International Money Express, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the transition period from                     to 

Commission File No. 001-37986

Securities registered pursuant to Section 12(b) of the Act:

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.

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 November 5, 2019, there were 38,007,611 shares of the registrant’s common stock, $0.0001 par value per share, outstanding. The registrant has no other class of common stock outstanding.

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INTERNATIONAL MONEY EXPRESS, INC.

INDEX TO FINANCIAL STATEMENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that reflect our current views with respect to future events and financial performance, business strategies, expectations for our business and the business of the Company and any other statements of a future or forward-looking nature, constitute “forward-looking statements” for the purposes of federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “will,” “approximately,” “shall” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, the future financial performance of the Company.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. We cannot assure you that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to:

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.

PART 1 – FINANCIAL INFORMATION

INTERNATIONAL MONEY EXPRESS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share data)

INTERNATIONAL MONEY EXPRESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(in thousands, except for share data, unaudited)

INTERNATIONAL MONEY EXPRESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except for share data, unaudited)

INTERNATIONAL MONEY EXPRESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except for share data, unaudited)

INTERNATIONAL MONEY EXPRESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

INTERNATIONAL MONEY EXPRESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands, unaudited)

NOTE 1 - BUSINESS AND ACCOUNTING POLICIES

On July 26, 2018 (the “Closing Date”), International Money Express, Inc. (formerly FinTech Acquisition Corp. II) consummated the previously announced transaction (the “Merger”) by and among FinTech Acquisition Corp. II, a Delaware corporation (“FinTech”), FinTech II Merger Sub Inc., a wholly-owned subsidiary of FinTech (“Merger Sub 1”), FinTech II Merger Sub 2 LLC, a wholly-owned subsidiary of FinTech (“Merger Sub 2”), Intermex Holdings II, Inc. (“Intermex”) and SPC Intermex Representative LLC (“SPC Intermex”)(See Note 2). As a result of the Merger, the separate corporate existence of Intermex ceased and Merger Sub 2 (which changed its name to International Money Express Sub 2, LLC in connection with the closing of the Merger) continued as the surviving entity. In connection with the closing of the Merger, FinTech changed its name to International Money Express, Inc. (the “Company”). Unless the context below otherwise provides, the “Company” refers to the combined company following the Merger and, together with their respective subsidiaries, “FinTech” refers to the registrant prior to the closing of the Merger and “Intermex” refers to Intermex Holdings II, Inc. prior to the closing of Merger.

The Merger was accounted for as a reverse recapitalization where FinTech was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the facts that following the Merger, the former stockholders of Intermex control the majority of the voting rights in respect of the board of directors of the Company, Intermex comprising the ongoing operations of the Company and Intermex’s senior management comprising the senior management of the Company. Accordingly, the Merger was treated as the equivalent of Intermex issuing stock for the net assets of FinTech, accompanied by a recapitalization. The net assets of FinTech were stated at historical cost, with no goodwill or other intangible assets resulting from the Merger. The consolidated assets, liabilities and results of operations prior to the Closing Date of the Merger are those of Intermex, and FinTech’s assets, liabilities and results of operations are consolidated with Intermex beginning on the Closing Date. The shares and corresponding capital amounts included in common stock and additional paid-in capital, pre-merger, have been retroactively restated as shares reflecting the exchange ratio in the Merger. The historical financial information and operating results of FinTech prior to the Merger have not been separately presented in these condensed consolidated financial statements as they were not significant or meaningful.

The Company operates as a money transmitter, primarily between the United States of America (“U.S.”) and Mexico, Guatemala and other countries in Latin America and Africa through a network of authorized agents located in various unaffiliated retail establishments throughout the U.S and 33 Company-owned stores.

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 United statements of America (“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 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, 2018.

The Financial Accounting Standards Board (“FASB”) issued guidance, Revenue from Contracts with Customers, which amended the existing accounting standards for revenue recognition. Refer to Note 3 for additional discussion on the adoption of this standard on January 1, 2019.

