investing activities was $61.3 million for the nine months ended September 30, 2019, a change of $46.0~~$44.7 million compared to net cash used in investing activities of ~~$107.3~~$61.3 million for the nine months ended September 30, ~~2018.~~2019. The decrease iswas primarily due to ~~a decrease in POS terminal purchases, a decrease in~~lower acquisition-related ~~investments during 2019, as compared to the same period in 2018~~activity and ~~receipt of Visa Europe deferred cash consideration during 2019.~~lower capital expenditures.

~~We purchased $24.6 million in equipment and improvements during~~

During the nine months ended September 30, 2019, ~~a change of $14.4~~we spent $38.8 million ~~compared to $39.0~~on acquisitions. During the nine months ended September 30, 2020, we did not have any business combinations.

Capital expenditures were $12.7 million for the nine months ended September 30, ~~2018.~~2020, a decrease of $11.9 million compared to $24.6 million for the nine months ended September 30, 2019. The decrease was due primarily to ~~terminals purchased during the fourth quarter of 2018 to support Poland’s cashless program~~fewer POS terminal and ~~growth~~software purchases in ~~Mexico terminal placements. Of the capital expenditures during the nine months ended September 30, 2019 $14.1 million relate to the purchase of POS terminals that are installed at merchant locations~~markets outside of the United ~~States.~~States as we actively managed our cash flow in response to the pandemic. As is customary in those markets, we provide the POS terminal hardware to merchants and charge associated fees related to this hardware. Additionally, our capital expenditures include hardware and software necessary for our data centers, processing platforms, and information security initiatives.

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Financing activities

Net cash provided by financing activities was ~~$3.2~~$18.5 million for the nine months ended September 30, ~~2019, a change~~2020, an increase of ~~$72.1~~$15.3 million, compared to net cash provided by financing activities of ~~$75.3~~$3.2 million for the nine months ended September 30, ~~2018.~~2019. This ~~decrease~~increase was primarily due to proceeds from the ~~IPO proceeds received~~issuance of Preferred Stock in ~~the prior year period~~April 2020 partially offset by ~~lower net~~an increase in repayments of ~~the~~ long-term debt ~~facility in~~during the ~~current year period.~~nine months ended September 30, 2020.

Senior Secured Credit Facilities

We are party to a borrowing arrangement, referred to as our Senior Secured Credit Facilities, which includes a first lien senior secured credit facility, comprised of a $200.0 million revolving credit facility maturing in June 2023, and a $665.0 million term loan maturing in December 2023. In addition, our Senior Secured Credit Facilities also provide us with the option to access incremental credit facilities, refinance the loans with debt incurred outside our Senior Secured Credit Facilities and extend the maturity date of the revolving loans and term loans, subject to certain limitations and terms.

~~For additional discussion regarding our long-term debt instruments, see~~Refer to Note ~~12,~~13, “Long-Term Debt and Lines of ~~Credit”~~Credit,” in the notes to ~~our~~the accompanying unaudited condensed consolidated financial statements. for additional information on our long-term debt and settlement lines of credit.

Settlement ~~Lines~~lines of ~~Credit~~credit

We have specialized lines of credit which are restricted for use in funding settlement. The settlement lines of credit generally have variable interest rates and are subject to annual review. As of September 30, ~~2019,~~2020, we had ~~$17.6~~$16.8 million outstanding under these lines of credit with additional capacity of ~~$175.6~~$125.4 million ~~as of September 30, 2019~~ to fund settlement. ~~The weighted average interest rate on these borrowings was 3.02% at September 30, 2019.~~

Contractual obligations

Other than changes which occur in the ordinary course of business, as of September 30, ~~2019,~~2020, there were no significant changes to the contractual obligations reported at December 31, ~~2018~~2019 in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Off-balance sheet ~~arrangements~~transactions

~~As of September 30, 2019 and December 31, 2018, the Company did~~We have not ~~have~~entered into any off-balance sheet arrangements ~~except for operating leases entered into in the normal course~~that have, or are reasonably likely to have, a material effect on our financial condition, revenues or expenses, results of ~~business.~~operations, liquidity, capital expenditures or capital resources.

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Critical accounting policies

~~The Company’s~~Our critical accounting policies have not changed, except for the new accounting pronouncements, the refinements to the “Income Taxes” policy and the “Preferred Stock” policy adopted in connection with issuance of Preferred Stock, as noted below, from those reported as of December 31, ~~2018~~2019 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Refer to Note 1, “Description of Business and Summary of Significant Accounting Policies” and Note 2, “Revenue Recognition” in the notes to the accompanying unaudited condensed consolidated financial statements for information on the Company’s revenue recognition policy and the Company’s adoption of ASC ~~606,~~ ~~Revenue From Contracts With Customers~~.

