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, cash flow, liquidity and results of operations. This MD&A should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2021 and 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 theAmericas andEurope . 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 inthe United States , we have transformed into a publicly traded company that today derives approximately 65% of its revenues from markets outside ofthe United States . Our revenue consists primarily of transaction and volume based fees, as well as fixed fees for certain services we perform. We are a global merchant acquirer and payment processor, with approximately 2,400 employees on four continents, servicing over 600,000 merchants in theAmericas andEurope . We differentiate ourselves from our competitors through (1) a highly productive and scaled sales distribution network, including exclusive global financial institution and tech-enabled referral partnerships, (2) our three proprietary, in-house processing platforms that are connected by a single point of integration, and (3) a comprehensive suite of payment and commerce solutions, including integrated software, at the POS, eCommerce, and B2B solutions. We believe these points of differentiation allow us to deliver strong organic growth, increase market share, and attract additional relationships with financial institutions, technology companies, and other strategic partners. We classify our business into two segments: theAmericas andEurope . The alignment of our segments is designed to establish lines of business that support the various geographical markets we operate in and allow us to further globalize our solutions while working seamlessly with our teams across these markets. In both of our segments, we provide our customers with merchant acquiring solutions, including integrated solutions for retail transactions at the physical and virtual POS, as well as B2B transactions. 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 technology solutions and direct sales force, and acquiring additional merchant portfolios and tech-enabled businesses. We seek to enter new markets through acquisitions and partnerships inLatin America ,Europe , and certain other markets.
Executive overview
We delivered solid financial performance in the three and nine months ended
Revenue for the three months ended
increase of 2.7% compared to the three months ended
? for the nine months ended
11.0% compared to the nine months endedSeptember 30, 2021 . The increase was due to 46 Table of Contents
the growth in our merchant portfolio, processing volumes and transactions,
increased card adoption, sales-related activity, including the expansion of our
tech-enabled partners, and the increase in economic activity from the abatement
of COVID-19 related restrictions, especially in
million, 2.1% lower than the three months ended
? decrease was primarily due to higher employee compensation as a result of
headcount growth.
million, 50.6% higher than the three months ended
segment profit for the nine months ended
35.4% higher than the nine months ended
primarily due to the recognition of a gain related to our investment in
Series A preferred stock, operating income from the termination of the
? marketing alliance agreement with
by growth in our merchant portfolio, processing volumes and transactions,
increased card adoption, sales-related activity, including the expansion of
tech-enabled partners, and the increase in economic activity from the abatement
of COVID-19 related restrictions, especially for the nine months ended
strong
We processed approximately 1.3 billion transactions in the three months ended
?
nine months ended
ended
Merger with Global Payments Inc.
OnAugust 1, 2022 , we entered into the Merger Agreement with Global Payments and Merger Sub. Subject to the terms and conditions of the Merger Agreement, Global Payments has agreed to acquireEVO, Inc. in an all-cash transaction for$34.00 per share of Class A common stock. Upon the consummation of the Merger, we will cease to be a publicly traded company. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Merger. We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs, or capital expenditure requirements. The Merger Agreement has been unanimously adopted by our board of directors, and the stockholders ofEVO, Inc. approved the Merger at the Special Meeting held onOctober 26, 2022 . In addition, the waiting period applicable under the HSR Act expired onOctober 17, 2022 . The consummation of the Merger remains subject to the satisfaction or, to the extent permitted by law, waiver of other customary closing conditions, including, (i) the receipt of certain additional competition and other regulatory approvals outside ofthe United States , (ii) the lack of any governmental authority restraining, enjoining or otherwise prohibiting the Merger, and (iii) the absence of a "Material Adverse Effect" (as defined in the Merger Agreement) with respect toEVO, Inc. We currently expect the Merger to be completed by the end of the first fiscal quarter of 2023. In connection with the execution and delivery of the Merger Agreement,EVO, Inc. ,EVO, LLC and certain other parties to the TRA entered into the TRA Amendment, pursuant to which such parties agreed to certain terms with respect to the treatment of the TRA upon the consummation of the Merger. In the event the Merger Agreement is terminated, the TRA Amendment will no longer be of
any force and effect. 47 Table of Contents
Business trends and challenges
Economic conditions and uncertainties
Global economic challenges, including the impact of the crisis inRussia andUkraine , the COVID-19 pandemic, severe and sustained inflation, rising interest rates, supply chain disruptions, and foreign exchange fluctuations could cause economic uncertainty and volatility. The impact of these issues on our business will vary by geographic market. We closely monitor economic conditions and the impact to our revenue. In response to potential reductions in revenue, we can take actions to align our cost structure and manage our working capital. However, there can be no assurance as to the effectiveness of our efforts to mitigate any impact of potential future adverse economic conditions and reductions in our revenue.