The FASB issued amended guidance, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the condensed consolidated statements of cash flows. The amendments are aimed at reducing the existing diversity in practice. The Company adopted this guidance in the first quarter of 2019 applying a retrospective approach for each period presented. The adoption of this guidance did not have a material impact on the condensed consolidated financial statements.

The 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 accounting rules. The guidance requires that a lessee recognize 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 will be adopted by the Company on January 1, 2021 and may be applied using either the earliest period adjustment method or the modified retrospective approach. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements.

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 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 required to adopt the new standard on January 1, 2023. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements.

NOTE 2 – FINTECH MERGER

As discussed in Note 1, on July 26, 2018 Intermex and FinTech consummated the Merger, which was accounted for as a reverse recapitalization. Immediately prior to the Merger, FinTech’s shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 4.9 million shares of FinTech for gross redemption payments of $49.8 million. Subsequent to this redemption, there were 18.9 million outstanding shares. The aggregate consideration paid in the Merger by FinTech to the Intermex shareholders consisted of approximately (i) $102.0 million in cash and (ii) 17.2 million shares of FinTech common stock. In accounting for the reverse recapitalization, the net cash proceeds received in the third quarter of 2018 from FinTech amounted to $5.0 thousand as shown in the table below (in thousands):

⁽¹⁾ During the fourth quarter of 2018, the Company acquired approximately $1 million of deferred tax assets from FinTech, which is reflected in the table above. These deferred tax assets relate to capitalized transaction costs incurred by FinTech prior to the merger, therefore they have been recorded in additional-paid in capital.

Cash consideration to Intermex shareholders included the payout of all vested Incentive Units issued to employees of the Company as discussed in Note 10.

After the completion of the Merger on July 26, 2018, there were 36.2 million shares of International Money Express, Inc. common stock outstanding, warrants to purchase 9 million shares of common stock and 3.4 million shares reserved for issuance under the International Money Express, Inc. 2018 Omnibus Equity Compensation Plan (See Note 10).

Direct costs related to the Merger were expensed as incurred and included as “transaction costs” in the condensed consolidated statements of operations and comprehensive income (loss). Transaction costs included all internal and external costs directly related to the Merger, consisting primarily of legal, consulting, accounting, advisory and financing fees and certain incentive bonuses directly related to the Merger. Transaction costs for the three and nine months ended September 30, 2018 amounted to $6.3 million and $10.3 million, respectively.

NOTE 3 – REVENUE RECOGNITION STANDARD

On January 1, 2019, the Company adopted the new accounting standard, Revenue from Contracts with Customers, as amended, which modified the existing accounting standards for revenue recognition. The guidance establishes that an entity should recognize revenue to depict the transfer of promised goods or services, that is, the satisfaction of performance obligations, to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance establishes a five-step model to determine when revenue recognition is appropriate. The Company adopted the guidance using the modified retrospective approach recording the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of accumulated deficit in the condensed consolidated balance sheet, amounting to $1.0 million, net of tax, with a corresponding increase to deferred revenue liability, included within accrued and other liabilities in the condensed consolidated balance sheet. In accordance with the modified retrospective approach, the comparative information has not been restated and continues to be reported under the accounting standards in effect for that period.

For the three and nine months ended September 30, 2019, the Company recognized in revenues from contracts with customers the following:

There are no significant initial costs incurred to obtain contracts with customers. However, the Company has a loyalty program, that for each wire transfer completed, customers earn points. Customers earn 1 point for each wire transfer processed, which 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, due to the loyalty program benefits represent a future performance obligation, a portion of the initial consideration is recorded as deferred revenue (See Note 6). Prior to the implementation of the standard, the Company used the incremental cost method to account for the loyalty program; therefore, a liability for the cost associated with the company’s future obligation to its customers was created and the loyalty program expense was recorded within Service charges from agents and banks in the consolidated statements of operations and comprehensive income (loss). Under the new guidance, loyalty program expense is recorded as contra revenue. The loyalty program reserve balance as of January 1, 2019 of $0.6 million was credited to accumulated deficit as this became part of the beginning balance of the new deferred revenue liability.