New accounting pronouncements

For information regarding new accounting pronouncements, and the impact of these pronouncements on our unaudited condensed consolidated financial statements, if any, refer to Note 1, “Description of Business and Summary of Significant Accounting ~~Policies”~~Policies,” in the notes to the accompanying unaudited condensed consolidated financial statements.

~~Inflation~~Income taxes

EVO, LLC is considered a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As a pass-through entity, taxable income or loss is passed through to and included in the taxable income of its members.

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EVO, Inc. is subject to U.S. federal, state, and local income taxes with respect to our allocable share of taxable income of EVO, LLC and is taxed at the prevailing corporate tax rates. In addition to incurring actual tax expense, we also may make payments under the TRA. We account for the income tax effects and corresponding TRA effects resulting from future taxable purchases of LLC Interests of the Continuing LLC Owners or exchanges of LLC Interests for Class A common stock at the date of the purchase or exchange by recognizing an increase in our deferred tax assets based on enacted tax rates at that time. Further, we evaluate the likelihood that we will realize the benefit represented by the deferred tax assets and, to the extent that we estimate that it is more likely than not that we will not realize the benefit, we reduce the carrying amount of the deferred tax assets with a valuation allowance. The amounts to be recorded for both the deferred tax assets and the liability for our obligations under the TRA are estimated at the time of any purchase or exchange and are recorded as a reduction to shareholders’ equity; the effects of changes in any of our estimates after this date are included in net earnings. Similarly, the effects of subsequent changes in the enacted tax rates are included in net earnings.

The Company recognizes deferred tax assets to the extent that it is expected that these assets are more likely than not to be realized. The Company evaluates the realizability of the deferred tax assets, and to the extent that the Company estimates that it is more likely than not that a benefit will not be realized, the carrying amount of the deferred tax assets is reduced with a valuation allowance. As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations (including cumulative losses in recent years), to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.

The Company has identified objective and verifiable negative evidence in the form of cumulative losses on an unadjusted basis in certain jurisdictions over the preceding twelve quarters ended September 30, 2020. Additionally, the Company has noted a decline in the volume of transactions processed for the nine months ended September 30, 2020 compared to the prior year period, due to the impact of the COVID-19 pandemic. The Company evaluated both its actual forecasts of future taxable income and its historical core earnings by jurisdiction over the prior twelve quarters, adjusted for certain nonrecurring items. On the basis of this assessment, and after considering future reversals of existing taxable temporary differences, and its actual forecasts of future taxable income, the Company established valuation allowances in certain European jurisdictions to reduce the carrying amount of deferred tax assets to an amount that is more likely than not to be realized. In the United States jurisdiction, however, with the exception of the valuation allowance for the United States interest expense limitation, the Company concluded that its indefinite lived deferred tax assets will be realizable and recorded no valuation allowance. In arriving at this determination, the Company considered both (i) historical core earnings, after adjusting for certain nonrecurring items, and (ii) the projected future profitability of its core operations after taking into account the Company’s estimated recovery from the COVID-19 pandemic and the impact of enacted changes in the application of the interest expense limitation rules beginning in 2022.

In the United States jurisdiction, the Company’s future taxable income projections are derived from historical core operations adjusted for certain non-recurring items, which indicate that the Company will move out of a period of cumulative losses as taxable loss periods are replaced by taxable income periods. The amount of the deferred tax asset considered realizable, however, could be adjusted if the Company’s estimates of the projected future profitability of its core operations are reduced by a level significantly different than the Company’s historical revenues and expenses adjusted for certain nonrecurring items. As a secondary measure, the Company compares its adjusted historical core earnings to its actual forecast to ensure that adjusted core earnings are realizable. The future taxable income projections are subject to a high degree of uncertainty and could be impacted, both positively and negatively, by changes in our business or the markets in which we operate. A change in the assessment of the realizability of its deferred tax assets could materially impact our results of operations.

Refer to Note 5, “Tax Receivable Agreement,” and Note 12, “Income Taxes,” in the notes to the accompanying unaudited condensed consolidated financial statements for further discussion of the Company’s income taxes and the tax receivable agreement.

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Preferred Stock

On April 21, 2020, we issued 152,250 shares of Preferred Stock for approximately $149.3 million in total net proceeds. Holders of shares of Preferred Stock are entitled to cumulative, paid-in-kind dividends, and have the right, at their option, to convert the Preferred Stock, in whole or in part, into fully paid and non-assessable shares of Class A Common Stock. If the Company undergoes a change of control (as defined in the certificate of designations for the Preferred Stock), the holders of Preferred Stock may require us to repurchase all or a portion of its then-outstanding shares of Preferred Stock for cash consideration. Because the occurrence of a change of control may be outside of our control, we have classified the Preferred Stock as mezzanine equity on the consolidated balance sheets.

Refer to Note 16, “Redeemable Preferred Stock,” for further information.

Inflation

While inflation may impact our revenue and expenses, we believe the effects of inflation, if any, on our results of operations and financial condition have not been significant. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future.

