WASHINGTON, D.C. 20549
EURONET WORLDWIDE, INC.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐No þ☑
On October 26, 2017November 6, 2019, Euronet Worldwide, Inc. had 52,681,03454,027,791 shares of Common Stock outstanding.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) | | | As of | As of |
| September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| (unaudited) | | | (unaudited) | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 1,062,241 |
| | $ | 734,414 |
| $ | 1,730,855 |
| | $ | 1,054,357 |
|
Restricted cash | 113,617 |
| | 77,674 |
| 63,900 |
| | 76,595 |
|
Inventory — PINs and other | 49,108 |
| | 78,115 |
| |
Trade accounts receivable, net of allowances for doubtful accounts of $20,033 at September 30, 2017 and $18,369 at December 31, 2016 | 547,383 |
| | 502,989 |
| |
Trade accounts receivable, net of allowances for doubtful accounts of $26,219 at September 30, 2019 and $24,287 at December 31, 2018 | | 662,997 |
| | 693,616 |
|
Prepaid expenses and other current assets | 152,913 |
| | 191,796 |
| 275,503 |
| | 263,019 |
|
Total current assets | 1,925,262 |
| | 1,584,988 |
| 2,733,255 |
| | 2,087,587 |
|
Property and equipment, net of accumulated depreciation of $325,521 at September 30, 2017 and $262,470 at December 31, 2016 | 250,436 |
| | 202,145 |
| |
Operating right of use lease assets | | 361,747 |
| | — |
|
Property and equipment, net of accumulated depreciation of $382,965 at September 30, 2019 and $373,180 at December 31, 2018 | | 321,802 |
| | 291,869 |
|
Goodwill | 743,860 |
| | 689,713 |
| 685,991 |
| | 704,197 |
|
Acquired intangible assets, net of accumulated amortization of $176,495 at September 30, 2017 and $150,347 at December 31, 2016 | 155,155 |
| | 165,331 |
| |
Other assets, net of accumulated amortization of $42,549 at September 30, 2017 and $36,984 at December 31, 2016 | 103,208 |
| | 70,695 |
| |
Acquired intangible assets, net of accumulated amortization of $201,801 at September 30, 2019 and $190,920 at December 31, 2018 | | 96,236 |
| | 114,485 |
|
Other assets, net of accumulated amortization of $43,530 at September 30, 2019 and $50,821 at December 31, 2018 | | 115,093 |
| | 123,017 |
|
Total assets | $ | 3,177,921 |
| | $ | 2,712,872 |
| $ | 4,314,124 |
| | $ | 3,321,155 |
|
LIABILITIES AND EQUITY | | | | | | |
Current liabilities: | | | | | | |
Trade accounts payable | $ | 365,952 |
| | $ | 456,682 |
| $ | 450,866 |
| | $ | 528,913 |
|
Accrued expenses and other current liabilities | 704,200 |
| | 615,153 |
| 748,434 |
| | 712,012 |
|
Current portion of capital lease obligations | 4,977 |
| | 3,293 |
| |
Current portion of operating lease liabilities | | 122,211 |
| | — |
|
Short-term debt obligations and current maturities of long-term debt obligations | 136,896 |
| | 32,161 |
| 18,626 |
| | 38,017 |
|
Income taxes payable | 41,883 |
| | 27,611 |
| 53,323 |
| | 40,159 |
|
Deferred revenue | 45,218 |
| | 44,200 |
| 57,261 |
| | 59,293 |
|
Total current liabilities | 1,299,126 |
| | 1,179,100 |
| 1,450,721 |
| | 1,378,394 |
|
Debt obligations, net of current portion | 592,924 |
| | 561,663 |
| 1,067,672 |
| | 589,782 |
|
Capital lease obligations, net of current portion | 9,168 |
| | 6,969 |
| |
Operating lease liabilities, net of current portion | | 230,391 |
| | — |
|
Deferred income taxes | 46,361 |
| | 44,079 |
| 56,032 |
| | 57,145 |
|
Other long-term liabilities | 32,828 |
| | 20,504 |
| 63,756 |
| | 62,992 |
|
Total liabilities | 1,980,407 |
| | 1,812,315 |
| 2,868,572 |
| | 2,088,313 |
|
Equity: | | | | | | |
Euronet Worldwide, Inc. stockholders’ equity: | | | | | | |
Preferred Stock, $0.02 par value. 10,000,000 shares authorized; none issued | — |
| | — |
| — |
| | — |
|
Common Stock, $0.02 par value. 90,000,000 shares authorized; 58,758,343 issued at September 30, 2017 and 58,389,242 issued at December 31, 2016 | 1,175 |
| | 1,168 |
| |
Common Stock, $0.02 par value. 90,000,000 shares authorized; 62,599,954 issued at September 30, 2019 and 59,897,309 issued at December 31, 2018 | | 1,252 |
| | 1,198 |
|
Additional paid-in-capital | 1,065,987 |
| | 1,045,663 |
| 1,179,413 |
| | 1,104,264 |
|
Treasury stock, at cost, 6,088,055 shares at September 30, 2017 and 6,085,841 shares at December 31, 2016 | (216,843 | ) | | (215,462 | ) | |
Treasury stock, at cost, 8,359,459 shares at September 30, 2019 and 8,077,311 shares at December 31, 2018 | | (433,282 | ) | | (391,551 | ) |
Retained earnings | 459,887 |
| | 278,842 |
| 910,108 |
| | 669,805 |
|
Accumulated other comprehensive loss | (113,523 | ) | | (210,662 | ) | (211,853 | ) | | (151,043 | ) |
Total Euronet Worldwide, Inc. stockholders’ equity | 1,196,683 |
| | 899,549 |
| 1,445,638 |
| | 1,232,673 |
|
Noncontrolling interests | 831 |
| | 1,008 |
| (86 | ) | | 169 |
|
Total equity | 1,197,514 |
| | 900,557 |
| 1,445,552 |
| | 1,232,842 |
|
Total liabilities and equity | $ | 3,177,921 |
| | $ | 2,712,872 |
| $ | 4,314,124 |
| | $ | 3,321,155 |
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Revenues | $ | 637,834 |
| | $ | 524,025 |
| | $ | 1,647,777 |
| | $ | 1,438,786 |
| $ | 786,986 |
| | $ | 714,505 |
| | $ | 2,056,362 |
| | $ | 1,887,244 |
|
Operating expenses: | | | | | | | | | | | | | | |
Direct operating costs | 364,815 |
| | 300,159 |
| | 978,768 |
| | 853,544 |
| 405,081 |
| | 388,236 |
| | 1,152,725 |
| | 1,093,072 |
|
Salaries and benefits | 82,134 |
| | 71,899 |
| | 232,617 |
| | 212,974 |
| 101,354 |
| | 93,108 |
| | 292,699 |
| | 270,537 |
|
Selling, general and administrative | 49,279 |
| | 41,379 |
| | 139,708 |
| | 121,678 |
| 58,715 |
| | 55,787 |
| | 160,704 |
| | 158,156 |
|
Acquired intangible assets impairment | — |
| | — |
| | 2,286 |
| | — |
| |
Depreciation and amortization | 24,705 |
| | 20,120 |
| | 69,520 |
| | 58,923 |
| 27,846 |
| | 26,461 |
| | 82,253 |
| | 78,726 |
|
Total operating expenses | 520,933 |
| | 433,557 |
| | 1,422,899 |
| | 1,247,119 |
| 592,996 |
| | 563,592 |
| | 1,688,381 |
| | 1,600,491 |
|
Operating income | 116,901 |
| | 90,468 |
| | 224,878 |
| | 191,667 |
| 193,990 |
| | 150,913 |
| | 367,981 |
| | 286,753 |
|
Other income (expense): | | | | | | | | | | | | | | |
Interest income | 380 |
| | 349 |
| | 2,009 |
| | 1,244 |
| 568 |
| | 288 |
| | 1,424 |
| | 1,000 |
|
Interest expense | (9,534 | ) | | (7,724 | ) | | (25,058 | ) | | (20,968 | ) | (9,093 | ) | | (11,269 | ) | | (27,321 | ) | | (28,936 | ) |
Foreign currency exchange gain (loss), net | 8,179 |
| | (1,527 | ) | | 21,035 |
| | (1,299 | ) | |
Other gains | — |
| | — |
| | 35 |
| | 19,903 |
| |
Loss on early retirement of debt | | — |
| | — |
| | (9,831 | ) | | — |
|
Loss from unconsolidated affiliates | | — |
| | — |
| | — |
| | (117 | ) |
Foreign currency exchange loss, net | | (10,967 | ) | | (2,704 | ) | | (7,880 | ) | | (21,459 | ) |
Other (losses) gains | | — |
| | (34 | ) | | (4 | ) | | 26 |
|
Other expense, net | (975 | ) | | (8,902 | ) | | (1,979 | ) | | (1,120 | ) | (19,492 | ) | | (13,719 | ) | | (43,612 | ) | | (49,486 | ) |