Based on our assessment of the new standard, except for the loyalty program discussed above, we have determined that our revenues include only one performance obligation, which is to collect the consumer’s money and make funds available for payment, generally on the same day, to a designated recipient in the currency requested.

The Company also offers several other services, including money orders and check cashing, for which revenue is derived by a fee per transaction. For substantially all of the Company’s revenues, the Company acts as the principal in transactions and reports revenue on a gross basis, as 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 4 – OTHER PREPAID EXPENSES AND CURRENT ASSETS

Other prepaid expenses and current assets consisted of the following (in thousands):

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets on the condensed consolidated balance sheets of the Company consist of 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. Other intangibles primarily relate to the acquisition of certain agent locations or company-owned stores, which are amortized straight line over 10 years. The determination of our other intangible fair values includes several assumptions that are subject to various risks and uncertainties. Management believes it has made reasonable estimates and judgments concerning these risks and uncertainties. A change in the conditions, circumstances or strategy of the Company may result in a need to recognize an impairment charge.

The following table presents the changes in goodwill and other intangible assets (in thousands):

NOTE 6 – ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities consisted of the following (in thousands):

The following table shows the changes in the deferred revenue loyalty program liability (in thousands):

NOTE 7 – DEBT

Debt consisted of the following (in thousands):

On November 7, 2018 and further amended on December 7, 2018, the Company entered into a new financing agreement (the “Credit Agreement”) with, among others, certain of its domestic subsidiaries as borrowers and 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. The Credit Agreement also provides for the issuance of letters of credit, which would reduce availability under the revolving credit facility. The proceeds of the Credit Agreement were used to repay existing indebtedness, for working capital purposes and to pay fees and expenses in connection with the transaction. The maturity date of the Credit Agreement is November 7, 2023.

On March 25, 2019, the Company entered into an Increase Joinder No. 1 to the Credit Agreement (the “Increase Joinder”), which was accounted for as a debt modification, under which the Company received $12 million from the incremental facility on April 29, 2019. The proceeds of the Increase Joinder were primarily used to pay for the cash portion of the Tender Offer (the “Offer”) to purchase warrants (See Note 10) during the second quarter of 2019.

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 period ended September 30, 2019 for the term loan and revolving credit facility were 7.73% and 8.48%, respectively.

The principal amount of the term loan facility, including the Increase Joinder, must be repaid in consecutive quarterly installments of 5.0% in year 1, 7.5% in years 2 and 3, 10.0% in years 4 and 5, in each case on the last day of each quarter, commencing 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.

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 which 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 substantially all of the assets of the loan parties, subject to certain exclusions and limitations.

NOTE 8 – 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. Level 1 relates to quoted market prices for identical assets or liabilities. 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 the goodwill and other intangibles. 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 instruments that are not measured at fair value on a recurring basis 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 9 – RELATED PARTY TRANSACTIONS

Prior to the Merger, Intermex paid a monthly management fee of $65.0 thousand, plus reimbursement of expenses, to a related party for management services, which was included in other selling, general and administrative expenses on the Company’s condensed consolidated statements of operations and comprehensive income (loss). There were no amounts payable to or receivable from related parties included in the condensed consolidated balance sheets at September 30, 2019 and December 31, 2018. Upon closing of the Merger on July 26, 2018 (See Note 2), the management fee agreement with the related party was terminated.

NOTE 10 – STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

On the Closing Date of the Merger, there were 36.2 million shares of the Company’s common stock outstanding and outstanding warrants to purchase approximately 9 million shares of common stock. As of the Closing Date, the former stockholders of Intermex owned approximately 48.3% and the former stockholders of FinTech owned approximately 51.7% of the combined company’s outstanding common stock. At September 30, 2019, the Company was authorized to issue 230 million shares of common stock and had approximately 38.0 million shares of common stock issued and outstanding at $0.0001 par value per common share.