~~JOBS Act~~

We currently qualify as an “emerging growth company” under the JOBS Act, which enables us to postpone complying with certain reporting and other obligations under securities laws. In addition, Section 102 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Effective December 31, 2019, the Company expects to become a large accelerated filer and will no longer qualify as an “emerging growth company” under the JOBS Act. At such time, the Company will no longer be able to postpone compliance with certain regulations and disclosure requirements and will follow the timeline for adoption of new accounting pronouncements for public companies. In particular, the Company will be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES OFABOUT MARKET ~~RISKS~~RISK

Our future income, cash flows and fair values ~~relevant to~~of the financial instruments are subject to risks relating to interest rates and foreign currency exchange rates.

Interest rate risk

We are subject to interest rate risk in connection with our long-term debt and settlement lines of credit facilities, which have variable interest rates. The interest rates on these facilities are based on a fixed margin plus a market interest rate, which can fluctuate ~~accordingly~~ but is subject to a minimum rate. Interest rate changes could impact the amount of our interest payments, and accordingly, our future earnings and cash flows, assuming other factors are held constant.

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As of September 30, ~~2019,~~2020, we had approximately ~~$686.9~~ $592.8 million of ~~variable rate~~ debt ~~none~~outstanding, net of ~~which was subject to~~accrued interest. In May 2020, we entered into an interest rate ~~hedge.~~ swap to reduce a portion of exposure to market rate risk associated with our variable-rate debt. Refer to Note 14 “Derivatives,” in the notes to the accompanying unaudited condensed consolidated financial statements.

In the future, the interest rate may increase and we may be subject to interest rate risk. Based on the amount outstanding on our Senior Secured Credit Facilities on September 30, ~~2019,~~2020, an increase of 100 basis points in the applicable variable interest rate would increase our annual interest expense by approximately ~~$6.9~~ $0.9 million. A decrease of 100 basis points in the applicable variable interest rate (assuming such reduction would not be below the minimum rate) would reduce our annual interest expense by approximately ~~$6.9~~ $0.9 million.

Foreign currency risk

We are exposed to changes in foreign currency rates as a result of our significant foreign operations. Revenue and income generated by international operations will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. There has been no significant change in our exposure to market risk during the quarter ended September 30, ~~2019.~~2020. For additional detail regarding our exposure to foreign currency risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures ofAbout Market ~~Risks” in~~Risk” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

ITEM 4.CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules

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13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, (the “Exchange Act”) as of September 30, ~~2019.~~2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, ~~2019,~~2020, our disclosure controls and procedures were effective to ensure information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be ~~detected~~detected.

Changes into Internal Control over Financial Reporting

There have been no changes to the Company’s internal control over financial reporting

~~There has been no change in our internal control over financial reporting that occurred~~ during the ~~three~~nine months ended September 30, ~~2019~~2020 that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

~~We are~~The Company is party to ~~a number of~~various claims and lawsuits incidental to ~~our~~its business. ~~In our opinion,~~The Company does not believe the ~~liabilities, if any, which may ultimately result from the~~ultimate outcome of such matters, individually or in the aggregate, ~~are not expected to~~will have a material adverse effect on ~~our~~the Company’s financial position, ~~liquidity,~~ results of operations, or cash flows.

ITEM 1A.RISK FACTORS

~~There~~Except for the risk factor set forth below, there have been no material changes ~~from the~~in our risk factors from those disclosed under "Item 1A. Risk Factors" included in our 2019 Annual Report on Form ~~10-K~~10-K.

The COVID-19 pandemic has disrupted, and is expected to continue to disrupt, our business.

The COVID-19 pandemic and related government actions implemented to reduce its spread continue to negatively impact the global economy, disrupt consumer spending and global supply chains, and create significant volatility and disruption of financial markets. Foreign, federal, state, and local governments and health officials around the globe, including in all markets where EVO operates, have taken broad actions to mitigate the health crisis, including curtailment of movement and commerce such as mandatory business closures, limits on non-essential travel, “social or physical distancing” guidelines and “shelter-in-place” mandates. As a result, we and our merchants have seen a significant disruption in our business, including a steep decline in transaction volume and the number of transactions processed and therefore a decline in revenue in most of our industry verticals. This has had, and is expected to continue to have, a significant adverse impact on our business and financial performance. Although certain economies are reopening, other jurisdictions have reinstated

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restrictions in response to recent increases in infection rates. Continued or future shutdowns, partial reopenings, or the re-imposition of previously lifted business restrictions could directly or indirectly impact transaction volumes and negatively impact our operating results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID 19” for further information on the ~~year ended December 31, 2018.~~impact of the COVID-19 pandemic on transaction volumes to date.

