INTERNATIONAL MONEY EXPRESS, INC.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with our Unaudited Condensed
Consolidated Financial Statements and related Notes included in this Quarterly
Report on Form 10-Q, as well as our Audited Consolidated Financial Statements
and related Notes and MD&A included in our Annual Report on Form 10-K for the
year ended December 31, 2020 . This Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. The
forward-looking statements are not historical facts, but rather are based on
current expectations, estimates, assumptions and projections about our industry,
business and future financial results. Our actual results could differ
materially from the results contemplated by these forward-looking statements due
to a number of factors, including those discussed in other sections of this
Quarterly Report on Form 10-Q, including "Risk Factors," which are incorporated
in the MD&A by reference. See "Special Note Regarding Forward-Looking
Statements" for additional factors relating to such statements, and see "Risk
Factors" in the documents that we have filed with or furnished to the SEC for a
discussion of certain risk factors applicable to our business, financial
condition and results of operations. Past operating results are not necessarily
indicative of operating results in any future periods.
COVID-19 Update
During March 2020 , a global pandemic was declared by the World Health
Organization related to the rapidly growing outbreak of a novel strain of
coronavirus ("COVID-19"). The pandemic has had and continues to have a
significant effect on economic conditions in the United States of America
("United States" or "U.S."), as the efforts of federal, state, local and foreign
governments to react to the public health crisis with mitigation measures have
created and continue to cause significant uncertainties in the U.S. and global
economy, particularly as a new Delta variant of COVID-19 appears to be causing
an increase in COVID-19 cases. The extent to which the COVID-19 pandemic affects
our business, operations and financial results depends, and will continue to
depend, on numerous evolving factors that we may not be able to accurately
predict such as the reduction or reimposition by government and health
authorities of restrictions and progress in and effectiveness of vaccination
efforts in the United States or in the countries in which we operate and conduct
business.
In response to the pandemic, our top priority continues being to take
appropriate actions to protect the health and safety of our employees. We have
adjusted standard operating procedures within our business operations to ensure
continued worker safety, and are continually monitoring evolving health
guidelines and responding to changes as appropriate. These procedures include
reconfiguring facilities to reduce employee density, expanded and more frequent
cleaning within facilities, implementation of appropriate and mandated
distancing programs, employee temperature monitoring and requiring use of
certain personal protective equipment at our call centers in Mexico and
Guatemala . As of June 30, 2021 , all of our facilities are open and operating
with adjustments to ensure compliance with social distancing and facial covering
recommendations and requirements established by state and local regulations.
Notwithstanding the operational challenges created by the pandemic, our business
continues to function and, to date, our customer service has not been adversely
affected in any material respect. Nevertheless, the COVID-19 pandemic continues
to pose the risk that we or our employees, sending and paying agents, as well as
consumers and their beneficiaries, are or may become further restricted from
conducting business activities, partially or completely, for an indefinite
period of time, including due to shutdowns requested or mandated by governmental
authorities or imposed by our management, or that the pandemic may otherwise
interrupt or impair business activities.
Although certain measures that restrict the normal course of operations of
businesses and consumers were still in place for the three and six months ended
June 30, 2021 , such measures did not have a material adverse effect on the
Company's financial condition, results of operations and cash flows for the
three and six months ended June 30, 2021 . Notwithstanding the foregoing, the
Company's business is dependent upon the willingness and ability of its
employees, network of agents and consumers to conduct money transfer services
and the ultimate effects of the economic disruption caused by the pandemic and
responses thereto. Although the Company's operations continued effectively
despite social distancing and other measures taken in response to the pandemic,
the ultimate impact of the COVID-19 pandemic on our financial condition, results
of operations and cash flows is subject to future developments, including the
duration of the pandemic and the related extent of its severity, as well as its
impact on the economic conditions, particularly the level of unemployment of our
customers, which remain uncertain and cannot be predicted at this time. If the
global response to contain and remedy the COVID-19 pandemic escalates further or
is unsuccessful, or if governmental decisions to ease pandemic related
restrictions are ineffective, premature or counterproductive, the Company could
experience a material adverse effect on its financial condition, results of
operations and cash flows.
Further quantification and discussion of these pandemic related effects, to the extent relevant and material, are included in the discussion of results of operations below.