Income before income taxes | 115,926 |
| | 81,566 |
| | 222,899 |
| | 190,547 |
| 174,498 |
| | 137,194 |
| | 324,369 |
| | 237,267 |
|
Income tax expense | (15,573 | ) | | (20,784 | ) | | (43,130 | ) | | (45,104 | ) | (36,957 | ) | | (34,937 | ) | | (84,244 | ) | | (65,031 | ) |
Net income | 100,353 |
| | 60,782 |
| | 179,769 |
| | 145,443 |
| 137,541 |
| | 102,257 |
| | 240,125 |
| | 172,236 |
|
Net (income) loss attributable to noncontrolling interests | (63 | ) | | (49 | ) | | 9 |
| | 61 |
| |
Net loss attributable to noncontrolling interests | | 66 |
| | 466 |
| | 178 |
| | 623 |
|
Net income attributable to Euronet Worldwide, Inc. | $ | 100,290 |
| | $ | 60,733 |
| | $ | 179,778 |
| | $ | 145,504 |
| $ | 137,607 |
| | $ | 102,723 |
| | $ | 240,303 |
| | $ | 172,859 |
|
| | | | | | | | | | | | | | |
Earnings per share attributable to Euronet Worldwide, Inc. stockholders: | | | | | | | | | | | | | | |
Basic | $ | 1.91 |
| | $ | 1.16 |
| | $ | 3.43 |
| | $ | 2.78 |
| $ | 2.53 |
| | $ | 2.01 |
| | $ | 4.52 |
| | $ | 3.36 |
|
Diluted | $ | 1.80 |
| | $ | 1.11 |
| | $ | 3.23 |
| | $ | 2.66 |
| $ | 2.46 |
| | $ | 1.89 |
| | $ | 4.40 |
| | $ | 3.17 |
|
| | | | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | |
Basic | 52,590,837 |
| | 52,134,500 |
| | 52,463,511 |
| | 52,293,808 |
| 54,449,256 |
| | 51,182,502 |
| | 53,180,850 |
| | 51,436,228 |
|
Diluted | 55,784,485 |
| | 54,523,211 |
| | 55,582,583 |
| | 54,641,388 |
| 55,972,061 |
| | 54,263,892 |
| | 54,622,219 |
| | 54,521,262 |
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 100,353 |
| | $ | 60,782 |
| | $ | 179,769 |
| | $ | 145,443 |
| $ | 137,541 |
| | $ | 102,257 |
| | $ | 240,125 |
| | $ | 172,236 |
|
Translation adjustment | 26,703 |
| | 6,849 |
| | 97,311 |
| | 13,522 |
| (56,863 | ) | | (4,613 | ) | | (60,887 | ) | | (40,198 | ) |
Comprehensive income | 127,056 |
| | 67,631 |
| | 277,080 |
| | 158,965 |
| 80,678 |
| | 97,644 |
| | 179,238 |
| | 132,038 |
|
Comprehensive (income) loss attributable to noncontrolling interests | (113 | ) | | (64 | ) | | (163 | ) | | 14 |
| |
Comprehensive loss attributable to noncontrolling interests | | 126 |
| | 480 |
| | 255 |
| | 674 |
|
Comprehensive income attributable to Euronet Worldwide, Inc. | $ | 126,943 |
| | $ | 67,567 |
| | $ | 276,917 |
| | $ | 158,979 |
| $ | 80,804 |
| | $ | 98,124 |
| | $ | 179,493 |
| | $ | 132,712 |
|
See accompanying notes to the unaudited consolidated financial statements.
Euronet Worldwide, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| | Number of Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Treasury Stock |
Balance as of December 31, 2017 | | 52,808,158 |
| | $ | 1,178 |
| | $ | 1,072,005 |
| | $ | (217,161 | ) |
Net income (loss) | | | | | | | | |
Other comprehensive income | | | | | | | | |
Stock issued under employee stock plans | | 116,358 |
| | 2 |
| | 2,468 |
| | (1,237 | ) |
Share-based compensation | | | | | | 4,029 |
| | |
Repurchase of shares | | (1,418,895 | ) | | | | | | (125,000 | ) |
Balance as of March 31, 2018 | | 51,505,621 |
| | 1,180 |
| | 1,078,502 |
| | (343,398 | ) |
Net income (loss) | | | | | | | | |
Other comprehensive loss | | | | | | | | |
Stock issued under employee stock plans | | 89,954 |
| | 1 |
| | 1,484 |
| | 260 |
|
Share-based compensation | | | | | | 4,550 |
| | |
Repurchase of shares | | (613,704 | ) | | | | | | (50,000 | ) |
Balance as of June 30, 2018 | | 50,981,871 |
| | 1,181 |
| | 1,084,536 |
| | (393,138 | ) |
Net income (loss) | | | | | | | | |
Other comprehensive loss | | | | | | | | |
Stock issued under employee stock plans | | 476,783 |
| | 10 |
| | 5,977 |
| | 1,043 |
|
Share-based compensation | | | | | | 4,018 |
| | |
Balance as of September 30, 2018 | | 51,458,654 |
| | $ | 1,191 |
| | $ | 1,094,531 |
| | $ | (392,095 | ) |
|
| | | | | | | | | | | | | | | |
| | Number of Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Treasury Stock |
Balance as of December 31, 2018 | | 51,819,998 |
| | $ | 1,198 |
| | $ | 1,104,264 |
| | $ | (391,551 | ) |
Net income | | | | | | | | |
Other comprehensive loss | | | | | | | | |
Stock issued under employee stock plans | | 130,136 |
| | 3 |
| | 5,194 |
| | (1,756 | ) |
Share-based compensation | | | | | | 4,490 |
| | |
Issuance of convertible notes, net of tax | | | | | | 71,660 |
| | |
Repurchases and conversions of convertible notes, net of tax | | 6 |
| | | | (42,917 | ) | | |
Balance as of March 31, 2019 | | 51,950,140 |
| | 1,201 |
| | 1,142,691 |
| | (393,307 | ) |
Net income (loss) | | | | | | | | |
Other comprehensive income | | | | | | | | |
Stock issued under employee stock plans | | 41,856 |
| | | | 1,740 |
| | (46 | ) |
Share-based compensation | | | | | | 6,003 |
| | |
Redemptions and conversions of convertible notes, net of tax | | 2,488,243 |
| | 50 |
| | 22,400 |
| | |
Balance as of June 30, 2019 | | 54,480,239 |
| | 1,251 |
| | 1,172,834 |
| | (393,353 | ) |
Net income (loss) | | | | | | | | |
Other comprehensive income | | | | | | | | |
Stock issued under employee stock plans | | 35,437 |
| | 1 |
| | 1,131 |
| | (178 | ) |
Share-based compensation | | | | | | 5,456 |
| | |
Repurchase of shares | | (275,181 | ) | | | | | | (39,751 | ) |
Other | | | |
|
| | (8 | ) | | |
Balance as of September 30, 2019 | | 54,240,495 |
| | $ | 1,252 |
| | $ | 1,179,413 |
| | $ | (433,282 | ) |
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity (continued)
(in thousands)
|
| | | | | | | | | | | | | | | | |
| | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
Balance as of December 31, 2017 | | $ | 436,954 |
| | $ | (94,458 | ) | | $ | 960 |
| | $ | 1,199,478 |
|
Net income (loss) | | 26,413 |
| | | | (69 | ) | | 26,344 |
|
Other comprehensive income | | | | 22,894 |
| | 54 |
| | 22,948 |
|
Stock issued under employee stock plans | | | | | | | | 1,233 |
|
Share-based compensation | | | | | | | | 4,029 |
|
Repurchase of shares | | | | | | | | (125,000 | ) |
Balance as of March 31, 2018 | | 463,367 |
| | (71,564 | ) | | 945 |
| | 1,129,032 |
|
Net income (loss) | | 43,724 |
| | | | (88 | ) | | 43,636 |
|
Other comprehensive loss | | | | (58,442 | ) | | (91 | ) | | (58,533 | ) |
Stock issued under employee stock plans | | | | | | | | 1,745 |
|
Share-based compensation | | | | | | | | 4,550 |
|
Repurchase of shares | | | | | | | | (50,000 | ) |
Balance as of June 30, 2018 | | 507,091 |
| | (130,006 | ) | | 766 |
| | 1,070,430 |
|
Net income (loss) | | 102,722 |
| | | | (465 | ) | | 102,257 |
|
Other comprehensive loss | | | | (4,599 | ) | | (15 | ) | | (4,614 | ) |
Stock issued under employee stock plans | | | | | | | | 7,030 |
|
Share-based compensation | | | | | | | | 4,018 |
|
Balance as of September 30, 2018 | | $ | 609,813 |
| | $ | (134,605 | ) | | $ | 286 |
| | $ | 1,070,430 |
|
|
| | | | | | | | | | | | | | | | |
| | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
