UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2020 OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File No. 001-37986
| (Exact name of registrant as specified in its charter) | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
( | ||
| (Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ | Large accelerated filer | ☒ | |||||||||
☐ | Non-accelerated filer | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of July 31, 2020, there were 38,048,562 shares of the registrant’s common stock, $0.0001 par value per share, outstanding. The registrant has no other class of common stock outstanding.
INTERNATIONAL MONEY EXPRESS, INC.
INDEX TO FINANCIAL STATEMENTS
| Page | ||||||||
| PART 1 - FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II - OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views with respect to certain events that could have an effect on our future performance, including but without limitation, statements regarding our plans, objectives, financial performance, business strategies, expectations for our business and the business of the Company.
These statements relate to expectations concerning matters that are not historical fact and may include the words or phrases such as “would,” “will,” “should,” “expects,” “believes,” “anticipates,” “continues,” “could,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “forecasts,” “intends,” “assumes,” “estimates,” “approximately,” “shall,” “our planning assumptions,” “future outlook” and similar expressions, but the absence of these words does not mean that a statement is not forward-looking. Except for historical information, matters discussed in this Form 10-Q are forward-looking statements. These forward-looking statements are based largely on information currently available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, as well as macroeconomic conditions, and are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks, uncertainties, contingencies and other factors (many of which are outside our control) that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, there is no assurance that our expectations will, in fact, occur or that our estimates or assumptions will be correct, and we caution investors and all others not to place undue reliance on such forward-looking statements. Some factors that could cause actual results to differ and could materially adversely affect our business, financial condition, results of operations, cash flows and liquidity include, but are not limited to:
•the ability to maintain the listing of our common stock on Nasdaq;
•changes in applicable laws or regulations;
•the possibility that we may be adversely affected by other economic, business and/or competitive factors;
•factors relating to our business, operations and financial performance, including:
◦the COVID-19 pandemic, responses thereto and the economic and market effects thereof, including unemployment levels and increased capital markets 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, computer network systems and data centers;
◦our ability to maintain agent relationships on terms consistent with those currently in place;
◦our ability to maintain banking relationships necessary for us to conduct our business;
◦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 the London Inter-bank Offered Rate (“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 the 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 of the United States;
◦changes in tax laws and unfavorable outcomes of tax positions we take;
◦political instability, currency restrictions and volatility in countries in which we operate or plan to operate;
◦consumer fraud and other risks relating to customers’ authentication;
◦weakness in U.S. or international economic conditions;
◦change or disruption in international migration patterns;
◦our ability to protect our brand and intellectual property rights;
◦our ability to retain key personnel; and
•other economic, business and/or competitive factors, risks and uncertainties, including those described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
3
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
| June 30, 2020 | December 31, 2019 | ||||||||||
| ASSETS | (unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash | $ | $ | |||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Prepaid wires, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred tax asset, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt, net | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Wire transfers and money orders payable, net | |||||||||||
| Accrued and other liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities: | |||||||||||
| Debt, net | |||||||||||
| Total long-term liabilities | |||||||||||
| Commitments and contingencies, see Note 13 | |||||||||||
| Stockholders' equity: | |||||||||||
Common stock $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(in thousands, except for share data, unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Wire transfer and money order fees, net | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange gain, net | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Service charges from agents and banks | |||||||||||||||||||||||
| Salaries and benefits | |||||||||||||||||||||||
Other selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic and diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except for share data, unaudited)
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Adjustment from foreign currency translation, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Warrant exchange | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Adjustment from foreign currency translation, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except for share data, unaudited)
| Six Months Ended | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock: | |||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Adjustment from foreign currency translation, net | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Six Months Ended | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
Adoption of revenue recognition accounting pronouncement | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Warrant exchange | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Adjustment from foreign currency translation, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
| Six Months Ended June 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Provision for bad debt | |||||||||||
| Debt origination costs amortization | |||||||||||
| Deferred income tax provision, net | |||||||||||
| Loss on disposal of property and equipment | |||||||||||
| Total adjustments | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Prepaid wires, net | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Wire transfers and money orders payable, net | |||||||||||
| Accounts payable and accrued other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Acquisition of agent locations | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings under term loan | |||||||||||
| Repayments of term loan | ( | ( | |||||||||
| Borrowings under revolving loan, net | |||||||||||
| Debt origination costs | ( | ||||||||||
| Cash paid in warrant exchange | ( | ||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net increase in cash | |||||||||||
| Cash, beginning of period | |||||||||||
| Cash, end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands, unaudited)
| Six Months Ended June 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Supplemental disclosure of non-cash investing activity: | |||||||||||
| Agent business acquired in exchange for receivables | $ | $ | |||||||||
| Supplemental disclosure of non-cash financing activity: | |||||||||||
| Issuance of common stock for cashless exercise of options | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BUSINESS AND ACCOUNTING POLICIES
International Money Express, Inc. (the “Company” or “us” or “we”) operates as a money transmitter between the United States of America (“U.S.”) and Canada to Mexico, Guatemala and other countries in Latin America, Africa and Asia through a network of authorized agents located in various unaffiliated retail establishments and 33 Company-operated stores throughout the U.S. and Canada.