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Overview
We are a rapidly growing and leading money remittance services company focused primarily onthe United States toLatin America and theCaribbean ("LAC") corridor, which includesMexico , Central andSouth America and theCaribbean . In recent years, we expanded our services to allow remittances toAfrica fromthe United States and also began offering sending services fromCanada toLatin America andAfrica . We utilize our proprietary technology to deliver convenient, reliable and value-added services to our customers through a broad network of sending and paying agents. Our remittance services, which include a comprehensive suite of ancillary financial processing solutions and payment services, are available in all 50 states in theU.S. ,Washington D.C. ,Puerto Rico and 13 provinces inCanada , where customers can send money to beneficiaries in 17 LAC countries, seven countries inAfrica and two countries inAsia . Our services are accessible in person through over 100,000 independent sending and paying agents and 34 Company-operated stores, as well as online and via Internet-enabled mobile devices. Additionally, we have expanded our product and service portfolio to include online payment options, pre-paid debit cards and direct deposit payroll cards, which may present different cost, demand, regulatory and risk profiles relative to our core remittance business. Money remittance services to LAC countries, primarilyMexico andGuatemala , are the primary source of our revenue. These services involve the movement of funds on behalf of an originating customer for receipt by a designated beneficiary at a designated receiving location. Our remittances to LAC countries are primarily generated inthe United States by customers with roots in Latin American andCaribbean countries, many of whom do not have an existing relationship with a traditional full-service financial institution capable of providing the services we offer. We provide these customers with flexibility and convenience to help them meet their financial needs. We believe many of our customerswho use our services may have access to traditional banking services, but prefer to use our services based on reliability, convenience and value. We generate money remittance revenue from fees paid by our customers (i.e., the senders of funds), which we share with our sending agents in the originating country and our paying agents in the destination country. Remittances paid in local currencies that are not pegged to theU.S. dollar can also generate revenue if we are successful in our daily management of currency exchange spreads. Our money remittance services enable our customers to send funds through our broad network of locations inthe United States andCanada that are primarily operated by third-party businesses, as well as through our Company-operated stores. Transactions are processed and payment is collected by our agent ("sending agent(s)") and those funds become available for pickup by the beneficiary at the designated destination, usually within minutes, at any Intermex payer location ("paying agent(s)"). We refer to our sending agents and our paying agents collectively as agents. In addition, our services are offered digitally through Intermexonline.com and via Internet-enabled mobile devices. SinceJanuary 2020 throughJune 30, 2021 , we have grown our agent network by approximately 18.0%. For the three and six months endedJune 30, 2021 , principal amount sent increased by approximately 53.2% and 42.2%, respectively, as compared to the same periods in 2020 and total remittances processed were approximately 10.1 million and 18.4 million, representing approximately a 33.4% and 26.6% increase, respectively, as compared to the same periods in 2020. As a non-bank financial institution inthe United States , we are regulated by theDepartment of Treasury , the Internal Revenue Service, FinCEN, theConsumer Financial Protection Bureau , theDepartment of Banking and Finance of the State of Florida and additionally by the various regulatory institutions of those states in which we hold an operating license. We are duly registered as a Money Service Business ("MSB") with FinCEN, the financial intelligence unit of theU.S. Department of the Treasury . We are also subject to a wide range of regulations inthe United States and other countries, including anti-money laundering laws and regulations; financial services regulations; currency control regulations; anti-bribery laws; money transfer and payment instrument licensing laws; escheatment laws; privacy, data protection and information security laws, such as the Graham-Leach-Bliley Act; and consumer disclosure and consumer protection laws, such as the California Consumer Privacy Act. Key Factors and Trends Affecting our Business Various trends and other factors have affected and may continue to affect our business, financial condition and operating results, including, but not limited to: •the COVID-19 pandemic, responses thereto and the economic and market effects thereof, including unemployment levels, inflation and increased capital market volatility;
•competition in the markets in which we operate;
•volatility in foreign exchange rates that could affect the volume of consumer remittance activity and/or affect our foreign exchange related gains and losses;
•cyber-attacks or disruptions to our information technology environment, computer network systems and data centers;
•our ability to maintain banking relationships necessary for us to conduct our business;
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•credit risks from our agents and the financial institutions with which we do business;
•bank failures, sustained financial illiquidity, or illiquidity at our clearing, cash management or custodial financial institutions;
•new technology or competitors that disrupt the current ecosystem by introducing digital platforms;
•our ability to satisfy our debt obligations and remain in compliance with our credit facility requirements;
•interest rate risk from elimination of LIBOR as a benchmark interest rate;
•our success in developing and introducing new products, services and infrastructure;
•customer confidence in our brand and in consumer money transfers generally;
•our ability to maintain compliance with regulatory requirements of the jurisdictions in which we operate or plan to operate;
•international political factors or implementation of tariffs, border taxes or restrictions on remittances or transfers of money out ofthe United States andCanada ; •changes inU.S. tax laws;
•political instability, currency restrictions and volatility in countries in which we operate or plan to operate;
•consumer fraud and other risks relating to customer authentication;
•weakness in
•changes in immigration laws and their enforcement;
•our ability to protect our brand and intellectual property rights; and
•our ability to retain key personnel.
Throughout 2020 and the first half of 2021, Latin American political and economic conditions have remained unstable, as evidenced by high unemployment rates in key markets, currency reserves, currency controls, restricted lending activity, weak currencies and low consumer confidence, some of which reflects the impact of the COVID-19 pandemic, among other factors. Specifically, continued political and economic unrest in parts ofMexico and some countries inSouth America contributed to volatility. Our business has generally been resilient during times of economic instability as money remittances are essential to many recipients, with the funds used by the receiving parties for their daily needs; however, long-term sustained appreciation of the Mexican peso or Guatemalan quetzal as compared to theU.S. dollar could negatively affect our revenues and profitability. Money remittance businesses have continued to be subject to strict legal and regulatory requirements, and we continue to focus on and regularly review our compliance programs. In connection with these reviews, and in light of regulatory complexity and heightened attention of governmental and regulatory authorities related to cybersecurity and compliance activities, we have made, and continue to make, enhancements to our processes and systems designed to detect and prevent cyber-attacks, consumer fraud, money laundering, terrorist financing and other illicit activities, along with enhancements to improve consumer protection, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and similar regulations outsidethe United States . In coming periods, we expect these and future enhancements will continue to result in changes to certain of our business practices and may result in increased costs.
We maintain a compliance department, the responsibility of which is to monitor transactions, detect and report suspicious activity, maintain appropriate records and train our employees and agents. An independent third-party periodically reviews our policies and procedures and performs independent testing to assess the effectiveness of our anti-money laundering and Bank Secrecy Act compliance program. We also maintain a regulatory affairs and licensing department, under the direction of our Chief Regulatory Affairs Officer, whose responsibility is to manage regulatory affairs and licensing.
