International Money Express, Inc.: Form 10-Q for the period ended Sep 30, 2023

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, 2022. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in other sections of this Quarterly Report on Form 10-Q, including “Risk Factors,” which are incorporated in the MD&A by reference. See “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements, and see “Risk Factors” in the documents that we have filed with or furnished to the SEC for a discussion of certain risk factors applicable to our business, financial condition and results of operations. Past operating results are not necessarily indicative of operating results in any future periods.

Overview

We are a leading omnichannel money remittance services company focused primarily on the United States of America (“United States” or “U.S.”) to Latin America and the Caribbean (“LAC”) corridor, which includes Mexico, Central and South America and the Caribbean. In recent years, we expanded our services to allow remittances to Africa and Asia from the United States and also began offering sending services from Canada to Latin America and Africa. Also, through the acquisition of LAN Holdings we now provide remittance services from Spain, Italy and Germany to Africa, Asia and Latin America. We utilize our proprietary technology to deliver convenient, reliable and value-added services to consumers 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 as well as in certain locations in Spain, Italy and Germany, where consumers can send money to beneficiaries in more than 60 countries in LAC, Africa and Asia. Our services are accessible in person through over 100,000 independent sending and paying agents and 124 Company-operated stores, as well as online and via Internet-enabled mobile devices. Additionally, our product and service portfolio 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 money remittance business.

Money remittance services to LAC countries, mainly Mexico, Guatemala, El Salvador, Honduras and Dominican Republic, are the primary source of our revenue. These services involve the movement of funds on behalf of an originating consumer for receipt by a designated beneficiary at a designated receiving location. Our remittances to LAC countries are primarily generated in the United States by consumers 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 consumers with flexibility and convenience to help them meet their financial needs. We believe many consumers 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 consumers (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, Canadian dollar or Euro can also generate revenue if we are successful in our daily management of currency exchange spreads.

Our money remittance services enable consumers to send funds through our broad network of locations in the United States, Canada, Spain, Italy and Germany that are primarily operated by third-party businesses, as well as through our Company-operated stores located in the United States, Canada, Spain, Italy and Germany. Transactions are processed and payment is collected by our agents (“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, online.i-transfer.es and via Internet-enabled mobile devices. For the nine months ended September 30, 2023, we have grown our agent network by approximately 16.2% primarily due to the agents added as a result of the acquisition of LAN Holdings, partially offset by the termination of low volume and unproductive sending agents. For the nine months ended September 30, 2023, principal amount sent increased by approximately 20.5% to $18.3 billion, as compared to the same period in 2022, and total remittances processed were approximately 43.3 million, representing an increase of approximately 26.9%, as compared to the same period in 2022 primarily related to the agent network growth discussed above.

Acquisition of La Nacional and LAN Holdings

Effective November 1, 2022, the Company completed the acquisition of La Nacional and effective April 5, 2023, we completed the acquisition of LAN Holdings. See Note 2 in Item 1 Financial Statements for additional information regarding the acquisitions of La Nacional and LAN Holdings. The acquisitions of La Nacional and LAN Holdings strengthen the Company’s presence in the Dominican Republic, Europe and other key markets in Latin America, Africa and Asia.

La Nacional Restructuring Plan

During the third quarter of 2023, the Company implemented a Restructuring Plan (the "Plan") for La Nacional. The objectives were to reorganize the workforce, streamline operational processes as well as develop efficiencies within the Company. The Plan contemplated a reduction of La Nacional's workforce due to closing of operations, and surrendering of money transmitter licenses in certain states, termination of selected sending agents, centralization of functions at the consolidated Company level and closing of certain facilities.

For the three months ended September 30, 2023, the Company incurred $1.1 million in expenses related to the Plan. These expenses include approximately $0.8 million in severance payments and related benefits included in salaries and benefits in the condensed consolidated statement of income and comprehensive income, $0.3 million in computer equipment write-offs, $38 thousand for the early termination of a lease agreement and $31 thousand in legal fees related to the surrender of money transmitter licenses within states where La Nacional will no longer operate, which are included in other selling, general and administrative expenses in the condensed consolidated statement of income and comprehensive income.

The Company has paid out the above charges during the three months ended September 30, 2023 and does not have a liability recorded as of September 30, 2023. The Company anticipates that the total costs associated with the Plan through December 31, 2023 will approximate $1.4 million.

As a result of the Plan, the Company expects to reduce compensation expense and certain facilities related charges in an amount of approximately $1.5 million a year. The anticipated effect of this reduction in expenses will be primarily realized in the fiscal year 2024. In addition, the Company does not expect that the Plan will result in any material reduction of revenues or increase of its operating expenses.

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 Company's ability to successfully execute, manage, integrate and obtain the anticipated financial benefits of key acquisitions and mergers;
• economic factors such as inflation, the level of economic activity, recession risks and labor market conditions, as well as rising interest rates;
• public health conditions, responses thereto and the economic and market effects thereof;
• 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;
• our ability to maintain favorable banking and agent relationships necessary 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, including the introduction of new digital platforms;
• cyber-attacks or disruptions to our information technology, computer network systems, data centers and mobile devices apps;
• our ability to satisfy our debt obligations and remain in compliance with our credit facility requirements;
• our success in developing and introducing new products, services and infrastructure;
• consumer confidence in our brand and in consumer money transfers generally;
• our ability to maintain compliance with applicable regulatory requirements;
• international political factors, political stability, tariffs, border taxes or restrictions on remittances or transfers from the outbound countries in which we operate;
• currency restrictions and volatility in countries in which we operate or plan to operate;
• consumer fraud and other risks relating to the authenticity of customers’ orders;
• changes in immigration laws and their enforcement;
• our ability to protect our brands and intellectual property rights;
• weakness in U.S. or international economic conditions;
• changes in tax laws in the countries we operate; and
• our ability to recruit and retain key personnel.

