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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 September 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
INTERNATIONAL MONEY EXPRESS, INC.
(Exact name of registrant as specified in its charter)

Delaware47-4219082
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
9480 South Dixie Highway
Miami, Florida
33156
(Address of Principal Executive Offices)(Zip Code)

(305) 671-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock ($0.0001 par value)IMXI
Nasdaq Capital Market
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 filerAccelerated filer
Non-accelerated filerSmaller 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 October 30, 2020, there were 38,072,882 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.



Index

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 and Canada;
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

Index
PART 1 – FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
September 30, 2020December 31, 2019
ASSETS(unaudited)
Current assets:
Cash$109,067 $86,117 
Accounts receivable, net of allowance of $1,243 and $759, respectively
59,962 39,754 
Prepaid wires, net8,983 18,201 
Prepaid expenses and other current assets2,685 4,155 
Total current assets180,697 148,227 
Property and equipment, net12,770 13,282 
Goodwill36,260 36,260 
Intangible assets, net22,168 27,381 
Deferred tax asset, net 741 
Other assets2,328 1,415 
Total assets$254,223 $227,306 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt, net$7,044 $7,044 
Accounts payable9,890 13,401 
Wire transfers and money orders payable, net48,189 40,197 
Accrued and other liabilities24,086 23,074 
Total current liabilities89,209 83,716 
Long-term liabilities:
Debt, net82,340 87,623 
Deferred tax liabilities, net571  
Total long-term liabilities82,911 87,623 
Commitments and contingencies, see Note 13
Stockholders' equity:
Common stock $0.0001 par value; 230,000,000 shares authorized, 38,059,737 and 38,034,389 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.
4 4 
Additional paid-in capital56,793 54,694 
Retained earnings25,340 1,176 
Accumulated other comprehensive (loss) income(34)93 
Total stockholders' equity82,103 55,967 
Total liabilities and stockholders' equity$254,223 $227,306 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

Index
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(in thousands, except for share data, unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Revenues:
Wire transfer and money order fees, net$82,646 $72,468 $222,534 $201,410 
Foreign exchange gain, net12,296 12,272 33,510 33,297 
Other income652 594 1,863 1,652 
Total revenues95,594 85,334 257,907 236,359 
Operating expenses:
Service charges from agents and banks63,904 56,319 172,403 156,510 
Salaries and benefits8,084 7,612 22,512 22,806 
Other selling, general and administrative expenses
6,336 9,788 16,827 20,850 
Depreciation and amortization2,698 3,179 8,079 9,486 
Total operating expenses81,022 76,898 219,821 209,652 
Operating income14,572 8,436 38,086 26,707 
Interest expense1,530 2,145 5,033 6,503 
Income before income taxes13,042 6,291 33,053 20,204 
Income tax provision3,544 2,253 8,889 5,936 
Net income9,498 4,038 24,164 14,268 
Other comprehensive income (loss)14 (9)(127)34 
Comprehensive income$9,512 $4,029 $24,037 $14,302 
Earnings per common share:
Basic$0.25 $0.11 $0.64 $0.38 
Diluted$0.25 $0.11 $0.63 $0.38 
Weighted-average common shares outstanding:
Basic38,050,610 37,984,316 38,040,339 37,230,831 
Diluted38,652,707 38,286,702 38,246,429 37,365,371 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

Index
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except for share data, unaudited)
Three Months Ended
Common StockAdditional
Paid-in Capital
Retained EarningsAccumulated Other
Comprehensive
Loss
Total
Stockholders'
Equity
SharesAmount
Balance, June 30, 202038,035,279 $4 $56,098 $15,842 $(48)$71,896 
Net income— — — 9,498 — 9,498 
Issuance of common stock:
Exercise of stock options10,607 — (106)— — (106)
Restricted stock units13,851 — — — —  
Share-based compensation— — 801 — — 801 
Adjustment from foreign currency translation, net
— — — — 14 14 
Balance, September 30, 202038,059,737 $4 $56,793 $25,340 $(34)$82,103 

