International Money Express, Inc.: Form 10-Q for the period ended Sep 30, 2024

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, 2023. 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. We also provide our remittances services to Africa and Asia from the United States and offer sending services from Canada to Latin America and Africa. Also, through recent acquisitions we now provide remittance services from Spain, Italy, the United Kingdom 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 as well as our own Company-operated stores and paying entities. 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, Germany and the United Kingdom, 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 180,000 independent sending and paying agents and 117 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 the 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 primarily 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, Germany and the United Kingdom that are primarily operated by third-party businesses, as well as through our Company-operated stores located in those jurisdictions. 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, 2024, our agent network decreased by approximately 0.4% primarily as a result of a lower number of agents onboarded during the period relative to ordinary course agent terminations. For the nine months ended September 30, 2024, principal amount sent decreased slightly by approximately 0.2% to $18.3 billion, as compared to the same period in 2023, and total remittances processed were approximately 44.0 million, representing an increase of approximately 1.6%, as compared to the same period in 2023 primarily related to increased volume generated by our agent network, digital channels and European subsidiaries.

Business Acquisition

Effective July 2, 2024, the Company completed the acquisition of a money services entity incorporated in the United Kingdom. See Note 2 in Item 1 Financial Statements for additional information regarding the acquisition. This acquisition provides the Company the

opportunity to enter into markets in which it did not have a presence previously, such as the ability to provide outbound remittance services from the United Kingdom.

Restructuring costs

During the second quarter of 2024, the Company recorded restructuring costs primarily related to certain of its foreign operations and La Nacional. These restructuring costs are part of the Company's plan, for which the objectives are to reorganize the workforce, streamline operational processes, integrate technology functionality, as well as to develop efficiencies within the Company. For the three and nine months ended September 30, 2024, the Company incurred approximately $27.0 thousand and $2.5 million in expenses for a reduction of workforce in certain locations, closing of certain facilities, discontinuing technology and disposal of obsolete assets. These expenses include approximately $1.7 million in severance payments and related benefits, $0.4 million in software and software development costs write-offs and $0.4 million in legal and professional fees, which are included in restructuring costs in the condensed consolidated statement of income and comprehensive income.

The Company has paid out $1.1 million of the above charges during the three and nine months ended September 30, 2024 and has a liability of $1.4 million recorded in accrued and other liabilities in the condensed consolidated balance sheet as of September 30, 2024.

As a result of implementing this strategy, the Company expects to reduce compensation expense and certain facilities related charges in an amount of approximately $2.0 million a year. The anticipated effect of this reduction in expenses will be primarily realized during 2025. In addition, the Company does not expect that the execution of this strategy will result in any material reduction of revenues or increase of its ongoing operating expenses.

Recent development

On November 8, 2024, the Company announced that, consistent with the Board of Directors’ fiduciary duties, it is initiating a process to assess strategic alternatives, which could include, among others, a potential sale in a private transaction. There is no set deadline or definitive timetable for the completion of the strategic alternative assessment, and there can be no assurance that the exploration of strategic alternatives will result in any transaction or other action or change in the Company’s business plans. Any potential transaction or other strategic alternative would be dependent on a number of factors that may be beyond the Company’s control. The Company does not intend to discuss or disclose further developments unless and until the Board of Directors approves a specific action or otherwise concludes the review of strategic alternatives.

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:

