Description of Business and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Description of Business and Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

(b)Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, the unaudited condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended June 30, 2019 and 2018, the unaudited condensed consolidated statements of changes in equity for the three and six months ended June 30, 2019 and 2018, and the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, reflect all adjustments that are of a normal, recurring nature and that are considered necessary for a fair presentation of the results for the periods shown in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial reporting periods. Accordingly, certain information and footnote disclosures have been condensed or omitted in accordance with SEC rules that would ordinarily be required under U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Estimates used for accounting purposes include, but are not limited to, valuation of redeemable non-controlling interests (“RNCI”), calculation of income taxes, and determination of the fair value of long-lived assets.

Presentation of Consolidated Balance Sheet and Consolidated Statement of Changes in Equity at December 31, 2018:

The previously presented nonredeemable non-controlling interests, which relate to the portion of equity in a consolidated subsidiary not attributable, directly or indirectly, to the Company as of December 31, 2018, were retrospectively adjusted to reflect the exchange of certain Class C and D shares to Class A shares.  The Company has deemed the correction to be immaterial as there is no impact to the Company’s results of operations, cash flows from operating, investing, or financing activities, or consolidated shareholders’ deficit.  This immaterial adjustment decreased the previously reported amounts of $178.2 million and ($814.1) million of additional paid-in capital and nonredeemable non-controlling interests, as reported in the consolidated balance sheet and consolidated statement of changes in equity as of December 31, 2018, to $157.5 million and ($793.4) million, respectively. 

Principles of Consolidation

(c)Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. As sole managing member of EVO, LLC, the Company exerts control over the Group. In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, EVO, Inc. consolidates the Group’s consolidated financial statements and records the interests in EVO, LLC that it does not own as non-controlling interests. All intercompany accounts and transactions have been eliminated in consolidation. The Company accounts for investments over which it has significant influence but not a controlling financial interest using the equity method of accounting.

Cash and Cash Equivalents and Merchant Reserves

(d)Cash and Cash Equivalents and Merchant Reserves

Cash and cash equivalents include all cash balances and highly liquid securities with original maturities of three months or less when acquired. Cash equivalents consist primarily of overnight money market funds.  Cash balances often exceed federally insured limits; however, concentration of credit risk is limited due to the payment of funds on the day following receipt in satisfaction of the settlement process. Included in cash and cash equivalents are merchant reserve cash balances, which represent funds collected from the Company’s merchants that serve as collateral to minimize contingent liabilities associated with any losses that may occur under the respective merchant agreements (“Merchant Reserves”). While this cash is not restricted in its use, the Company believes that maintaining the Merchant Reserves to collateralize merchant losses strengthens its fiduciary standings with its card network sponsors (“Member Banks”) and is in accordance with the guidelines set by the card networks. As of June 30, 2019, and December 31, 2018, Merchant Reserves were $98.7 million and $107.8 million, respectively.

Recent Accounting Pronouncements

(e)Recent Accounting Pronouncements

New accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company are adopted as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s unaudited condensed consolidated financial statements upon adoption. As the Company is considered an emerging growth company under the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), adoption of new accounting standards will be consistent with private company effective dates.  The Company expects to become a large accelerated filer effective December 31, 2019, at which point the Company will follow the timeline for adoption of new accounting pronouncements for public companies.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue From Contracts With Customers (“ASC 606”), with amendments in 2015, 2016 and 2017.  This ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (“ASC 605”). The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted ASC 606 on January 1, 2019, using the modified retrospective method and applying the standard to all contracts not completed on the date of adoption. Results for the reporting period beginning January 1, 2019 are presented under ASC 606, while prior period amounts continue to be reported in accordance with the Company's historic accounting practices under previous guidance.

The primary impact to the Company’s unaudited condensed consolidated financial statements as a result of the adoption of ASC 606 is a change in total net revenue attributable to the presentation of network processing fees on a net basis, driven by changes in principal and agent considerations, as compared to previously being presented on a gross basis. Under the modified retrospective basis, the Company has not restated its comparative unaudited condensed consolidated financial statements for these effects. The following table presents the impact of adopting ASC 606 on the Company’s unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019:

	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
	As reported		Adjustment		Presented without adoption of ASC 606		As reported		Adjustment		Presented without adoption of ASC 606
	(In thousands)						(In thousands)
Revenue	$	122,517	$	27,470	$	149,987	$	234,035	$	51,374	$	285,409
Operating expenses
Cost of services and products, exclusive of depreciation and amortization	$	24,752	$	27,470	$	52,222	$	48,835	$	51,374	$	100,209

The adoption of ASC 606 did not have a material impact on the Company’s unaudited condensed consolidated balance sheets and statements of cash flows as of and for the three and six months ended June 30, 2019. The Company has expanded its unaudited condensed consolidated financial statement disclosures as required by this new standard. See Note 2, “Revenue” for additional disclosures provided as a result of the adoption of ASC 606.

Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases, with amendments in 2018 and 2019. This standard aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years; however, the Company has elected to take advantage of the extended transition period as provided for under the JOBS Act. The new standard is therefore effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, provided that the Company maintains its emerging growth company status through December 31, 2019. Early application of this ASU is permitted for all entities. The Company expects to become a large accelerated filer effective December 31, 2019, at which point the Company will follow the timeline for adoption of new accounting pronouncements for public companies, and will be required to retroactively present the impact of this standard in its annual report as of and for the year ended December 31, 2019.  Although the Company is in the process of determining the impact to the unaudited condensed consolidated financial statements, the Company currently expects that most of the existing operating lease commitments will be subject to the new standard and will be recognized as operating lease liabilities and right-of-use assets upon adoption.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement. This update provides clarification and modifies the disclosure requirements on fair value measurement in Topic 820, Fair Value Measurement. The effective date of this update is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.