Three Months Ended
Common StockAdditional
Paid-in Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance, June 30, 201937,982,848 $4 $53,118 $(8,203)$41 $44,960 
Net income— — — 4,038 — 4,038 
Issuance of common stock:
Exercise of stock options1,583 — (4)— — (4)
Restricted stock units21,192 — — — —  
Share-based compensation— — 634 — — 634 
Adjustment from foreign currency translation, net
— — — — (9)(9)
Balance, September 30, 201938,005,623 $4 $53,748 $(4,165)$32 $49,619 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6

Index
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except for share data, unaudited)
Nine Months Ended
Common StockAdditional
Paid-in Capital
Retained EarningsAccumulated Other
Comprehensive
(Loss) Income
Total
Stockholders'
Equity
SharesAmount
Balance, December 31, 201938,034,389 $4 $54,694 $1,176 $93 $55,967 
Net income— — — 24,164 — 24,164 
Issuance of common stock:
Exercise of stock options11,497 — (110)— — (110)
Restricted stock units13,851 — — — —  
Share-based compensation— — 2,209 — — 2,209 
Adjustment from foreign currency translation, net
— — — — (127)(127)
Balance, September 30, 202038,059,737 $4 $56,793 $25,340 $(34)$82,103 

Nine Months Ended
Common StockAdditional
Paid-in Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
SharesAmount
Balance, December 31, 201836,182,783 $4 $61,889 $(17,418)$(2)$44,473 
Adoption of revenue recognition accounting pronouncement
— — — (1,015)— (1,015)
Warrant exchange1,800,065 — (10,031)— — (10,031)
Net income— — — 14,268 — 14,268 
Issuance of common stock:
Exercise of stock options1,583 — (4)— — (4)
Restricted stock units21,192 — — — —  
Share-based compensation— — 1,894 — — 1,894 
Adjustment from foreign currency translation, net
— — — — 34 34 
Balance, September 30, 201938,005,623 $4 $53,748 $(4,165)$32 $49,619 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7

Index

INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net income$24,164 $14,268 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization8,079 9,486 
Share-based compensation2,209 1,894 
Provision for bad debt1,421 1,171 
Debt origination costs amortization564 546 
Deferred income tax provision, net1,312 572 
Loss on disposal of property and equipment336 182 
Total adjustments13,921 13,851 
Changes in operating assets and liabilities:
Accounts receivable(21,694)(19,224)
Prepaid wires, net7,773 17,259 
Prepaid expenses and other assets433 933 
Wire transfers and money orders payable, net9,465 21,047 
Accounts payable and accrued and other liabilities(2,465)9,013 
Net cash provided by operating activities31,597 57,147 
Cash flows from investing activities:
Purchases of property and equipment(2,770)(3,817)
Acquisition of agent locations (250)
Net cash used in investing activities(2,770)(4,067)
Cash flows from financing activities:
Borrowings under term loan 12,000 
Repayments of term loan(5,746)(3,679)
Repayments under revolving loan, net (30,000)
Debt origination costs (240)
Proceeds from exercise of options20  
Cash paid in warrant exchange (10,031)
Net cash used in financing activities(5,726)(31,950)
Effect of exchange rate changes on cash(151)30 
Net increase in cash22,950 21,160 
Cash, beginning of period86,117 73,029 
Cash, end of period$109,067 $94,189 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8

Index
INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands, unaudited)
Nine Months Ended September 30,
20202019
Supplemental disclosure of cash flow information:
Cash paid for interest$4,475 $5,780 
Cash paid for income taxes$7,323 $2,550 
Supplemental disclosure of non-cash investing activity:
Agent business acquired in exchange for receivables$ $85 
Supplemental disclosure of non-cash financing activity:
Issuance of common stock for cashless exercise of options$130 $4 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9

Index
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 34 Company-operated stores throughout the U.S. and Canada.
The condensed consolidated financial statements of the Company include Intermex Holdings, Inc., 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 spread 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 and third 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 nine month periods ended September 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.
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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 adoption of this guidance is not expected to have a material impact 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 may be adopted by the Company no later than December 1, 2022, with early adoption permitted. The potential 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 nine months ended September 30, 2020 and 2019, as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Wire transfer and money order fees$82,890 $72,710 $223,171 $202,202 
Discounts and promotions(244)(242)(637)(792)
Wire transfer and money order fees, net82,646 72,468 222,534 201,410 
Foreign exchange gain, net12,296 12,272 33,510 33,297 
Other income652 594 1,863 1,652 
Total revenues$95,594 $85,334 $257,907 $236,359 