On September 11, 2019, the Company entered into an underwriting agreement with certain selling stockholders and several underwriters relating to the underwritten public offering of 5.2 million shares of the Company’s common stock, at a price to the public of $12.75 per share. The selling stockholders also granted the underwriters a 30-day option to purchase up to 782,608 additional shares of Common Stock at the same price as the initial shares sold to the underwriters. The closing of the offering occurred on September 16, 2019. The Company did not receive any of the proceeds from the offering. However, it did incur approximately $0.8 million in certain costs, which are included in other selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss).

Prior to the Merger, FinTech issued 8.8 million public warrants (“Public Warrants”) and 0.2 million private placement warrants (“Placement Warrants”)(combined are referred to as the “Warrants”). The Company assumed the Warrants upon the change of control event. As a result of the Merger, the Warrants issued by FinTech were no longer exercisable for shares of FinTech common stock but instead were exercisable for common stock of the Company. All other features of the Warrants remained unchanged. There were no cash obligations for the Company pertaining to these Warrants.

Each whole Warrant entitled the holder to purchase one share of the Company’s common stock at a price of $11.50 per share. The Warrants became exercisable 30 days after the completion of the Merger and were to expire 5 years after that date, or earlier upon redemption or liquidation.

On March 28, 2019, the Company commenced a Tender Offer (the “Offer”) to purchase the Warrants. In connection with the Offer, the Company offered the holders of the Warrants a combination of 0.201 shares of its common stock and $1.12 in cash (the “Exchange Consideration”) for each Warrant tendered and exchanged pursuant to the Offer. Concurrently with the Offer, the Company solicited consents from holders of the Warrants to amend the Warrant Agreement dated January 19, 2017 (the “Warrant Agreement”), to permit the Company to require that each outstanding Warrant be converted into a combination of 0.181 shares of our Common Stock and $1.00 in cash, without interest (the “Conversion Consideration”), which Conversion Consideration was approximately 10% less than the Exchange Consideration applicable to the Offer. Approximately 99.51% of the outstanding Warrants were validly tendered and not withdrawn in the Offer.  On April 29, 2019, the Company entered into Amendment No. 1 to the Warrant Agreement and, on or about May 20, 2019, exchanged all remaining untendered Warrants for the Conversion Consideration.

Between April and May of 2019, the Company issued an aggregate of approximately 1.8 million shares of common stock and paid approximately $10.0 million in cash in exchange for the Warrants tendered in the Offer as well as the Warrants converted at the Conversion Consideration, resulting in a total of approximately 38.0 million shares of common stock outstanding following the issuance. For the nine months ended September 30, 2019, the Company incurred approximately $0.9 million in professional and legal fees related to the Offer, which are included in other selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss). There were no expenses related to the Offer for the three months ended September 30, 2019.

In connection with the Merger, the stockholders of FinTech approved the International Money Express, Inc. 2018 Omnibus Equity Compensation Plan (the “2018 Plan”). There are 3.4 million shares reserved for issuance under the 2018 Plan, of which stock options to purchase 2.8 million shares of common stock and restricted stock units in respect of 21.2 thousand shares of common stock were granted to employees and independent directors of the Company in connection with the completion of the transactions at the Closing Date.

The value of each option grant is estimated on the grant date using the Black-Scholes option pricing model. The option pricing model requires the input of highly subjective assumptions, including the grant date fair value of our common stock, expected volatility, expected forfeitures and risk-free interest rates. 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 volatilities of a group of guideline companies and the “simplified” method for calculating the expected life of our stock options. 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 2018 Plan have 10-year terms and vest in four equal annual installments beginning one year after the date of the grant. During both the three and nine months ended September 30, 2019, 0.7 million of stock options vested. The Company recognized compensation expense for stock options of approximately $0.6 million and $1.8 million for the three and nine months ended September 30, 2019, respectively, which is included in salaries and benefits in the condensed consolidated statements of operations and comprehensive income (loss). As of September 30, 2019, there were 3.0 million outstanding stock options and unrecognized compensation expense of $7.9 million is expected to be recognized over a weighted-average period of 2.93 years.

