What changed in this filing

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Item 1A. Risk Factors

2022-08-08 compared with 2022-05-09 · 34 added, 36 removed, 343 unchanged (17% of the section changed)

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and we have closed most of our leased office locations in the U.S., which could result in a less effective workforce in the long-term.

As a result of the resurgence of the COVID-19 pandemic’s Omicron variant in China during the first quarter of 2022, we closed our offices again in China and shifted to a remote workforce strategy in China, which over a prolonged period of time, could potentially delay our ability to launch new products or services.

While we have resumed normal operations in China, it is possible that we may continue to experience similar issues in the future due to the pandemic, which over a prolonged period of time, could potentially delay our ability to launch new products or services.

In addition, many of the third-party call centers we rely on to provide customer support experienced periodic disruptions in 2021 due to the ongoing pandemic, which resulted in delayed responses to customers and a higher usage of automated services, and contributed to higher costs and transaction losses compared to prior periods.

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Concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets, which may adversely affect our stock price and our ability to access capital markets in the future.

Further, should we require credit at levels we are unable to access, the cost of credit is greater than expected, or the cost-savings measures we have implemented are ineffective or result in us incurring greater costs, our operating results could be adversely affected.

Additional borrowings on our revolving line of credit have and will cause us to incur additional interest expense, which will negatively affect our earnings.

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information regarding the potential impact of the COVID-19 pandemic on our business.

Worsening economic conditions from the continued spread and impact of COVID-19, a rising rate of inflation, or other potential causes of economic distress could materially and adversely impact our business and financial results.

The effects of the economic downturn associated with the COVID-19 pandemic, and other economic factors, has resulted in a significant increase in the rate of inflation, rising interest rates, and may increase unemployment, all of which could reduce consumer credit ratings and credit availability, which may adversely affect our operations.

Worsening economic conditions, a rising rate of inflation, or other potential causes of economic distress could materially and adversely impact our business and financial results.

The effects of the economic downturn associated with the COVID-19 pandemic, and other economic factors, have resulted in a significant increase in the rate of inflation, rising interest rates, and may further increase unemployment, all of which could reduce consumer credit ratings and credit availability, which may adversely affect our operations.

Such an outcome could cause us to adjust pricing to account for an increasing cost of funds and increased credit risk in a down economy and thereby erode our margins and negatively impact our future financial performance and the price of our Class A Common Stock.

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A significant portion of our operating revenues are derived from the products and services sold at our largest retail distributors.

As a percentage of total operating revenues, operating revenues derived from products and services sold at the store locations of Walmart was approximately 20.0% for the three months ended March 31, 2022.

As a percentage of total operating revenues, operating revenues derived from products and services sold at the store locations of Walmart were approximately 21.0% for the three and six months ended June 30, 2022, respectively.

We expect that Walmart will continue to have a significant impact on our operating revenues in future periods, particularly in our Consumer Services segment.

It would be difficult to replace Walmart and the operating revenues derived from products and services sold at their stores.

Accordingly, the loss of Walmart or any significant decrease in customers’ spending levels and ability or willingness to purchase our account products through Walmart, for any reason, including due to the COVID-19 pandemic, would have a material adverse effect on our business and results of operations.

Accordingly, the loss of Walmart or any significant decrease in customers’ spending levels and ability or willingness to purchase our account products through Walmart, for any reason, including due to the COVID-19 pandemic and rising inflation, would have a material adverse effect on our business and results of operations.

In addition, any publicity associated with the loss of any of our large retail distributors, significant BaaS partners, third-party processors or other major consumers could harm our reputation, making it more difficult to attract and retain consumers, BaaS partners, third-party processors and other retail distributors, and could lessen our negotiating power with our remaining and prospective retail distributors, BaaS partners, third-party processors and consumers.

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There can be no assurance that we will be able to continue our relationships with our largest retail distributors, significant BaaS partners, third-party processors or consumers on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contracts with them.

For example, during the three months ended June 30, 2022, we and several business partners failed to reach agreement on renewal of their agreements with us, and we are also in the midst of a dispute with Uber over their obligations under our agreements with them.

Our operating revenues and results of operations could suffer if, among other things, any of our retail distributors, significant BaaS partners, third-party processors or consumers renegotiates, terminates or fails to renew, or to renew on similar or favorable terms, its agreement with us or otherwise chooses to modify the level of support it provides for our products.

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We do not have long-term contractual commitments from most of our current tax preparation partners and our tax preparation partners may elect to not renew their contracts with us with little or no advance notice.

As a result, we cannot be assured that any of our current tax preparation partners will continue to partner with us past the terms in their current agreements.

As a result, we cannot be certain that any of our current tax preparation partners will continue to partner with us past the terms in their current agreements.

A termination of our relationships with certain tax preparation partners that provide commercial tax preparation software would result in lost revenue and the loss of the ability to secure future relationships with new or existing tax preparation firms that use such tax software.

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In general, our contracts with these third parties allow them to exercise significant discretion over the placement and promotion of our products and services, and they could give higher priority to the products and services of other companies for a variety of reasons.