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 higher 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.
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The Company also offers several other services, including money orders and check cashing, for which revenue is derived from a fee per transaction. For substantially all of the Company’s revenues, the Company acts as principal in the transactions and reports revenue on a gross basis, because the Company controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss and has the ability to establish transaction prices.
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):
September 30, 2020December 31, 2019
Accounts receivable$61,205 $40,513 
Allowance for credit losses(1,243)(759)
Accounts receivable, net$59,962 $39,754 

The changes in the allowance for credit losses related to accounts receivable and notes receivable are as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Beginning balance$1,350 $1,236 $1,236 $1,290 
Provision320 619 1,421 1,171 
Charge-offs(120)(589)(1,338)(1,317)
Recoveries154 45 385 167 
Ending Balance$1,704 $1,311 $1,704 $1,311 

The allowance for credit losses allocated by financial instrument category is as follows (in thousands):
September 30, 2020December 31, 2019
Accounts receivable$1,243 $759 
Notes receivable (1)
461 477 
Allowance for credit losses$1,704 $1,236 
(1) This allowance relates to $1.3 million in notes receivable from sending agents as of both September 30, 2020 and December 31, 2019. The current portion of these notes amounted to $1.1 million and $1.0 million as of September 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):
September 30, 2020December 31, 2019
Prepaid insurance$431 $404 
Prepaid fees682 1,211 
Notes receivable, net of allowance705 648 
Prepaid taxes130 1,025 
Other prepaid expenses and current assets737 867 
$2,685 $4,155 

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS
Intangible assets on the condensed consolidated balance sheets of the Company consist of goodwill, agent relationships, trade name, developed technology and other intangible assets. Agent relationships, trade name and developed technology are all amortized over 15 years using an accelerated method that correlates with the projected realization of the benefit. The agent relationships intangible represents the network of independent sending agents; trade name refers to the Intermex name, branded on all agent locations and well recognized in the market; and developed technology includes the state-of-the-art system that the Company has continued to develop and improve upon over the past 20 years. Other intangible assets primarily relate to the acquisition of Company-operated stores, which are amortized on a straight line basis over 10 years. The determination of our intangible fair values includes several assumptions that are subject to various
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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):
GoodwillIntangibles
Balance at December 31, 2019$36,260 $27,381 
Amortization expense (5,213)
Balance at September 30, 2020$36,260 $22,168 
Amortization expense related to intangible assets for the next five years and thereafter is as follows (in thousands):
2020$1,738 
20215,161 
20223,997 
20232,989 
20242,270 
Thereafter6,013 
$22,168 

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 both the second and third 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 September 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 September 30, 2020.
For our finite-lived intangibles, we also assessed during both the second and third 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 September 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 September 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):
September 30, 2020December 31, 2019
Wire transfers payable, net$18,995 $16,058 
Customer voided wires payable13,888 10,937 
Money orders payable15,306 13,202 
$48,189 $40,197 
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):
September 30, 2020December 31, 2019
Commissions payable to sending agents$11,866 $10,124 
Accrued legal settlement (see Note 13)2,925 3,250 
Accrued salaries and benefits2,413 2,374 
Accrued bank charges1,158 976 
Accrued interest12 17 
Accrued legal fees343 120 
Accrued other professional fees848 655 
Accrued taxes866 2,345 
Deferred revenue loyalty program2,602 2,495 
Other1,053 718 
$24,086 $23,074 

The following table shows the changes in the deferred revenue loyalty program liability (in thousands):
Balance, December 31, 2019$2,495 
Revenue deferred during the period535 
Revenue recognized during the period(428)
Balance, September 30, 2020$2,602 