• risks and uncertainties as to the outcome and timing of our Board of Director’s strategic alternative evaluation process, including the possibility that the Board of Directors may decide not to undertake a strategic alternative following the evaluation process; the Company’s inability to consummate any proposed strategic alternative resulting from the review due to, among other things, market, regulatory and other factors; the potential for disruption to our business resulting from the review process; and potential adverse effects on the Company’s stock price from the announcement, suspension or consummation of the evaluation process and the results thereof;
• loss of, or reduction in business with, key sending agents;
• our ability to effectively compete in the markets in which we operate;
• economic factors such as inflation, the level of economic activity, recession risks and labor market conditions, as well as volatility in market interest rates;
• international political factors, including hostilities in Ukraine and the Middle East, political instability, tariffs, border taxes or restrictions on remittances or transfers from the outbound countries in which we operate or plan to 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;
• public health conditions, responses thereto and the economic and market effects thereof;
• consumer confidence in our brands and in consumer money transfers generally;
• expansion into new geographic markets or product markets;
• our ability to successfully execute, manage, integrate and obtain the anticipated financial benefits of key acquisitions and mergers;
• new technology or competitors that disrupt the current money transfer and payment ecosystem, including the introduction of new digital platforms;
• our success in developing, introducing and expanding customer acceptance of new products, digital services and infrastructure;
• the ability of our risk management and compliance policies, procedures and systems to mitigate risk related to transaction monitoring;
• consumer fraud and other risks relating to the authenticity of customers’ orders or the improper or illegal use of our services by consumers or our sending agents;
• cybersecurity-attacks or disruptions to our information technology, computer network systems, data centers and mobile device apps;
• our ability to maintain favorable banking and paying agent relationships necessary to conduct our business;
• bank failures, sustained financial illiquidity, or illiquidity at the clearing, cash management or custodial financial institutions with which we do business;
• changes to banking industry regulation and practice;
• credit risks from our agents and the financial institutions with which we do business;
• our ability to recruit and retain key personnel;
• our ability to maintain compliance with applicable laws and regulatory requirements including those intended to prevent use of our money remittance services for criminal activity, those related to data and cyber-security protection, and those related to new business initiatives;
• enforcement actions and private litigation under regulations applicable to the money remittance services;
• changes in immigration laws and their enforcement;
• changes in tax laws in the countries we operate;
• our ability to protect our brands and intellectual property rights;
• our ability to satisfy our debt obligations and remain in compliance with our credit facility requirements;
• the use of third-party vendors and service providers; and
• weakness in U.S. or international economic conditions.

Political, social and economic conditions in key Latin American markets continue to exhibit instability, as evidenced by higher interest rates, high unemployment rates, restricted lending activity, higher inflation, volatility in foreign currencies and low consumer confidence, among other economic, political 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.

Trends in the cross-border money remittance business tend to correlate to immigration trends, global economic opportunity and related employment levels in certain industries such as construction, information technology, manufacturing, agriculture and hospitality, as well as other service industries. The three largest remittance corridors we serve are United States to Mexico, United States to Guatemala and Unites States to the Dominican Republic. According to the latest information available from the World Bank Remittance Matrix, the United States to Mexico remittance corridor was one of the largest in the world in 2023. Furthermore, remittances volume to low and middle income countries grew approximately 3.8% during 2023 according to the latest Migrations and Development Brief report from the World Bank.

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, human trafficking 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 compliance departments in the United States as well as in certain of our foreign subsidiaries, the responsibility of which is to monitor transactions, detect and report suspicious activity, maintain appropriate records and train our employees and agents.

Independent third-parties periodically review our policies and procedures and perform independent testing to assess the effectiveness of our anti-money laundering and Bank Secrecy Act compliance programs. 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, a large number of small niche money remittance service providers that serve select regions and new digital platforms and applications. 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 customers 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 increased 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 condensed 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. Also, we generate revenues from technology services provided to the independent network of agents and other service partners that utilize the Company’s technology in processing transactions paid by credit or debit card, check cashing services and maintenance fees, for which revenue is derived by a fee per transaction.

Operating Expenses

Service Charges from Agents and Banks

Service charges primarily consist of sending and paying agent commissions and bank fees. Service charges vary based on agent commission percentages and the amount of fees charged by the banks. Sending agents earn a commission on each transaction they process of approximately 50% of the transaction fee. Service charges may increase if banks or payer organizations increase their fee structure or sending agents use higher fee methods to remit funds to us. Service charges also vary based on the method the 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 restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and performance stock units (“PSUs”) of approximately $15.8 million is expected to be recognized over a weighted-average period of 1.9 years.