The extent of the impact of the COVID-19 pandemic on our business remains highly uncertain and difficult to predict, as information continues to rapidly evolve. Factors such as the duration and spread of the outbreak (including whether there are additional periods of increases in the number of COVID-19 cases in future periods), its severity, the effectiveness of government actions to contain the virus or treat its impact, the length of government restrictions, and how quickly and to what extent normal economic and operating conditions resume, will affect how we are impacted by the pandemic, including our ability to execute on our long-term and short-term strategic initiatives. A prolonged disruption in economic activity could adversely impact our business and financial performance, including the potential impairment of certain assets.

In addition to government restrictions, consumer fears regarding the virus may reduce traffic to our merchants for an extended period of time. Consumer spending may also be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the COVID-19 pandemic. Any significant reduction in consumer visits to, or spending at, our merchants, would result in a loss of revenue to us. In addition, certain of our merchants have been forced to temporarily or permanently close their businesses as a result of the pandemic which has resulted, and could continue to result, in additional chargeback or merchant receivable losses.

Even after the COVID-19 pandemic subsides, we may continue to experience significant impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent sales of unregistered securities

There were no unregistered sales of equity during the ~~nine months~~quarter ended September 30, 2019 or year ended December 31, 2018, except as otherwise previously reported and for shares of Class A common stock issued to the Continuing LLC Owners in satisfaction of the exchange rights granted to them in connection with the IPO.2020.

From time to time following the IPO, the Continuing LLC Owners (other than Blueapple) have the right to require ~~the Company~~us to exchange all or a portion of their LLC Interests and related shares of Class C common stock or Class D common stock for newly-issued shares of Class A common stock on a one-for-one basis, with their shares of Class C common stock or Class D common stock, as applicable, being cancelled upon any such exchange. We may, under certain circumstances, elect to redeem the LLC Interests from any exchanging holder under the terms of the EVO LLC Agreement in lieu of any such exchange. Blueapple has a sale right under the EVO LLC Agreement that provides that, upon the receipt of a sale notice from Blueapple, the Company will use its commercially reasonable best efforts to pursue a public offering of shares of Class A common stock and use the net proceeds therefrom to purchase LLC Interest from Blueapple. Upon the Company’s receipt of such a sale notice, the Company may elect, at its option (determined solely by its independent directors (within the meaning of the rules of Nasdaq) who are disinterested), to cause EVO LLC to instead redeem the applicable LLC Interest for cash; provided that Blueapple consents to any election by the Company to cause EVO LLC to redeem the LLC Interests.

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Issuer purchases of equity securities

In connection with the vesting of restricted stock awards, shares of Class A common stock are delivered to the Company by employees to satisfy tax withholding obligations. The following table summarizes such ~~purchases~~activity of Class A common stock for the ~~three months~~quarter ended September 30, ~~2019:~~2020:




				Total Number of Shares	Approximate Dollar Value of Shares
	Total	Average		Purchased as Part of	that May Yet Be Purchased Under
	Number	Price		Publicly Announced	the Plans or Programs
Period	of Shares ⁽¹⁾	per Share		Plans or Programs	(in millions)

July 1, 2020 to July 31, 2020	—	$	—	—	$	—
August 1, 2020 to August 31, 2020	301	$	25.51	—	$	—
September 1, 2020 to September 30, 2020	282	$	25.22	—	$	—
Total	583	$	25.37

Total Number of Shares

Approximate Dollar Value of Shares

Total Number

Average Price

Purchased as Part of

that May Yet Be Purchased Under

of Shares

Paid per

Publicly Announced

the Plans or Programs
Period

Purchased (1)

Share

Plans or Programs

(in millions)
July 1, 2019 to July 31, 2019

—

$
—

—

$
—
August 1, 2019 to August 31, 2019

209

$
30.10

—

$
—
September 1, 2019 to September 30, 2019

151

$
28.50

—

$
—

₍₁₎

_{Shares purchased includes s}_{hares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock awards issued to employees}_{and shares acquired by the Company to allow for the satisfaction of tax withholding obligations of non-employee members of management in connection with the vesting of restricted stock units}_.

employees.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

~~None.~~

ITEM 5.OTHER INFORMATION

As previously disclosed, in connection with the Company’s response to the COVID-19 pandemic, the Company’s Chief Executive Officer and each of the Company’s other named executive officers agreed to temporarily and voluntarily reduce their respective base salaries by 50%, effective March 29, 2020. The compensation committee of the Company’s board of directors approved the reinstatement of the executives’ base salaries to 100% of pre-reduction levels, effective December 2020.

~~None.~~

ITEM 6.EXHIBITS

List of Exhibits

aaw
Exhibit
~~Exhibit~~ No.		Description
31.1		Certification of Chief Executive Officer required by Rule 13a-14(a).

31.2		Certification of Chief Financial Officer required by Rule 13a-14(a).

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Label Linkbase Document

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101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~SIGNATURES~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, ~~hereunto~~thereunto duly authorized.