COVID-19
We have seen increased economic activity resulting from the abatement of COVID-19 related restrictions; however, the COVID-19 pandemic continues to evolve, impacting global economic conditions and causing market volatility which has impacted, and will likely continue to impact our business. We continue to monitor the COVID-19 pandemic to assess and mitigate potential adverse impacts to our business. Longer term, we believe the pandemic will serve as a catalyst for greater utilization of digital payments, a trend we are continuing to see in our markets. For additional discussion regarding our risks related to the COVID-19 pandemic, see Part I, Item 1A, "Risk Factors" included in our 2021 Annual Report on Form 10-K.Russia andUkraine conflict The crisis inRussia andUkraine that began inFebruary 2022 continues as of the date of this quarterly report. The current conflict betweenRussia andUkraine and the related sanctions and other penalties imposed by countries across the globe againstRussia are creating substantial uncertainty in the global economy. While we do not have operations or merchants inRussia orUkraine , we are unable to predict the future impact of this evolving situation, including on the political and economic environment inEurope . We will continue to monitor the conflict and assess any potential impact to our operations.
Other 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 merchants, timing and length of contract renewals, new merchant wins, retention rates, mix of payment solution types employed by consumers, and changes in card network fees, including interchange rates and size of merchants 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 indebtedness incurred to finance such acquisitions, or could require us to incur additional costs 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. Historically, in both theAmericas andEurope , our revenue has been strongest in the fourth quarter and weakest in the 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. 48
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Foreign currency translation impact on our operations
We present our financial statements inU.S. dollars and have approximately 65% of our revenues in non-U.S. dollar currencies. The primary non-U.S. dollar currencies are the Euro, Polish Zloty, and Mexican Peso. Accordingly, we are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. 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 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.
Financial institution partners
We maintain referral partnerships with a number of leading financial institutions, includingDeutsche Bank USA ,Deutsche Bank Group , Grupo Santander, PKO Bank Polski, Bank of Ireland, Raiffeisen Bank, Moneta, Citibanamex, Sabadell, and BCI, among others. We commenced operations inChile through our joint venture with BCI at the end of the second quarter in 2021. Our pending joint venture and exclusive referral relationship with the National Bank of Greece is expected to be completed by the end of 2022, subject to regulatory approvals and other customary conditions. These long-term relationships are structured in various ways, such as commercial alliance relationships and joint ventures, and our bank partners typically provide exclusive merchant referrals and credit facilities to support the settlement process. Prior to entering in to the Merger Agreement, we actively evaluated opportunities to expand our business through entry into additional long-term relationships consistent with our strategy. Our relationships with our financial institution partners may be impacted by, among other things, consolidations and other transactions in the banking and payments industries. InJanuary 2022 , Citigroup Inc. announced its decision to exit the consumer, small-business and middle-market banking operations of Citibanamex, our financial institution partner inMexico . The details of the proposed transaction are unknown, including structural complexity and anticipated timing of the consummation of their transaction. While our long term, exclusive commercial agreement with Citibanamex remains in place, at this time, we cannot estimate the potential impact of this development to our referral relationship with Citibanamex or our Mexican business. Following the merger of Unicaja Banco, S.A. andLiberbank , and pursuant to the procedures set forth in the marketing alliance agreement related to a change of control ofLiberbank , the parties elected to terminate the marketing alliance agreement in the third quarter of 2022. Income from liquidated damages of €7.0 million ($6.9 million , based on the foreign exchange rate as of the date presented) was recognized in other operating income on the unaudited condensed consolidated statements of operations. The termination of theLiberbank marketing alliance agreement will not have a material impact to our financial position, results of operations, or cash flows. One of our Spanish financial institution referral partners, Banco Popular, was acquired by Santander inJune 2017 . As reported previously and reflected in our previous years' financial statements, Santander's acquisition of Banco Popular has adversely impacted our business inSpain . Revenues from this channel have declined significantly primarily due to reduced merchant referrals following the acquisition and the bank's failure to perform certain of its other obligations under our agreements. See Note 19, "Commitments and Contingencies," in the notes to the accompanying unaudited condensed consolidated financial statements for additional information. 49 Table of Contents
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 ourEurope segment hold aPayments Institution ("PI") license, allowing them to operate in theEuropean Union (the "EU") member states in which such subsidiaries do business. As a PI, we are subject to regulation and oversight, which include, 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 aim to increase the security of electronic payments by requiring multi-factor user authentication. Failure to comply with SCA requirements may result in fines from card networks as well as declined payments from card issuers.The EU has also enacted legislation relating to the offering of DCC services, which went into effect inApril 2020 . These new rules require additional disclosures of foreign exchange margins in connection with our DCC product offerings. We are currently operating in theUnited Kingdom within the scope of its temporary permissions regime pending approval of our application for a stand alone PI license. In addition, we continue to closely monitor the impact of Brexit on our operations as further details emerge regarding the post-Brexit regulatory landscape.