Other Selling, General and Administrative

General and administrative expenses primarily consist of fixed overhead expenses associated with our operations, including our Company-operated stores, such as information technology, telecommunications, rent, insurance, professional services, non-income or indirect taxes, facilities maintenance, provision for credit losses, selling expenses, public company reporting requirements, regulatory compliance requirements and other similar types of operating expenses. Selling expenses include expenses such as advertising and promotion, shipping, supplies and other expenses associated with serving and increasing our customer base and network of agents.

Restructuring Costs

We incurred costs associated with restructuring plans primarily related to our foreign operations and La Nacional. These costs included all internal and external costs directly related with the restructuring and consist primarily of severance payments, write-off of assets and certain legal and professional fees.

Transaction Costs

We incurred transaction costs associated with completed and potential acquisitions. 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.

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 (until August 29, 2024) and a revolving credit facility. The effective interest rates for the nine months ended September 30, 2024 for the term loan facility and revolving credit facility were 9.02% and 2.48%, 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 117 Company-operated stores throughout the United States, Canada, Spain, Italy, Germany and the United Kingdom. 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 the key components of our results of operations for the periods indicated:

(in thousands, except for share data)

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Revenues

Revenues for the above periods are presented below:

($ in thousands)

Wire transfer and money order fees, net of $144.6 million for the three months ended September 30, 2024 decreased by $2.8 million, or 2%, from $147.4 million for the three months ended September 30, 2023. The decrease was primarily due to a decrease in transaction volume processed through our retail network of sending agents and Company-operated stores in the third quarter of 2024 compared to the third quarter of 2023 as a result of a slight contraction in the market. This decrease was partially offset by $1.9 million in revenue recognized as a result of the changes to the terms and conditions of our loyalty program effective in the third quarter of 2024.

Revenues from foreign exchange gain, net of $24.0 million for the three months ended September 30, 2024 increased by $1.3 million, or 6%, from $22.7 million for the three months ended September 30, 2023. This increase was primarily due to a higher foreign exchange spread on money transfers sent to certain countries in LAC during the quarter ended September 30, 2024.

Other income of $3.4 million for the three months ended September 30, 2024 increased by $1.0 million, or 41.7%, from $2.4 million for the three months ended September 30, 2023 primarily due to the impact of the revenue generated from ancillary services provided to a particular segment of our consumer base through our Company-operated stores, an increase in fees related to a higher volume of transfers deemed abandoned property, and check cashing service fees, 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 $111.3 million for the three months ended September 30, 2024 compared to $112.9 million for the three months ended September 30, 2023. The decrease of $1.6 million, or 1%, was primarily due to the decrease in transaction volume described above partially offset by an increase in fees related to money transfers processed online or by using mobile devices.

Salaries and benefits — Salaries and benefits of $17.2 million for the three months ended September 30, 2024 decreased by $0.6 million, or 3%, from $17.8 million for the three months ended September 30, 2023. The decrease is primarily due to cost savings related to the restructuring plans implemented in the past year.

Other selling, general and administrative expenses — Other selling, general and administrative expenses of $12.1 million for the three months ended September 30, 2024 decreased by $0.8 million, or 6.2%, from $12.9 million for the three months ended September 30, 2023.

The decrease was primarily the result of:

• $0.3 million - decrease in facilities related expenses during the three months ended September 30, 2024 primarily related to facility closures as a result of the restructuring of La Nacional during the third quarter of 2023 and the move to our new U.S. headquarters; and
• $0.2 million - decrease in provision for credit losses primarily due to lower outstanding receivable balances from sending agents as of September 30, 2024 compared to September 30, 2023 as receivable balances tend to increase during weekends combined with a lower level of write-offs in the three months ended September 30, 2024.

Restructuring costs — Restructuring costs of $27.0 thousand for the three months ended September 30, 2024 consisted of severance costs primarily related to the restructuring of La Nacional and our foreign operations. Restructuring costs of $1.1 million for the three months ended September 30, 2023 included $0.8 million in severance payments and related benefits, $0.3 million in computer equipment write-offs, $38.0 thousand for the early termination of a lease agreement and $31.0 thousand in legal fees related to the restructuring of La Nacional.