Name	Title		Date
	~~EVO Payments, Inc.~~
/S/ JAMES G. KELLY
~~Date: November 7, 2019~~	~~By:~~	~~/s/ James G. Kelly~~
	~~Name:~~	~~James G. Kelly~~
	~~Title:~~	Chief Executive Officer and Director		November 5, 2020
James G. Kelly	(principal executive officer)

/S/ THOMAS E. PANTHER

~~Date: November 7, 2019~~	~~By:~~	~~/s/ Kevin M. Hodges~~
	~~Name:~~	~~Kevin M. Hodges~~
	~~Title:~~	Executive Vice President, Chief Financial Officer		November 5, 2020
Thomas E. Panther	(principal financial officer)

5659


Delaware
~~Delaware~~		82-1304484
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

Ten Glenlake Parkway South Tower, Suite 950 Atlanta, Georgia		30328
Address of Principal Executive Offices		Zip Code

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	EVOP	Nasdaq Global Market

Large accelerated filer ⌧	Accelerated filer ◻
~~Large accelerated filer~~ ☐	~~Accelerated filer~~ ☐
Non-accelerated filer ☒◻	Smaller reporting company ☐

Emerging growth company ☒☐


~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Class A common stock, par value $0.0001 per share~~	~~EVOP~~	~~NASDAQ~~



				~~Page~~

PART I. FINANCIAL INFORMATION				4
~~Item 1.~~
	Item 1.	Unaudited Condensed Consolidated Financial Statements		5
		Unaudited Condensed Consolidated Balance Sheets		5
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) ~~Income~~		6
		Unaudited Condensed Consolidated Statements of Changes in Equity (Deficit)		7
		Unaudited Condensed Consolidated Statements of Cash Flows		12 11
		Notes to Unaudited Condensed Consolidated Financial Statements		13 12
~~Item 2.~~	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42 41
~~Item 3.~~	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		53 54
	Item 4.	Controls and Procedures		54

~~Item 4.~~			~~Controls and Procedures~~		54
PART II. OTHER INFORMATION			55
~~Item 1.~~
	~~Legal Proceedings~~Item 1.	Legal Proceedings		55
~~Item 1A.~~	~~Risk Factors~~Item 1A.	Risk Factors		55
~~Item 2.~~	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55 56
~~Item 3.~~	Item 3.	Defaults Upon Senior Securities		55 57
~~Item 4.~~	Item 4.	Mine Safety Disclosures		56 57
~~Item 5.~~	~~Other Information~~Item 5.	Other Information	56	57
~~Item 6.~~	~~Exhibits~~Item 6.	Exhibits	56	57
		Signatures		56


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue	$	122,363	$	144,758	$	356,398	$	413,931
Operating expenses:
Cost of services and products, exclusive of depreciation and amortization shown separately below		24,065		46,949		72,900		141,826
Selling, general and administrative		63,864		67,802		196,592		242,982
Depreciation and amortization		22,804		20,488		68,412		61,308
Impairment of intangible assets		3,872		—		10,504		—
Total operating expenses		114,605		135,239		348,408		446,116
Income (loss) from operations		7,758		9,519		7,990		(32,185)
Other (expense) income:
Interest income		858		507		2,268		1,622
Interest expense		(11,085)		(10,583)		(34,006)		(47,453)
Income (loss) from investment in unconsolidated investees		167		(36)		436		725
Gain on acquisition of unconsolidated investee				8,659				8,659
Other income (expense), net		888		211		2,498		(2,963)
Total other expense		(9,172)		(1,242)		(28,804)		(39,410)
(Loss) income before income taxes		(1,414)		8,277		(20,814)		(71,595)
Income tax (expense) benefit		(3,590)		(32,155)		618		(7,974)
Net loss		(5,004)		(23,878)		(20,196)		(79,569)
Less: Net income attributable to non-controlling interests in consolidated entities		(2,220)		(2,433)		(4,798)		(4,434)
Net income (loss) attributable to non-controlling interests of EVO Investco, LLC		5,380		(1,078)		18,323		73,328
Net loss attributable to EVO Payments, Inc.	$	(1,844)	$	(27,389)	$	(6,671)	$	(10,675)

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

Comprehensive income (loss):
Net loss	$	(5,004)	$	(23,878)	$	(20,196)	$	(79,569)
Unrealized loss on defined benefit plan, net of tax (1)		(21)		—		(7)		—
Unrealized gain (loss) on foreign currency translation adjustment, net of tax (2)		(16,922)		9,494		(13,523)		334
Other comprehensive income (loss)		(16,943)		9,494		(13,530)		334
Comprehensive loss		(21,947)		(14,384)		(33,726)		(79,235)
Less: Comprehensive (income) loss attributable to non-controlling interests in consolidated entities		691		(5,272)		(2,013)		(3,120)
Other comprehensive (income) loss attributable to non-controlling interests of EVO Investco, LLC		13,486		(1,078)		24,562		76,704
Comprehensive loss attributable to EVO Payments, Inc.	$	(7,770)	$	(20,734)	$	(11,177)	$	(5,651)