A summary of the stock option activity during the nine months ended September 30, 2019 is presented below:

The restricted stock units issued under the 2018 Plan to the Company’s independent directors vest on the one-year anniversary from the grant date. The Company recognized compensation expense for restricted stock units of $17.5 thousand and $122.5 thousand for the three and nine months ended September 30, 2019, respectively, which is included in salaries and benefits in the condensed consolidated statements of operations and comprehensive income (loss). During the three and nine months ended September 30, 2019, 21.2 thousand restricted stock units were vested for both periods.  There were no forfeited restricted stock units during the three and nine months ended September 30, 2019. As of September 30, 2019, there was no unrecognized compensation expense for the restricted stock units.

Interwire LLC, the former parent company of Intermex, issued Class B, C and D incentive units to employees of the Company (collectively “incentive units”). As these units were issued as compensation to the Company’s employees, the expense was recorded by the Company. In connection with the Merger, on the Closing Date, all unvested incentive units for Class B, C and D became fully vested and were immediately recognized as share-based compensation expense in the third quarter of 2018. Share-based compensation expense recognized related to these incentive units and included in salaries and benefits in the condensed consolidated statements of operations and comprehensive income (loss), amounted to $4.0 million and $4.7 million for the three and nine months ended September 30, 2018, respectively. Subsequent to the Merger, all incentive units ceased to exist.

NOTE 11 – INCOME (LOSS) PER SHARE

Basic income (loss) per share is calculated by dividing net income (loss) for period by the weighted average number of common shares outstanding for the period. In computing dilutive income (loss) per share, basic income (loss) per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including common stock options, restricted stock units and warrants.

Below are basic and diluted net income (loss) per share for the periods indicated (in thousands, except for share data):

The computation of diluted weighted-average common shares outstanding above excludes 447,500 options to purchase shares of the Company’s common stock because, under the treasury stock method, the inclusion of these would be anti-dilutive.

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 (loss) is below (in thousands, except for tax rates):

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 (loss) was impacted by state taxes, non-deductible expenses such as share-based compensation expense, transaction costs and foreign tax rates applicable to the Company’s foreign subsidiaries that are higher or lower than the U.S. statutory rate.

On December 22, 2017, the U.S. enacted tax reform legislation known as H.R. 1, commonly referred to as the “Tax Cuts and Jobs Act” (the “Act”), resulting in significant modifications to existing law. All changes to the tax code that were effective as of January 1, 2018 have been applied by the Company in computing its income tax expense for the three and nine months ended September 30, 2019 and 2018. Additional guidance issued by the U.S. Treasury Department, the IRS and other standard-setting bodies may materially impact the provision for income taxes and effective tax rate in the period in which the guidance is issued.

In 2018, FinTech Acquisition Corp II was notified by the IRS that its 2017 federal income tax return was selected for examination. The Company has complied with all information requests to date. As of September 30, 2019, no amounts for tax, interest, or penalties have been paid or accrued as a result of this examination or any other uncertain tax positions.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

The Company is a party to leases for office space and company-operated stores. Rent expense under all operating leases, included in other selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss), amounted to $0.5 million for both the three months ended September 30, 2019 and 2018, and $1.5 million and $1.4 million for the nine months ended September 30, 2019 and 2018, respectively.

In April 2018, the Company renegotiated its corporate lease to extend the term through November 2025. At September 30, 2019, future minimum rental payments required under operating leases for the remainder of 2019 and thereafter are as follows (in thousands):

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 Telephone Consumer Protection Act, 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. At 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 is subject to memorialization in a definitive agreement, and subsequent Court approval. The terms of the settlement provide 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 amount of approximately $3.3 million and related legal expenses of $0.1 million are included in accrued and other liabilities in the condensed consolidated balance sheet as of September 30, 2019 and other selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss) for both the three and nine month periods ended September 30, 2019.

The Company operates in 50 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.

Certain domestic subsidiaries of the Company are subject to maintaining 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, 2019, the Company’s subsidiaries were in compliance with these two requirements.