Political and economic conditions in key Latin American markets, particularly Mexico, Guatemala and certain countries in South America, continue to exhibit instability, as evidenced by higher interest rates, high unemployment rates, restricted lending activity, higher inflation, volatility in foreign currencies, low consumer confidence, and supply chain disruptions, among other economic and market factors. Our business has generally been resilient during times of economic instability as money remittances are essential to many recipients, with the funds used by the receiving parties for their daily needs; however, long-term sustained appreciation of the Mexican peso or Guatemalan quetzal as compared to 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 Act and similar regulations outside the United States. In coming periods, we expect these and future regulatory requirements will continue to result in changes to certain of our business and administrative practices and may result in increased costs.

We maintain a compliance department, the responsibility of which is to monitor transactions, detect and report suspicious activity, maintain appropriate records and train our employees and agents. An independent third-party periodically reviews our policies and procedures and performs independent testing to assess the effectiveness of our anti-money laundering and Bank Secrecy Act compliance program. We also maintain a regulatory affairs and licensing department, under the direction of our Chief Compliance Officer.

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, Remitly and Euronet, and a number of other smaller money services business (“MSB”) entities. We generally compete for money remittance agents on the basis of value, service, quality, technical and operational differences, commission structure and marketing efforts. As a philosophy, we sell credible solutions to our sending agents, not discounts or higher commissions, as is typical for the industry. We compete for money remittance consumers on the basis of trust, convenience, service, efficiency of outlets, value, enhanced technology and brand recognition.

We have encountered and continue to expect to encounter increasing competition as new electronic platforms emerge that enable consumers 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 consumer 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 consumers and have expanded our channels through which our services are accessed to include online and mobile offerings which are experiencing consumer adoption.

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 primarily 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 consumers to transfer money. Revenues per transaction vary based upon send and receive locations and the amount sent. In certain transactions involving different send and receive currencies, we generate foreign exchange gains based on the difference between the set exchange rate charged by us to the sender and the rate available to us in the wholesale foreign exchange market.

Operating Expenses

Service Charges from Agents and Banks

Service charges primarily consist of sending agent commissions and payer and bank fees. Service charges vary based on agent commission percentages and the amount of fees charged by payers and banks. Sending agents earn a commission on each transaction they process of approximately 50% of the transaction fee. Payer fees are based on a fixed amount per transaction processed and paid. Service charges may increase if banks or payer organizations increase their fee structure or sending agents use higher fee methods to remit funds to us. Service charges also vary based on the method the consumer selects to send the transfer and the 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, operations, finance, legal and human resources. Our sales team, located throughout the United States, Canada, Spain and Italy, is focused on supporting and growing our sending agent network. Share-based compensation is primarily recognized as an expense on a straight-line basis over the requisite service period; unrecognized compensation expense related to stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and performance stock units (“PSUs”) of approximately $14.0 million is expected to be recognized over a weighted-average period of 1.8 years.

Other Selling, General and Administrative

General and administrative expenses primarily consist of fixed overhead expenses associated with our operations, such as information technology, telecommunications, rent, insurance, professional services, non-income or indirect taxes, facilities maintenance, provision for credit losses and other similar types of operating expenses. A portion of these expenses relate to our Company-operated stores; however, the majority relate to the overall business operation and compliance requirements of a regulated publicly traded financial services company. Selling expenses include expenses such as advertising and promotion, shipping, supplies and other expenses associated with serving and increasing our network of agents.

Transaction Costs

We incurred transaction costs associated with the acquisitions of La Nacional and LAN Holdings. These costs included all internal and external costs directly related to the transaction, consisting primarily of legal, consulting, accounting and advisory fees and certain incentive bonuses. They are presented within other selling, general and administrative expenses in our condensed consolidated statements of income and comprehensive income. See Note 2 to the condensed consolidated financial statements for additional information.

Depreciation and Amortization

Depreciation and amortization largely consists of depreciation of computer equipment and amortization of software that supports our technology platform. In addition, it includes amortization of intangible assets primarily related to our agent relationships, trade names and developed technology.

Non-Operating Expenses

Interest Expense

Interest expense consists primarily of interest associated with our debt, which consists of a term loan facility and a revolving credit facility. The effective interest rates for the nine months ended September 30, 2023 for the term loan facility and revolving credit facility, were 8.21% and 1.90%, respectively.

Income tax provision

Our income tax provision includes the expected benefit of all deferred tax assets, including our net operating loss carryforwards. Our income tax provision reflects the effects of state taxes, non-deductible expenses, share-based compensation expense, and foreign tax rates applicable to the Company’s foreign subsidiaries that are higher or lower than the U.S. statutory rate.

Net Income

Net income is determined by subtracting operating and non-operating expenses from revenues.

Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding for each period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares and common share equivalents outstanding for each period. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of RSUs, RSAs and PSUs have vested, using the treasury stock method. Shares of treasury stock are not considered outstanding and therefore are excluded from the weighted-average number of common shares outstanding calculation.

Segments

Our business is organized around one reportable segment that provides money transmittal services primarily between the United States and Canada to Mexico, Guatemala and other countries in Latin America, Africa, Asia and Europe through a network of authorized agents located in various unaffiliated retail establishments and 124 Company-operated stores throughout the United States, Canada, Spain, Italy and Germany. This is based on the objectives of the business and how our chief operating decision maker, the CEO and President, monitors operating performance and allocates resources.

Results of Operations

The following table summarizes key components of our results of operations for the periods indicated:

(in thousands, except for share data)

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Revenues

Revenues for the above periods are presented below:

($ in thousands)

Wire transfer and money order fees, net of $147.4 million for the three months ended September 30, 2023 increased by $26.7 million, or 22.1%, from $120.7 million for the three months ended September 30, 2022. The increase was primarily due to a 25.7% increase in transaction volume in the third quarter of 2023 compared to the third quarter of 2022, due to the continued growth in our agent network that expanded as a result of the La Nacional and LAN Holdings acquisitions, which network increased on a net basis by 38.1% when compared to September 30, 2022. These increases were partially offset by a lower average price per transaction on money transfers processed by La Nacional and LAN Holdings that is consistent with the conditions of the markets in which they operate.