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 and/or value of transactions we process. In addition, transactions processed provides a valuable measure of the level of economic activity across our merchant base. In ourAmericas segment, transactions include acquiredVisa and Mastercard credit and signature debit, American Express, Discover,UnionPay , JCB, PIN-debit, electronic benefit transactions and gift card transactions. In ourEurope segment, transactions include acquiredVisa and Mastercard credit and signature debit, other card network merchant acquiring transactions, and ATM transactions. For the three months endedSeptember 30, 2022 , we processed approximately 1.3 billion transactions, which included approximately 0.3 billion transactions in theAmericas and approximately 1.0 billion transactions inEurope . This represents a decrease of 0.7% in theAmericas and an increase of 16.1% inEurope for an aggregate increase of 12.1% compared to the three months endedSeptember 30, 2021 . Transactions processed in theAmericas andEurope accounted for 20.9% and 79.1%, respectively, of the total transactions we processed for the three months endedSeptember 30, 2022 . For the nine months endedSeptember 30, 2022 , we processed approximately 3.6 billion transactions, which included approximately 0.8 billion transactions in theAmericas and approximately 2.8 billion transactions inEurope . This represents an increase of 3.3% in theAmericas and an increase of 25.4% inEurope for an aggregate increase of 19.7% compared to the nine months endedSeptember 30, 2021 . Transactions processed in theAmericas andEurope accounted for 22.2% and 77.8%, respectively, of the total transactions we processed for the nine months endedSeptember 30, 2022 . The changes in the transactions processed in the three and nine months endedSeptember 30, 2022 were primarily driven by the growth in our merchant portfolio, increased card adoption, sales-related activity, including the expansion of our tech-enabled partners, and the increase in economic activity from the abatement of COVID-19 related restrictions especially inEurope . 50
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Comparison of results for the three months ended
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, 2022 % of revenue September 30, 2021 % of revenue $ change % change Segment revenue: Americas $ 80,172 57.8% $ 79,424 58.8%$ 748 0.9% Europe 58,491 42.2% 55,617 41.2% 2,874 5.2% Revenue $ 138,663 100.0% $ 135,041 100.0%$ 3,622 2.7% Operating expenses: Cost of services and products $ 21,831 15.7% $ 19,121 14.2%$ 2,710 14.2% Selling, general, and administrative 81,453 58.7% 71,982 53.3% 9,471 13.2% Depreciation and amortization 21,136 15.2% 21,941 16.2% (805) (3.7%) Total operating expenses 124,420 89.7% 113,044 83.7% 11,376 10.1% Other operating income 6,939 5.0% - 0.0% 6,939 100.0% Income from operations $ 21,182 15.3% $ 21,997 16.3%$ (815) (3.7%) Segment profit: Americas $ 36,558 26.4% $ 37,327 27.6%$ (769) (2.1%) Europe $ 33,251 24.0% $ 22,086 16.4%$ 11,165 50.6% Revenue
Revenue was
Europe segment revenue was$58.5 million for the three months endedSeptember 30, 2022 , an increase of$2.9 million , or 5.2%, compared to the three months endedSeptember 30, 2021 . The increase was primarily due to the growth in our merchant portfolio, processing volumes and transactions, increased card adoption, and sales-related activity, including the expansion of our tech-enabled partners. This growth was negatively impacted by the changes in foreign exchange rates. Operating expenses
Cost of services and products
Cost of services and products was$21.8 million for the three months endedSeptember 30, 2022 , an increase of$2.7 million , or 14.2%, compared to the three months endedSeptember 30, 2021 , primarily due to the increase in transactions processed, which was partially offset by the impact of the strongU.S. dollar on foreign exchange rates.