NOTE 8 – DEBT
Debt consisted of the following (in thousands):
September 30, 2020December 31, 2019
Term loan$91,298 $97,044 
Less: Current portion of long-term debt (1)
(7,044)(7,044)
Less: Debt origination costs(1,914)(2,377)
$82,340 $87,623 
(1)Current portion of long-term debt is net of debt origination costs of approximately $0.6 million both at September 30, 2020 and December 31, 2019.
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 September 30, 2020 and December 31, 2019, there were no outstanding amounts drawn on the revolving credit facility.
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 nine months ended September 30, 2020 for the term loan facility and revolving credit facility were 5.93% and 0.99%, 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% in years 2 and 3, and 10.0% in years 4 and 5, in each case on the last day of each quarter, which commenced in March 2019 with a final payment at maturity. The loans under the Credit Agreement may be prepaid at any time without premium or penalty.
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The Credit Agreement 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, make dividends and distributions, change the nature of their businesses, enter into certain transactions with affiliates or amend the terms of material indebtedness.
The Credit Agreement also 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.
The obligations under the 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.
On April 20, 2020, the Company received funds under the Paycheck Protection Program (the “Program”) in the amount of $3.5 million. Although the Company believes that it met all eligibility criteria for a loan under the Program at the time of its application, subsequent to receiving the funds, the Small Business Administration (“SBA”), in consultation with the Department of the Treasury (“Treasury”), provided additional guidance to address public, borrower and lender questions concerning the eligibility criteria under the Program. Based on this guidance provided by the SBA and Treasury, the Company returned the funds received under the Program on April 29, 2020.
NOTE 9 – FAIR VALUE MEASUREMENTS
The Company determines fair value in accordance with the provisions of FASB guidance, Fair Value Measurements and Disclosures, which defines fair value as an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-level fair value hierarchy that prioritizes the inputs used to measure fair value was established. There are three levels of inputs used to measure fair value and for disclosure purposes. Level 1 relates to quoted market prices for identical assets or liabilities in active markets. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s non-financial assets measured at fair value on a nonrecurring basis include goodwill and intangibles assets. The determination of our intangible fair values includes several assumptions and inputs (Level 3) that are subject to various risks and uncertainties. Management believes it has made reasonable estimates and judgments concerning these risks and uncertainties. All other financial assets and liabilities are carried at amortized cost.
The Company’s cash is representative of fair value as these balances are comprised of deposits available on demand. Accounts receivable, prepaid wires, accounts payable and wire transfers and money orders payable are representative of their fair values because of the short turnover of these items.
The Company’s financial liabilities include its revolving credit facility and term loan. The fair value of the term loan, which approximates book value, is estimated by discounting the future cash flows using a current market interest rate. The estimated fair value of the revolving credit facility would approximate face value given the payment schedule and interest rate structure, which approximates current market interest rates.
NOTE 10 – STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION
On September 30, 2020, the Company entered into an underwriting agreement with certain selling stockholders and several underwriters relating to the underwritten public offering of 4.9 million shares of the Company’s common stock at a price to the public of $13.50 per share. The closing of the offering occurred on October 5, 2020. Also, on November 4, 2020, the underwriters completed the purchase of 0.7 million additional shares of common stock at the same price as the initial shares under a 30-day option granted by certain of the selling stockholders. The Company did not receive any of the proceeds from the offering. It did, however, incur approximately $0.5 million in certain costs, which are included in other selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income.