Revenues from foreign exchange gain, net of $22.7 million for the three months ended September 30, 2023 increased by $3.8 million, or 20.1%, from $18.9 million for the three months ended September 30, 2022. This increase was primarily due to higher transaction volume achieved by growth in our agent network and a higher average amount sent by consumers to destination countries in which our business is concentrated, as well as increased foreign exchange volatility in the Mexican peso during the quarter ended September 30, 2023.

Other income of $2.4 million for the three months ended September 30, 2023 increased by $1.2 million, or 100.0%, from $1.2 million for the three months ended September 30, 2022 primarily due to the impact of the revenue generated from ancillary services provided by La Nacional and LAN Holdings to a particular segment of their consumer bases and commercial customers, an increase in fees related to higher volume of transfers deemed abandoned property, as well as an increase in income related to money transfer transactions paid with debit or credit cards.

Operating Expenses

Operating expenses for the above periods are presented below:

($ in thousands)

Service charges from agents and banks — Service charges from agents and banks were $112.9 million for the three months ended September 30, 2023 compared to $93.7 million for the three months ended September 30, 2022. The increase of $19.2 million, or 20.5%, was primarily due to the increase in transaction volume described above. For the three months ended September 30, 2023, service charges from agents and banks represented 65% of total revenues compared to 67% for the three months ended September 30, 2022. The decrease is primarily due to a lower average cost per transaction processed.

Salaries and benefits — Salaries and benefits of $18.6 million for the three months ended September 30, 2023 increased by $4.7 million, or 33.8%, from $13.9 million for the three months ended September 30, 2022. The increase is primarily due to $4.5 million spent in talent acquisition and retention, as well as increased wages, including the additional compensation related to La Nacional and LAN Holdings employees, which represents approximately 27.3% of salaries and benefits. The increase also includes $0.8 million in severance payments and related benefits as a result of the execution of the restructuring of La Nacional. These increases were offset by a $0.6 million decrease in incentive bonus expense as a result of lower than expected performance compared to financial targets. Salaries and benefits for the three months ended September 30, 2023 represent 11% of total Revenues compared to 10% for the three months ended September 30, 2022, which increase is attributable to our expanded workforce as a result of the La Nacional and LAN Holdings acquisitions as they operate independently in the execution of certain operational functions.

Other selling, general and administrative expenses — Other selling, general and administrative expenses of $13.2 million for the three months ended September 30, 2023 increased by $3.0 million, or 29.4%, from $10.2 million for the three months ended September 30, 2022.

The increase was primarily the result of:

• $1.7 million - higher facilities and rent expenses for scheduled maintenance and contracted lease rate increases to support our business growth and expenses related to the company-operated stores and other facilities added as a result of the La Nacional and LAN Holdings acquisitions;
• $1.3 million - increase in provision for credit losses due to higher net write-offs of accounts receivable during the three months ended September 30, 2023 compared to the same period in 2022, primarily as a result of sending agents that were not able to pay in accordance with the original terms and are, accordingly, subject to our normal collection procedures;
• $1.1 million - higher IT related expenses incurred to sustain our business expansion and to improve our technology environment; and
• $0.4 million - higher loss on disposal of assets primarily due to replacement of equipment used by our sending agents during the three months ended September 30, 2023, as well as $0.3 million in computer equipment write-offs related to the restructuring of La Nacional.

These increases were partially offset by:

• $1.6 million - decrease due to the provision recorded on deposits frozen at certain closed financial institution in Mexico recorded in the three months ended September 30, 2022.

Depreciation and amortization — Depreciation and amortization of $3.5 million for the three months ended September 30, 2023 increased by $1.2 million from $2.3 million for the three months ended September 30, 2022. The increase is the result of a $0.6 million increase in depreciation associated with additional software developed and computer equipment acquired to support our growing business and sending agent network, as well as approximately $0.3 million of depreciation for assets assumed in the La Nacional and LAN Holdings acquisitions and approximately $0.5 million for amortization of intangibles resulting from the La Nacional and LAN Holdings acquisitions. These increases were partially offset by a decrease of approximately $0.3 million in amortization related to our Intermex trade name, developed technology and agent relationships during the third quarter of 2023, as these intangibles are being amortized on an accelerated basis, which declines over time.

Non-Operating Expenses

Interest expense — Interest expense of $2.8 million for the three months ended September 30, 2023 increased by $1.3 million, or 86.7%, from $1.5 million for the three months ended September 30, 2022. The increase was primarily due to higher market interest rates and higher draws under our revolving credit facility to support the growth in our business.

Income tax provision — Income tax provision was $6.6 million for the three months ended September 30, 2023, which represents an increase of $3.9 million from an income tax provision of $2.7 million for the three months ended September 30, 2022. The increase in income tax provision was mainly attributable to a favorable effect of a $2.9 million tax windfall from deductible stock-compensation as a result of stock option exercises recorded in the income tax provision for the three months ended September 30, 2022, and an increase in our effective state tax rate primarily as a result of revenue from La Nacional earned during the three months ended September 30, 2023, which is sourced to states with relatively higher tax rates and from increases in non-deductible officer expenses.

Net Income

We reported Net Income of $14.8 million for the three months ended September 30, 2023 compared to Net Income of $16.6 million for the three months ended September 30, 2022, which resulted in a decrease of $1.8 million, or 10.8%, due to the same factors discussed above.

Non-GAAP Financial Measures

We use Adjusted Net Income, Adjusted Earnings per Share and Adjusted EBITDA to evaluate our performance, both internally and as compared with our peers, because these measures exclude certain items that may not be indicative of our core operating results, as well as items that can vary widely among companies within our industry. For example, noncash compensation costs can be subject to volatility from changes in the market price per share of our common stock or variations in the value and number of shares granted, and amortization of intangible assets is subject to business acquisition activities, which varies from period to period.