The market for money remittance services is very competitive. Our competitors
include a small number of large money remittance providers, financial
institutions, banks and a large number of small niche money remittance service
providers that serve select regions. We compete with larger companies, such as
Western Union, MoneyGram and Euronet, and a number of other smaller MSB
entities. We generally compete for money remittance agents on the basis of
value, service, quality, technical and operational differences, commission
structure and marketing efforts. As a philosophy, we sell credible solutions to
our sending agents, not discounts or higher commissions, as
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is typical for the industry. We compete for money remittance customers on the basis of trust, convenience, service, efficiency of outlets, value, technology and brand recognition. We have encountered and continue to expect to encounter increasing competition as new electronic platforms emerge that enable customers to send and receive money through a variety of channels, but we do not expect adoption rates to be as significant in the near term for the customer segment we serve. Regardless, we continue to innovate in the industry by differentiating our money remittance business through programs to foster loyalty among agents as well as customers and have expanded our channels through which our services are accessed to include online and mobile offerings which are experiencing customer adoption. We qualify as an "emerging growth company" pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), enacted onApril 5, 2012 . An "emerging growth company" can take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." These provisions include: •an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act in the assessment of the emerging growth company's internal control over financial reporting;
•an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; and
•an exemption from compliance with any new requirements adopted by thePublic Company Accounting Oversight Board requiring mandatory audit firm rotation or communication of Critical Audit Matters ("CAMs") in the auditor's report. A CAM is defined as any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements; and (2) involves especially challenging, subjective, or complex auditor judgment. We will remain an "emerging growth company" until the earlier of (1) the earliest of the last day of the fiscal year (a) followingJanuary 19, 2022 , the fifth anniversary of us becoming a publicly-traded company, (b) in which we have total annual gross revenue of at least$1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the last business day of our prior second fiscal quarter, and (2) the date on which we have issued more than$1.0 billion in non-convertible debt during the prior three-year period. As ofJune 30, 2021 , the market value of our common stock that is held by non-affiliates approximated$488.5 million . How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenues, service charges from agents and banks, salaries and benefits, other selling, general and administrative expenses and net income. To help us assess our performance with these key indicators, we use Adjusted net income, Adjusted earnings per share and Adjusted EBITDA as non-GAAP financial measures. We believe these non-GAAP measures provide useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to ourU.S. GAAP consolidated financial statements. See the "Adjusted Net Income and Adjusted Earnings per Share" and "Adjusted EBITDA" sections below for reconciliations of these non-GAAP financial measures to net income and earnings per share, our closest GAAP measures.
Revenues
Transaction volume is the primary generator of revenue in our business. Revenue on transactions is derived primarily from transaction fees paid by customers to transfer money. Revenues per transaction vary based upon send and receive locations and the amount sent. In certain transactions involving different send and receive currencies, we generate foreign exchange gains based on the difference between the set exchange rate charged by us to the sender and the rate available to us in the wholesale foreign exchange market. Operating Expenses Service Charges from Agents and Banks Service charges primarily consist of agent commissions and bank fees. Service charges vary based on agent commission percentages and the amount of fees charged by the banks. Sending agents earn a commission on each transaction they process of approximately 50% of the transaction fee. Service charges may increase if banks or payer organizations increase their fee structure or sending agents use higher fee methods to remit funds to us. Service charges also vary based on the method the customer selects to send the transfer and the payer organization that facilitates the transaction.
Salaries and Benefits
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Salaries and benefits include cash and share-based compensation associated with our corporate employees and sales team as well as employees at our Company-operated stores. Corporate employees include management, customer service, compliance, information technology, operations, finance and human resources. Our sales team, located throughoutthe United States andCanada , is focused on supporting and growing our sending agent network. Share-based compensation is recognized as an expense on a straight-line basis over the requisite service period; unrecognized compensation expense related to options, restricted stock units ("RSUs"), restricted stock awards ("RSAs") and performance stock units ("PSUs") of approximately$11.4 million is expected to be recognized over a weighted-average period of 2.0 years.
Other Selling, General and Administrative
General and administrative expenses primarily consist of fixed overhead expenses associated with our operations, such as information technology, telecommunications, rent, insurance, professional services, non-income taxes, facilities maintenance and other similar types of operating expenses. A portion of these expenses relate to our Company-operated stores; however, the majority relate to the overall business and compliance requirements of a regulated publicly traded financial services company. Selling expenses include expenses such as advertising and promotion, provision for credit losses and expenses associated with increasing our network of agents. These expenses are expected to continue to increase at a slower pace than the increase in our revenues.
Depreciation and Amortization
Depreciation largely consists of depreciation of computer equipment and software that supports our technology platform. Amortization of intangible assets is primarily related to our agent relationships, trade name and developed technology.
Non-Operating Expenses Interest Expense Interest expense consists primarily of interest associated with our debt, which consists of a term loan facility and a revolving credit facility. The effective interest rates for the six months endedJune 30, 2021 for the term loan facility and revolving credit facility, which substantially related to the Original Credit Agreement, were 5.19% and 0.98%, respectively. Interest on the term loan and revolving credit facilities is determined by reference to either LIBOR (subject to replacement) or a "base rate", in each case plus an applicable margin, under the amended and restated credit agreement, of between 2.50% and 3.00% per annum for LIBOR loans and between 1.50% and 2.00% per annum for base rate loans depending on the level of our consolidated leverage ratio. The Company is also required to pay a fee on the unused portion of the revolving credit facility equal to 0.35% per annum.