On June 26, 2020, at the 2020 Annual Meeting of Stockholders, the Company's stockholders approved the International Money Express, Inc. 2020 Omnibus Equity Compensation Plan (the “2020 Plan”), which provides for the granting of stock-based incentive awards, including stock options and restricted stock units (“RSUs”), to employees and independent directors of the Company. There are 3.4 million shares of the Company's common stock available for issuance under the 2020 Plan, including 0.4 million shares that were available for grant under the International Money Express, Inc. 2018 Omnibus Equity Compensation Plan (the “2018 Plan”). As of September 30, 2020, there are 0.3 million stock options granted under the 2020 Plan. The 2018 Plan was terminated effective June 26, 2020. Hereafter, we refer to the 2020 Plan and 2018 Plan together as the “Plans.”
The value of each option grant is estimated on the grant date using the Black-Scholes option pricing model (“BSM”). The option pricing model requires the input of certain assumptions, including the grant date fair value of our common stock, expected volatility, risk-free interest rates, expected term and expected dividend yield. To determine the grant date fair value of the Company’s common stock, we use the closing market price of our common stock at the grant date. We also use an expected volatility based on the historical volatility of the
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Company's common stock and the “simplified” method for calculating the expected life of our stock options as the options are “plain vanilla” and we do not have any significant historical post-vesting activity. We have elected to account for forfeitures as they occur. The risk-free interest rates are obtained from publicly available U.S. Treasury yield curve rates.
Share-based compensation is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. The stock options issued under the Company’s Plans have 10-year terms and vest in four equal annual installments beginning one year after the date of the grant. During the nine months ended September 30, 2020, 0.7 million stock options vested. The Company recognized compensation expense for stock options of approximately $0.7 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively, and $1.9 million for both the nine months ended September 30, 2020 and 2019, which are included in salaries and benefits in the condensed consolidated statements of operations and comprehensive income. As of September 30, 2020, there were 3.2 million outstanding stock options and unrecognized compensation expense of $7.4 million is expected to be recognized over a weighted-average period of 2.5 years.
A summary of the stock option activity under the Company’s Plans during the nine months ended September 30, 2020 is presented below:
Number of
Options
Weighted-Average
Exercise Price
Weighted-Average
Remaining Contractual
Term (Years)
Weighted-Average
Grant Date
Fair Value
Outstanding at December 31, 20192,905,219 $10.51 8.74$3.58 
Granted555,000 $12.66 $5.54 
Exercised(47,500)$9.98 $3.45 
Forfeited(244,792)$11.66 $3.89 
Outstanding at September 30, 20203,167,927 $10.81 8.24$3.90 
Exercisable at September 30, 20201,239,443 $10.11 7.88$3.48 
The RSUs issued under the Company’s Plans to the Company’s independent directors vest on the one-year anniversary from the grant date and the RSUs issued under the 2020 Plan to the Company’s employees vest with respect to 25% of the shares on each of the first four anniversaries of the date of grant. The Company recognized compensation expense for RSUs of $89.1 thousand and $17.5 thousand for the three months ended September 30, 2020 and 2019, respectively, and $0.3 million and $0.1 million for the nine months ended September 30, 2020 and 2019, respectively, which is included in salaries and benefits in the condensed consolidated statements of operations and comprehensive income. During the nine months ended September 30, 2020, 10.0 thousand RSUs were granted to the Company's employees and no RSUs vested. There were no forfeited RSUs during the nine months ended September 30, 2020. As of September 30, 2020, there was $0.4 million of unrecognized compensation expense for the restricted stock units, which is expected to be recognized over a weighted-average period of 1.74 years.