We present these non-GAAP financial measures because we believe they are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Furthermore, we believe they are helpful in highlighting trends in our operating results by focusing on our core operating results and are useful to evaluate our performance in conjunction with our GAAP financial measures. Adjusted Net Income, Adjusted Earnings per Share and Adjusted EBITDA are non-GAAP financial measures and should not be considered as an alternative to operating income, net income or earnings per share as a measure of operating performance or cash flows or as a measure of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP measures.

Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business because it excludes, among other things, the effects of certain transactions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the jurisdictions in which we operate and capital investments.

In particular, Adjusted EBITDA is subject to certain limitations, including the following:

• Adjusted EBITDA does not reflect interest expense, or the amounts necessary to service interest or principal payments on our debt;
• Adjusted EBITDA does not reflect income tax provision (benefit), and because the payment of taxes is part of our operations, tax provision is a necessary element of our costs and ability to operate;
• Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any costs of such replacements;
• Adjusted EBITDA does not reflect the non-cash component of share-based compensation;
• Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations; and
• other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.

We adjust for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, as well as our other non-GAAP financial measures, only as supplemental information.

Adjusted Net Income and Adjusted Earnings per Share

Adjusted Net Income is defined as net income adjusted to add back certain charges and expenses, such as non-cash amortization of intangible assets resulting from business acquisition transactions, which will recur in future periods until these assets have been fully amortized, non-cash compensation costs and other items set forth in the table below, as these charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.

Adjusted Earnings per Share - Basic and Diluted is calculated by dividing Adjusted Net Income by GAAP weighted-average common shares outstanding (basic and diluted).

Adjusted Net Income for the three months ended September 30, 2023 was $18.4 million, representing a decrease of $2.3 million from Adjusted Net Income of $20.7 million for the three months ended September 30, 2022. The decrease in Adjusted Net Income was primarily due to the decrease in Net Income discussed above and the lower net effect of the adjusting items detailed in the table below.

The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted Net Income:

(in thousands, except for per share data)

(a) Represents share-based compensation relating to equity awards granted primarily to employees and independent directors of the Company.

(b) Represents primarily severance, write-off of fixed assets and professional fees related to the restructuring of La Nacional.

(c) Represents primarily financial advisory, professional and legal fees related to business acquisition transactions.

(d) Represents losses related to the closure of a financial institution in Mexico during 2021.

(e) Represents primarily loss on disposal of fixed assets.

(f) Represents the amortization of intangible assets that resulted from business acquisition transactions.

(g) Represents the current and deferred tax impact of the taxable adjustments to Net Income using the Company’s blended federal and state tax rate for each period. Relevant tax-deductible adjustments include all adjustments to Net Income.

Adjusted Earnings per Share - Basic for the three months ended September 30, 2023 was $0.52, representing a decrease of $0.03, or 5.5%, compared to $0.55 for the three months ended September 30, 2022. The decrease in Adjusted Earnings per Share - Basic was primarily due to lower net income for the period combined with the lower net effect of the adjusting items detailed in the table above, partially offset by the effect of a lower weighted average common shares total for the period due to stock repurchases.

Adjusted Earnings per Share - Diluted for the three months ended September 30, 2023 was $0.51, representing a decrease of $0.03, or 5.6%, compared to $0.54 for the three months ended September 30, 2022. The decrease in Adjusted Earnings per Share - Diluted was primarily due to lower net income for the period combined with the lower net effect of the adjusting items detailed in the table above, partially offset by the effect of a lower weighted average common shares total for the period due to stock repurchases.

The following table presents the reconciliation of GAAP Earnings per Share, our closest GAAP measure, to Adjusted Earnings per Share:

The table above may contain slight summation differences due to rounding.

Adjusted EBITDA

Adjusted EBITDA is defined as net income before depreciation and amortization, interest expense, income taxes, and also adjusted to add back certain charges and expenses, such as non-cash share-based compensation costs and other items set forth in the table below, as these charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.

Adjusted EBITDA for the three months ended September 30, 2023 was $31.7 million, representing an increase of $3.9 million, or 14.0%, from $27.8 million for the three months ended September 30, 2022. The increase in Adjusted EBITDA was primarily due to the decrease in Net Income discussed above, partially offset by the higher net effect of the adjusting items detailed in the table below.

The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted EBITDA:

(in thousands)

(a) Represents share-based compensation relating to equity awards granted primarily to employees and independent directors of the Company.

(b) Represents primarily severance, write-off of fixed assets and professional fees related to the restructuring of La Nacional.

(c) Represents primarily financial advisory, professional and legal fees related to business acquisition transactions.

(d) Represents losses related to the closure of a financial institution in Mexico during 2021.

(e) Represents primarily loss on disposal of fixed assets.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Revenues

Revenues for the above periods are presented below:

($ in thousands)

Wire transfer and money order fees, net of $416.4 million for the nine months ended September 30, 2023 increased by $80.1 million, or 23.8%, from $336.3 million for the nine months ended September 30, 2022. The increase was primarily due to a 26.9% increase in transaction volume in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, largely due to the continued growth in our agent network that expanded as a result of the La Nacional and LAN Holdings acquisitions, which network increased on a net basis by 16.2% when compared to September 30, 2022. These increases were partially offset by a lower average price per transaction on money transfers processed by La Nacional and LAN Holdings that is consistent with the conditions of the markets in which they operate.

Revenues from foreign exchange gain, net of $64.2 million for the nine months ended September 30, 2023 increased by $11.5 million, or 21.8%, from $52.7 million for the nine months ended September 30, 2022. This increase was primarily due to higher transaction volume achieved by growth in our agent network as well as increased foreign exchange volatility in the Guatemalan quetzal during the nine months ended September 30, 2023.

Other income of $6.4 million for the nine months ended September 30, 2023 increased by $3.1 million, or 93.9%, from $3.3 million for the nine months ended September 30, 2022 primarily due to the impact of the revenue generated from other ancillary services provided by La Nacional and LAN Holdings to a particular segment of their consumer bases and commercial customers, an increase in fees related to higher volume of transfers deemed abandoned property, and fees related to advances to sending agents as well as an increase in income related to money transfer transactions paid with debit or credit cards.