 NOTE 14 – SUBSEQUENT EVENTS

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date the condensed consolidated financial statements are issued. Except for the matter discussed in Note 13, there were no other subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2019				2018				2019				2018
Revenues:
Wire transfer and money order fees, net		$	72,468			$	61,332			$	201,410			$	168,554
Foreign exchange gain			12,272				10,697				33,297				29,013
Other income			594				479				1,652				1,277
Total revenues			85,334				72,508				236,359				198,844
Operating expenses:
Service charges from agents and banks			56,319				48,305				156,510				132,565
Salaries and benefits			7,612				10,959				22,806				24,633
Other selling, general and administrative expenses			9,788				5,207				20,850				13,390
Transaction costs			-				6,305				-				10,319
Depreciation and amortization			3,179				4,142				9,486				11,750
Total operating expenses			76,898				74,918				209,652				192,657
Operating income (loss)			8,436				(2,410	)			26,707				6,187
Interest expense			2,145				3,434				6,503				10,110
Income (loss) before income taxes			6,291				(5,844	)			20,204				(3,923	)
Income tax provision			2,253				7,569				5,936				8,186
Net income (loss)		$	4,038			$	(13,413	)		$	14,268			$	(12,109	)

($ in thousands)		Three Months Ended September 30, 2019				% of Revenues				Three Months Ended September 30, 2018				% of Revenues
Revenues:
Wire transfer and money order fees, net		$	72,468				85	%		$	61,332				84	%
Foreign exchange gain			12,272				14	%			10,697				15	%
Other income			594				1	%			479				1	%
Total revenues		$	85,334				100	%		$	72,508				100	%

		Three Months Ended September 30,				% of				Three Months Ended September 30,				% of
($ in thousands)		2019				Revenues				2018				Revenues
Operating expenses:
Service charges from agents and banks		$	56,319				66	%		$	48,305				67	%
Salaries and benefits			7,612				9	%			10,959				15	%
Other selling, general and administrative expenses			9,788				11	%			5,207				7	%
Transaction costs			-				0	%			6,305				9	%
Depreciation and amortization			3,179				4	%			4,142				6	%
Total operating expenses		$	76,898				90	%		$	74,918				104	%

		Three Months Ended September 30,
(in thousands)		2019				2018
Net Income (Loss)		$	4,038			$	(13,413	)
Adjusted for:
Transaction costs (a)			-				6,305
Incentive units plan (b)			-				4,023
Share-based compensation, 2018 Plan (c)			634				430
Offering costs (d)			766				-
Management fee (e)			-				195
TCPA settlement (f)			3,358				-
Costs related to registering stock underlying warrants (g)			-				615
Other employee severance (h)			-				106
Other charges and expenses (i)			86				38
Amortization of intangibles (j)			2,312				3,098
Income tax benefit related to adjustments (k)			(1,654	)			(146	)
Adjusted Net Income		$	9,540			$	1,251
Adjusted Income per Share
Basic and diluted		$	0.25			$	0.04
Weighted-average common shares outstanding
Basic			37,984,316				30,975,338
Diluted			38,286,702				30,975,338

		Three Months Ended September 30,
(in thousands)		2019				2018
Net Income (Loss)		$	4,038			$	(13,413	)
Adjusted for:
Interest expense			2,145				3,434
Income tax provision			2,253				7,569
Depreciation and amortization			3,179				4,142
EBITDA			11,615				1,732
Transaction costs (a)			-				6,305
Incentive units plan (b)			-				4,023
Share-based compensation, 2018 Plan (c)			634				430
Offering costs (d)			766				-
Management fee (e)			-				195
TCPA settlement (f)			3,358				-
Costs related to registering stock underlying warrants (g)			-				615
Other employee severance (h)			-				106
Other charges and expenses (i)			86				38
Adjusted EBITDA		$	16,459			$	13,444

		Nine Months Ended September 30,				% of				Nine Months Ended September 30,				% of
($ in thousands)		2019				Revenues				2018				Revenues
Revenues:
Wire transfer and money order fees, net		$	201,410				85	%		$	168,554				85	%
Foreign exchange gain			33,297				14	%			29,013				14	%
Other income			1,652				1	%			1,277				1	%
Total revenues		$	236,359				100	%		$	198,844				100	%