NOTE 11 – EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income for the period by the weighted average number of common shares outstanding for the period. In computing dilutive earnings per share, basic earnings per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including common stock options and RSUs.
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Below are basic and diluted earnings per share for the periods indicated (in thousands, except for share data):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net income for basic and diluted earnings per common share
$9,498 $4,038 $24,164 $14,268 
Shares:
Weighted-average common shares outstanding – basic
38,050,610 37,984,316 38,040,339 37,230,831 
Effect of dilutive securities:
RSUs12,721 19,222 9,570 16,555 
Stock options589,376 283,164 196,520 100,975 
Warrants   17,010 
Weighted-average common shares outstanding – diluted
38,652,707 38,286,702 38,246,429 37,365,371 
Earnings per common share – basic$0.25 $0.11 $0.64 $0.38 
Earnings per common share – diluted$0.25 $0.11 $0.63 $0.38 
As of September 30, 2020, there were 0.7 million options excluded from the diluted earnings per share calculation because, under the treasury stock method, the inclusion of these would be anti-dilutive.
As of September 30, 2019, there were 0.4 million options excluded from the diluted earnings per share calculation because, under the treasury stock method, the inclusion of these would be anti-dilutive. In April 2019, the Company executed a tender offer for all warrants, subsequent to which all warrants ceased to exist.
NOTE 12 – INCOME TAXES
A reconciliation between the income tax provision at the US statutory tax rate and the Company’s income tax provision on the condensed consolidated statements of operations and comprehensive income is below (in thousands, except for tax rates):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Income before income taxes$13,042 $6,291 $33,053 $20,204 
US statutory tax rate21 %21 %21 %21 %
Income tax expense at statutory rate2,739 1,321 6,941 4,243 
State tax expense, net of federal745 345 1,803 1,140 
Foreign tax rates different from U.S. statutory rate
19 26 78 41 
Non-deductible expenses92 218 114 246 
Credits(7)8 (10)(1)
Other(44)335 (37)267 
Total tax provision$3,544 $2,253 $8,889 $5,936 
Effective income tax rates for interim periods are based upon our current estimated annual rate. The Company’s effective income tax rate varies based upon an estimate of taxable earnings as well as on the mix of taxable earnings in the various states and countries in which we operate. Changes in the annual allocation and apportionment of the Company’s activity among these jurisdictions results in changes to the effective rate utilized to measure the Company’s deferred tax assets and liabilities.
As presented in the income tax reconciliation above, the tax provision recognized on the condensed consolidated statements of operations and comprehensive income was affected by state taxes, non-deductible expenses, share-based compensation expenses and foreign tax rates applicable to the Company’s foreign subsidiaries that are higher or lower than the U.S. statutory rate.
In January 2020, Intermex Holdings II, Inc., the Company's parent company prior to the 2018 merger, was notified by the IRS that its 2017 federal income tax return was selected for examination. In August 2020, the examination was closed with no changes to the reported tax.
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On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effects of COVID-19. The CARES Act provides various tax law changes in response to the COVID-19 pandemic, including increasing the ability to deduct interest expense, providing for deferral on tax deposits, and amending certain provisions of the previously enacted Tax Cuts and Jobs Act. After considering the provisions of the CARES Act, the Company determined that the CARES Act did not have a material effect on its annual effective tax rate and the income tax provision for the three and nine months ended on September 30, 2020.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Leases
The Company is a party to leases for office space, warehouses and Company-operated store locations. Rent expense under all operating leases, included in other selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income, amounted to approximately $0.6 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $1.6 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively.