Operating Expenses

Operating expenses for the above periods are presented below:

($ in thousands)

Service charges from agents and banks — Service charges from agents and banks were $320.0 million for the nine months ended September 30, 2023 compared to $262.7 million for the nine months ended September 30, 2022. The increase of $57.3 million, or 21.8%, was primarily due to the increase in transaction volume described above.

Salaries and benefits — Salaries and benefits of $52.4 million for the nine months ended September 30, 2023 increased by $15.5 million, or 42.0%, from $36.9 million for the nine months ended September 30, 2022. The increase is primarily due to $15.0 million spent in talent acquisition and retention, as well as increased wages, including the additional compensation related to La Nacional and LAN Holdings employees, which represents approximately 27.1% of salaries and benefits. The increase also includes $0.8 million in severance payments and related benefits as a result of the execution of the restructuring of La Nacional. These increases were partially offset by a $0.3 million decrease in incentive bonus expense as a result of lower than expected performance. Salaries and benefits for the nine months ended September 30, 2023 represent 11% of total Revenues compared to 9% for the nine months ended September 30, 2022, which increase is attributable to our expanded workforce as a result of the La Nacional and LAN Holdings acquisitions as they operate independently in the execution of certain operational functions.

Other selling, general and administrative expenses — Other selling, general and administrative expenses of $37.2 million for the nine months ended September 30, 2023 increased by $12.2 million, or 48.8%, from $25.0 million for the nine months ended September 30, 2022.

The increase was primarily the result of:

• $5.7 million - higher facilities and rent expenses for scheduled maintenance and contracted lease rate increases to support our business growth and expenses related to the company-operated stores and other facilities added as a result of the La Nacional and LAN Holdings acquisitions;
• $2.5 million - higher IT related expenses incurred to sustain our business expansion and to improve our technology environment;
• $1.7 million - increase in provision for credit losses due to higher net write-offs of accounts receivable during the nine months ended September 30, 2023 compared to the same period in 2022, primarily as a result of sending agents that were not able to pay in accordance with the original terms and are, accordingly, subject to our normal collection procedures;
• $0.8 million - higher loss on disposal of assets primarily due to replacement of equipment used by our agent network and write-off of equipment assigned to sending agents closed during the nine months ended September 30, 2023, as well as $0.3 million in computer equipment write offs related to the restructuring of La Nacional;
• $0.6 million - higher audit related and professional fees to support our internal audit and compliance functions; and
• $0.3 million - higher travel costs, primarily of our sales force, to support or business growth and expansion.

These increases were partially offset by:

• $0.5 million - in lower advertising and promotion expenses, primarily as a result of lower investment in advertising during 2023 and higher co-branding investment by some of our paying agents during 2022.

Depreciation and amortization — Depreciation and amortization of $9.5 million for the nine months ended September 30, 2023 increased by $2.8 million from $6.7 million or 41.8% for the nine months ended September 30, 2022. The increase is the result of a $1.3 million increase in depreciation associated with additional software developed and computer equipment acquired to support our growing business and sending agent network, as well as approximately $0.9 million of depreciation for assets assumed in the La Nacional and LAN Holdings acquisitions and approximately $1.4 million for amortization of intangibles resulting from the La Nacional and LAN Holdings acquisitions. These increases were partially offset by a decrease of approximately $0.8 million in amortization related to our Intermex trade name, developed technology and agent relationships during the nine months ended September 30, 2023, as these intangibles are being amortized on an accelerated basis, which declines over time.

Non-Operating Expenses

Interest expense — Interest expense of $7.6 million for the nine months ended September 30, 2023 increased by $4.1 million, or 117.1%, from $3.5 million for the nine months ended September 30, 2022. The increase was primarily due to higher market interest rates paid under our Amended and Restated Credit Agreement, as well as higher and more frequent draws under our revolving credit facility during the nine months ended September 30, 2023.

Income tax provision — Income tax provision was $18.2 million for the nine months ended September 30, 2023, which represents an increase of $4.9 million from an income tax provision of $13.3 million for the nine months ended September 30, 2022. The increase in income tax provision was mainly attributable to an increase in our effective state tax rate primarily as a result of revenue from La Nacional earned during the nine months ended September 30, 2023, which is sourced to states with relatively higher tax rates and from increases in non-deductible officer expenses. In addition, the income tax provision for the nine months ended September 30, 2022 was favorably affected by a tax windfall from deductible stock-compensation as a result of stock option exercises during the period.

Net Income

We reported Net Income of $42.0 million for the nine months ended September 30, 2023 compared to Net Income of $44.3 million for the nine months ended September 30, 2022, which resulted in a decrease of $2.3 million, or 5.2%, due to the same factors discussed above.

Non-GAAP Financial Measures

Adjusted Net Income and Adjusted Earnings per Share

Adjusted Net Income (previously defined and used as described above) for the nine months ended September 30, 2023 was $51.0 million, representing a decrease of $1.4 million, or 2.7%, from Adjusted Net Income of $52.4 million for the nine months ended September 30, 2022. The decrease in Adjusted Net Income was primarily due to a decrease in Net Income discussed above partially offset by the higher net effect of the adjusting items detailed in the table below.

The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted Net Income:

(in thousands, except for per share data)

(a) Represents share-based compensation relating to equity awards granted primarily to employees and independent directors of the Company.

(b) Represents primarily severance, write-off of fixed assets and professional fees related to the restructuring of La Nacional.

(c) Represents primarily financial advisory, professional and legal fees related to business acquisition transactions.

(d) Represents losses related to the closure of a financial institution in Mexico during 2021.

(e) Represents primarily loss on disposal of fixed assets.

(f) Represents the amortization of intangible assets that resulted from business acquisition transactions.

(g) Represents the current and deferred tax impact of the taxable adjustments to Net Income using the Company’s blended federal and state tax rate for each period. Relevant tax-deductible adjustments include all adjustments to Net Income.