Balance as of December 31, 2018 | | $ | 669,805 |
| | $ | (151,043 | ) | | $ | 169 |
| | $ | 1,232,842 |
|
Net income | | 34,543 |
| | | | 36 |
| | 34,579 |
|
Other comprehensive loss | | | | (16,156 | ) | | (29 | ) | | (16,185 | ) |
Stock issued under employee stock plans | | | | | | | | 3,441 |
|
Share-based compensation | | | | | | | | 4,490 |
|
Issuance of convertible notes, net of tax | | | | | | | | 71,660 |
|
Repurchases and conversions of convertible notes, net of tax | | | | | | | | (42,917 | ) |
Balance as of March 31, 2019 | | 704,348 |
| | (167,199 | ) | | 176 |
| | 1,287,910 |
|
Net income (loss) | | 68,153 |
| | | | (148 | ) | | 68,005 |
|
Other comprehensive income | | | | 12,149 |
| | 12 |
| | 12,161 |
|
Stock issued under employee stock plans | | | | | | | | 1,694 |
|
Share-based compensation | | | | | | | | 6,003 |
|
Redemptions and conversions of convertible notes, net of tax | | | | | | | | 22,450 |
|
Balance as of June 30, 2019 | | 772,501 |
| | (155,050 | ) | | 40 |
| | 1,398,223 |
|
Net income (loss) | | 137,607 |
| | | | (66 | ) | | 137,541 |
|
Other comprehensive loss | | | | (56,803 | ) | | (60 | ) | | (56,863 | ) |
Stock issued under employee stock plans | | | | | | | | 954 |
|
Share-based compensation | | | | | | | | 5,456 |
|
Repurchase of shares | | | | | | | | (39,751 | ) |
Other | | | | | | | | (8 | ) |
Balance as of September 30, 2019 | | $ | 910,108 |
| | $ | (211,853 | ) | | $ | (86 | ) | | $ | 1,445,552 |
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands) | | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2017 | | 2016 | 2019 | | 2018 |
Net income | $ | 179,769 |
| | $ | 145,443 |
| $ | 240,125 |
| | $ | 172,236 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 69,520 |
| | 58,923 |
| 82,253 |
| | 78,726 |
|
Share-based compensation | 11,817 |
| | 11,352 |
| 15,949 |
| | 12,597 |
|
Unrealized foreign exchange (gain) loss, net | (21,035 | ) | | 1,299 |
| |
Unrealized foreign exchange loss, net | | 7,880 |
| | 21,459 |
|
Deferred income taxes | (14,856 | ) | | 993 |
| 13,313 |
| | (1,208 | ) |
Loss on early retirement of debt
| | 9,831 |
| | — |
|
Loss from unconsolidated affiliates | | — |
| | 117 |
|
Accretion of convertible debt discount and amortization of debt issuance costs | 10,068 |
| | 9,056 |
| 13,385 |
| | 10,582 |
|
Gain on sale of investment | — |
| | (19,449 | ) | |
Non-cash impairment of acquired intangible assets | 2,286 |
| | — |
| |
Changes in working capital, net of amounts acquired: | | | | | | |
Income taxes payable, net | 10,924 |
| | 16,006 |
| 15,363 |
| | 10,022 |
|
Restricted cash | (3,633 | ) | | (10,227 | ) | |
Inventory — PINs and other | 33,712 |
| | 25,948 |
| |
Trade accounts receivable | (7,861 | ) | | 54,356 |
| 4,719 |
| | (87,237 | ) |
Prepaid expenses and other current assets | 43,826 |
| | (76,594 | ) | (26,292 | ) | | 42,552 |
|
Trade accounts payable | (118,677 | ) | | (133,207 | ) | (62,078 | ) | | (81,149 | ) |
Deferred revenue | (2,497 | ) | | 3,181 |
| 5 |
| | 2,525 |
|
Accrued expenses and other current liabilities | 30,678 |
| | 135,431 |
| 58,559 |
| | 9,877 |
|
Changes in noncurrent assets and liabilities | 6,455 |
| | (5,020 | ) | (8,633 | ) | | 1,474 |
|
Net cash provided by operating activities | 230,496 |
| | 217,491 |
| 364,379 |
| | 192,573 |
|
Cash flows from investing activities: | | | | | | |
Acquisitions, net of cash acquired | — |
| | (2,183 | ) | 1 |
| | (12,854 | ) |
Purchases of property and equipment | (70,871 | ) | | (61,597 | ) | (100,443 | ) | | (82,129 | ) |
Purchases of other long-term assets | (4,651 | ) | | (4,501 | ) | (7,276 | ) | | (5,787 | ) |
Proceeds from sale of investment | — |
| | 11,900 |
| |
Other, net | 1,499 |
| | 800 |
| 3,317 |
| | 1,401 |
|
Net cash used in investing activities | (74,023 | ) | | (55,581 | ) | (104,401 | ) | | (99,369 | ) |
Cash flows from financing activities: | | | | | | |
Proceeds from issuance of shares | 8,328 |
| | 5,098 |
| 8,297 |
| | 11,757 |
|
Repurchase of shares | (2,310 | ) | | (76,510 | ) | (37,260 | ) | | (177,163 | ) |
Borrowings from revolving credit agreements | 1,839,963 |
| | 1,961,814 |
| 2,365,698 |
| | 4,267,881 |
|
Repayments of revolving credit agreements | (1,808,695 | ) | | (1,855,053 | ) | (2,580,871 | ) | | (4,003,662 | ) |
Proceeds from long-term debt obligations | | 1,194,900 |
| | — |
|
Repayments of long-term debt obligations | (6,563 | ) | | (5,156 | ) | (446,702 | ) | | (51,199 | ) |
Repayments of capital lease obligations | (3,473 | ) | | (1,997 | ) | |
Borrowings from short-term debt obligations, net | 99,081 |
| | 2,290 |
| |
(Repayments of) borrowings from short-term debt obligations, net | | (18,793 | ) | | 204,211 |
|
Debt issuance costs | | (18,810 | ) | | — |
|
Other, net | 284 |
| | 748 |
| (4,827 | ) | | (4,738 | ) |
Net cash provided by financing activities | 126,615 |
| | 31,234 |
| 461,632 |
| | 247,087 |
|
Effect of exchange rate changes on cash and cash equivalents | 44,739 |
| | 10,634 |
| |
Increase in cash and cash equivalents | 327,827 |
| | 203,778 |
| |
Cash and cash equivalents at beginning of period | 734,414 |
| | 457,518 |
| |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | | (57,807 | ) | | (38,084 | ) |
Increase in cash and cash equivalents and restricted cash | | 663,803 |
| | 302,207 |
|
Cash and cash equivalents and restricted cash at beginning of period | | 1,130,952 |
| | 900,518 |
|
| | | | | | |
Cash and cash equivalents at end of period | $ | 1,062,241 |
| | $ | 661,296 |
| |
Cash and cash equivalents and restricted cash at end of period | | $ | 1,794,755 |
| | $ | 1,202,725 |
|
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Interest paid during the period | $ | 17,359 |
| | $ | 12,598 |
| $ | 10,614 |
| | $ | 19,243 |
|
Income taxes paid during the period | $ | 34,769 |
| | $ | 31,751 |
| $ | 55,025 |
| | $ | 55,338 |
|
Supplemental disclosure of non-cash investing and financing activities | | | | |
Non-cash consideration received from sale of investment | $ | — |
| | $ | 7,549 |
| |
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
Organization
Euronet Worldwide, Inc. (together with its subsidiaries, the “Company” or “Euronet”) is a leading electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Euronet's primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services, software solutions, electronic distribution of prepaid mobile airtime and other electronic paymentdigital media products, foreign currency exchange services and global money transfer services.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared from the records of the Company, in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the consolidated financial position and the results of operations, comprehensive income and cash flows for the interim periods. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 20162018, including the notes thereto, set forth in the Company’s 20162018 Annual Report on Form 10-K. Certain amounts in prior years have been reclassified to conform to the current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Significant items subject to such estimates and assumptions include computing income taxes, estimating the useful lives and potential impairment of long-lived assets and goodwill, as well as allocating the purchase price to assets acquired and liabilities assumed in acquisitions and revenue recognition. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.2019.
Seasonality
Euronet’s EFT Processing Segment experiences its heaviest demand for ATM cash withdrawal transactions and dynamic currency conversion ("DCC") services during the third quarter of the fiscal year, coinciding with the tourism season.season followed by lower transaction levels during the fourth quarter. Additionally, the EFT Processing and epay Segments areSegment is impacted by seasonality during the fourth quarter and the first quarter of each year due to higher transaction levels during the holiday season and lower levels following the holiday season. Seasonality in the Money Transfer Segment varies by regions of the world. In most markets, Euronet usually experiences increased demand for money transfer services from the month of May through the fourth quarter of each year, coinciding with the increase in worker migration patterns and various holidays, and experiences its lowest transaction levels during the first quarter of each year.
(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issuedThe Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers(ASU) 2016-02, Leases (Topic 606)842), which requires an entity to recognize the amountas amended, as of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company on January 1, 2018. The standard permits2019, using the use of either the full retrospective or modified retrospective transition method.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (Topic 606). These ASUs clarify the implementationguidance on a few narrow areas, make minor corrections and adds some practical expedients to the guidance in Topic 606.
Lastly, in February 2017, the FASB issued ASU 2017-05, Other Income -Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of asset derecognition guidance and provide guidance on partial sales of nonfinancial assets. This ASU clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” This ASU must be adopted at the same time as ASC 606.
The Company has performed a review of the requirements of the new revenue standards and is in the process of reviewing customer contracts under the new revenue standards but does not expect the new revenue standards will have a material impact on the timing of revenue recognition on its consolidated financial statements. The Company continues to assess all potential effects of the standards and it believes the principal versus agent guidance will affect the presentation and classification of revenue for certain epay and EFT segment arrangements. The Company estimates revenue would have been approximately $125 million to $200 million greater in 2016 under the new standard due to the change in presentation and classification of certain revenue for the epay segment. The Company will continue to update its assessment of the effect the new revenue standards will have on its consolidated financial statements and will disclose the final determination of the transition method and material effects, if any, when known.
In February 2016, the FASB issued ASU 2016-02, Leases(Topic 842), which will update the existing guidance on accounting for leases and require new qualitative and quantitative disclosures about the Company’s leasing activities. The new standard requires lessees to account for all leases on the balance sheet, except for certain short-term leases that have a maximum possible lease term of 12 months. The accounting for lessors is largely unchanged from the previous accounting guidance, except for leverage lease accounting which is not permitted for leases entered into or modified after the effective date of the new standard. The new standard is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includesand comparative periods were not restated. The new standards provide a number of optional practical expedients in transition.
The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected to combine lease and non-lease components and to include short-term leases with an initial term of 12 months or less on the Consolidated Balance Sheets.
In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases. The election of the hindsight practical expedient resulted in, for substantially all leases in effect on January 1, 2019, the lease term for implementation of this pronouncement, as the lease’s life being January 1, 2019 through the lease’s contractual termination date, rather than the actual lease life as set out in the lease agreement. Lease lives for lease agreements committed to on January 1, 2019 and, thereafter, are included based on the lease’s commencement date and termination date. In the application of hindsight, the Company evaluated the performance of all the leases and the associated markets in relation to the Company’s
operations, which resulted in the determination that the Company may elect to apply. The Company is currently evaluatingexercise of renewal options would not be reasonably certain in determining the expected impactlease term.
Adoption of the adoption of thisnew standard on its consolidated financial statements and related disclosures.
In March 2016, FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which addresses how companies account for certain aspects of share-based payments to employees. This ASU requires all excess tax benefits and tax deficiencies be recognizedresulted in the statementrecognition of income as a componentadditional operating right of income tax expense or benefit. The tax effects of exercised, expired or vested awards are treated as discrete items in the reporting period in which they occur and may result in increased volatility in the Company's effective tax rate. As part of the adoption of this standard during the first quarter, the Company was required to recognize previously unrecognized excess tax benefits on a modified retrospective basis and record an adjustment to deferred taxuse lease assets and retained earnings. Additionally, the Company applied the prospective transition method for the presentationlease liabilities of excess tax benefits from a financing activity to an operating activity in the Company’s consolidated statements of cash flows. Cash paid by the Company when directly withholding shares for tax withholding purposes is classified as a financing activity in the Consolidated Statements of Cash Flows. The Company made an accounting election to continue to estimate forfeitures when determining amortization expense of stock-based compensation.
The adoption of the provisions of this ASU did not have a material impact on the Company’s consolidated statement of income. A cumulative effect adjustment of $40.2approximately $296.9 million, for previously unrecognized excess tax benefits from prior fiscal years was recognized in beginning Retained earnings as of January 1, 2017. As a result of recognizing this excess tax benefit,2019.
In June 2016, the Company recorded a deferred tax asset of $40.2 million and an associated valuation allowance of $38.9 million to beginning Retained earnings. The offsetting deferred tax asset and valuation allowance resulted in a net increase of $1.3 million to beginning Retained earnings at adoption.
Prior to 2017, excess tax benefits were recognized in additional paid-in capital and tax deficiencies were recognized either as an offset to accumulated excess tax benefits, if any, or in the consolidated statements of income. Excess tax benefits were not recognized until the deduction reduced taxes payable. Additionally, excess tax benefits from stock-based compensation were included in financing activities within the Company’s consolidated statements of cash flows.
In May 2017, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2017-09, Compensation-Stock Compensation2016-13, Financial Instruments - Credit Losses (Topic 718): Scope of Modification Accounting326), which clarifiesrequires entities to measure all expected credit losses for financial assets held at the changesreporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to terms or conditionsthe measurement of a share-based payment award that require an entity to apply modification accounting. The amendments of this ASU arecredit losses on financial assets measured at amortized cost. This guidance is effective for annual reporting periods,fiscal years, and interim periods therein,within those fiscal years, beginning after December 15, 2017.2019. Early application is permitted for all entities for fiscal years, and prospective application is required.interim periods within those fiscal years, beginning after December 15, 2018. The Company does not expect that the adoption of this guidance to have a significant impact on its consolidated financial statements.
(3) STOCKHOLDERS' EQUITY
Earnings Per Share
Basic earnings per share has been computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share has been computed by dividing earnings available to common stockholders by the weighted average shares outstanding during the respective period, after adjusting for any potential dilution from options to purchase the Company's common stock, assumed vesting of restricted stock and the assumed conversion of the Company’s convertible debentures. The following table provides the computation of diluted weighted average number of common shares outstanding:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Computation of diluted weighted average shares outstanding: | | | | | | | |
Basic weighted average shares outstanding | 54,449,256 |
| | 51,182,502 |
| | 53,180,850 |
| | 51,436,228 |
|
Incremental shares from assumed exercise of stock options and vesting of restricted stock | 1,522,805 |
| | 1,521,560 |
| | 1,441,369 |
| | 1,525,204 |
|
Incremental shares from assumed conversion of convertible notes | — |
| | 1,559,830 |
| | — |
| | 1,559,830 |
|
Diluted weighted average shares outstanding | 55,972,061 |
| | 54,263,892 |
| | 54,622,219 |
| | 54,521,262 |
|
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Computation of diluted weighted average shares outstanding: | | | | | | | |
Basic weighted average shares outstanding | 52,590,837 |
| | 52,134,500 |
| | 52,463,511 |
| | 52,293,808 |
|
Incremental shares from assumed exercise of stock options and vesting of restricted stock | 1,863,883 |
| | 1,731,451 |
| | 1,789,307 |
| | 1,690,320 |
|
Incremental shares from assumed conversion of convertible notes | 1,329,765 |
| | 657,260 |
| | 1,329,765 |
| | 657,260 |
|
Diluted weighted average shares outstanding | 55,784,485 |
| | 54,523,211 |
| | 55,582,583 |
| | 54,641,388 |
|
The table includes the impact of all stock options and restricted stock that are dilutive to the Company’s weighted average common shares outstanding during the three and nine months ended September 30, 20172019 and 2016.2018. The calculation of diluted earnings per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding of approximately 458,000751,000 and 884,000841,000 for the three and nine months ended September 30, 2017,2019, respectively, and approximately 552,000436,000 and 555,000792,000 for the three and nine months ended September 30, 2016,2018, respectively.
The Company'sCompany issued new Convertible Senior Notes ("Convertible Notes") due March 2049 on March 18, 2019 and retired the existing convertible notes ("Retired Convertible Notes") that would have matured in 2044 on May 28, 2019. The Company's Convertible Notes currently have, and the Retired Convertible Notes had, a settlement featuresfeature requiring the Company upon conversion to settle the principal amount of the debt and theany conversion value in excess of the principal value ("conversion premium"), for cash or shares of the Company's common stock or a combination thereof, at the Company's option. At issuance, theThe Company has stated its intent to settle any conversion of these notes by paying cash for the principal value and issuing common stock for any conversion premium. Accordingly, the convertible notes areConvertible Notes and the Retired Convertible Notes were included in the calculation of diluted earnings per share if their inclusion iswas dilutive. The convertible notesdilutive effect increases the more the market price exceeds the conversion price. The Retired Convertible Notes had a dilutive effect in the three and nine months ended September 30, 2018 as the $83.77 market price per share of Common Stock as of September 30, 2018 exceeded the $72.18 conversion price per share. The Convertible Notes would only have a dilutive effect if the market price per share of common stock exceeds the conversion price of $72.18$188.73 per share and the dilutive effect increases the more the market price exceeds the conversion price.share. As of September 30, 2017 and 2016,2019, the stock price exceededConvertible Notes did not have a dilutive effect on the conversion price and these notes were dilutive to earnings per share. Further, asSee Note 7, Debt Obligations, for more information about the convertible notes.
Share repurchases
The Company's Board of Directors has authorized a resultstock repurchase program ("Repurchase Program") allowing Euronet to repurchase up to $375 million in value or 10.0 million shares of stock through March 31, 2020. During the three and nine
months ended September 30, 2019, the remaining maximum dollar value of shares that may yet be purchased under the Repurchase program was $160.2 million. Repurchases under the Repurchase Program may take place in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan. For the first nine months ended September 30, 2019 and 2018, the Company repurchased $39.8 million and $175.0 million, respectively, in value of Euronet common stock under the Repurchase Program. In connection with the issuance of the share price increasing from $81.83 atConvertible Notes, the Board of Directors of the Company authorized the Company to repurchase up to $120 million of the Company’s common stock concurrently with or following the issuance of the Convertible Notes. This authorization will expire on March 11, 2021. For the three and nine months ended September 30, 2016 to $94.79 at September 30, 2017, there was an increase in shares from2019, the assumed conversion of convertible notes.Company did not make any repurchases under this special authorization.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive incomeloss consists entirely of foreign currency translation adjustments. The Company recorded foreign currency translation gains of $26.7$56.9 million for the third quarter of 2019, and losses of $60.9 million, $4.6 million, and $97.3$40.2 million for the first nine months of 2019,the three and nine months ended September 30, 2017, respectively, and gains of $6.8 million and $13.5 million for the three and nine months ended September 30, 2016,2018, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three and nine months ended September 30, 20172019 and 2016.2018.