Accordingly, losing the support of our retail distributors and tax preparation partners might limit or reduce the sales of our products and services.

Accordingly, losing the support of our retail distributors and tax preparation partners might limit or reduce the sales

of our products and services.

Our operating revenues and operating expenses may also be negatively affected by the operational decisions of our retail distributors and tax preparation partners.

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If a retail distributor or partner becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers.

As of March 31, 2022, we had assets subject to settlement risk of $500.3 million.

As of June 30, 2022, we had assets subject to settlement risk of $498.1 million.

Given the possibility of recurring volatility in global financial markets, the approaches we use to assess and monitor the creditworthiness of our retail distributors may be inadequate, and we may be unable to detect and take steps to mitigate an increased credit risk in a timely manner.

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If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation.

If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices, any of which could have a material adverse effect on our operating revenues and profitability.

If we are unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices, any of which could have a material adverse effect on our operating revenues and profitability.

We would also likely have to pay (or indemnify the banks that issue our cards for) fines, penalties and/or other assessments imposed by Visa or MasterCard as a result of any data security breach.

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For example, many of our U.S.

and international third-party call centers were closed during portions of the first half of 2020 due to the COVID-19 pandemic, which resulted in delayed responses to customers and a higher usage of automated services.

While such issues have largely been resolved, these conditions contributed to transaction losses as compared to prior periods.

and international third-party call centers experienced periodic disruptions in 2021 due to the ongoing pandemic, which resulted in delayed responses to customers and a higher usage of automated services.

While such issues have largely been resolved, these conditions contributed to higher costs and transaction losses as compared to prior periods.

Any prolonged closure or disruption in the services provided by such call centers would have an adverse effect on our business.

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A prolonged disruption at our China facility for any reason due to natural- or man-made disasters, outbreaks of disease, such as the COVID-19 pandemic, climate change or other events outside of our control, such as equipment malfunction or large-scale outages or interruptions of service from utilities or telecommunications providers, could potentially delay our ability to launch new products or services, which could materially and adversely affect our business.

For example, as a result of the resurgence of the COVID-19 pandemic's Omicron variant in China during the first quarter of 2022, we closed our offices again in Shanghai, China and shifted to a remote workforce strategy.

For example, as a result of the resurgence of the COVID-19 pandemic's Omicron variant in China, our offices in Shanghai, China were closed during the first quarter of 2022 and shifted to a remote workforce strategy.

Additionally, as a result of our international operations, we face numerous other challenges and risks, including:

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For example, we are subject to the anti-money laundering reporting and recordkeeping requirements of the BSA, as amended by the PATRIOT Act.

Failure to fully comply with these requirements exposes us to the risk of being required to undertake substantial remediation efforts and to the risk of enforcement actions, either of which could have a material adverse impact on our results of operations, financial condition or business prospects.

From time to time, federal and state legislators and regulatory authorities, including state attorney generals, increase their focus on the banking, consumer financial services and tax preparation industries and may propose and adopt new legislation or guidance that could result in significant adverse changes in the regulatory landscape for financial institutions and financial services companies.

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Moreover, if our products are adversely impacted by the interpretation or enforcement of these regulations or if we or any of our retail distributors or tax preparation partners were unwilling or unable to make such operational changes to comply with the interpretation or enforcement thereof, we would no longer be able to sell our products and services through that noncompliant retail distributor or tax preparation partner, which could materially and adversely affect our business, financial position and operating results.

actions, any of which could significantly harm our reputation with consumers, banks that issue our cards and regulators, and could materially and adversely affect our business, operating results and financial condition.

Failure by us or those businesses to comply with the laws and regulations to which we are or may become subject could result in fines, penalties or limitations on our ability to conduct our business, or federal or state actions, any of which could significantly harm our reputation with consumers, banks that issue our cards and regulators, and could materially and adversely affect our business, operating results and financial condition.

Many of these laws can be unclear and inconsistent across various jurisdictions and ensuring compliance with them could be difficult and costly.

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Furthermore, a substantial portion of our operating revenues is derived from interchange fees.

For the three months ended March 31, 2022, interchange revenues represented 20% of our total operating revenues, and we expect interchange revenues to continue to represent a significant percentage of our total operating revenues.

For the three months ended June 30, 2022, interchange revenues represented 21% of our total operating revenues, and we expect interchange revenues to continue to represent a significant percentage of our total operating revenues.

The amount of interchange revenues that we earn is highly dependent on the interchange rates that the payment networks set and adjust from time to time.

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We are subject to regulatory oversight in the normal course of our business and have been and from time to time may be subject to securities class actions and other litigation or regulatory or judicial proceedings or investigations.

For example, on October 5, 2021, Republic Bank & Trust Company ("Republic Bank") filed a lawsuit against us in the Court of Chancery of the State of Delaware.

The lawsuit alleges breach of the purchase agreement related to our proposed acquisition of Republic Bank's Tax Refund Solutions business.

The original complaint sought injunctive relief or, in the alternative, monetary damages.

Republic Bank has indicated that it may seek to amend the pleadings to add additional claims.