Adjusted Earnings per Share - Basic for the nine months ended September 30, 2023 was $1.42, representing an increase of $0.04, or 2.9%, compared to $1.38 for the nine months ended September 30, 2022. The increase in Adjusted Earnings per Share - Basic was primarily due to the higher net effect of the adjusting items detailed in the table above combined with a lower weighted average common shares total for the period due to stock repurchases, partially offset by the decrease in Net Income.

Adjusted Earnings per Share - Diluted for the nine months ended September 30, 2023 was $1.39, representing an increase of $0.04, or 3.0%, compared to $1.35 for the nine months ended September 30, 2022. The increase in Adjusted Earnings per Share - Diluted was primarily due to the higher net effect of the adjusting items detailed in the table above combined with a lower weighted average common shares total for the period due to stock repurchases, partially offset by the decrease in Net Income.

The following table presents the reconciliation of GAAP Earnings per Share, our closest GAAP measure, to Adjusted Earnings per Share:

The table above may contain slight summation differences due to rounding.

Adjusted EBITDA

Adjusted EBITDA (previously defined and used as described above) for the nine months ended September 30, 2023 was $86.7 million, representing an increase of $10.5 million, or 13.8%, from $76.2 million for the nine months ended September 30, 2022. The increase in Adjusted EBITDA was primarily due to the higher net effect of the adjusting items detailed in the table below, partially offset by the decrease in Net Income discussed above.

The following table presents the reconciliation of Net Income, our closest GAAP measure, to Adjusted EBITDA:

(in thousands)

(a) Represents share-based compensation relating to equity awards granted primarily to employees and independent directors of the Company.

(b) Represents primarily severance, write-off of fixed assets and professional fees related to the restructuring of La Nacional.

(c) Represents primarily financial advisory, professional and legal fees related to business acquisition transactions.

(d) Represents losses related to the closure of a financial institution in Mexico during 2021.

(e) Represents primarily loss on disposal of fixed assets.

Liquidity and Capital Resources

We consider liquidity in terms of our cash and cash equivalents position, cash flows from operations and their sufficiency to fund business operations, including working capital needs, debt service, acquisitions, capital expenditures, contractual obligations and other commitments. In particular, to meet our payment service obligations at all times, we must have sufficient highly liquid assets and be able to move funds on a timely basis.

Our principal sources of liquidity are our cash generated by operating activities supplemented with borrowings under our revolving credit facility. Our primary cash needs are for day-to-day operations, to pay interest and principal on our indebtedness, to fund working capital requirements and to make capital expenditures.

We have funded and still expect to continue funding our liquidity requirements through internally generated funds, supplemented in the ordinary course, with borrowings under our revolving credit facility. We maintain a strong cash and cash equivalents balance position and have access to committed funding sources, which we have used only on an ordinary course basis during the nine months ended September 30, 2023. Therefore, we believe that our current cash and cash equivalents position, as well as projected cash flows generated from operations, together with borrowings under our revolving credit facility are sufficient to fund our principal and interest payments, lease expenses, our working capital needs, our business acquisitions and our expected capital expenditures for at least the next twelve months.

Credit Agreement

We maintain an Amended and Restated Credit Agreement (as amended as described below, the “A&R Credit Agreement”) with a group of banking institutions. The A&R Credit Agreement provided for a $150.0 million revolving credit facility, an $87.5 million term loan facility and an uncommitted incremental facility, which may be utilized for additional revolving or term loans, of up to $70.0 million. The A&R Credit Agreement also provides for the issuance of letters of credit, which would reduce availability under the revolving credit facility. The proceeds of the term loan were used to refinance the existing term loan under the Company’s previous credit agreement, and the revolving credit facility is available for working capital, general corporate purposes and to pay fees and expenses in connection with this transaction. The maturity date of the A&R Credit Agreement is June 24, 2026.

In November 2022, the A&R Credit Agreement was amended to replace the London Inter-bank Offered Rate (“LIBOR”) as a benchmark interest rate for loans with the secured overnight financing rate as administered by the Federal Reserve Bank of New York (“SOFR”).

Effective as of April 18, 2023, the Company amended the A&R Credit Agreement to increase the revolving credit commitments thereunder by $70.0 million to an aggregate of $220.0 million. The credit commitments are available for general corporate purposes to support the Company’s growth and to fund working capital needs and will be subject to the same interest rate and other terms applicable to the outstanding revolving credit commitments under the A&R Credit Agreement. Refer to Note 10 for additional information. In addition, as amended, the A&R Credit Agreement provides the Company with a refreshed uncommitted incremental facility which may be utilized for new revolving credit facilities or term loans in an aggregate amount of up to $70.0 million.

As of September 30, 2023, we had $77.1 million of borrowings under the term loan facility excluding debt origination costs of $1.4 million. As of September 30, 2023, there were $124.0 million of outstanding amounts drawn on the revolving credit facility. There were $166.0 million of additional borrowings available under these facilities as of September 30, 2023.

At the election of the Company, interest on the term loan facility and revolving loans under the A&R Credit Agreement may be determined by reference to SOFR plus an index adjustment of 0.10% and an applicable margin ranging between 2.50% and 3.00% based upon the Company’s consolidated leverage ratio, as calculated pursuant to the terms of the A&R Credit Agreement. Loans (other than Term Loans, as defined in the A&R Credit Agreement), may also bear interest at the base rate plus an applicable margin ranging between 1.50% and 2.00% based upon the Company’s consolidated leverage ratio, as so calculated. 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, 2023 for the term loan facility and revolving credit facility were 8.21% and 1.90%, respectively.

Interest is payable (x)(i) generally on the last day of each interest period selected for SOFR loans, but in any event, not less frequently than every three months, and (ii) on the last business day of each quarter for base rate loans and (y) at final maturity.

The principal amount of the term loan facility under the A&R Credit Agreement must be repaid in consecutive quarterly installments of 5.0% in years 1 and 2, 7.5% in year 3, and 10.0% in years 4 and 5, in each case on the last day of each quarter, which commenced in September 2021 with a final balloon payment at maturity. The term loans under the A&R Credit Agreement may be prepaid at any time without premium or penalty. Revolving loans may be borrowed, repaid and reborrowed from time to time in accordance with the terms and conditions of the A&R Credit Agreement. The Company is also required to repay the loans upon receipt of net proceeds from certain casualty events, upon the disposition of certain property and upon incurrence of indebtedness not permitted by the A&R Credit Agreement.