(4) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the nine months ended September 30, 20172019 is presented below:
|
| | | | | | | | | | | | |
(in thousands) | | Acquired Intangible Assets | | Goodwill | | Total Intangible Assets |
Balance as of December 31, 2018 | | $ | 114,485 |
| | $ | 704,197 |
| | $ | 818,682 |
|
Increases (decreases): | | | | | | |
Acquisition | | — |
| | 686 |
| | 686 |
|
Amortization | | (15,320 | ) | | — |
| | (15,320 | ) |
Other (primarily changes in foreign currency exchange rates) | | (2,929 | ) | | (18,892 | ) | | (21,821 | ) |
Balance as of September 30, 2019 | | $ | 96,236 |
| | $ | 685,991 |
| | $ | 782,227 |
|
|
| | | | | | | | | | | | |
(in thousands) | | Acquired Intangible Assets | | Goodwill | | Total Intangible Assets |
Balance as of December 31, 2016 | | $ | 165,331 |
| | $ | 689,713 |
| | $ | 855,044 |
|
Increases (Decreases): | | | | | | |
Amortization | | (18,840 | ) | | — |
| | (18,840 | ) |
Other (primarily changes in foreign currency exchange rates and impairment) | | 8,664 |
| | 54,147 |
| | 62,811 |
|
Balance as of September 30, 2017 | | $ | 155,155 |
| | $ | 743,860 |
| | $ | 899,015 |
|
Estimated amortization expense on intangible assets with finite lives, before income taxes, as of September 30, 2017,2019, is expected to total $5.7$4.9 million for the remainder of 2017, $22.8 million for 2018, $21.8 million for 2019, $21.0$19.2 million for 2020, $20.1$18.3 million for 2021, and $19.0$17.3 million for 2022.2022, $12.7 million for 2023 and $6.5 million for 2024.
In January 2019, the Company completed the acquisition of the majority interests of a small Indonesian business in which the Company previously held the minority interest for an immaterial amount of cash consideration. The acquisition has been accounted for as business combinations in accordance with U.S. GAAP and the results of operations have been included from the date of acquisition in the EFT Processing Segment.
The Company’s annual goodwill impairment test is performed during the fourth quarter of its fiscal year. The annual impairment test for the year ended December 31, 20162018 resulted in no impairment charge. The Company recorded a non-cash impairment charge to customer relationships of $2.3 million in the first nine months of 2017 as a result of the closure of the Pure Commerce office in South Korea within the EFT Processing Segment.
Determining the fair value of reporting units requires significant management judgment in estimating future cash flows and assessing potential market and economic conditions. It is reasonably possible that the Company’s operations will not perform as expected, or that the estimates or assumptions included in the 20162018 annual impairment test could change, which may result in the Company recording material non-cash impairment charges during the year in which these changes take place.
(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2019 | | December 31, 2018 |
Money transfer settlement obligations
| $ | 353,400 |
| | $ | 310,710 |
|
Accrued expenses | 267,788 |
| | 293,864 |
|
Accrued amounts due to mobile operators and other content providers | 70,330 |
| | 65,878 |
|
Derivative liabilities | 50,973 |
| | 36,102 |
|
Current portion of capital lease obligations | 5,943 |
| | 5,458 |
|
Total | $ | 748,434 |
| | $ | 712,012 |
|
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2017 | | December 31, 2016 |
Accrued expenses | $ | 278,078 |
| | $ | 210,275 |
|
Money transfer settlement obligations | 289,640 |
| | 219,601 |
|
Accrued amounts due to mobile operators and other content providers | 104,535 |
| | 121,505 |
|
Derivative liabilities | 31,947 |
| | 63,772 |
|
Total | $ | 704,200 |
| | $ | 615,153 |
|
(6) UNEARNED REVENUES
Accounting Standards Codification ("ASC") Topic 606, “Revenue from Contracts with Customers” (“Topic 606”) requires the deferral of incremental costs to obtain customer contracts, known as contract assets, which are then amortized to expense as part of selling, general and administrative expense over the respective periods of expected benefit. Such costs are not material; however, the Company has implemented processes and controls to record such costs on an ongoing basis and will disclose them if they become material.
The Company records deferred revenues when cash payments are received or due in advance of its performance. The decrease in the deferred revenue balance for the first nine months of 2019 is primarily driven by $31.6 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2018, largely offset by $29.6 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations.
(7) DEBT OBLIGATIONS
Debt obligations consist of the following:
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2019 | | December 31, 2018 |
Credit Facility: | | | |
Revolving credit agreements, due 2023 | $ | 741 |
| | $ | 215,725 |
|
|
|
| |
|
|
Convertible Debt: | | | |
0.75% convertible notes, unsecured, due 2049 | 433,262 |
| | — |
|
1.50% convertible notes, unsecured, due 2044 | — |
| | 379,859 |
|
| | | |
1.375% Senior Notes, due 2026 | 653,940 |
| | — |
|
| | | |
Other obligations | 18,811 |
| | 38,513 |
|
| | | |
Total debt obligations | 1,106,754 |
| | 634,097 |
|
Unamortized debt issuance costs | (20,456 | ) | | (6,298 | ) |
Carrying value of debt | 1,086,298 |
| | 627,799 |
|
Short-term debt obligations and current maturities of long-term debt obligations | (18,626 | ) | | (38,017 | ) |
Long-term debt obligations | $ | 1,067,672 |
| | $ | 589,782 |
|
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2017 | | December 31, 2016 |
Credit Facility: | | | |
Term loan, due 2019 | $ | 53,438 |
| | $ | 60,000 |
|
Revolving credit agreements, due 2019 | 191,590 |
| | 159,963 |
|
| 245,028 |
| | 219,963 |
|
Convertible Debt: | | | |
1.50% convertible notes, unsecured, due 2044 | 366,464 |
| | 358,293 |
|
| | | |
ATM credit facility | 100,000 |
| | — |
|
| | | |
Other obligations | 24,782 |
| | 23,892 |
|
| | | |
Total debt obligations | 736,274 |
| | 602,148 |
|
Unamortized debt issuance costs | (6,454 | ) | | (8,324 | ) |
Carrying value of debt | 729,820 |
| | 593,824 |
|
Short-term debt obligations and current maturities of long-term debt obligations | (136,896 | ) | | (32,161 | ) |
Long-term debt obligations | $ | 592,924 |
| | $ | 561,663 |
|
Credit Facility
As of September 30, 2017,On October 17, 2018, the Company hadentered into a $675 million senior securednew unsecured revolving credit facilityagreement (the "Credit Facility") consisting of a $600 million revolving credit facilityfor $1.0 billion that expires on October 17, 2023. Fees and a $75 million term loan ("Term Loan A"), which had been reduced to $53.4 million through principal amortization payments. The Credit Facility expires April 9, 2019.
Interestinterest on borrowings under the revolving credit facility and Term Loan A variesare based upon the Company's consolidated total leverage ratio, as definedcorporate credit rating
and are based, in the Company'scase of letter of credit agreement, and is basedfees, on a margin , and in the case of interest, on a margin over the London Inter-Bank Offered Rate (“LIBOR”) or a margin over athe base rate, as selected by the Company, with the applicable margin ranging from 1.375%1.125% to 2.375% for LIBOR loans2.0% or 0.375%0.175% to 1.375%1.0% for base rate loans. Accordingly, theThe Credit Facility allows for borrowings in Australian Dollars, British Pounds Sterling, Canadian Dollars, Czech Koruna, Danish Krone, Euros, Hungarian Forints, Japanese Yen, New Zealand Dollars, Norwegian Krone, Polish Zlotys, Swedish Krona, Swiss Francs, and U.S. Dollars. The weighted average interest rate for borrowings outstandingof the Company's borrowing under the Company's revolving credit facility and Term Loan ACredit Facility was 3.04% and 2.86%, respectively,1.05% as of September 30, 2017.2019.