Depreciation and amortization — Depreciation and amortization of $3.4 million for the three months ended September 30, 2024 decreased by $0.1 million or 2.9% from $3.5 million for the three months ended September 30, 2023. The decrease is the result of a decrease of approximately $0.2 million in amortization related to our trade names, developed technology and agent relationships during the three months ended September 30, 2024, as these intangibles are being amortized on an accelerated basis, which declines over time.

Non-Operating Expenses

Interest expense — Interest expense of $3.2 million for the three months ended September 30, 2024 increased by $0.4 million, or 14.3%, from $2.8 million for the three months ended September 30, 2023. The increase was primarily due to higher draws under our revolving credit facility to fund our working capital needs, as well as a loss on debt extinguishment of $0.3 million associated with the payoff of our term loan facility as a result of entering into the Second A&R Credit Agreement on August 29, 2024.

Income tax provision — Income tax provision was $7.3 million for the three months ended September 30, 2024, which represents an increase of $0.7 million from an income tax provision of $6.6 million for the three months ended September 30, 2023. The increase in income tax provision was mainly attributable to higher income before taxes as result of the variances described above, slightly offset by a decrease in our effective state tax rate for the three months ended September 30, 2024.

Net Income

We reported Net Income of $17.3 million for the three months ended September 30, 2024 compared to Net Income of $14.8 million for the three months ended September 30, 2023, which resulted in an increase of $2.5 million, or 16.9%, due to the same factors discussed above.

Earnings Per Share

Earnings per Share - Basic for the three months ended September 30, 2024 was $0.53, representing an increase of $0.11, or 26.2%, compared to $0.42 for the three months ended September 30, 2023. The increase in Earnings per Share - Basic was primarily due to the increase in net income as well as a reduced share count as a result of the stock repurchases.

Earnings per Share - Diluted for the three months ended September 30, 2024 was $0.53, representing an increase of $0.12, or 29.3%, compared to $0.41 for the three months ended September 30, 2023. The increase in Earnings per Share - Diluted was primarily due to the increase in net income as well as a reduced share count as a result of the stock repurchases.

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, 2024 was $19.8 million, representing an increase of $1.4 million from Adjusted Net Income of $18.4 million for the three months ended September 30, 2023. The increase in Adjusted Net Income was primarily due to the increase in Net Income discussed above, offset by 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 assets and, legal and professional fees related to the execution of restructuring plans.

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

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

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

(f) 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, 2024 was $0.61, representing an increase of $0.09, or 17.3%, compared to $0.52 for the three months ended September 30, 2023. The increase in Adjusted Earnings per Share - Basic was primarily due to the increase in net income as well as 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, 2024 was $0.61, representing an increase of $0.10, or 19.6%, compared to $0.51 for the three months ended September 30, 2023. The increase in Adjusted Earnings per Share - Diluted was primarily due to the increase in net income as well as 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:

NM - Per share amounts are not meaningful.

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

Adjusted EBITDA

Adjusted EBITDA is defined as net income before depreciation and amortization, interest expense, income taxes, and also adjusted to add back certain charges and expenses, such as non-cash 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, 2024 was $33.9 million, representing an increase of $2.2 million, or 6.9%, from $31.7 million for the three months ended September 30, 2023. The increase in Adjusted EBITDA was primarily due to the increase 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 assets and, legal and professional fees related to the execution of restructuring plans.

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

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

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Revenues

Revenues for the above periods are presented below:

($ in thousands)

Wire transfer and money order fees, net of $417.4 million for the nine months ended September 30, 2024 increased by $1.0 million, or 0.2%, from $416.4 million for the nine months ended September 30, 2023. The increase was primarily due to a 1.6% increase in transaction volume in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, largely due to the growth in transactions processed by our agent network and digital channels. In addition, during the nine months ended September 30, 2024, the Company recognized $1.9 million in revenue as a result of the changes to the terms and conditions of our loyalty program effective in the third quarter of 2024. These increases were partially offset primarily by a lower average price per transaction on money transfers.