	Class A LLC Units			Class B LLC Units			Class C LLC Units			Class D LLC Units			Class E LLC Units			Class A Common Stock			Class B Common Stock
	Interests	Amounts		Interests	Amounts		Interests	Amounts		Interests	Amounts		Interests	Amounts		Shares	Amounts		Shares	Amounts
Balance, January 1, 2018	6,374	$	54,453	3,506	$	—	375	$	9,463	1,107	$	—	1,012	$	71,250	—	$	—	—	$	—

Net income prior to Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Cumulative translation adjustment prior to Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Distributions prior to Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Acquisition of additional shares in a consolidated subsidiary	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Legacy deficit / accumulated comprehensive loss allocation (Class C&D)	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Legacy deficit / accumulated comprehensive loss allocation (Class B)	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Equity issued in connection with acquisition prior to Reorganization Transactions	(6,374)		(54,453)	(3,506)		—	(375)		(9,463)	(1,107)		—	(1,012)		(71,250)	1,319		—	35,914		4
Share-based compensation prior to Reorganization Transactions, net of share settlement	—		—	—		—	—		—	—		—	—		—	494		—	—		—
Class B redeemable non-controlling interests fair value adjustment in connection to Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—

Effect of Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	1,813		—	35,914		4

Sale of Class A common stock in initial public offering, net	—		—	—		—	—		—	—		—	—		—	15,434		2	—		—
Contingent consideration settled in Class A common stock	—		—	—		—	—		—	—		—	—		—	48		—	—		—
Deferred taxes in connection with the Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Tax receivable agreement obligations in connection with the Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Net income subsequent to the Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Cumulative translation adjustment subsequent to the Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Distributions subsequent to the Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Legacy redeemable non-controlling interests fair value adjustment	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Sale of Employee Ownership	—		—	—		—	—		—	—		—	—		—	22		—	—		—
Sale of Class A common stock in September 2018 Secondary Offering, net of underwriter fees	—		—	—		—	—		—	—		—	—		—	8,054		1	—		—
Sale of MDP Class D Shares	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Net deferred tax asset realized in September 2018 Secondary Offering	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Tax receivable agreement in connection with the September 2018 Secondary Offering	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Share-based compensation	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Additional redeemable non-controlling interest subsequent to the Reorganization Transactions	—		—	—		—	—		—	—		—	—		—	—		—	—		—
Balance, September 30, 2018	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	25,371	$	3	35,914	$	4


									Accumulated		Accumulated				Total
									deficit		deficit		Accumulated		EVO
							Additional		attributable to		attributable to		other		Payments,		Nonredeemable				Redeemable
	Class C Common Stock			Class D Common Stock			paid-in		Class A		members of		comprehensive		Inc. (deficit)		non-controlling		Total		non-controlling
	Shares	Amounts		Shares	Amounts		capital		common stock		EVO Investco, LLC		loss		/equity		interests		deficit		interests		Total
Balance, January 1, 2018	—	$	—	—	$	—	$	—	$	—	$	(237,330)	$	(67,679)	$	(169,843)	$	3,312	$	(166,531)	$	148,266	$	(18,265)

Net income prior to Reorganization Transactions	—		—	—		—		—		—		(24,412)		—		(24,412)		—		(24,412)		1,291		(23,121)
Cumulative translation adjustment prior to Reorganization Transactions	—		—	—		—		—		—		—		(6,337)		(6,337)		—		(6,337)		(2,104)		(8,441)
Distributions prior to Reorganization Transactions	—		—	—		—		—		—		—		—		—		(1,334)		(1,334)		(3,770)		(5,104)
Acquisition of additional shares in a consolidated subsidiary	—		—	—		—		—		—		(20,924)		—		(20,924)		(1,141)		(22,065)		—		(22,065)
Legacy deficit / accumulated comprehensive loss allocation (Class C&D)	—		—	—		—		—		—		132,181		34,612		166,793		(166,793)		—		—		—
Legacy deficit / accumulated comprehensive loss allocation (Class B)	—		—	—		—		—		—		150,485		39,404		189,889		—		189,889		(189,889)		—
Equity issued in connection with acquisition prior to Reorganization Transactions	2,561		—	24,305		2		135,160		—		—		—		—		—		—		—		—
Share-based compensation prior to Reorganization Transactions, net of share settlement	—		—	—		—		51,339		—		—		—		51,339		—		51,339		—		51,339
Class B redeemable non-controlling interests fair value adjustment in connection to Reorganization Transactions	—		—	—		—		—		—		—		—		—		(735,775)		(735,775)		735,775		—

Effect of Reorganization Transactions	2,561		—	24,305		2		186,499		—		—		—		186,505		(901,731)		(715,226)		689,569		(25,657)

Sale of Class A common stock in initial public offering, net of underwriter fees	—		—	—		—		219,167		—		—		—		219,169		—		219,169		—		219,169
Contingent consideration settled in Class A common stock	—		—	—		—		771		—		—		—		771		—		771		—		771
Deferred taxes in connection with the Reorganization Transactions	—		—	—		—		4,590		—		—		—		4,590		—		4,590		—		4,590
Tax receivable agreement obligations in connection with the Reorganization Transactions	—		—	—		—		389		—		—		—		389		—		389		—		389
Net income subsequent to the Reorganization Transactions	—		—	—		—		—		(10,675)		—		—		(10,675)		(20,714)		(31,389)		(25,059)		(56,448)
Cumulative translation adjustment subsequent to the Reorganization Transactions	—		—	—		—		—		—		—		293		293		852		1,145		(811)		334
Distributions subsequent to the Reorganization Transactions	—		—	—		—		—		—		—		—		—		(29)		(29)		—		(29)
Legacy redeemable non-controlling interests fair value adjustment	—		—	—		—		—		(3,824)		—		—		(3,824)		(5,918)		(9,742)		(1,004)		(10,746)
Sale of Employee Ownership	—		—	(22)		—		(857)	—	—	—	—		—		(857)		857		—		—		—
Sale of Class A common stock in September 2018 Secondary Offering, net of underwriter fees	—		—	—		—		190,161		—		—		—		190,161		—		190,161		—		190,161
Purchase of MDP Class D Shares	—		—	(7,000)		(1)		(435,850)		—		—		—		(435,850)		269,924		(165,926)		—		(165,926)
Net deferred tax asset realized in September 2018 Secondary Offering	—		—	—		—		2,045		—		—		26		2,071		—		2,071		—		2,071
Tax receivable agreement in connection with the September 2018 Secondary Offering	—		—	—		—		7,170		—		—		—		7,170		—		7,170		—		7,170
Share-based compensation	—		—	—		—		1,758		—		—		—		1,758		—		1,758		—		1,758
Additional redeemable non-controlling interest subsequent to the Reorganization Transactions	—		—	—		—		—		(116,559)		—		—		(116,559)		(180,280)		(296,839)		306,581		9,742
Balance, September 30, 2018	2,561	$	—	17,283	$	1	$	175,843	$	(131,058)	$	—	$	319	$	45,112	$	(837,039)	$	(791,927)	$	969,276	$	177,349


	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	As reported		Adjustment		Presented without adoption of ASC 606		As reported		Adjustment		Presented without adoption of ASC 606
	(In thousands)						(In thousands)
Revenue	$	122,363	$	30,234	$	152,597	$	356,398	$	81,608	$	438,006
Operating expenses
Cost of services and products, exclusive of depreciation and amortization	$	24,065	$	30,234	$	54,299	$	72,900	$	81,608	$	154,508


	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	North America		Europe		Total		North America		Europe		Total
	(In thousands)						(In thousands)
Divisions:
Direct	$	40,946	$	51,385	$	92,331	$	117,738	$	141,733	$	259,471
Tech-enabled		28,855		13,886		42,741		84,757		39,511		124,268
Traditional		9,686		—		9,686		30,192		—		30,192
	$	79,487	$	65,271	$	144,758	$	232,687	$	181,244	$	413,931

c
	As of the
	acquisition date
	(in thousands)
Tangible assets acquired	$	1,702
Deferred tax liability		(1,357)
Amortizable intangible assets
Trademarks		1,200
Merchant contract portfolios		11,400
Goodwill		33,677
Total net assets acquired	$	46,622


	Estimated
	Useful
	Lives in	September 30,		December 31,
	Years	2019		2018
		(In thousands)
Card processing	3-5	$	136,384	$	128,244
Office equipment	3-5		44,311		41,771
Computer software	3		47,266		44,373
Leasehold improvements	various		16,594		16,234
Furniture and fixtures	5-7		6,549		5,673
Totals			251,104		236,295
Less accumulated depreciation			(158,794)		(136,947)
Foreign currency translation adjustment			(598)		3,698
Totals		$	91,712	$	103,046


	Amount
	(In thousands)
Years ending:
2019 (remainder of the year)	$	12,400
2020		44,833
2021		40,015
2022		34,470
2023		26,951
2024 and thereafter		103,156
Total	$	261,825


	Amounts
	(In thousands)
Years ending December 31:
2019 (remainder of the year)	$	2,630
2020		6,593
2021		6,593
2022		6,593
2023		695,881
2024 and thereafter		—
	$	718,290