Income tax provision
Our income tax provision includes the expected benefit of all deferred tax assets, including our net operating loss carryforwards. With few exceptions, our net operating loss carryforwards will expire from 2029 through 2037. After consideration of all evidence, both positive and negative, management has determined that no valuation allowance is required atJune 30, 2021 on the Company'sU.S. federal or state deferred tax assets; however, a valuation allowance has been recorded as ofJune 30, 2021 on deferred tax assets associated with Canadian net operating loss carryforwards. Our income tax provision reflects the effects of state taxes, non-deductible expenses, share-based compensation expense, and foreign tax rates applicable to the Company's foreign subsidiaries that are higher or lower than theU.S. statutory rate. Net Income Net income is determined by subtracting operating and non-operating expenses from revenues. Earnings per Share Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding for each period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares and common share equivalents outstanding for each period. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock units, restricted stock awards and performance stock units have vested, using the treasury stock method.
Segments
Our business is organized around one reportable segment that provides money transmittal services betweenthe United States andCanada toMexico ,Guatemala and other countries inLatin America ,Africa andAsia through a network of authorized agents located in various unaffiliated retail establishments and 34 Company-operated stores throughoutthe United States andCanada . This is based on the 25
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objectives of the business and how our chief operating decision maker, the CEO and President, monitors operating performance and allocates resources.
Results of Operations
The following table summarizes key components of our results of operations for
the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except for share data) 2021 2020 2021 2020
Revenues:
Wire transfer and money order fees, net
$ 180,218 $ 139,888 Foreign exchange gain, net 16,655 11,660 29,703 21,214 Other income 786 609 1,402 1,211 Total revenues 116,747 85,062 211,323 162,313 Operating expenses: Service charges from agents and banks 77,864 56,271 141,237 108,498 Salaries and benefits 10,175 7,069 20,050 14,428 Other selling, general and administrative expenses 7,079 5,155 12,582 10,492 Depreciation and amortization 2,345 2,691 4,679 5,381 Total operating expenses 97,463 71,186 178,548 138,799 Operating income 19,284 13,876 32,775 23,514 Interest expense 1,254 1,633 2,594 3,503 Income before income taxes 18,030 12,243 30,181 20,011 Income tax provision 4,803 3,265 7,977 5,345 Net income$ 13,227 $ 8,978 $ 22,204 $ 14,666 Earnings per common share: Basic $ 0.34$ 0.24 $ 0.58$ 0.39 Diluted $ 0.34$ 0.24 $ 0.57$ 0.39 Three Months EndedJune 30, 2021 Compared to Three Months EndedJune 30, 2020 Revenues Revenues for the above periods are presented below: Three Months Ended % of Three Months Ended % of ($ in thousands) June 30, 2021 Revenues June 30, 2020 Revenues
Revenues:
Wire transfer and money order fees, net$ 99,306 85 %$ 72,793 85 % Foreign exchange gain, net 16,655 14 % 11,660 14 % Other income 786 1 % 609 1 % Total revenues$ 116,747 100 %$ 85,062 100 % Wire transfer and money order fees, net of$99.3 million for the three months endedJune 30, 2021 increased by$26.5 million from$72.8 million for the three months endedJune 30, 2020 . This increase of$26.5 million was primarily due to a 33.4% increase in 26
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transaction volume compared to the second quarter of 2020, largely due to the continued growth in our agent network, which increased by 17.9% fromJune 2020 toJune 2021 . Revenues from foreign exchange gain, net of$16.7 million for the three months endedJune 30, 2021 increased by$5.0 million from$11.7 million for the three months endedJune 30, 2020 . This increase was primarily due to higher transaction volume achieved by growth in our agent network and a higher average amount sent by our customers, primarily as a result of increased foreign exchange volatility in the Mexican peso during the second quarter of 2021. Operating Expenses Operating expenses for the above periods are presented below: Three Months Ended % of Three Months Ended % of ($ in thousands) June 30, 2021 Revenues June 30, 2020 Revenues Operating expenses: Service charges from agents and banks$ 77,864 67 %$ 56,271 66 % Salaries and benefits 10,175 9 % 7,069 8 % Other selling, general and administrative expenses 7,079 6 % 5,155 6 % Depreciation and amortization 2,345 2 % 2,691 3 % Total operating expenses$ 97,463 84 %$ 71,186 83 % Service charges from agents and banks - Service charges from agents and banks were$77.9 million for the three months endedJune 30, 2021 compared to$56.3 million for the three months endedJune 30, 2020 . The increase of$21.6 million was primarily due to the increase in transaction volume described above. Salaries and benefits - Salaries and benefits of$10.2 million for the three months endedJune 30, 2021 increased by$3.1 million from$7.1 million for the three months endedJune 30, 2020 . The increase of$3.1 million is primarily due to$2.3 million spent in talent acquisition and retention and increased wages to recognize performance, and to support the continued growth of our business,$0.1 million increase in commission expense for our sales representatives and$0.7 million increase in share-based compensation as a result of new awards granted in the three months endedJune 30, 2021 and at the end of the first quarter of 2021. Other selling, general and administrative expenses - Other selling, general and administrative expenses of$7.1 million for the three months endedJune 30, 2021 increased by$1.9 million from$5.2 million for the three months endedJune 30, 2020 .
The increase was the result of:
•$0.8 million - increase in advertising and promotion expenses as last year we curtailed these activities because of the COVID-19 pandemic; •$0.6 million - higher professional fees, travel and other operating expenses to support our business growth, some of which expenses were reduced last year by the COVID-19 pandemic; •$0.4 million - higher IT related expenses incurred to sustain our business expansion and improve our technology environment; and •$0.1 million - increase in provision for credit losses, as write-offs were higher in the three months endedJune 30, 2021 . Depreciation and amortization - Depreciation and amortization of$2.3 million for the three months endedJune 30, 2021 decreased by$0.4 million from$2.7 million for the three months endedJune 30, 2020 . This decrease is mainly due to approximately$0.5 million less amortization related to our trade name, developed technology and agent relationships during the second quarter of 2021, as these intangibles are being amortized on an accelerated basis, which declines over time. This decrease was partially offset by an increase in depreciation of$0.1 million associated primarily with additional computer equipment acquired to support our growing business and sending agent network. Non-Operating Expenses Interest expense - Interest expense of$1.3 million for the three months endedJune 30, 2021 decreased by$0.3 million from$1.6 million for the three months endedJune 30, 2020 . The decrease was primarily due to lower market interest rates paid under the credit agreements (as described below) and lower drawings under our revolving credit facility. 27
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Income tax provision - Income tax provision was$4.8 million for the three months endedJune 30, 2021 , which represents an increase of$1.5 million from an income tax provision of$3.3 million for the three months endedJune 30, 2020 . The increase in the income tax provision was mainly attributable to higher taxable income resulting from higher revenues from our growth. Net Income We reported net income of$13.2 million for the three months endedJune 30, 2021 compared to net income of$9.0 million for the three months endedJune 30, 2020 , which resulted in an increase of$4.2 million due to the same factors discussed above. Non-GAAP Financial Measures We use Adjusted Net Income, Adjusted Earnings per Share and Adjusted EBITDA to evaluate our performance, both internally and as compared with our peers, because these measures exclude certain items that may not be indicative of our core operating results, as well as items that can vary widely among companies within our industry. For example, non-cash compensation costs can be subject to volatility from changes in the market price per share of our common stock or variations in the value and number of shares granted, and amortization of intangible assets is subject to acquisition activity, which varies from period to period and amortization of intangibles expense is primarily related to the effects of push down accounting resulting from acquisitions. We present these non-GAAP financial measures because we believe they are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Furthermore, we believe they are helpful in highlighting trends in our operating results by focusing on our core operating results and are useful to evaluate our performance in conjunction with our GAAP financial measures. Adjusted Net Income, Adjusted Earnings per Share and Adjusted EBITDA are non-GAAP financial measures and should not be considered as an alternative to operating income, net income or earnings per share as a measure of operating performance or cash flows or as a measure of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP measures. Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business because it excludes, among other things, the effects of certain transactions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the jurisdictions in which we operate and capital investments.
In particular, Adjusted EBITDA is subject to certain limitations, including the following:
•Adjusted EBITDA does not reflect interest expense, or the amounts necessary to service interest or principal payments on our Credit Agreement;
•Adjusted EBITDA does not reflect income tax provision (benefit), and because the payment of taxes is part of our operations, tax provision is a necessary element of our costs and ability to operate; •Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any costs of such replacements;
•Adjusted EBITDA does not reflect the noncash component of share-based compensation;
•Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations; and
•other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure. We adjust for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, as well as our other non-GAAP financial measures, only as supplemental information.
Adjusted Net Income and Adjusted Earnings per Share
Adjusted Net Income is defined as net income adjusted to add back certain
charges and expenses, such as non-cash amortization of intangible assets
resulting from push-down accounting, which will recur in future periods until
these assets have been fully amortized, non-cash compensation costs, litigation
settlements and other items set forth in the table below, as these charges and
expenses are not considered a part of our core business operations and are not
an indicator of ongoing, future company performance.
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Adjusted Earnings per Share - Basic and Diluted is calculated by dividing Adjusted Net Income by GAAP weighted-average common shares outstanding (basic and diluted).
Adjusted Net Income for the three months endedJune 30, 2021 was$15.3 million , representing an increase of$4.5 million , or 41.2%, from Adjusted Net Income of$10.8 million for the three months endedJune 30, 2020 . The increase in Adjusted Net Income was primarily due to the increase in revenues of$31.7 million , offset primarily by an increase in service charges from agents and banks of$21.6 million due to higher transaction volume.
The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted Net Income:
Three Months Ended June 30,
(in thousands, except for per share data) 2021 2020
Net Income $ 13,227 $ 8,978
Adjusted for:
Share-based compensation (a) 1,374 686
TCPA settlement (b) - 23
Other charges and expenses (c) 176 97
Amortization of intangibles (d) 1,263 1,710
Income tax benefit related to adjustments (e) (763) (671)
Adjusted Net Income $
15,277
Adjusted Earnings per Share Basic $ 0.40$ 0.28 Diluted $ 0.39$ 0.28 Weighted-average common shares outstanding Basic 38,433,748 38,035,279 Diluted 39,027,414 38,047,792 (a)Equity awards were granted to employees and independent directors of theCompany. (b) Represents legal fees for the settlement of a class action lawsuit related to the TCPA. (c)Includes loss on disposal of fixed assets and foreign currency (gains) losses. (d)Represents the amortization of certain intangible assets that resulted from the application of push-down accounting. (e)Represents the current and deferred tax impact of the taxable adjustments to net income using the Company's blended federal and state tax rate for each period. Relevant tax-deductible adjustments include all adjustments to net income. 29
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Adjusted Earnings per Share - Basic for the three months endedJune 30, 2021 was$0.40 , representing an increase of$0.12 , or 42.9%, compared to$0.28 for the three months endedJune 30, 2020 . Adjusted Earnings per Share - Diluted for the three months endedJune 30, 2021 was$0.39 , representing an increase of$0.11 , or 39.3%, compared to$0.28 for the three months endedJune 30, 2020 .