Selling, general, and administrative expenses
Selling, general, and administrative expenses were$81.5 million for the three months endedSeptember 30, 2022 , an increase of$9.5 million , or 13.2%, compared to the three months endedSeptember 30, 2021 . The increase was primarily due to higher professional fees related to the Merger. 51
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Depreciation and amortization
Depreciation and amortization was$21.1 million for the three months endedSeptember 30, 2022 , a decrease of$0.8 million , or 3.7%, compared to the three months endedSeptember 30, 2021 , primarily due to the impact of the strongU.S. dollar on foreign exchange rates, partially offset by the accelerated amortization related to the termination of theLiberbank marketing alliance agreement.
Other operating income
Other operating income was
Interest expense
Interest expense was$4.3 million for the three months endedSeptember 30, 2022 , a decrease of$1.8 million , or 30.4%, compared to the three months endedSeptember 30, 2021 . The decrease was primarily due to the reduction in the credit spread on the term loan as a result of the refinancing onNovember 1, 2021 . 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 forU.S. federal income tax purposes,EVO, LLC's income was not subject to corporate tax inthe United States , but only on income earned in foreign jurisdictions. Inthe United States , our members were taxed on their proportionate share of income ofEVO, LLC . However, following the Reorganization Transactions, we incur corporate tax on our share of taxable income ofEVO, LLC . Our income tax expense reflects suchU.S. federal, state, and local income tax as well as taxes payable in foreign jurisdictions by certain of our subsidiaries. For the three months endedSeptember 30, 2022 , we recorded a tax expense of$18.5 million , which included a net discrete tax expense of$6.3 million primarily related to changes in uncertain tax positions. For the three months endedSeptember 30, 2021 , we recorded a tax expense of$8.3 million , which included a net discrete tax expense of$0.8 million .
Segment performance
Americas segment profit for the three months endedSeptember 30, 2022 was$36.6 million , compared to$37.3 million for the three months endedSeptember 30, 2021 , a decrease of 2.1%. The decrease was primarily due to higher employee compensation as a result of headcount growth.Americas segment profit margin was 45.6% for the three months endedSeptember 30, 2022 , compared to 47.0% for the three months endedSeptember 30, 2021 .Europe segment profit was$33.3 million for the three months endedSeptember 30, 2022 , compared to$22.1 million for the three months endedSeptember 30, 2021 , an increase of 50.6%. The increase was primarily due to the recognition of a gain related to our investment in Visa Series A preferred stock, operating income from the termination of the marketing alliance agreement withLiberbank , and an increase in revenue driven by growth in our merchant portfolio, processing volumes and transactions, increased card adoption, and sales-related activity, including the expansion of tech-enabled partners. This growth was partially offset by the impact of the strongU.S. dollar on foreign exchange rates.Europe segment profit margin was 56.8% for the three months endedSeptember 30, 2022 , compared to 39.7% for the three months endedSeptember 30, 2021 . Corporate expenses not allocated to a segment were$19.4 million for the three months endedSeptember 30, 2022 , compared to$10.5 million for the three months endedSeptember 30, 2021 . The increase was primarily due to higher professional fees related to the Merger. 52 Table of Contents
Comparison of results for the nine months ended
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, 2022 % of revenue September 30, 2021 % of revenue $ change % change Segment revenue: Americas $ 238,724 59.2% $ 226,830 62.4%$ 11,894 5.2% Europe 164,536 40.8% 136,626 37.6% 27,910 20.4% Revenue $ 403,260 100.0% $ 363,456 100.0%$ 39,804 11.0% Operating expenses: Cost of services and products $ 66,278 16.4% $ 54,276 14.9%$ 12,002 22.1% Selling, general, and administrative 224,668 55.7% 198,050 54.5% 26,618 13.4% Depreciation and amortization 60,453 15.0% 63,562 17.5% (3,109) (4.9%)
Total operating expenses 351,399 87.1% 315,888 86.9% 35,511 11.2% Other operating income 6,939 1.7% - 0.0% 6,939 100.0% Income from operations $ 58,800 14.6% $
47,568 13.1%$ 11,232 23.6% Segment profit: Americas $ 105,167 26.1% $ 105,084 28.9%$ 83 0.1% Europe $ 65,371 16.2% $ 48,267 13.3%$ 17,104 35.4% Revenue
Revenue was
Americas segment revenue was$238.7 million for the nine months endedSeptember 30, 2022 , an increase of$11.9 million , or 5.2%, compared to the nine months endedSeptember 30, 2021 . The increase was primarily due to the growth in our merchant portfolio, processing volumes and transactions, increased card adoption, and sales-related activity.Europe segment revenue was$164.5 million for the nine months endedSeptember 30, 2022 , an increase of$27.9 million , or 20.4%, compared to the nine months endedSeptember 30, 2021 . The increase was primarily due to the growth in our merchant portfolio, processing volumes and transactions, increased card adoption, sales-related activity, including the expansion of our tech-enabled partners, and the increase in economic activity from the abatement of COVID-19 related restrictions. This growth was negatively impacted by the changes in foreign exchange rates.
Operating expenses
Cost of services and products
Cost of services and products was$66.3 million for the nine months endedSeptember 30, 2022 , an increase of$12.0 million , or 22.1%, compared to the nine months endedSeptember 30, 2021 , primarily due to the increase in transactions processed, which was partially offset by the impact of the strongU.S. dollar on foreign exchange rates.
Selling, general, and administrative expenses
Selling, general, and administrative expenses were$224.7 million for the nine months endedSeptember 30, 2022 , an increase of$26.6 million , or 13.4%, compared to the nine months endedSeptember 30, 2021 . The increase was primarily due to higher professional fees related to the Merger, personnel costs due to growth in headcount, and incentive compensation expenses based on business
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Depreciation and amortization
Depreciation and amortization was$60.5 million for the nine months endedSeptember 30, 2022 , a decrease of$3.1 million , or 4.9%, compared to the nine months endedSeptember 30, 2021 , primarily due to the impact of the strongU.S. dollar on foreign exchange rates, partially offset by the accelerated amortization related to the termination of theLiberbank marketing alliance agreement.
Other operating income
Other operating income was
Interest expense
Interest expense was$12.6 million for the nine months endedSeptember 30, 2022 , a decrease of$5.7 million , or 30.9%, compared to the nine months endedSeptember 30, 2021 . The decrease was primarily due to the reduction in the credit spread on the term loan as a result of the refinancing onNovember 1, 2021 . 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 forU.S. federal income tax purposes,EVO, LLC's income was not subject to corporate tax inthe United States , but only on income earned in foreign jurisdictions. Inthe United States , our members were taxed on their proportionate share of income ofEVO, LLC . However, following the Reorganization Transactions, we incur corporate tax on our share of taxable income ofEVO, LLC . Our income tax expense reflects suchU.S. federal, state, and local income tax as well as taxes payable in foreign jurisdictions by certain of our subsidiaries. For the nine months endedSeptember 30, 2022 , we recorded a tax expense of$29.6 million , which included a net discrete tax expense of$6.3 million primarily related to changes in uncertain tax positions. For the nine months endedSeptember 30, 2021 , we recorded a tax expense of$19.9 million , which included a net discrete tax expense of$4.2 million primarily related to a valuation allowance recorded to reduce the deferred tax assets not expected to be realized inSpain .