Revenues from foreign exchange gain, net of $67.1 million for the nine months ended September 30, 2024 increased by $2.9 million, or 4.5%, from $64.2 million for the nine months ended September 30, 2023. This increase was primarily due to higher transaction volume combined with a higher foreign exchange spread on money transfers sent to certain countries in the LAC.

Other income of $9.4 million for the nine months ended September 30, 2024 increased by $3.0 million, or 46.9%, from $6.4 million for the nine months ended September 30, 2023 primarily due to the effect of higher revenue generated from other ancillary services provided by our Company-operated stores such as check-cashing fees, an increase in fees related to a higher volume of transfers deemed abandoned property, and higher 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 $322.7 million for the nine months ended September 30, 2024 compared to $320.0 million for the nine months ended September 30, 2023. The increase of $2.7 million, or 0.8%, was primarily due to the increase in transaction volume described above and an increase in fees related to money transfers processed online or by using mobile devices.

Salaries and benefits — Salaries and benefits of $52.2 million for the nine months ended September 30, 2024 increased by $0.6 million, or 1.2%, from $51.6 million for the nine months ended September 30, 2023. The increase is primarily attributable to $1.4 million related to our expanded workforce as a result of the LAN Holdings acquisition as it operates independently in the execution of certain operational functions, as well as an increase of $0.6 million in share-based compensation as a result of new awards granted throughout 2024, partially offset by cost savings of $1.1 million related to the restructuring plan of La Nacional, which was implemented in the third quarter of 2023.

Other selling, general and administrative expenses — Other selling, general and administrative expenses of $36.0 million for the nine months ended September 30, 2024 decreased by $0.9 million, or 2.4%, from $36.9 million for the nine months ended September 30, 2023.

The decrease was primarily the result of:

• $0.6 million - related to a gain on legal contingency settlement that was recorded in the second quarter of 2024 and collected in July 2024;
• $0.9 million - decrease in facilities related expenses during the nine months ended September 30, 2024 primarily related to facility closures as a result of the restructuring of La Nacional during the third quarter of 2023;
• $0.3 million - lower transaction costs due to the acquisition of LAN Holdings that closed in April 2023; and
• $0.3 million - related to litigation settlements incurred in the nine months ended September 30, 2023.

This decrease was partially offset by:

• $1.3 million - increase in provision for credit losses primarily due to a higher average balance outstanding of receivable balances from sending agents during the nine months ended September 30, 2024 compared to the same period in 2023, 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.

Restructuring costs — Restructuring costs of $2.7 million for the nine months ended September 30, 2024 included $1.9 million in severance costs, $0.4 million in fixed assets impairment, and $0.4 million in legal and professional fees primarily related to the restructuring of La Nacional and our foreign operations. Restructuring costs of $1.1 million for the nine months ended September 30, 2023 included $0.8 million in severance payments and related benefits, $0.3 million in computer equipment write-offs, $38.0 thousand for the early termination of a lease agreement and $31.0 thousand in legal fees related to the restructuring of La Nacional.

Depreciation and amortization — Depreciation and amortization of $10.0 million for the nine months ended September 30, 2024 increased by $0.5 million from $9.5 million or 5.3% for the nine months ended September 30, 2023. The increase is the result of higher depreciation associated with additional software developed and computer equipment acquired to support our growing business and sending agent network, as well as depreciation related to assets capitalized in connection with the Company’s new headquarters. These increases were partially offset by a decrease of approximately $0.6 million in amortization related to our trade names, developed technology and agent relationships during the nine months ended September 30, 2024, as these intangibles are being amortized on an accelerated basis, which declines over time.

Non-Operating Expenses

Interest expense — Interest expense of $9.0 million for the nine months ended September 30, 2024 increased by $1.4 million, or 18.4%, from $7.6 million for the nine months ended September 30, 2023. The increase was primarily due to higher market interest rates during the first half of 2024, as well as higher and more frequent draws under our revolving credit facility to fund our working capital needs during the nine months ended September 30, 2024. Additionally, the Company recognized a loss on debt extinguishment of $0.3 million associated with the payoff of our term loan facility as a result of entering into the Second A&R Credit Agreement on August 29, 2024.