The following table presents the reconciliation of GAAP Earnings per Share, our closest GAAP measure, to Adjusted Earnings per Share:
Three Months Ended June 30,
2021 2020
Basic Diluted Basic and Diluted
GAAP Earnings per Share $ 0.34 $ 0.34 $ 0.24
Adjusted for:
Share-based compensation 0.04 0.04 0.02
TCPA settlement - - NM
Other charges and expenses NM NM NM
Amortization of intangibles 0.03 0.03 0.04
Income tax benefit related to adjustments (0.01) (0.02) (0.02)
Adjusted Earnings per Share $ 0.40 $ 0.39 $ 0.28
NM - Per share amounts are not meaningful.
The table above may contain slight summation differences due to rounding.
Adjusted EBITDA
Adjusted EBITDA is defined as net income before depreciation and amortization, interest expense, income taxes, and also adjusted to add back certain charges and expenses, such as non-cash compensation costs and other items set forth in the table below, as these charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance. Adjusted EBITDA for the three months endedJune 30, 2021 was$23.2 million , representing an increase of$5.8 million , or 33.4%, from$17.4 million for the three months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily due to the increase in revenues of$31.7 million , offset primarily by an increase in service charges from agents and banks of$21.6 million due to an increase in transaction volume.
The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted EBITDA:
Three Months Ended June 30,
(in thousands) 2021 2020
Net Income $ 13,227 $ 8,978
Adjusted for:
Interest expense 1,254 1,633
Income tax provision 4,803 3,265
Depreciation and amortization 2,345 2,691
EBITDA 21,629 16,567
Share-based compensation (a) 1,374 686
TCPA settlement (b) - 23
Other charges and expenses (c) 176 97
Adjusted EBITDA $ 23,179 $ 17,373
(a)Equity awards were granted to employees and independent directors of the
Company.
(b) Represents legal fees for the settlement of a class action lawsuit related to
the TCPA.
(c)Includes loss on disposal of fixed assets and foreign currency (gains)
losses.
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Index
Six Months Ended
Six Months Ended % of Six Months Ended % of
($ in thousands) June 30, 2021 Revenues June 30, 2020 Revenues
Revenues:
Wire transfer and money order fees, net $ 180,218 85 % $ 139,888 86 % Foreign exchange gain, net 29,703 14 % 21,214 13 % Other income 1,402 1 % 1,211 1 % Total revenues $ 211,323 100 % $ 162,313 100 % Wire transfer and money order fees, net of$180.2 million for the six months endedJune 30, 2021 increased by$40.3 million from$139.9 million for the six months endedJune 30, 2020 . This increase of$40.3 million was primarily due to a 26.6% increase in transaction volume compared to the six months endedJune 30, 2020 , largely due to the continued growth in our agent network, which increased by 17.9% fromJune 2020 toJune 2021 . Revenues from foreign exchange gain, net of$29.7 million for the six months endedJune 30, 2021 increased by$8.5 million from$21.2 million for the six months endedJune 30, 2020 . This increase was primarily due to higher transaction volume achieved by growth in our agent network and a higher average amount sent by our customers primarily as a result of increased foreign exchange volatility in the Mexican peso during the first six months of 2021. Operating Expenses Operating expenses for the above periods are presented below: Six Months Ended % of Six Months Ended % of ($ in thousands) June 30, 2021 Revenues June 30, 2020 Revenues Operating expenses: Service charges from agents and banks $ 141,237 67 % $ 108,498 67 % Salaries and benefits 20,050 9 % 14,428 9 % Other selling, general and administrative expenses 12,582 6 % 10,492 7 % Depreciation and amortization 4,679 2 % 5,381 3 % Total operating expenses $ 178,548 84 % $ 138,799 86 % Service charges from agents and banks - Service charges from agents and banks were$141.2 million for the six months endedJune 30, 2021 compared to$108.5 million for the six months endedJune 30, 2020 . The increase of$32.7 million was primarily due to the increase in transaction volume described above. Salaries and benefits - Salaries and benefits of$20.1 million for the six months endedJune 30, 2021 increased by$5.7 million from$14.4 million for the six months endedJune 30, 2020 . The increase of$5.7 million is primarily due to$4.0 million spent in talent acquisition and retention and increased wages to recognize performance, and to support the continued growth of our business, a$0.8 million increase in commission expense for our sales representatives and$0.9 million increase in share-based compensation as a result of new awards granted in the first six months of 2021. Other selling, general and administrative expenses - Other selling, general and administrative expenses of$12.6 million for the six months endedJune 30, 2021 increased by$2.1 million from$10.5 million for the six months endedJune 30, 2020 .
The increase was the result of:
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Index
•$1.1 million - increase in advertising and promotion expenses as last year we curtailed these activities because of the COVID-19 pandemic; •$0.7 million - higher professional fees and other operating expenses to support our business growth, some of which expenses were reduced last year by the COVID-19 pandemic; and •$0.7 million - higher IT related expenses incurred to sustain our business expansion and improve our technology environment.