In addition, the Company is required to make mandatory prepayments annually from excess cash flow if the Company’s consolidated leverage ratio (as calculated under the A&R Credit Agreement) is greater than or equal to 3.0, and the remainder of any such excess cash flow is contributed to the available amount which may be used for a variety of purposes, including investments and distributions.

The A&R Credit Agreement contains financial covenants that require the Company to maintain a quarterly minimum fixed charge coverage ratio of 1.25:1.00 and a quarterly maximum consolidated leverage ratio of 3.25:1.00. As of September 30, 2023, we were in compliance with the covenants of the A&R Credit Agreement. The A&R Credit Agreement generally restricts the ability of the Company to make certain restricted payments, including the repurchase of shares of its common stock, provided that the Company may make restricted payments, among others, (i) without limitation so long as the Consolidated Leverage Ratio (as defined in the A&R Credit Agreement), as of the then most recently completed four fiscal quarters of the Company, after giving pro forma effect to such restricted payments, is 2.25:1.00 or less, (ii) that do not exceed, in the aggregate during any fiscal year, the greater of (x) $23.8 million and (y) 25.00% of Consolidated EBITDA (as defined in the A&R Credit Agreement) for the then most recently completed four fiscal quarters of the Company and (iii) to repurchase Company common stock from current or former employees in an aggregate amount of up to $10.0 million per calendar year. The A&R Credit Agreement also contains covenants that limit the Company’s and its subsidiaries’ ability to, among other things, grant liens, incur additional indebtedness, make acquisitions or investments, dispose of certain assets, change the nature of their businesses, enter into certain transactions with affiliates or amend the terms of material indebtedness.

Our indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from meeting our obligations. See “Risk Factors—Risks Relating to Our Indebtedness—The Company's indebtedness may limit our operating flexibility and could adversely affect our business, financial condition and results of operations.” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Repurchase Program

Prior to 2022, the Company’s Board of Directors approved a stock repurchase program (the “Repurchase Program”) that authorizes the Company to purchase up to $40.0 million of its outstanding shares of the Company’s common stock. On March 3, 2023, the Board of Directors approved an increase to the Repurchase Program that authorizes the Company to purchase an additional $100.0 million of its outstanding shares. Under the Repurchase Program, the Company is authorized to repurchase shares from time to time in accordance with applicable laws, both on the open market and in privately negotiated transactions and may include the use of derivative contracts or structured share repurchase agreements. The timing and amount of repurchases depends on several factors, including market and business conditions, the trading price of the Company’s common stock and the nature of other investment opportunities. The Repurchase Program may be limited, suspended or discontinued at any time without prior notice. The Repurchase Program does not have an expiration date. The A&R Credit Agreement, as amended, permits the Company to make restricted payments (including share repurchases, among others) under a variety of tests as described in the second preceding paragraph, including, without limitation, so long as the Consolidated Leverage Ratio (as defined in the A&R Credit Agreement, as amended), as of the then most recently completed four fiscal quarters of the Company, after giving pro forma effect to such restricted payments, is 2.25:1.00 or less.

The Company accounts for purchases of treasury stock under the cost method. Any direct costs incurred to acquire treasury stock are considered stock issue costs and added to the cost of the treasury stock. During the nine months ended September 30, 2023, including the shares purchased in the privately-negotiated transaction described below, the Company purchased 1,734,481 shares for an aggregate purchase price of $40.6 million. During the nine months ended September 30, 2022, the Company purchased 2,015,615 shares for an aggregate purchase price of $43.7 million. As of September 30, 2023, there was $80.7 million available for future share repurchases under the Repurchase Program.

Privately-Negotiated Share Repurchase Transaction

On May 5, 2023, the Company entered into an agreement with SPC Intermex, LP, a related party, for the purchase of 500,000 shares of the Company’s common stock for a total purchase price of $12.6 million, or a per share price of $25.28, in a privately-negotiated transaction.

Operating Leases

We are party to operating leases for office space, warehouses and Company-operated store locations, which we use as part of our day-to-day operations. Operating lease expenses were $1.9 million and $6.0 million for the three and nine months ended September 30, 2023, respectively, which we expect to be consistent throughout the year. We have not entered into finance lease commitments. For additional information on operating lease obligations, refer to Note 7, Leases, to the Condensed Consolidated Financial Statements.

Cash Flows

The following table summarizes the changes to our cash flows for the periods presented:

(in thousands)

Operating Activities

Net cash provided by operating activities was $82.4 million for the nine months ended September 30, 2023, an increase of $92.3 million from net cash used in operating activities of $9.8 million for the nine months ended September 30, 2022. The increase is primarily a result of a $13.7 million change in working capital, which varies due to timing of transmittal orders and payments, as well as prefunding of payers primarily for weekends. The changes in working capital were impacted by lower cash generated by our operating results adjusted for higher noncash items for the nine months ended September 30, 2023, resulting from the further growth of the business.

Investing Activities

Net cash used in investing activities was $13.2 million for the nine months ended September 30, 2023, representing an increase of $3.8 million from net cash used in investing activities of $9.4 million for the nine months ended September 30, 2022. This increase in cash used was due to the acquisition of LAN Holdings through a cash transaction, which resulted in $5.5 million of cash used, net of cash acquired, partially offset by lower purchases of computer equipment during the nine months ended September 30, 2023 in comparison with the nine months ended September 30, 2022.

Financing Activities

Net cash provided by financing activities was $2.8 million for the nine months ended September 30, 2023, which primarily consisted of $48.0 million of borrowings, net under the revolving credit facility, $3.8 million in scheduled quarterly payments due on the term loan facility, $40.6 million used for repurchases of common stock, $1.0 million of payments for stock-based awards for shares withheld for tax payments in connection with share-based compensation arrangements and $0.7 million of debt origination costs related to the A&R Credit Agreement, partially offset by $1.0 million in proceeds from issuance of stock as a result of the exercise of stock options.