The Credit Facility contains customary affirmative and negative covenants, events of default and financial covenants include: (i) as of the end of each fiscal quarter ended on March 31, September 30 and December 31, a Consolidated Total Leverage Ratio not to be greater than 3.5 to 1.0; (ii) as of the end of each fiscal quarter ended on June 30, a Consolidated Total Leverage Ratio not to be greater than 4.0 to 1.0; provided that, not more than two times prior to the expiration date, upon notice to the administrative agent (an "Increase Leverage Notice") that a Material Acquisition has been consummated, for any period of four consecutive fiscal quarters following such Material Acquisitions, the Consolidated Total Leverage Ratio will be not greater than 4.0 to 1.0 for fiscal quarters ended on March 31, September 30 and December 31 and not greater than 4.5 to 1.0 for fiscal quarters ended on June 30; provided, further, that following such four consecutive fiscal quarters for which the maximum Consolidated Total Leverage Ratio is increased, the maximum Consolidated Total Leverage Ratio shall revert to the levels set forth in clauses (i) and (ii) above for not fewer than two fiscal quarters before a subsequent Increase Leverage Notice is delivered to the administrative agent; and (iii) a Consolidated Interest Coverage Ratio not less than 4.0 to 1.0. The Company is permitted to pay dividends and repurchase common stock if the Company would not be in default under the Credit Facility after giving effect to such dividend or repurchase.
As of September 30, 2019, the Company is in compliance with all debt covenants.
Convertible Debt
TheOn March 18, 2019, the Company completed the sale of $525 million of Convertible Senior Notes (“("Convertible Notes”Notes") had a principal amount outstanding of $402.5 million as of September 30, 2017.. The Convertible Notes mature in October 2044March 2049 unless repurchasedredeemed or converted prior to such date, and are convertible into shares of Euronet Common Stock at a conversion price of approximately $72.18$188.73 per share. HoldersThe Company used $94.2 million of the net proceeds from the issuance of the new debt to repurchase $49 million aggregate principal amount of the Company's 1.5% Convertible Senior Notes outstanding due 2044 (the "Retired Convertible Notes") from a limited number of holders in privately negotiated transactions. The Company expects to use the remainder of the net proceeds for general corporate purposes, which may include repaying borrowings outstanding under the Credit Facility, share repurchases or acquisitions.
On March 18, 2019, the Company provided a notice of redemption to the trustee of the indenture governing the Retired Convertible Notes (the "Existing Indenture"), pursuant to which the Company would redeem all of the remaining principal amount outstanding of the Retired Convertible Notes on May 28, 2019 (the "Redemption Date") for cash at a redemption price equal to 100% of the principal amount of the Retired Convertible Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date. The issuance of the Convertible Notes haveand the option to require the Company to purchase their notes at par on October 1, 2020, and have additional options to require the Company to purchase their notes at par on October 1, 2024, 2029, 2034, and 2039, or upon a change in controlconversion of the Company.
Holders may convert all or any portion of theirRetired Convertible Notes, at their option at any time priorresulted in a $25.6 million recognition and a $34.2 million reversal of deferred tax liabilities within the additional paid-in capital as of September 30, 2019, respectively.
Prior to October 1, 2044 only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter), if the closing sale priceRedemption Date, approximately $352.4 million principal amount of the common stockRetired Convertible Notes were submitted for at least 20 trading days (whether or not consecutive) duringconversion. The Company elected to settle the conversion of such Retired Convertible Notes through a periodcombination of 30 consecutive trading days ending oncash and stock. The Company paid cash equal to $1,000 for each $1,000 principal amount of Retired Convertible Notes submitted for conversion and satisfied the last trading day of the immediately preceding calendar quarter is greater than 130%remainder of the conversion price on each applicable trading day; (2) during the five consecutive business day period after any ten consecutive trading day period (the measurement period) in which the trading price for the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Company's common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. If the holders exercise their option to convert, the Company is required to deliver cash orobligation by issuing shares of the Company's common stock,Common Stock valued at $147.24 per share. As a result, the Company paid cash of $352.4 million and issued approximately 2.5 million shares of its Common Stock. In accordance with ASC 470, the Company recognized a loss of $9.8 million on the conversion and redemption of the debt for the first nine months of 2019, representing the difference between the fair value of the Retired Convertible Notes converted and the carrying value of the bonds at the time of conversion.
In accordance with ASC 470-20-30-27, proceeds from the issuance of convertible debt is allocated between debt and equity components so that debt is discounted to reflect the Company's option,nonconvertible debt borrowing rate. ASC 470-20-35-13 requires the debt discount to satisfybe amortized over the principal amount andperiod the conversion premium.
convertible debt is expected to be outstanding as additional non-cash interest expense. The Company's common stock was greater than 130%allocation resulted in an increase to additional paid-in capital of the conversion price$99.7 million for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the calendar quarter ended September 30, 2017. Therefore, as of September 30, 2017, the conversion threshold had been met and the Convertible Notes.
Contractual interest expense for the Retired Convertible Notes became convertible atwas $1.5 million for the holders’ option beginning on October 1, 2017 and ending on December 31, 2017.first nine months of 2019. Accretion expense was $4.6 million for the first nine months of 2019.
Contractual interest expense for the Convertible Notes was $1.5$1.0 million and $4.5$2.1 million for the three and nine months ended September 30, 2017 and 2016,2019, respectively. Accretion expense was $2.8$3.7 million and $8.2$7.9 million for the three and nine months ended September 30, 2017, respectively, and $2.6 million and $7.8 million2019, respectively. The effective interest rate was 4.4% for the three and nine months ended September 30, 2016, respectively. The effective interest rate was 4.7% for the three and nine months ended September 30, 2017.2019. As of September 30, 2017,2019, the unamortized discount was $36.0$91.7 million and will be amortized through October 1, 2020.March 2025.
ATM Credit Facility
1.375% Senior Notes due 2026
On June 27, 2017,May 22, 2019, the Company entered into a new credit facilitycompleted the sale of €600 million ($669.9 million) aggregate principal amount of Senior Notes that expire on May 2026 (the "ATM Facility"“Senior Notes”) agreement in which the lender has made available an aggregate $100 million uncommitted short-term credit facility to provide cash to support the Company's ATM network. Interest is charged on this financing on an annual basis at the Overnight LIBOR rate plus 2.0%. The ATM facility expiresSenior Notes accrue interest at a rate of 1.375% per year, payable annually in arrears commencing May 22, 2020, until maturity or earlier redemption. As of September 30, 2019, the Company has outstanding €600 million ($653.9 million) principal amount of the Senior Notes. In addition, the Company may redeem some or all of these notes on November 30, 2017.or after February 22, 2026 at their principal amount plus any accrued and unpaid interest.
(7)(8) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to foreign currency exchange risk resulting from (i) the collection of funds or the settlement of money transfer transactions in currencies other than the U.S. Dollar, (ii) derivative contracts written to its customers in connection with providing cross-currency money transfer services and (iii) short-term borrowings that are payable in currencies other than the U.S. dollar. The Company enters into foreign currency derivative contracts, primarily foreign currency forwards and cross-currency swaps, to minimize its exposure related to fluctuations in foreign currency exchange rates. As a matter of Company policy, the derivative instruments used in these activities are economic hedges and are not designated as hedges under ASC Topic 815, Derivatives and Hedging ("ASC Topic 815"), primarilydue to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates being reflected concurrently in earnings for both the derivative instrument and the hedged transaction and having an offsetting effect.
Foreign currency exchange contracts - Ria Operations and Corporate
In the United States, the Company's Ria operations use short-duration foreign currency forward contracts, generally with maturities up to 14 days, to offset the fluctuation in foreign currency exchange rates on the collection of money transfer funds between initiation of a transaction and its settlement. Due to the short duration of these contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to these foreign currency forward contracts. Most derivative contracts executed with counterparties in the U.S. are governed by an International Swaps and Derivatives Association agreement that includes standard netting arrangements; therefore, asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity. As of September 30, 2017,2019, the Company held in its Ria operations foreign currency forward contracts outstanding in the U.S. with a notional value of $244$146 million, primarily in Australian dollars, Canadian dollars, British pounds, euros and Mexican pesos.