The condensed consolidated financial statements of the Company include Intermex, its wholly-owned indirect subsidiary, Intermex Wire Transfer, LLC (“LLC”), Intermex Wire Transfers de Guatemala, S.A. (“Intermex Guatemala”) - 99.8 % owned by LLC, Intermex Wire Transfer de Mexico, S.A. and Intermex Transfers de Mexico, S.A. (“Intermex Mexico”) - 98 % owned by LLC, Intermex Wire Transfer Corp. - 100 % owned by LLC, Intermex Wire Transfer II, LLC - 100 % owned by LLC and Canada International Transfers Corp. - 100 % owned by LLC. Non-controlling interest in the results of operations of consolidated subsidiaries represents the minority stockholders’ share of the profit or loss of Intermex Mexico and Intermex Guatemala. The non-controlling interest asset and non-controlling interest in the portion of the profit or loss from operations of these subsidiaries were not recorded by the Company as they are considered immaterial.
The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All significant inter-company balances and transactions have been eliminated from the condensed consolidated financial statements.
The Company’s interim condensed consolidated financial statements and related notes are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. Certain information and footnote disclosures required by GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Risks and Uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of the outbreak of a new strain of coronavirus (“COVID-19”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally and national, state and local governments in the jurisdictions where we operate and serve our customers imposed emergency restrictions to mitigate the spread of the virus.
Starting in March 2020, governmental authorities took measures that restricted the normal course of operations of businesses and consumers. Although those restrictions were in place for most of the second quarter and affected the Company, sending and paying agents as well as consumers and their beneficiaries, those 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 month periods ended June 30, 2020.
The Company and our sending agents are considered essential businesses under current federal guidance; however, 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 results of operations and financial condition is dependent on 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, all of which remain uncertain and cannot be predicted at this time. If the global response to contain the COVID-19 pandemic escalates further or is unsuccessful, or if governmental decisions to ease pandemic related restrictions are ineffective, premature, counterproductive or reversed, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.
Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued guidance, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. The guidance requires that a lessee recognizes a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. This guidance is required to be adopted by the Company on January 1, 2022 and may be applied using either the earliest period adjustment method or the modified retrospective approach. The adoption of this guidance is not expected to have a material impact on the condensed consolidated financial statements.
10
The FASB issued amended guidance, Intangibles – Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment. The amended standard simplifies how an entity tests goodwill by eliminating Step 2 of the goodwill impairment test related to measuring an impairment charge. Instead, impairment will be recorded for the amount that the carrying amount of a reporting unit exceeds its fair value. This new guidance is effective for the Company on January 1, 2021. The adoption of this guidance is not expected to have a material impact on the condensed consolidated financial statements.
The FASB issued amended guidance, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amended standard requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customers in a software licensing arrangement. This new guidance is effective for the Company on January 1, 2021. The Company is currently evaluating the impact this guidance will have on the condensed consolidated financial statements.