These increases were partially offset by:
•$0.4 million - reduction in provision for credit losses, as the six months endedJune 30, 2020 include certain losses resulting from the deterioration of the creditworthiness of a small number of sending agents rather than the result of sending agents that were adversely affected by the COVID-19 pandemic. Depreciation and amortization - Depreciation and amortization of$4.7 million for the six months endedJune 30, 2021 decreased by$0.7 million from$5.4 million for the six months endedJune 30, 2020 . This decrease is mainly due to$0.9 million less amortization related to our trade name, developed technology and agent relationships during the first half of 2021, as these intangibles are being amortized on an accelerated basis, which declines over time. This decrease was partially offset by an increase in depreciation of$0.2 million associated primarily with additional computer equipment acquired to support our growing business and sending agent network. Non-Operating Expenses Interest expense - Interest expense of$2.6 million for the six months endedJune 30, 2021 decreased by$0.9 million from$3.5 million for the six months endedJune 30, 2020 . The decrease was primarily due to lower market interest rates paid under the credit agreements (as described below) and lower drawings under our revolving credit facility. Income tax provision - Income tax provision was$8.0 million for the six months endedJune 30, 2021 , which represents an increase of$2.7 million from an income tax provision of$5.3 million for the six months endedJune 30, 2020 . The increase in the income tax provision was mainly attributable to higher taxable income resulting from higher revenues from our growth. Net Income We reported net income of$22.2 million for the six months endedJune 30, 2021 compared to net income of$14.7 million for the six months endedJune 30, 2020 , which resulted in an increase of$7.5 million due to the same factors discussed above. Non-GAAP Financial Measures Adjusted Net Income and Adjusted Earnings per Share Adjusted Net Income (previously defined and used as described above) for the six months endedJune 30, 2021 was$25.9 million , representing an increase of$7.5 million , or 40.7%, from Adjusted Net Income of$18.4 million for the six months endedJune 30, 2020 . The increase in Adjusted Net Income was primarily due to the increase in revenues of$49.0 million , offset primarily by an increase in service charges from agents and banks of$32.7 million due to higher transaction volume. 32
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Index
The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted Net Income:
Six Months Ended June 30 ,
(in thousands, except for per share data) 2021 2020
Net Income$ 22,204 $ 14,666 Adjusted for: Share-based compensation (a) 2,270
1,408
TCPA settlement (b) -
46
Other charges and expenses (c) 293
244
Amortization of intangibles (d) 2,525
3,421
Income tax benefit related to adjustments (e) (1,382) (1,366) Adjusted Net Income$ 25,910 $ 18,419 Adjusted Earnings per Share Basic$ 0.68 $ 0.48 Diluted$ 0.67 $ 0.48 Weighted-average common shares outstanding Basic 38,336,977 38,035,146 Diluted 38,937,699 38,043,233 (a)Equity awards were granted to employees and independent directors of theCompany. (b) Represents legal fees for the settlement of a class action lawsuit related to the TCPA. (c)Includes loss on disposal of fixed assets and foreign currency (gains) losses. (d)Represents the amortization of certain intangible assets that resulted from the application of push-down accounting. (e)Represents the current and deferred tax impact of the taxable adjustments to net income using the Company's blended federal and state tax rate for each period. Relevant tax-deductible adjustments include all adjustments to net income. Adjusted Earnings per Share - Basic (previously defined and used as described above) for the six months endedJune 30, 2021 was$0.68 , representing an increase of$0.20 , or 41.7%, compared to$0.48 for the six months endedJune 30, 2020 . Adjusted Earnings per Share - Diluted (previously defined and used as described above) for the six months endedJune 30, 2021 was$0.67 , representing an increase of$0.19 , or 39.6%, compared to$0.48 for the six months endedJune 30, 2020 .
The following table presents the reconciliation of GAAP Earnings per Share, our closest GAAP measure, to Adjusted Earnings per Share:
Six Months Ended June 30,
2021 2020
Basic Diluted Basic and Diluted
GAAP Earnings per Share $ 0.58 $ 0.57 $ 0.39
Adjusted for:
Share-based compensation 0.06 0.06 0.04
TCPA settlement - - NM
Other charges and expenses 0.01 0.01 0.01
Amortization of intangibles 0.07 0.07 0.09
Income tax benefit related to adjustments (0.04) (0.04) (0.04)
Adjusted Earnings per Share $ 0.68 $ 0.67 $ 0.48
NM - Per share amounts are not meaningful.
The table above may contain slight summation differences due to rounding.
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Index Adjusted EBITDA Adjusted EBITDA (previously defined and used as described above) for the six months endedJune 30, 2021 was$40.0 million , representing an increase of$9.4 million , or 30.8%, from$30.6 million for the six months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily due to the increase in revenues of$49.0 million , offset primarily by an increase in service charges from agents and banks of$32.7 million due to an increase in transaction volume.
The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted EBITDA:
Six Months Ended June 30,
(in thousands) 2021 2020
Net Income $ 22,204 $ 14,666
Adjusted for:
Interest expense 2,594 3,503
Income tax provision 7,977 5,345
Depreciation and amortization 4,679 5,381
EBITDA 37,454 28,895
Share-based compensation (a) 2,270 1,408
TCPA settlement (b) - 46
Other charges and expenses (c) 293 244
Adjusted EBITDA $ 40,017 $ 30,593
(a)Equity awards were granted to employees and independent directors of the
Company.
(b) Represents legal fees for the settlement of a class action lawsuit related to
the TCPA.
(c)Includes loss on disposal of fixed assets and foreign currency (gains)
losses.
Liquidity and Capital Resources
We consider liquidity in terms of cash flows from operations and their
sufficiency to fund business operations, including working capital needs, debt
service, acquisitions, contractual obligations and other commitments. In
particular, to meet our payment service obligations at all times, we must have
sufficient highly liquid assets and be able to move funds on a timely basis.
Our principal sources of liquidity are our cash generated by operating
activities supplemented with borrowings under our revolving credit facility. Our
primary cash needs are for day to day operations, to pay interest and principal
on our indebtedness, to fund working capital requirements and to make capital
expenditures.
Notwithstanding the recent effects of the COVID-19 pandemic in the U.S. economy,
we have funded and still expect to continue funding our liquidity requirements
through internally generated funds, supplemented in the ordinary course, with
borrowings under our revolving credit facility. While our operating cash flows
may be affected by the economic conditions resulting from the pandemic and other
factors, we maintain a strong cash balance position and have access to committed
funding sources, which we have used only on a limited and ordinary course basis
during the six months ended June 30, 2021 . Therefore, we believe that our
projected cash flows generated from operations, together with borrowings under
our revolving credit facility are sufficient to fund our principal debt
payments, interest expense, our working capital needs and our expected capital
expenditures for at least the next twelve months.