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At September 30, 2020, future minimum rental payments required under operating leases for the remainder of 2020 and thereafter are as follows (in thousands):
2020$385 
20211,374 
20221,096 
2023882 
2024776 
Thereafter662 
$5,175 
Contingencies and Legal Proceedings
The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of the Company’s management, based upon the information available at this time and the stage of the proceedings, that it is not possible to determine the probability of loss or estimate of damages, and therefore, the Company has not established a reserve for any of these proceedings, except for the matter related to a complaint filed under the Telephone Consumer Protection Act of 1991 (the “TCPA claim”) described below.
On May 30, 2019, Stuart Sawyer filed a putative class action complaint in the United States District Court for the Southern District of Florida asserting a claim under the TCPA, 47 U.S.C. § 227, et seq., based on allegations that since May 30, 2015, the Company had sent text messages to class members’ wireless telephones without their consent. Following a mediation held on October 7, 2019, the Company and the plaintiff entered into a term sheet providing the general terms for the settlement of the action, which was memorialized in a definitive Settlement Agreement on March 16, 2020 subject to subsequent Court approval. The Settlement Agreement provides for resolution of Mr. Sawyer's TCPA claims and the claims of a class of similarly situated individuals, as defined in the complaint, who received text messages from the Company during the period May 30, 2015 through October 7, 2019, and for the creation of a $3.25 million settlement fund that will be used to pay all class member claims, class counsel's fees and the costs of administering the settlement.
The Settlement Agreement also established procedures for the notification of claimants and the processing of claims. The settlement fund will be managed by a duly-appointed settlement administrator which will be authorized to communicate with class members, process claims and make payments from the fund in accordance with the terms of the Settlement Agreement and the final judgment in the case. No amount of the settlement fund will revert to the Company; instead, any unclaimed funds will be sent to a consumer advocacy organization approved by the Court.
The remaining balance of the amount payable under the Settlement Agreement of approximately $2.9 million is included in accrued and other liabilities in the condensed consolidated balance sheet as of September 30, 2020. The $2.9 million was paid to the settlement fund in October 2020.
The Company operates in all U.S. states, two U.S. territories and three other countries. Money transmitters and their agents are under regulation by state and federal laws. Violations may result in civil or criminal penalties or a prohibition from providing money transfer services in a particular jurisdiction. It is the opinion of the Company’s management, based on information available at this time, that the expected outcome of regulatory examinations will not have a material adverse effect on either the results of operations or financial condition of the Company.
Regulatory Requirements
Pursuant to applicable licensing laws, certain domestic subsidiaries of the Company are required to maintain minimum tangible net worth and liquid assets (eligible securities) to cover the amount outstanding of wire transfers and money orders payable. As of September 30, 2020, the Company’s subsidiaries were in compliance with these two requirements.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2019. 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 risks related to the COVID-19 pandemic described in Pt. II, Item 1A, “Risk Factors” below which is 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.
Recent Developments
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 continues affecting economic conditions in the United States of America (“United States” or “U.S.”), as federal, state, local and foreign governments reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. and global economy. 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.
In response to the pandemic, our top priority has been 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 U.S. headquarters and call centers in Mexico and Guatemala. Initially, we temporarily closed our Company-operated stores and implemented a mandatory work-at-home program for all of our administrative offices and employees in all countries where we operate. Starting in the second quarter, however, we started to allow office-based employees to work from our offices on a voluntary basis, while maintaining the option to work at home and, as of September 30, 2020, all Company-operated stores have been reopened with adjustments to ensure social distancing and facial covering requirements established by state and local regulations.
Notwithstanding the operational challenges created by these measures, our business continues to function and, to date, our customer service has not been adversely affected in any material respect. Despite these efforts, 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. These risks could be magnified if the recent resurgence of COVID-19 illnesses continues or is not adequately contained and governmental authorities once again impose restrictions on commercial and social activities or businesses that employ our customers take actions that adversely affect the incomes of those employees.
The operational changes noted above had only a limited effect on the Company’s financial results for the three and nine month periods ended September 30, 2020. Although we saw a slight year over year decrease in our volume of transactions at the beginning of the pandemic, the three months ended September 30, 2020 have shown a year-over-year increase in volume and transactions, including an all-time high for one-month sales in August. The economic effects of the pandemic caused increased foreign exchange volatility, particularly with respect to the Mexican peso, which has created additional operational challenges; however, the overall effect on our results of operations to date has been positive. Despite positive trends during the third quarter, we continue to monitor this evolving pandemic and its potential effects on the Company’s operations.
Although governmental authorities took measures that restricted the normal course of operations of businesses and consumers that were in place for much of the pandemic affected period, the Company and our sending agents are considered essential businesses under current federal guidance and 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 nine month periods ended September 30, 2020. 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 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, 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 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 on the United States to Latin America and the Caribbean (“LAC”) corridor, which includes Mexico, Central and South America and the Caribbean. In 2019, we expanded our services to allow remittances to Africa from the United States and also began offering sending services from Canada to Latin America and Africa. 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 the U.S., Washington D.C., Puerto Rico and 13 provinces in Canada, where customers can send money to beneficiaries in 17 LAC countries, seven countries in Africa and two countries in Asia. Our services are accessible in person through over 100,000 sending and paying agents and 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, primarily Mexico and Guatemala, 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 in the United States by customers with roots in Latin American and Caribbean 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 customers who 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 the U.S. dollar also earn revenue through our daily management of currency exchange spreads.
