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, as
well as other cautionary statements and risks described elsewhere in this Form
10-Q.



Company background



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 Americas and Europe. As a
fully integrated merchant acquirer and payment processor 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.




Founded in 1989 as an individually owned, independent sales organization in the
United States, by 2012, we had transformed into an international payment
processor and merchant acquirer. Today, the Company derives approximately 60% of
its revenues from markets outside of the United States.



Our business operations are located across two segments: the Americas and
Europe; and are comprised of three sales distribution channels: the Tech-enabled
division, the Direct division, and the Traditional division. Our European
segment is comprised of Western Europe (Spain, United Kingdom, Ireland, Germany
and Malta) and Eastern Europe (Poland and the Czech Republic). Our 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, ACH, and other market-specific payment solutions, 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, a direct sales force, and specialized integrated solution companies.
Our distribution in the Americas segment also leverages sales agents in the
United States ("Traditional"); in our European segment, we also provide ATM
processing services to financial institutions and third-party ATM providers.
These segments are evaluated based on their segment profits. For a full
discussion on how we calculate segment profit, please refer to Note 18, "Segment
Information."



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 organizations
("ISO") relationships, and its profits are used to invest in our growth
opportunities, such as tech-enabled capabilities and M&A.

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.



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Executive overview

The Company delivered solid financial performance in the three months ended March 31, 2020, as demonstrated by the highlights below, although our performance was adversely impacted by the COVID-19 pandemic and ensuing government restrictions.

Revenue for the three months ended March 31, 2020 was $111.2 million, a

decrease of 0.3% compared to the three months ended March 31, 2019. The

? decrease was primarily due to the unfavorable impact of changes in foreign

exchange rates, as well as steep decline in payment volumes during the latter

half of March as a result of government restrictions in response to COVID-19.

? Americas segment profit for the three months ended March 31, 2020 was $19.9

million, 34.1% higher than the three months ended March 31, 2019.

? Europe segment profit for the three months ended March 31, 2020 was $8.8

million, 9.0% lower than the three months ended March 31, 2019.

The Company processed approximately 0.9 billion transactions across the

? Americas and Europe in the three months ended March 31, 2020, an increase of

11.6% from the three months ended March 31, 2019.




COVID-19



Through the end of February 2020, consolidated revenue and transaction payment
volume showed solid growth as compared to the same period in 2019. However, in
early March of 2020, the COVID-19 pandemic and related government actions to
control its spread began to impact our operating results. Principally in early
March, year-over-year volumes began to decline in most of our markets and across
most industry verticals. Through the end of the first quarter, weekly payment
volumes had declined approximately 30% compared to the same period a year ago.
Weekly volumes continued to decline in early April until reaching a low of
approximately 40% by mid-April, and then improving over the last two weeks of
April compared to the same period last 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
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 significant steps to align our cost
structure and cash flows with the expected near-term revenue impact of COVID-19.
These actions include a series of initiatives to reduce fixed costs up to 25%
for the remainder of fiscal 2020 including significant reductions in payroll
expenses through a combination of furloughs, terminations, and salary
reductions. We also significantly reduced certain non-staff related expenses. In
addition, the Company expects to reduce its capital expenditures for 2020 by
approximately 75% compared to last year through the deferral of non-critical
projects. The current decline in our volumes are less severe than we anticipated
at the time we implemented our expense reduction initiatives. We will continue
to actively manage our expenses and cash flows based on our revenues as economic
activity resumes in our markets.

We expect that the COVID-19 pandemic will continue to adversely impact our business and results of operations through the second quarter and beyond. However, the extent of the impact on our future financial condition and operating results remains highly uncertain. Please refer to "Item 1A. Risk Factors", for additional detail on how COVID-19 may impact our future results.





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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 acquisitions, or could require us to incur losses as we restructure or
reorganize our operations following these acquisitions.



Seasonality



We have experienced in the past, and expect to continue to experience,
seasonality in our revenues as a result of consumer spending patterns. In both
the Americas and Europe, our revenue has been strongest in our fourth quarter
and weakest in our first quarter as many of our merchants experience a seasonal
lift during the traditional vacation and holiday months. Operating expenses do
not typically fluctuate seasonally. The government restrictions 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 consolidated statements of operations and comprehensive loss 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 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.

Increased regulations and compliance





We and our merchants are subject to laws and regulations that affect the
electronic payments industry in the many countries in which our services are
used. Our merchants are subject to numerous laws and regulations applicable to
banks, financial institutions, and card issuers in the United States and abroad,
and, consequently, we are at times affected by these foreign, federal, state,
and local laws and regulations. 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 provisions and
deadlines, 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 planned to go into effect on December 31, 2020. Due to
the COVID-19 pandemic, certain regulators have announced extensions to this date
and indications are that extensions are being considered in all jurisdictions.
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 Dynamic Currency
Conversion ("DCC") services, which was scheduled to go 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.