		Nine Months Ended September 30,				% of				Nine Months Ended September 30,				% of
($ in thousands)		2019				Revenues				2018				Revenues
Operating expenses:
Service charges from agents and banks		$	156,510				66	%		$	132,565				67	%
Salaries and benefits			22,806				10	%			24,633				12	%
Other selling, general and administrative expenses			20,850				9	%			13,390				7	%
Transaction costs			-				-	%			10,319				5	%
Depreciation and amortization			9,486				4	%			11,750				6	%
Total operating expenses		$	209,652				89	%		$	192,657				97	%

		Nine Months Ended September 30,
(in thousands)		2019				2018
Net Income (Loss)		$	14,268			$	(12,109	)
Adjusted for:
Transaction costs (a)			-				10,319
Incentive units plan (b)			-				4,735
Share-based compensation, 2018 Plan (c)			1,894				430
Offering costs (d)			1,665				-
Management fee (e)			-				585
TCPA Settlement (f)			3,358				192
Transition expenses (g)			-				348
Costs related to registering stock underlying warrants (h)			-				615
Other employee severance (i)			172				106
Other charges and expenses (j)			205				346
Amortization of intangibles (k)			6,936				9,294
Income tax benefit related to adjustments (l)			(3,526	)			(3,819	)
Adjusted Net Income		$	24,972			$	11,042
Adjusted Income per Share
Basic and diluted		$	0.67			$	0.51
Weighted-average common shares outstanding
Basic			37,230,831				21,827,082
Diluted			37,365,371				21,827,082

		Nine Months Ended September 30,
(in thousands)		2019				2018
Net Income (Loss)		$	14,268			$	(12,109	)
Adjusted for:
Interest expense			6,503				10,110
Income tax provision			5,936				8,186
Depreciation and amortization			9,486				11,750
EBITDA			36,193				17,937
Transaction costs (a)			-				10,319
Incentive units plan (b)			-				4,735
Share-based compensation, 2018 Plan (c)			1,894				430
Offering costs (d)			1,665				-
Management fee (e)			-				585
TCPA Settlement (f)			3,358				192
Transition expenses (g)			-				348
Costs related to registering stock underlying warrants (h)			-				615
Other employee severance (i)			172				106
Other charges and expenses (j)			205				346
Adjusted EBITDA		$	43,487			$	35,613

		Nine Months Ended September 30
(in thousands)		2019				2018
Statement of Cash Flows Data:
Net cash provided by operating activities		$	57,147			$	30,516
Net cash used in investing activities			(4,067	)			(3,575	)
Net cash used in financing activities			(31,950	)			(3,633	)
Effect of exchange rate changes on cash			30				27
Net increase in cash and restricted cash			21,160				23,335
Cash and restricted cash, beginning of the period			73,029				59,795
Cash and restricted cash, end of the period		$	94,189			$	83,130

Exhibit No.	Document
10.1	Shareholders Agreement Waiver dated August 23, 2019, among FinTech Investor Holdings II, LLC, International Money Express, Inc. and SPC Intermex Representative LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 23, 2019).
10.2	Registration Rights Agreement Waiver dated August 23, 2019, among FinTech Investor Holdings II, LLC, International Money Express, Inc. and SPC Intermex, LP (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 23, 2019).
10.3	Underwriting Agreement dated September 11, 2019, among the Company, Credit Suisse Securities (USA) LLC and Cowen and Company, LLC, as representatives of the several underwriters listed therein, and certain selling stockholders (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed on September 13, 2019).
10.4	Employment Agreement dated September 23, 2019, between the Company and Joseph Aguilar (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 3, 2019).
31.1*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act - Chief Executive Officer
31.2*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act - Chief Financial Officer
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.

Date: November 12, 2019
International Money Express, Inc.
By:	/s/ Robert Lisy
	Robert Lisy
	Chief Executive Officer and President
Date: November 12, 2019
International Money Express, Inc.
By:	/s/ Tony Lauro II
	Tony Lauro II
	Chief Financial Officer