Our money remittance services enable our customers to send funds through our broad network of locations in the United States and Canada that are primarily operated by third-party businesses, as well as through 34 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. We currently operate in the United States, Mexico, Guatemala, Canada and 15 additional countries in LAC corridor, seven countries in Africa and two in Asia. Since January 2019 through September 30, 2020, we have grown our sending agent network by more than 13% and increased our remittance transactions volume by approximately 15%. In the three and nine months ended September 30, 2020, we processed approximately 8.5 million and 23.1 million remittances, respectively, representing approximately 13% and 10% growth in transactions, respectively, as compared to the same periods in 2019.
As a non-bank financial institution in the United States, we are regulated by the Department of Treasury, the Internal Revenue Service, FinCEN, the Consumer Financial Protection Bureau (“CFPB”), the Department 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 the U.S. Department of the Treasury. We are also subject to a wide range of regulations in the 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 (“GLBA”); and consumer disclosure and consumer protection laws, such as the California Consumer Privacy Act (“CCPA”).
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 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, computer network systems and data centers;
our ability to maintain agent relationships on terms consistent with those currently in place;
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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 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 and Canada;
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 customer 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; and
our ability to retain key personnel.
Throughout 2020, 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, low consumer confidence and the impact of the COVID-19 pandemic, among other factors. Specifically, continued political and economic unrest in parts of Mexico and some countries in South 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 party for their daily needs; however, long-term sustained appreciation of the Mexican peso or Guatemalan quetzal as compared to the U.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 outside the United States. In coming periods, we expect these enhancements will continue to result in changes to certain of our business practices and may result in increased costs.
We maintain a regulatory compliance department, under the direction of our experienced Chief Administrative and Compliance Officer, whose foremost responsibility is to monitor transactions, detect suspicious activity, maintain financial records and train our employees and agents. An independent third-party consulting firm periodically reviews our policies and procedures to ensure the efficacy of our anti-money laundering and regulatory compliance program.
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
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structure and marketing efforts. As a philosophy, we sell credible solutions to our sending agents, not discounts or higher commissions, as 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 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 in preparation for 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 on April 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 the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer.
We will remain an “emerging growth company” until the earlier of (1) the earliest of the last day of the fiscal year (a) following January 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 of June 30, 2020, the market value of our common stock that is held by non-affiliates approximated $308.0 million.
Secondary Offering
On September 30, 2020, the Company entered into an underwriting agreement with certain selling stockholders and several underwriters relating to the underwritten public offering of 4.9 million shares of the Company’s common stock at a price to the public of $13.50 per share. The closing of the offering occurred on October 5, 2020. Also, on November 4, 2020, the underwriters completed the purchase of 0.7 million additional shares of common stock at the same price as the initial shares under a 30-day option granted by certain of the selling stockholders. The Company did not receive any of the proceeds from the offering. It did, however, incur approximately $0.5 million in certain costs, which are included in other selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income.
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 our U.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.
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Operating Expenses
Service Charges from Agents and Banks
Service charges and fees primarily consist of agent commissions and bank fees. Service charges and fees 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 and fees may increase if banks or payer organizations increase their fee structure or sending agents use higher fee methods to remit the funds to us. Service charges also vary based on the method the customer selects to send the transfer and payer organization that facilitates the transaction.
Salaries and Benefits
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, finance and human resources. Our sales team, located throughout the United States and Canada, is focused on supporting and growing our sending agent network.
Other Selling, General and Administrative
General and administrative expenses primarily consist of fixed overhead expenses associated with our operations, such as information technology, rent, insurance, professional services, non-income taxes, facilities maintenance and other similar types of expenses. A portion of these expenses relate to our 34 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 bad debt and expenses associated with increasing our network of agents. These expenses are expected to continue to increase in line with increase in 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 and revolving credit facility. The effective interest rates for the nine months ended September 30, 2020 for the term loan facility and revolving credit facility were 5.93% and 0.99%, respectively. Interest on the term loan facility and revolving credit facility 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.
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 at September 30, 2020 on the Company's U.S. federal or state deferred tax assets; however, a valuation allowance of $0.1 million as of September 30, 2020 has been recorded 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 expenses, and foreign tax rates applicable to the Company’s foreign subsidiaries that are higher or lower than the U.S. statutory rate.
Net Income
Net income is determined by subtracting operating and non-operating expenses from revenues.
Segments
Our business is organized around one reportable segment that provides money transmittal services between the United States 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 34 Company-operated stores throughout the U.S. and Canada. This is based on the objectives
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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
September 30,
Nine Months Ended
September 30,
(in thousands)2020201920202019
Revenues:
Wire transfer and money order fees, net$82,646 $72,468 $222,534 $201,410 
Foreign exchange gain, net12,296 12,272 33,510 33,297 
Other income652 594 1,863 1,652 
Total revenues95,594 85,334 257,907 236,359 
Operating expenses:
Service charges from agents and banks63,904 56,319 172,403 156,510 
Salaries and benefits8,084 7,612 22,512 22,806 
Other selling, general and administrative expenses6,336