Segment performance
Americas segment profit for the nine months endedSeptember 30, 2022 was$105.2 million , compared to$105.1 million for the nine months endedSeptember 30, 2021 , an increase of 0.1%.Americas segment profit margin was 44.1% for the nine months endedSeptember 30, 2022 , compared to 46.3% for the nine months endedSeptember 30, 2021 .Europe segment profit was$65.4 million for the nine months endedSeptember 30, 2022 , compared to$48.3 million for the nine months endedSeptember 30, 2021 , an increase of 35.4%. The increase was primarily due to the recognition of a gain related to our investment in Visa Series A preferred stock, operating income from the termination of the marketing alliance agreement withLiberbank , and an increase in revenue driven by growth in our merchant portfolio, processing volumes and transactions, increased card adoption, sales-related activity, including the expansion of tech-enabled partners, and the increase in economic activity from the abatement of COVID-19 related restrictions. This growth was partially offset by the impact of the strongU.S. dollar on foreign exchange rates.Europe segment profit margin was 39.7% for the nine months endedSeptember 30, 2022 , compared to 35.3% for the nine months endedSeptember 30, 2021 . Corporate expenses not allocated to a segment were$37.4 million for the nine months endedSeptember 30, 2022 , compared to$26.6 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to higher professional fees related to the Merger. 54 Table of Contents
Liquidity and capital resources for the nine months ended
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. However, the Merger Agreement with Global Payments imposes certain limitations on how we conduct our business during the period between the execution of the Merger Agreement and the effective time of the Merger, including limitations on our ability to, among other things, engage in certain acquisitions, incur indebtedness or issue or sell new debt securities. 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 operate. We expect these strategies to be funded primarily through cash flow from operations and borrowings from our Senior Secured Credit Facilities. 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
We have structured our operations in a manner to allow for cash to be repatriated through tax-efficient methods using dividends or long-term loans from foreign jurisdictions as our main source of repatriation. We follow local government regulations and contractual restrictions on cash as well as how much and when dividends can be repatriated. As ofSeptember 30, 2022 , cash and cash equivalents of$429.8 million includes cash inthe United States of$101.2 million and$328.6 million in foreign jurisdictions, respectively. Ofthe United States cash balances,$2.1 million is available for general purposes, and the remaining$99.1 million is considered merchant reserves and settlement-related cash and is therefore unavailable for our general use. Of the foreign cash balances,$199.1 million is available for general purposes, and the remaining$129.5 million is considered merchant reserves and settlement-related cash and is therefore unable to be 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 on its common stock, if any, is dependent upon cash dividends and distributions and other transfers fromEVO, LLC . The amounts available toEVO, Inc. to pay cash dividends are subject to the covenants and distribution restrictions in our Senior Secured Credit Facilities. 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 inEVO, LLC and related Class D common shares ofEVO, 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. 55
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In addition, in connection with the IPO, we entered into the TRA with the Continuing LLC Owners. Payments required under the TRA are generally funded by taxable income and represent the tax benefit from the step-up in tax basis that is passed on to the TRA holders. 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. Refer to Note 5, "Tax Receivable Agreement," in the notes to the accompanying unaudited condensed consolidated financial statements for additional information on the TRA.
The following table sets forth summary cash flow information for the nine months
ended
Nine Months EndedSeptember 30 , (in thousands) 2022
2021
Net cash provided by operating activities$ 125,438 $ 72,056 Net cash used in investing activities (50,284) (51,561) Net cash used in financing activities (19,418) (13,084) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (36,088) (9,708) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 19,648$ (2,297) Operating activities Net cash provided by operating activities was$125.4 million for the nine months endedSeptember 30, 2022 , an increase of$53.3 million compared to net cash provided by operating activities of$72.1 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to net income and changes in working capital, including the timing of settlement-related assets and liabilities.
Investing activities
Net cash used in investing activities was$50.3 million for the nine months endedSeptember 30, 2022 , a decrease of$1.3 million compared to net cash used in investing activities of$51.6 million for the nine months endedSeptember 30, 2021 . The decrease was primarily due to the acquisition of Pago Fácil in the prior year, partially offset by the purchases of North49 and intellectual property in the current year.
Financing activities
Net cash used in financing activities was
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash are impacted by the fluctuation of foreign exchange rates upon translation of non-U.S. currencies toU.S. dollars. The foreign exchange rate volatility in the current year, due to the strengthening of theU.S. dollar relative to other currencies, impacted the translation during the nine months endedSeptember 30, 2022 , compared to the nine months endedSeptember 30, 2021 .
Senior Secured Credit Facilities
The Company (through its subsidiary EPI) entered into the Restatement Agreement inNovember 2021 to amend and restate our senior secured credit facilities (as amended and restated by the Restatement Agreement, the "Senior Secured Credit Facilities"). The Senior Secured Credit Facilities are comprised of a$200.0 million revolving credit facility maturing inNovember 2026 and a$588.0 million term loan maturing inNovember 2026 . In addition, our Senior Secured Credit Facilities also provide us with the option to access incremental credit facilities, refinance the loans with debt 56
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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
Contractual obligations
Other than changes which occur in the ordinary course of business, as of
Critical accounting policies and estimates
Our critical accounting policies have not changed from those reported as of
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.
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