Income tax provision — Income tax provision was $17.9 million for the nine months ended September 30, 2024, which represents a decrease of $0.3 million from an income tax provision of $18.2 million for the nine months ended September 30, 2023. The decrease in income tax provision was mainly attributable to higher deductible share based compensation, as well as a decrease in our effective state tax rate for the nine months ended September 30, 2024, offset by an increase in income before taxes.

Net Income

We reported Net Income of $43.4 million for the nine months ended September 30, 2024 compared to Net Income of $42.0 million for the nine months ended September 30, 2023, which resulted in an increase of $1.4 million, or 3.3%, due to the same factors discussed above.

Earnings Per Share

Earnings per Share - Basic for the nine months ended September 30, 2024 was $1.32, representing an increase of $0.15, or 12.8%, compared to $1.17 for the nine months ended September 30, 2023.

Earnings per Share - Diluted for the nine months ended September 30, 2024 was $1.30, representing an increase of $0.16, or 14.0%, compared to $1.14 for the nine months ended September 30, 2023.

The increase in both basic and diluted EPS largely reflect a reduced share count as a result of the stock repurchases combined with the increase in net income 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, 2024 was $52.6 million, representing an increase of $1.6 million, or 3.1%, from Adjusted Net Income of $51.0 million for the nine months ended September 30, 2023. The increase in Adjusted Net Income was primarily due to the increase in net income as discussed above as well as 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 assets and, legal and professional fees related to the execution of restructuring plans.

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

(d) Represents a gain contingency related to a legal settlement.

(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 and Diluted (previously defined and used as described above) are as follows:

Adjusted Earnings per Share - Basic for the nine months ended September 30, 2024 was $1.60, representing an increase of $0.18, or 12.7%, compared to $1.42 for the nine months ended September 30, 2023. The increase in Adjusted Earnings per Share - Basic was primarily due to the increase in net income as well as a lower weighted average common shares total for the period due to stock repurchases.

Adjusted Earnings per Share - Diluted for the nine months ended September 30, 2024 was $1.58, representing an increase of $0.19, or 13.7%, compared to $1.39 for the nine months ended September 30, 2023. The increase in Adjusted Earnings per Share - Diluted was primarily due to the increase in net income as well as 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:

NM - Per share amounts are not meaningful.

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, 2024 was $90.3 million, representing an increase of $3.6 million, or 4.2%, from $86.7 million for the nine months ended September 30, 2023. The increase in Adjusted EBITDA was primarily due to the increase in net income as discussed above as well as 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 assets and, legal and professional fees related to the execution of restructuring plans.

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

(d) Represents a gain contingency related to a legal settlement.

(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 and repurchases of our common stock.

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, 2024. 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, our expected capital expenditures and projected common stock repurchases in the short and long term.

Credit Agreement

On August 29, 2024, the Company entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with a group of banking institutions, which amended and restated in its entirety the A&R Credit Agreement. The Second A&R Credit Agreement provides for a new $425.0 million, multi-currency, revolving credit facility and an uncommitted incremental facility, which may be utilized for additional term and revolving loans of up to $100.0 million. The Second A&R Credit Agreement also provides for the issuance of letters of credit, which would reduce availability under the revolving credit facility. The maturity date of the Second A&R Credit Agreement is August 29, 2029. A portion of the initial borrowings under the new revolving credit facility were used to repay in full the remaining outstanding balance of the Company’s term loan under the A&R Credit Agreement and to pay the costs associated with establishing the new revolving credit facility. Borrowings under the Second A&R Credit Agreement are available for general corporate purposes to support the Company’s growth, as well as to fund share repurchases.

As of September 30, 2024, there were $138.2 million of outstanding amounts drawn on the revolving credit facility. There were $386.8 million of additional borrowings available under this facility as of September 30, 2024.