The Company and certain of its domestic subsidiaries as borrowers and the other
guarantors from time to time party thereto (collectively, the "Loan Parties")
entered into a financing agreement with a group of banking institutions, dated
November 7, 2018 and further amended on December 7, 2018 (the "Original Credit
Agreement"). The Original Credit Agreement provided for a $35 million revolving
credit facility, a $90 million term loan facility and an up to $30 million
incremental facility of which $12 million was utilized for the term loan
facility in 2019 and $10 million was utilized for the revolving credit facility
in May of 2021 (see below). The Original Credit Agreement also provided for the
issuance of letters of credit, which would reduce availability under the
revolving credit facility. The maturity date of the Original Credit Agreement
was November 7, 2023 .
Effective as of May 12, 2021 , the Company amended the Original Credit Agreement
by entering into Increase Joinder No. 2 (the "Joinder No. 2") to the Original
Credit Agreement, under which the revolving line of credit commitment under the
Original Credit Agreement was increased by $10 million to an aggregate of $45
million . The Joinder No. 2 did not have any impact to any of the terms of the
term loan facility under the Original Credit Agreement.
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Index
OnJune 24, 2021 , the Loan Parties entered into an Amended and Restated Credit Agreement (the "A&R Credit Agreement") with a group of banking institutions. The A&R Credit Agreement amended and restated in its entirety the Original Credit Agreement. The A&R Credit Agreement provides for a$150 million revolving credit facility, an$87.5 million term loan facility and an uncommitted incremental facility, which may be utilized for additional revolving or term loans, of up to$70 million . The A&R Credit Agreement also provides for the issuance of letters of credit, which would reduce availability under the revolving credit facility. The proceeds of the term loan were used to refinance the$87.5 million principal amount of the existing term loan under the Original Credit Agreement, and the revolving credit facility is available for working capital, general corporate purposes and to pay fees and expenses in connection with this transaction. The maturity date of the A&R Credit Agreement isJune 24, 2026 . As ofJune 30, 2021 , we had total indebtedness of$87.5 million , consisting of borrowings under the term loan facility, excluding debt origination costs of$2.5 million . There were$220.0 million of additional borrowings available under these facilities as ofJune 30, 2021 . At the election of the Company, interest on the term loan facility and revolving credit facility under the A&R Credit Agreement is determined by reference to either LIBOR (subject to replacement) or a "base rate", in each case plus an applicable margin ranging between 2.50% and 3.00% per annum for LIBOR loans and between 1.50% and 2.00% per annum for base rate loans depending on the level of our consolidated leverage ratio, as calculated pursuant to the terms of the A&R Credit Agreement. The Company is also required to pay a fee on the unused portion of the revolving credit facility equal to 0.35% per annum. The effective interest rates for the six months endedJune 30, 2021 for the term loan facility and revolving credit facility, which substantially related to the Original Credit Agreement, were 5.19% and 0.98%, respectively. Interest is payable (x)(i) generally on the last day of each interest period selected for LIBOR loans, but in any event, not less frequently than every three months, and (ii) on the last business day of each quarter for base rate loans and (y) at final maturity. The principal amount of the term loan facility under the A&R Credit Agreement must be repaid in consecutive quarterly installments of 5.0% in years 1 and 2, 7.5% in year 3, and 10.0% in years 4 and 5, in each case on the last day of each quarter, commencing inSeptember 2021 with a final balloon payment at maturity. The term loans under the A&R Credit Agreement may be prepaid at any time without premium or penalty. Revolving loans may be borrowed, repaid and reborrowed from time to time in accordance with the terms and conditions of the A&R Credit Agreement. The Company is also required to repay the loans upon receipt of net proceeds from certain casualty events, upon the disposition of certain property and upon incurrence of indebtedness not permitted by the A&R Credit Agreement. In addition, the Company is required to make mandatory prepayments annually from excess cash flow if the Company's consolidated leverage ratio (as calculated under the A&R Credit Agreement) is greater than or equal to 3.0, and the remainder of any such excess cash flow is contributed to the available amount which may be used for a variety of purposes, including investments and distributions. The A&R Credit Agreement contains financial covenants that require the Company to maintain a quarterly minimum fixed charge coverage ratio of 1.25:1.00 and a quarterly maximum consolidated leverage ratio of 3.25:1.00. As ofJune 30, 2021 , we were in compliance with the covenants of the A&R Credit Agreement. The A&R Credit Agreement also contains covenants that limit the Company's and its subsidiaries' ability to, among other things, grant liens, incur additional indebtedness, make acquisitions or investments, dispose of certain assets, change the nature of their businesses, enter into certain transactions with affiliates or amend the terms of material indebtedness.
In addition, the A&R Credit Agreement generally restricts the payment of
dividends or cash distributions by the Company with certain exceptions,
including the following: i) to repurchase the Company's common stock from
current or former employees in an aggregate amount of up to
The obligations under the A&R Credit Agreement are guaranteed by the Company and certain domestic subsidiaries of the Company and secured by liens on substantially all of the assets of the Loan Parties, subject to certain exclusions and limitations.
Our indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from meeting our obligations. See "Risk Factors-Risks Relating to Our Indebtedness-We have a substantial amount of indebtedness, which may limit our operating flexibility and could adversely affect our business, financial condition and results of operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 35
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