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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 Americas segment, transactions include acquired Visa and
Mastercard credit and signature debit, American Express, Discover, UnionPay,
PIN-debit, electronic benefit transactions and gift 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 March 31, 2020, we processed approximately 0.9
billion transactions, which included 0.3 billion transactions in the Americas
and 0.6 billion transactions in Europe. This represents an increase of 13.7% in
the Americas and an increase of 10.7% in Europe for an aggregate increase of
11.6% compared to the three months ended March 31, 2019. The increase is
primarily driven by organic growth and the increased acceptance and usage of
debit cards for many of our large enterprise merchants. Transactions processed
in the Americas and Europe accounted for 30% and 70%, respectively, of the total
transactions we processed for the three months ended March 31, 2020.

Comparison of results for the three months ended March 31, 2020 and 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)       March 31, 2020      % of revenue     

March 31, 2019      % of revenue   $ change      % change
Segment revenue:
Americas                         $             70,872          63.8%   $             69,965          62.7%   $     907           1.3%
Europe                                         40,297          36.2%                 41,553          37.3%     (1,256)         (3.0%)
Revenue                          $            111,169         100.0%   $            111,518         100.0%   $   (349)         (0.3%)

Operating expenses:
Cost of services and products    $             23,129          20.8%   $

24,083 21.6% $ (954) (4.0%) Selling, general and administrative

                                 72,303          65.0%                 66,422          59.6%       5,881           8.9%
Depreciation and amortization                  21,424          19.3%

22,745 20.4% (1,321) (5.8%) Impairment of intangible assets

                                              -           0.0%                  6,632           5.9%     (6,632)       (100.0%)
Total operating expenses                      116,856         105.1%       

        119,882         107.5%     (3,026)         (2.5%)
Loss from operations             $            (5,687)         (5.1%)   $            (8,364)         (7.5%)   $   2,677        (32.0%)

Segment profit:
Americas                         $             19,960          28.2%   $             14,880          21.3%   $   5,080          34.1%
Europe                           $              8,823          21.9%   $              9,693          23.3%   $   (870)         (9.0%)




Revenue



Revenue was $111.2 million for the three months ended March 31, 2020, a decrease
of $0.3 million, or 0.3%, compared to the three months ended March 31, 2019,
primarily due to the unfavorable impact of government actions related to
COVID-19 and the unfavorable impact of changes in foreign exchange rates.



Americas segment revenue was $70.9 million for the three months ended March
31, 2020, an increase of $0.9 million, or 1.3%, compared to the three months
ended March 31, 2019, primarily driven by growth in our Mexico market, offset by
the unfavorable impact from government actions related to COVID-19 and changes
in foreign exchange rates.



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Europe segment revenue was $40.3 million for the three months ended March 31,
2020, a decrease of $1.3 million, or 3.0%, compared to the three months ended
March 31, 2019, primarily due to the impact of government actions related to
COVID-19, the unfavorable impact of changes in foreign exchange rates, and the
other income recognized during the three months ended March 31, 2019 related to
the termination of a marketing alliance agreement with Raiffeisen Bank Polska.



Operating expenses

Cost of services and products


Cost of services and products was $23.1 million for the three months ended March
31, 2020, a decrease of $0.9 million, or 4.0%, compared to the three months
ended March 31, 2019, primarily due to lower processing costs. Our cost of
services and products includes both fixed and variable components, with variable
components dependent upon payment processing activity. The decrease in cost was
due to the variable component from the decrease in payment processing activity.

Selling, general and administrative expenses



Selling, general and administrative expenses were $72.3 million for the three
months ended March 31, 2020, an increase of $5.9 million, or 8.9%, compared to
the three months ended March 31, 2019. The increase was due primarily to the
expense recognized in connection with share-based compensation awards granted in
2019 and during the three months ended March 31, 2020 and professional fees
related to specific business development initiatives for the three months ended
March 31, 2020.

Depreciation and amortization


Depreciation and amortization was $21.4 million for the three months March 31,
2020, a decrease of $1.3 million, or 5.8%, compared to the three months ended
March 31, 2019. This decrease was primarily driven by lower amortization due to
accelerated amortization method of merchant contract portfolios and the
impairment of certain amortizable intangible assets in 2019.

Interest expense

Interest expense was $9.9 million for the three months ended March 31 2020, compared to $11.7 million for the three months ended March 31, 2019. The decrease was primarily due to lower average variable interest rates.

Income tax expense


Income tax expense represents 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
at the U.S. federal income tax rate 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 benefit of $1.9 million in the three months ended
March 31, 2020 from a partial 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, resulting in total income tax benefit
of $1.6 million for the three months ended March 31, 2020, compared to income
tax expense of $1.0 million for the three months ended March 31, 2019.



Segment performance



Americas segment profit for the three months ended March 31, 2020 was $19.9
million, compared to $14.9 million for the three months ended March 31, 2019, an
increase of 34.1%. The increase is primarily due to lower expenses from our
integration efforts and the impact of an asset impairment charge in the three
months ended March 31, 2019. Americas segment profit margin was 28.2% for the
three months ended March 31, 2020, compared to 21.3% for the three months ended
March 31, 2019.

Europe segment profit was $8.8 million for the three months ended March 31, 2020, compared to $9.7 million for the three months ended March 31, 2019, a decrease of 9.0%. The decrease is primarily due to the previously discussed decline in



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revenue. Europe segment profit margin was 21.9% for the three months ended March 31, 2020, compared to 23.3% for the three months ended March 31, 2019.





Corporate expenses not allocated to a segment were $10.5 million for the three
months ended March 31, 2020, compared to $7.6 million for the three months ended
March 31, 2019. The increase is primarily due to expense recognized in
connection with share-based compensation awards and an increase in professional
fees related to specific business development initiatives.

Liquidity and capital resources for the three months ended March 31, 2020 and 2019





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 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. 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.



As of March 31, 2020, our capacity under the revolving credit facility portion
of our Senior Secured Credit Facilities was $200.0 million, with availability of
$122.5 million for additional borrowings.



On April 21, 2020 we completed the offer and sale of shares of Preferred Stock
to MDP for an aggregate $150.0 million in gross proceeds. We used $69.3 million
of the proceeds to repay the balance on our revolving credit facility.



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 cash as
well as how much and when dividends can be repatriated. As of March 31, 2020,
cash and cash equivalents of $257.1 million includes cash in the United States
of $93.2 million and $163.9 million in foreign jurisdictions. Of the United
States cash balances, $91.1 million is considered merchant reserves and
settlement-related cash and is therefore unavailable for the Company's use. Of
the foreign cash balances, $10.2 million is related to the non-controlling
interest portion of our consolidated entities and $57.4 million is available for
general purposes. The remaining $96.3 million is considered settlement and
merchant reserves related cash and is therefore unable to be repatriated.



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 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

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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 the 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 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 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 until paid by us.

The following table sets forth summary cash flow information for the three months ended March 31, 2020 and 2019:






                                                                 Three Months Ended March 31,
(in thousands)                                                      2020              2019
Net cash used in operating activities                          $     (26,661)     $  (119,613)
Net cash used in investing activities                                 (6,857)          (9,793)
Net cash (used in) provided by financing activities                     (839)            2,941

Effect of exchange rate changes on cash and cash equivalents (12,635) (3,149) Net decrease in cash and cash equivalents

$     (46,992)     $  (129,614)




Operating activities



Net cash used in operating activities was $26.7 million for the three months
ended March 31, 2020, a decrease of $93.0 million compared to cash used in
operating activities of $119.6 million for the three months ended March 31,
2019. This decrease was due primarily to changes in working capital, including
the timing of settlement-related assets and liabilities.



Investing activities




Net cash used in investing activities was $6.9 million for the three months
ended March 31, 2020, a decrease of $2.9 million compared to net cash used in
investing activities of $9.8 million for the three months ended March 31, 2019.
The decrease was primarily due to acquisition-related investments of $3.0
million during the three months ended March 31, 2019. During the three months
ended March 31, 2020, we did not have any business combinations.



Capital expenditures were $5.2 million for the three months ended March 31,
2020, a decrease of $1.3 million compared to $6.5 million for the three months
ended March 31, 2019. The decrease was due primarily to fewer terminal and
software purchases in markets outside of the United States. 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.



Financing activities




Net cash used in financing activities was $0.8 million for the three months
ended March 31, 2020, a decrease of $3.8 million, compared to net cash provided
by financing activities of $2.9 million for the three months ended March 31,
2019. This decrease was primarily due to lower net borrowings under our
long-term debt arrangements partially offset by a decrease in distributions to
non-controlling interest holders in the three months ended March 31, 2020.




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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.

Refer to Note 13, "Long-Term Debt and Lines of Credit", in the notes to the accompanying unaudited condensed consolidated financial statements for additional information on our long-term debt and settlement lines of credit.





Settlement lines of 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 March 31, 2020, we had $18.7 million outstanding under these lines of credit with additional capacity of $137.9 million to fund settlement.











Contractual obligations



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

Off-balance sheet transactions





We have not entered into any off-balance sheet arrangements that have, or are
reasonably likely to have, a material effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.

Critical accounting policies


The Company's critical accounting policies have not changed, except for the new
accounting pronouncements and the refinements to "Income Taxes" policy as noted
below, from those reported as of December 31, 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, 2019.

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", in the notes to the accompanying unaudited condensed
consolidated financial statements.



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.

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

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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 March 31, 2020. Additionally, the Company
has noted a significant decline in the volume of transactions in March 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
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.









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.

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