Under the Second A&R Credit Agreement and at the election of the Company, interest on the revolving loans denominated in U.S. Dollars is determined by reference to either (i) the secured overnight financing rate (“SOFR”), (ii) the daily simple SOFR or (iii) a defined “base rate,” in each case, plus an applicable margin ranging from 1.75% to 2.25% for SOFR rate loans and from 0.75% to 1.25% for base rate loans based upon the Company’s consolidated leverage ratio, as so calculated pursuant to the terms of the Second A&R Credit Agreement. Interest on revolving loans denominated in Euros or Pounds Sterling is determined by reference to the Euro Interbank Offered Rate (“EURIBOR”) or Sterling Overnight Index Average (“SONIA”), in each case, plus an applicable margin ranging from 1.75% to 2.25% based upon the Company’s consolidated leverage ratio, as so calculated.

The revolving loans may be borrowed, repaid, and reborrowed from time to time in accordance with the terms and conditions of the Second A&R Credit Agreement. Interest is payable quarterly for base rate loans, daily simple SOFR loans, and daily simple SONIA loans, and on the expiration of the applicable interest period for term SOFR loans and EURIBOR loans. The Company also pays an annual commitment fee up to 0.30% of the actual daily amount by which the maximum availability under the revolving credit facility exceeds the sum of the outstanding amount of revolving credit loans.

The effective interest rates for the nine months ended September 30, 2024 for the term loan facility and revolving credit facility were 9.02% and 2.48%, respectively.

The Second A&R Credit Agreement also provides the Company with increased flexibility to make certain restricted payments, including the repurchase shares of its common stock, without limitation so long as the Company’s consolidated leverage ratio, as of the then most recently completed four fiscal quarters, after giving pro forma effect to such restricted payments, is 2.50 to 1.00 or less. In addition, the Company may make restricted payments that do not exceed in the aggregate during any fiscal year the greater of (i) $30.3 million and (ii) 25% of Consolidated EBITDA (as defined in the Second A&R Credit Agreement) for the then most recently completed four fiscal quarters of the Company.

The Second A&R Credit Agreement also contains customary covenants that limit the ability of the Company and its subsidiaries to, among other things, grant liens, incur additional indebtedness, make acquisitions or investments, dispose of certain assets, issue dividends and distributions (other than to the Company and certain of its subsidiaries), change the nature of their businesses, enter into certain transactions with affiliates, or amend the terms of material indebtedness, in each case subject to certain thresholds and exceptions.

Under the Second A&R Credit Agreement, the Company is required to maintain a quarterly minimum interest coverage ratio of 3.00:1.00 and a quarterly maximum consolidated leverage ratio of 3.50 with a step-up to 3.75 in the quarter during which the Company completes a material acquisition, in each case, as computed in accordance with the terms of the Second A&R Credit Agreement.

As of September 30, 2024, we were in compliance with the covenants of the Second A&R Credit Agreement that require the Company to maintain a quarterly minimum fixed charge coverage ratio of 3.00:1.00 and a quarterly maximum consolidated leverage ratio of 3.50:1.00.

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, 2023.

Repurchase Program

On August 18, 2021, 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. On August 29, 2024, the Board of Directors approved a second increase to the Repurchase Program that authorizes the Company to purchase an additional $60.7 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 Second A&R Credit Agreement, permits the Company to make restricted payments (including share repurchases, among others) under a variety of tests as described above, including, without limitation, so long as the Consolidated Leverage Ratio (as defined in the Second 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 2.50:1.00 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, 2024, including the shares purchased in the privately-negotiated transaction described below, the Company purchased 2,739,499 shares for an aggregate purchase price of $54.9 million. During the nine months ended September 30, 2023, the Company purchased 1,734,481 shares for an aggregate purchase price of $40.6 million. As of September 30, 2024, there was $80.0 million available for future share repurchases under the Repurchase Program.

Privately-Negotiated Share Repurchase Transaction

On March 11, 2024, the Company entered into an agreement with Robert W. Lisy, the Company's Chief Executive Officer, President and Chairman of the Board of Directors, for the purchase of 175,000 shares of the Company’s common stock for a total purchase price of $3.3 million, or a per share price of $19.11, 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 $1.7 million and $5.3 million for the three and nine months ended September 30, 2024, 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 $58.0 million for the nine months ended September 30, 2024, a decrease of $24.4 million from net cash provided in operating activities of $82.4 million for the nine months ended September 30, 2023. The decrease is primarily a result of a $27.7 million change in working capital, which varies due to timing of remittances of consumer funds by sending agents and transmittal orders and payments, as well as prefunding of payers primarily for weekends, and additional cash generated by our operating results for the nine months ended September 30, 2024, which reflected the further growth of our business.

Investing Activities

Net cash used in investing activities was $27.9 million for the nine months ended September 30, 2024, representing an increase of $14.7 million from net cash used in investing activities of $13.2 million for the nine months ended September 30, 2023. This increase in cash used was primarily due to the capitalization of leasehold improvements, furniture and equipment related to the Company's move to the new U.S. headquarters in February 2024 of approximately $10.0 million, an investment in software and equipment to support our sending agent network and continued improvement of our proprietary software, as well as the acquisition of a money remittance company in the United Kingdom and an agent location in the United States during the nine months ended September 30, 2024 in comparison with the nine months ended September 30, 2023.

Financing Activities

Net cash used in financing activities was $111.2 million for the nine months ended September 30, 2024, which primarily consisted of $24.2 million of net borrowings under the revolving credit facility, $75.5 million in regular quarterly pay-downs for the first half of the year and final payoff of the term loan facility, $54.9 million used for repurchases of common stock, $3.1 million in debt origination costs related to the Second A&R Credit Agreement and $2.0 million of payments for stock-based awards for shares withheld for tax payments in connection with share-based compensation arrangements.

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.

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, 2023, for which there were no material changes during the three and nine months ended September 30, 2024, 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 $30.1 million and $56.9 million at September 30, 2024 and December 31, 2023, respectively.

In addition, included in wire transfers and money orders payable, net in our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, there are $16.3 million and $40.7 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, 2024 and December 31, 2023, there are $19.8 million and $17.8 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 3% of our consolidated revenues for the nine months ended September 30, 2024. 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, 2024 and December 31, 2023.

(2) Average exchange rates are for the nine months ended September 30, 2024 and 2023.

(3) We commenced operations in the United Kingdom in connection with an acquisition in July 2024 and, therefore, no information is provided prior to 2024.

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

Interest Rate Risk

As discussed above, interest under the Second A&R Credit Agreement is variable based on certain benchmark rates, including SOFR, EURIBOR and SONIA. 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 may remain the same. Accordingly, an increase in interest rates would adversely affect our profitability.

During the nine months ended September 30, 2024, the Federal Reserve lowered the fed funds rate from 5.50% to 5.00% to ease monetary policy and support economic stability. As a consequence, other benchmark interest rates such as SOFR started to decrease during August 2024. The Company expects that the Federal Reserve will continue to monitor inflation and other economic indicators to assess if additional interest rate decreases in 2024 are warranted. As of September 30, 2024, we had $138.2 million in outstanding borrowings under the revolving credit facility. A hypothetical 1% increase or decrease in the interest rate on our indebtedness as of September 30, 2024 would have increased or decreased cash interest expense on our revolving credit facility by approximately $1.4 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, the Dominican Republic, Spain, the United Kingdom and Italy and short-term investment accounts in Mexico, which may not be fully insured. During the nine months ended September 30, 2024, 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, digital partners and other parties. 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, 2024, we also had $5.0 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 $5.0 million for the nine months ended September 30, 2024 (1.0% of total revenues) and $3.8 million for the nine months ended September 30, 2023 (0.8% of total revenues). The increase in our provision for credit losses in the nine months ended September 30, 2024 is primarily due to higher outstanding balances of accounts receivable primarily related to the acquisition of La Nacional and LAN Holdings and higher volume growth processed by our sending agents.

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, 2024. 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, 2024.

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, 2023 (the “2023 Form 10-K”). Prospective investors are encouraged to consider the risks described in our 2023 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 2023 Form 10-K, and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.