The outcome of this litigation, and any other litigation and regulatory or judicial proceedings or investigations is difficult to predict.

The outcome of litigation and regulatory or judicial proceedings or investigations is difficult to predict.

Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of very large or indeterminate amounts, seek to have aspects of our business suspended or modified or seek to impose sanctions, including significant monetary fines.

The monetary and other impact of these actions, litigations, proceedings or investigations may remain unknown for substantial periods of time.

The monetary and other impacts of these actions, litigations, proceedings or investigations may remain unknown for substantial periods of time.

The cost to defend, settle or otherwise resolve these matters may be significant.

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In this regard, such costs could make it more difficult to maintain the capital, leverage and other financial commitments at levels we have agreed to with the Federal Reserve Board and the Utah Department of Financial Institutions.

If regulatory or judicial proceedings or investigations were to be initiated against us by private or governmental entities, adverse publicity that may be associated with these proceedings or investigations could negatively impact our relationships with retail distributors, tax preparation partners, network acceptance members, other business partners and card processors and decrease acceptance

and use of, and loyalty to, our products and related services, and could impact the price of our Class A common stock.

In addition, such proceedings or investigations could increase the risk that we will be involved in litigation.

For the foregoing reasons, any regulatory or judicial proceedings or investigations that are initiated against us by private or governmental entities, could adversely affect our business, results of operations and financial condition or could cause our stock price to decline.

For the foregoing reasons, any regulatory or judicial

proceedings or investigations that are initiated against us by private or governmental entities, could adversely affect our business, results of operations and financial condition or could cause our stock price to decline.

Refer to Note 17 - Commitments and Contingencies to the Consolidated Financial Statements for further information regarding certain of our legal proceedings.

We may be unable to adequately protect our brand and our intellectual property rights related to our products and services or third parties may allege that we are infringing their intellectual property rights.

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If we require new sources of financing but they are insufficient or unavailable, we would be required to modify our operating plans to take into account the limitations of available funding, which would harm our ability to maintain or grow our business.

Should we require additional credit at levels we are unable to access, the cost of credit is greater than expected, or the cost-savings measures we have implemented are ineffective or result in us incurring greater costs, our operating results could be adversely affected.

Further, additional borrowings on our revolving line of credit have and will cause us to incur additional interest expense, which will negatively affect our earnings.

Should we require additional credit at levels we are unable to access, the cost of credit is greater than expected, or our cost-savings measures are ineffective or result in us incurring greater costs, our operating results could be adversely affected.

Our debt agreements contain restrictive covenants and financial ratio tests that restrict or prohibit our ability to engage in or enter into a variety of transactions.

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These restrictions could limit our ability to take advantage of financing, merger, acquisition or other opportunities, to fund our business operations or to fully implement our current and future operating strategies.

We must also maintain compliance with

a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio of 2.50 and 1.25, respectively, at the end of any fiscal quarter.

Our ability to meet these financial ratios and tests will be dependent upon our future performance and may be affected by events beyond our control (including factors discussed in this “Risk Factors" section).

We must also maintain compliance with a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio of 2.50 and 1.25, respectively, at the end of any fiscal quarter.

Our ability to meet these financial ratios and tests will be dependent

upon our future performance and may be affected by events beyond our control (including factors discussed in this “Risk Factors" section).

If we fail to satisfy these requirements, our indebtedness under these agreements could become accelerated and payable at a time when we are unable to pay them.

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Competition for qualified management, sales, marketing and program and technology development personnel can be intense.

have in the past and may in the future attempt to recruit our top management and employees.

In order to attract and retain personnel in a competitive marketplace, we must provide competitive pay packages, including cash and equity-based compensation and the volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees.

Competitors have in the past and may in the future attempt to recruit our top management and employees.

In order to attract and retain personnel in a competitive marketplace, we must provide competitive pay packages, including cash and

equity-based compensation and the volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees.

Additionally, our U.S.-based employees, including our senior management team, work for us on an at-will basis and there is no assurance that any such employee will remain with us.

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An impairment charge of goodwill or other intangible assets could have a material adverse impact on our financial condition and results of operations.

Because we have grown in part through acquisitions, our net goodwill and intangible assets represent a significant portion of our consolidated assets.

Our net goodwill and intangible assets were $460.1 million as of March 31, 2022.

Our net goodwill and intangible assets represent a significant portion of our consolidated assets.

Our net goodwill and intangible assets were $455.7 million as of June 30, 2022.

Under generally accepted accounting principles in the United States, or ("U.S.

GAAP"), we are required to test the carrying value of goodwill and intangible assets at least annually or sooner if events occur that indicate impairment could exist, such as a significant change in the business climate, including a significant sustained decline in a reporting unit’s fair value, legal and regulatory factors, operating performance indicators, competition and other factors.

GAAP"), we are required to test the carrying value of goodwill at least annually or sooner if events occur that indicate impairment could exist, such as a significant change in the business climate, including a significant sustained decline in a reporting unit’s fair value, legal and regulatory factors, operating performance indicators, competition and other factors.

The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors