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

(a)Description of Business

EVO Payments, Inc. (“EVO, Inc.” or the “Company”) is a Delaware corporation whose primary asset is its ownership of approximately 44.7% of the membership interests of EVO Investco, LLC (“EVO, LLC”) as of September 30, 2019. EVO, Inc. was incorporated on April 20, 2017 for the purpose of completing a series of reorganization transactions (the “Reorganization Transactions”), in order to consummate the initial public offering of EVO, Inc.’s Class A common stock (“IPO”), and to carry on the business of EVO, LLC. EVO, Inc. is the sole managing member of EVO, LLC and operates and controls all of the businesses and affairs conducted by EVO, LLC and its subsidiaries.

The Company is a leading payment technology and services provider, offering an array of innovative, reliable and secure payment solutions to merchants across North America and Europe and servicing over 550,000 merchants across 50 markets. The Company supports all major card types in the markets it serves.

The Company provides card-based payment processing services to small and middle market merchants, multinational corporations, government agencies, and other business and nonprofit enterprises located throughout North America and Europe. These services enable merchants to accept credit and debit cards and other electronic payment methods as payment for their products and services by providing terminal devices, card authorization, data capture, funds settlement, risk management, fraud detection and chargeback services. The Company operates two reportable segments: North America and Europe.

(b)Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated balance sheet as of September 30, 2019 and audited consolidated balance sheet as of December 31, 2018, the unaudited condensed consolidated statements of operations and comprehensive (loss) income for the three and nine months ended September 30, 2019 and 2018, the unaudited condensed consolidated statements of changes in equity for the three and nine months ended September 30, 2019 and 2018, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 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 (“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, as of 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.

(c)Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. As the 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.

(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 the 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 September 30, 2019 and December 31, 2018, Merchant Reserves were $92.2 million and $107.8 million, respectively.

(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 public company timeline for adoption of new accounting pronouncements.

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 method, 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 nine months ended September 30, 2019:


	Three Months Ended September 30, 2019						Nine Months Ended September 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	$	122,363	$	30,234	$	152,597	$	356,398	$	81,608	$	438,006
Operating expenses
Cost of services and products, exclusive of depreciation and amortization	$	24,065	$	30,234	$	54,299	$	72,900	$	81,608	$	154,508

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 nine months ended September 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

Leases

In February 2016, the FASB issued ASU 2016-02, Leases, with amendments in 2018 and 2019. This update 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, 2020, and interim periods within those fiscal years, provided that the Company maintains its emerging growth company status through December 31, 2019. 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 adopt this standard effective January 1, 2019.

The Company is currently in the process of evaluating its leasing arrangements and assessing the impact of adopting the new guidance on its consolidated financial statements, disclosures, accounting policies, and controls over financial reporting. The Company is also in process of implementing a new lease accounting software solution to comply with the requirements of the standard.

The Company’s existing leases consist primarily of real estate and personal property leases throughout the markets in which the Company operates. As disclosed in Note 16, “Commitments and Contingencies” to the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, minimum annual lease payments for the years subsequent to December 31, 2018 amounted to $42.4 million on an undiscounted basis. The Company expects that substantially all of these lease commitments will be subject to the new standard and will be recognized, on a discounted basis, as operating lease liabilities and right-of-use assets upon adoption.

The Company plans to elect the package of practical expedients intended to ease transition whereby the Company will not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) initial direct costs for any existing leases. The Company also intends to elect the practical expedient allowing to not separate lease and non-lease components. Furthermore, the Company will apply the provisions of ASU 2018-11, Leases (Topic 842)- Targeted Improvements, with the initial application of the new guidance at the adoption date with a cumulative effect adjustment in the opening balance of retained earnings. Under this method, the Company would not adjust its comparative period financial statements for the effects of the new standard or make the new required lease disclosures for periods prior to the effective date.

The Company expects the evaluation and implementation activities to continue throughout the remainder of 2019.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, with amendments in 2019. This update requires the companies to immediately recognize the estimate for credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company will adopt this ASU, prospectively, effective January 1, 2020. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

Fair Value Measurement

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

Internal Use Software

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The update aligns the requirements for capitalizing certain implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The Company is currently evaluating the effect of ASU 2018-15 on its consolidated financial statements.