Net cash used in financing activities was $8.0 million for the nine months ended September 30, 2022, which primarily consisted of $3.3 million in scheduled quarterly payments due on the term loan facility, $43.7 million used for repurchases of common stock and $5.3 million of payments for stock-based awards for shares withheld in connection with share-based compensation arrangements, partially offset by $43.0 million of borrowings, net under the revolving credit facility and $1.4 million in proceeds from issuance of stock as a result of the exercise of stock options.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect amounts reported in our condensed consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. Our Critical Accounting Policies and Estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022, for which there were no material changes during the three and nine months ended September 30, 2023, included the following:

• Allowance for Credit Losses
• Goodwill and Intangible Assets
• Income Taxes

Recent Accounting Pronouncements

Refer to Note 1, Business and Accounting Policies, of the Condensed Consolidated Financial Statements for information on recent accounting pronouncements.

Foreign Currency Risk

We manage foreign currency risk through the structure of the business and an active risk management process. One of the methods to settle with our payers in Latin America is entering into foreign exchange tom and spot transactions with local and foreign currency providers (“counterparties”). The foreign currency exposure on our foreign exchange tom and spot transactions is limited by the fact that all transactions are settled within two business days from trade date. Foreign currency fluctuations, however, may negatively affect our average exchange gain per transaction. The Company had open tom and spot foreign exchange contracts for Mexican pesos and Guatemalan quetzales amounting to approximately $69.9 million and $41.3 million at September 30, 2023 and December 31, 2022, respectively.

In addition, included in wire transfers and money orders payable, net in our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, there are $73.1 million and $39.3 million, respectively, of wires payable denominated in foreign currencies, primarily Mexican pesos and Guatemalan quetzales.

Also, included in prepaid wires, net in our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, there are $73.3 million and $82.3 million, respectively, of prepaid wires denominated in foreign currencies, primarily Mexican pesos and Guatemalan quetzales.

We are also exposed to changes in currency rates as a result of our investments in foreign operations and revenues generated in currencies other than the U.S. dollar. Revenues and profits generated by international operations will increase or decrease because of changes in foreign currency exchange rates. This foreign currency risk is related primarily to our operations in our foreign subsidiaries. Revenues from our foreign subsidiaries represent less than 2% of our consolidated revenues for the nine months ended September 30, 2023. Therefore, a 10% increase or decrease in these currency rates against the U.S. Dollar would result in a de minimis change to our overall operating results.

The spot and average exchange rates for the currencies in which we operate to U.S. dollar are as follows:

(1) Spot exchange rates are as of September 30, 2023 and December 31, 2022.

(2) Average exchange rates are for the nine months ended September 30, 2023 and 2022.

(3) We commenced operations in Dominican Republic and Europe in connection with the LAN Acquisition in April 2023 and, therefore, no information is provided prior to 2023.

Long-term sustained appreciation of the Mexican peso or Guatemalan quetzal as compared to the U.S. dollar could affect our profit margins.

Interest Rate Risk

As discussed above, interest under the A&R Credit Agreement is variable based on certain benchmark rates, including SOFR. Because interest expense is subject to fluctuation, if interest rates increase, our debt service obligations on such variable rate indebtedness would increase even though the amount borrowed remained the same. Accordingly, an increase in interest rates would adversely affect our profitability.

During the nine months ended September 30, 2023, the Federal Reserve continued raising the fed funds rate from 4.50% to 5.50% as a countermeasure to control inflation in the United States. As a consequence, other benchmark interest rates such as SOFR and previously LIBOR increased as well. These increases have resulted in the Company incurring higher interest expense. The Company expects that the Federal Reserve will continue to monitor the fed funds rate and may consider further increases through the remainder of 2023, which will continue exposing the Company to higher interest rate risk as benchmark interest rates such as SOFR will continue increasing as well. As of September 30, 2023, we had $77.1 million and $124.0 million in outstanding borrowings under the term loan facility and revolving credit facility, respectively. A hypothetical 1% increase or decrease in the interest rate on our indebtedness as of September 30, 2023 would have increased or decreased cash interest expense on our term loan facility and revolving credit facility by approximately $0.8 million and $1.2 million per annum, respectively.

Credit Risk

We maintain certain cash balances in various U.S. banks, which at times, may exceed federally insured limits. We have not incurred any losses on these accounts. In addition, we maintain cash in various bank accounts in Mexico, Guatemala, Canada, Spain and Italy and short-term investment accounts in Mexico, which may not be fully insured. During the nine months ended September 30, 2023, we did not incur any losses on these uninsured accounts. To manage our exposure to credit risk with respect to cash balances and other credit risk exposure resulting from our relationships with banks and financial institutions, we regularly review cash concentrations, and we attempt to diversify our cash balances among global financial institutions.

We are also exposed to credit risk related to receivable balances from sending agents. We perform a credit review before each agent signing and conduct ongoing analyses of sending agents and certain other parties we transact with directly. As of September 30, 2023, we also had $4.4 million outstanding of agent advances receivable from sending agents. Most of the agent advances receivable are collateralized by personal guarantees from the sending agents and by assets from their businesses.

Our provision for credit losses was approximately $3.8 million for the nine months ended September 30, 2023 (0.8% of total revenues) and $2.0 million for the nine months ended September 30, 2022 (0.4% of total revenues). The increase in our provision for credit losses in the nine months ended September 30, 2023 is due to higher write-offs of accounts receivable in 2023 compared to 2022 primarily as a result of sending agents that were not able to pay in accordance with the original terms and are, accordingly, subject to our normal collection procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and President, and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, our Chief Executive Officer and President, and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on their evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective and operating to provide reasonable assurance that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and President, and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

During the most recently completed fiscal quarter, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to our principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Prospective investors are encouraged to consider the risks described in our 2022 Form 10-K, our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q and in our 2022 Form 10-K, and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.