The FASB issued guidance, Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This new guidance is effective for the Company on January 1, 2021. The adoption of this guidance is not expected to have a material impact on the condensed consolidated financial statements.
The FASB issued guidance, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, regarding the measurement of credit losses for certain financial instruments. The new standard replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company is currently required to adopt the new standard on January 1, 2023. The Company is currently evaluating the impact this guidance will have on the condensed consolidated financial statements.
The FASB issued guidance, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This accounting standards update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This new guidance can be adopted by the Company no later than December 1, 2022, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the condensed consolidated financial statements.
NOTE 2 – REVENUES
The Company recognized revenues from contracts with customers for the three and six months ended June 30, 2020 and 2019, as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Wire transfer and money order fees | $ | $ | $ | $ | |||||||||||||||||||
| Discounts and promotions | ( | ( | ( | ( | |||||||||||||||||||
| Wire transfer and money order fees, net | |||||||||||||||||||||||
| Foreign exchange gain, net | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
There are no significant initial costs incurred to obtain contracts with customers, although the Company has a loyalty program under which customers earn one point for each wire transfer completed. Points can be redeemed for a discounted wire transaction fee or foreign exchange rate. The discounts vary by country, and the earned points expire if the customer has not initiated and completed an eligible wire transfer transaction within the immediately preceding 180 day period. In addition, earned points will expire 30 days after the end of the program. Therefore, because the loyalty program benefits represent a future performance obligation, a portion of the initial consideration is recorded as deferred revenue (see Note 7) and a corresponding loyalty program expense is recorded as contra revenue. Revenue from this performance obligation is recognized upon customers redeeming points or upon expiration of any points outstanding.
Except for the loyalty program discussed above, our revenues include only one performance obligation, which is to collect the customer’s money and make funds available for payment, generally on the same day, to a designated recipient in the currency requested.
11
NOTE 3 – ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
Accounts receivable represent outstanding balances from sending agents for pending wire transfers or money orders from our customers. The outstanding balance consists of the following (in thousands):
| June 30, 2020 | December 31, 2019 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
The changes in the allowance for credit losses is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Provision | |||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||
| Recoveries | |||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
The allowance for credit losses allocated by financial instrument category is as follows (in thousands):
| June 30, 2020 | December 31, 2019 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
Notes receivable (1) | |||||||||||
| Allowance for credit losses | $ | $ | |||||||||
(1) This allowance relates to $1.5 million and $1.3 million in notes receivable from sending agents as of June 30, 2020 and December 31, 2019, respectively. The current portion of these notes amounted to $1.1 million and $1.0 million as of June 30, 2020 and December 31, 2019, respectively, The net current portion is included in prepaid expenses and other current assets (see Note 4) and the net long-term portion is included in other assets in the condensed consolidated balance sheets.
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following (in thousands):
| June 30, 2020 | December 31, 2019 | ||||||||||
| Prepaid insurance | $ | $ | |||||||||
| Prepaid fees | |||||||||||
| Notes receivable, net of allowance | |||||||||||
| Prepaid taxes | |||||||||||
| Other prepaid expenses and current assets | |||||||||||
| $ | $ | ||||||||||
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS
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are subject to various risks and uncertainties. Management believes it has made reasonable estimates and judgments concerning these risks and uncertainties. See below for further discussion on impairment.
The following table presents the changes in goodwill and intangible assets (in thousands):
| Goodwill | Intangibles | ||||||||||
| Balance at December 31, 2019 | $ | $ | |||||||||
| Amortization expense | ( | ||||||||||
| Balance at June 30, 2020 | $ | $ | |||||||||
Amortization expense related to intangible assets for the next five years and thereafter is as follows (in thousands):
| 2020 | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| $ | |||||
Due to the COVID-19 pandemic that has resulted in a deterioration in macro-economic conditions and increased stock market volatility, the Company performed a qualitative assessment of goodwill during the second quarter of 2020 to determine whether a quantitative test was necessary. Although our fair value measurements include some significant inputs, such as the Company’s forecasted revenues and assumed turnover of agent locations, that may have or will be affected by the pandemic, we believe that as of June 30, 2020, the effects of the pandemic have not had a material negative effect on the Company’s financial condition, results of operations and cash flows. As a result, there are currently no indicators that the fair value of the Company’s goodwill is below its carrying amount based on our qualitative assessment. Therefore, we determined that a quantitative test was not necessary as of June 30, 2020.