							Post-IPO		Pre-IPO
	September 30, 2019						December 31		May 23,
	Blueapple		eService		Total		2018		2018
	(In thousands)
Beginning balance	$	885,986	$	124,107	$	1,010,093	$	689,569	$	148,266
Net income attributable to RNCI - eService		—		4,891		4,891		4,914		1,291
Net loss attributable to RNCI - Blueapple		(12,368)		—		(12,368)		(39,129)		—
Gain (loss) on OCI - eService		—		(3,621)		(3,621)		(2,368)		(2,104)
Gain (loss) on OCI - Blueapple		(5,999)		—		(5,999)		(3,935)		—
Gain (loss) on defined benefit plan revaluation - Blueapple		4		—		4		(192)		—
Legacy accumulated deficit allocation		—		—		—		—		(150,485)
Legacy AOCI allocation		—		—		—		—		(39,404)
Purchase of Blueapple Class B common stock in connection with secondary offerings		(34,768)		—		(34,768)		—		—
Decrease in maximum redemption amount in connection with purchase of Blueapple Class B common stock		(2,460)		—		(2,460)		—		—
Increase (decrease) in the maximum redemption amount of RNCI:
eService		—		14,749		14,749		(19,741)		—
Blueapple		150,701		—		150,701		374,616		735,775
Allocation of eService fair value RNCI adjustment to Blueapple		(6,369)		—		(6,369)		8,739		—
Distributions - eService		—		(6,209)		(6,209)		(2,380)		(3,770)
Ending balance	$	974,727	$	133,917	$	1,108,644	$	1,010,093	$	689,569


	Number of Options	Weighted average grant date fair value		Weighted average exercise price		Weighted average remaining contractual term


Balance at December 31, 2018	2,086	$	6.77	$	16.22
Granted	1,384		9.47		26.19
Exercised	(50)		6.80		16.32
Forfeited	(128)		8.07		20.78
Balance at September 30, 2019	3,292	$	7.85	$	20.24		8.98
Exercisable at September 30, 2019	455	$	6.70	$	16.06		8.65


	Three Months Ended			Three Months Ended
(dollar amounts in thousands)	September 30, 2019		% of revenue	September 30, 2018		% of revenue	$ change		% change
Segment revenue:
North America	$	75,022	61.3%	$	79,487	54.9%	$	(4,465)	(5.6%)
Europe		47,341	38.7%		65,271	45.1%		(17,930)	(27.5%)
Revenue	$	122,363	100.0%	$	144,758	100.0%	$	(22,395)	(15.5%)

Operating expenses:
Cost of services and products, exclusive of depreciation and amortization shown separately below	$	24,065	19.7%	$	46,949	32.4%	$	(22,884)	(48.7%)
Selling, general and administrative		63,864	52.2%		67,802	46.8%		(3,938)	(5.8%)
Depreciation and amortization		22,804	18.6%		20,488	14.2%		2,316	11.3%
Impairment of intangible assets		3,872	3.2%		—	0.0%		3,872	-
Total operating expenses		114,605	93.7%		135,239	93.4%		(20,634)	(15.3%)
Income (loss) from operations	$	7,758	6.3%	$	9,519	6.6%	$	(1,761)	(18.5%)

Segment profit: (1)(2)
North America	$	23,086	30.8%	$	30,962	39.0%	$	(7,876)	(25.4%)
Europe	$	18,542	39.2%	$	15,985	24.5%	$	2,557	16.0%


	Nine Months Ended			Nine Months Ended
(dollar amounts in thousands)	September 30, 2019		% of revenue	September 30, 2018		% of revenue	$ change		% change
Segment revenue:
North America	$	222,643	62.5%	$	232,687	56.2%	$	(10,044)	(4.3%)
Europe		133,755	37.5%		181,244	43.8%		(47,489)	(26.2%)
Revenue	$	356,398	100.0%	$	413,931	100.0%	$	(57,533)	(13.9%)

Operating expenses:
Cost of services and products, exclusive of depreciation and amortization shown separately below	$	72,900	20.5%	$	141,826	34.3%	$	(68,926)	(48.6%)
Selling, general and administrative		196,592	55.2%		242,982	58.7%		(46,390)	(19.1%)
Depreciation and amortization		68,412	19.2%		61,308	14.8%		7,104	11.6%
Impairment of intangible assets		10,504	2.9%		—	0.0%		10,504	100.0%
Total operating expenses		348,408	97.8%		446,116	107.8%		(97,708)	(21.9%)
Income (loss) from operations	$	7,990	2.2%	$	(32,185)	(7.8%)	$	40,175	(124.8%)

Segment profit: (1)(2)
North America	$	65,616	29.5%	$	73,616	31.6%	$	(8,000)	(10.9%)
Europe	$	41,858	31.3%	$	42,657	23.5%	$	(799)	(1.9%)




				Total Number of Shares	Approximate Dollar Value of Shares
	Total Number	Average Price		Purchased as Part of	that May Yet Be Purchased Under
	of Shares	Paid per		Publicly Announced	the Plans or Programs
Period	Purchased (1)	Share		Plans or Programs	(in millions)
July 1, 2019 to July 31, 2019	—	$	—	—	$	—
August 1, 2019 to August 31, 2019	209	$	30.10	—	$	—
September 1, 2019 to September 30, 2019	151	$	28.50	—	$	—