For our finite-lived intangibles, we also assessed during the second quarter of 2020 whether there were events or changes in circumstances that indicated that the carrying amounts of our intangible assets may not be recoverable. Similar to our goodwill assessment above, we believe that as of June 30, 2020, the effects of the COVID-19 pandemic have not had a material negative effect on the company’s financial condition, results of operations and cash flows. As a result, there are currently no indicators that could require an impairment test. Therefore, we determined that the carrying amounts of our intangibles are recoverable as of June 30, 2020.
We will continue to monitor this evolving pandemic to determine the need, if any, to further evaluate for impairment our goodwill and intangible assets.
NOTE 6 – WIRE TRANSFERS AND MONEY ORDERS PAYABLE, NET
Wire transfers and money orders payable, net consisted of the following (in thousands):
| June 30, 2020 | December 31, 2019 | ||||||||||
| Wire transfers payable, net | $ | $ | |||||||||
| Customer voided wires payable | |||||||||||
| Money orders payable | |||||||||||
| $ | $ | ||||||||||
Customer voided wires payable consist of wire transfers that were not completed because the recipient did not collect the funds within 30 days and the sender has not claimed the funds and, therefore, are considered unclaimed property. Unclaimed property laws of each state in the United States in which we operate, the District of Columbia, and Puerto Rico require us to track certain information for all of our money remittances and payment instruments and, if the funds underlying such remittances and instruments are unclaimed at the end of an applicable statutory abandonment period, require us to remit the proceeds of the unclaimed property to the appropriate jurisdiction. Applicable statutory abandonment periods range from three to seven years.
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NOTE 7 – ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following (in thousands):
| June 30, 2020 | December 31, 2019 | ||||||||||
| Commissions payable to sending agents | $ | $ | |||||||||
| Accrued legal settlement (see Note 13) | |||||||||||
| Accrued salaries and benefits | |||||||||||
| Accrued bank charges | |||||||||||
| Accrued interest | |||||||||||
| Accrued legal fees | |||||||||||
| Accrued other professional fees | |||||||||||
| Accrued taxes | |||||||||||
| Deferred revenue loyalty program | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
The following table shows the changes in the deferred revenue loyalty program liability (in thousands):
| Balance, December 31, 2019 | $ | ||||
| Revenue deferred during the period | |||||
| Revenue recognized during the period | ( | ||||
| Balance, June 30, 2020 | $ | ||||
NOTE 8 – DEBT
Debt consisted of the following (in thousands):
| June 30, 2020 | December 31, 2019 | ||||||||||
| Term loan | $ | $ | |||||||||
Less: Current portion of long-term debt (1) | ( | ( | |||||||||
| Less: Debt origination costs | ( | ( | |||||||||
| $ | $ | ||||||||||
(1)Current portion of long-term debt is net of debt origination costs of approximately $0.6
The Company and certain of its domestic subsidiaries as borrowers (the “Loan Parties”) have a financing agreement (as amended, the “Credit Agreement”) with a group of banking institutions. The Credit Agreement provides 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 in the second quarter of 2019. The Credit Agreement also provides for the issuance of letters of credit, which would reduce availability under the revolving credit facility. The maturity date of the Credit Agreement is November 7, 2023. As of June 30, 2020 and December 31, 2019, there were no
Interest on the term loan facility and revolving credit facility under the Credit Agreement is determined by reference to either LIBOR or a “base rate”, in each case plus an applicable margin of 4.50 % per annum for LIBOR loans or 3.50 % per annum for base rate loans. 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 ended June 30, 2020 for the term loan and revolving credit facility were 6.23 % and 1.09 %, respectively.
The principal amount of the term loan facility under the Credit Agreement must be repaid in consecutive quarterly installments of 5.0 % in year 1, 7.5