In addition, the Company uses forward contracts, typically with maturities from a few days to less than one year, to offset foreign exchange rate fluctuations on certain foreign currency denominated other asset and liability positions. As of September 30, 2017,2019, the Company had foreign currency forward contracts outstanding with a notional value of $282$80 million, primarily in British pounds, euros and Polish zloty.euros.
Foreign currency exchange contracts - HiFXxe Operations
HiFXxe writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. HiFXxe aggregates its foreign currency exposures arising from customer contracts and may hedge some or all of the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from HiFX'sxe's total portfolio of positions were $16.7$17.5 million and $48.4$52.2 million for the three and nine months ended September 30, 2017,2019, respectively, and $14.4$16.8 million and $48.3$52.5 million for the three and nine months ended September 30, 2016,2018, respectively. All of the derivative contracts used in the Company's HiFXxe operations are economic hedges and are not designated as hedges under ASC Topic 815. The duration of these derivative contracts is generally less than one year.
The fair value of HiFX'sxe's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. HiFXxe manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering into contracts with collateral posting requirements and/or by performing financial
assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. HiFXxe does not expect any significant losses from counterparty defaults.
The aggregate equivalent U.S. dollar notional amounts of foreign currency derivative customer contracts held by the Company in its HiFXxe operations as of September 30, 20172019 was approximately $1.3 billion. The majority of customer contracts are written in major currencies such as the U.S. dollar, euro, New Zealand dollar, British pound, and Australian dollar.
Balance Sheet Presentation
The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below: |
| | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value | | | | Fair Value |
(in thousands) | | Balance Sheet Location | | September 30, 2019 | | December 31, 2018 | | Balance Sheet Location | | September 30, 2019 | | December 31, 2018 |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Foreign currency exchange contracts | | Prepaid expenses and other current assets | | $ | 61,649 |
| | $ | 44,637 |
| | Accrued expenses and other current liabilities | | $ | (50,973 | ) | | $ | (36,102 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value | | | | Fair Value |
(in thousands) | | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 | | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current assets | | $ | 44,603 |
| | $ | 75,307 |
| | Other current liabilities | | $ | (31,947 | ) | | $ | (63,772 | ) |
The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 20172019 and December 31, 20162018 (in thousands):
Offsetting of Derivative Assets
| | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | |
As of September 30, 2017 | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Received | | Net Amounts | |
As of September 30, 2019 | | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Received | | Net Amounts |
Derivatives subject to a master netting arrangement or similar agreement | | $ | 44,603 |
| | $ | — |
| | $ | 44,603 |
| | $ | (20,071 | ) | | $ | (8,268 | ) | | $ | 16,264 |
| | $ | 61,649 |
| | $ | — |
| | $ | 61,649 |
| | $ | (39,867 | ) | | $ | (4,631 | ) | | $ | 17,151 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2016 | | | | | | | | | | | | | |
As of December 31, 2018 | | | | | | | | | | | | | |
Derivatives subject to a master netting arrangement or similar agreement | | $ | 75,307 |
| | $ | — |
| | $ | 75,307 |
| | $ | (49,752 | ) | | $ | (7,562 | ) | | $ | 17,993 |
| | $ | 44,637 |
| | $ | — |
| | $ | 44,637 |
| | $ | (25,187 | ) | | $ | (9,918 | ) | | $ | 9,532 |
|
Offsetting of Derivative Liabilities
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | |
As of September 30, 2019 | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Paid | | Net Amounts |
Derivatives subject to a master netting arrangement or similar agreement | | $ | (50,973 | ) | | $ | — |
| | $ | (50,973 | ) | | $ | 39,867 |
| | $ | 1,671 |
| | $ | (9,435 | ) |
| | | | | | | | | | | | |
As of December 31, 2018 | | | | | | | | | | | | |
Derivatives subject to a master netting arrangement or similar agreement | | $ | (36,102 | ) | | $ | — |
| | $ | (36,102 | ) | | $ | 25,187 |
| | $ | 2,048 |
| | $ | (8,867 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | |
As of September 30, 2017 | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Paid | | Net Amounts |
Derivatives subject to a master netting arrangement or similar agreement | | $ | (31,947 | ) | | $ | — |
| | $ | (31,947 | ) | | $ | 20,071 |
| | $ | 2,581 |
| | $ | (9,295 | ) |
| | | | | | | | | | | | |
As of December 31, 2016 | | | | | | | | | | | | |
Derivatives subject to a master netting arrangement or similar agreement | | $ | (63,772 | ) | | $ | — |
| | $ | (63,772 | ) | | $ | 49,752 |
| | $ | 1,106 |
| | $ | (12,914 | ) |
See Note 8,9, Fair Value Measurements, for the determination of the fair values of derivatives.
Income Statement Presentation
The following tables summarizetable summarizes the location and amount of gains and losses on derivatives in the Consolidated Statements of Income for the three and nine months ended September 30, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain Recognized in Income on Derivative Contracts (a) |
| | Location of Gain (Loss) Recognized in Income on Derivative Contracts | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | | 2019 | | 2018 | | 2019 | | 2018 |
Foreign currency exchange contracts | | Foreign currency exchange gain, net | | $ | 285 |
| | $ | 2,058 |
| | $ | 619 |
| | $ | 10,438 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized in Income on Derivative Contracts (a) |
| | Location of Gain (Loss) Recognized in Income on Derivative Contracts | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency exchange contracts | | Foreign currency exchange gain (loss), net | | $ | 3,062 |
| | $ | (1,825 | ) | | $ | (3,007 | ) | | $ | (646 | ) |
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its HiFXxe operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above.
(8)(9) FAIR VALUE MEASUREMENTS
Fair value measurements used in the unaudited consolidated financial statements are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the inputs that market participants would use in pricing.
The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:
| | | | As of September 30, 2017 | | As of September 30, 2019 |
(in thousands) | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current assets | | $ | — |
| | $ | 44,603 |
| | $ | — |
| | $ | 44,603 |
| | Other current assets | | $ | — |
| | $ | 61,649 |
| | $ | — |
| | $ | 61,649 |
|
Liabilities | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current liabilities | | $ | — |
| | $ | (31,947 | ) | | $ | — |
| | $ | (31,947 | ) | | Other current liabilities | | $ | — |
| | $ | (50,973 | ) | | $ | — |
| | $ | (50,973 | ) |
| | | | As of December 31, 2016 | | As of December 31, 2018 |
(in thousands) | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current assets | | $ | — |
| | $ | 75,307 |
| | $ | — |
| | $ | 75,307 |
| | Other current assets | | $ | — |
| | $ | 44,637 |
| | $ | — |
| | $ | 44,637 |
|
Liabilities | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current liabilities | | $ | — |
| | $ | (63,772 | ) | | $ | — |
| | $ | (63,772 | ) | | Other current liabilities | | $ | — |
| | $ | (36,102 | ) | | $ | — |
| | $ | (36,102 | ) |
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses and other current obligations approximate their fair values because of the relatively short-term maturities of these financial instruments. The carrying valuesvalue of the Company’s long-term debt (other than the Convertible Notes), including the current portion, approximateCredit Facility approximates fair value because interest is primarily based on LIBOR, which resets at various intervals of less than one year. The Company estimates the fair valuevalues of the Convertible Notes and Senior Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of September 30, 2017 and December 31, 2016,2019, the fair values of the Convertible Notes and the Senior Notes were $550.5$587.3 million and $475.1$659.2 million, respectively, with carrying values of $366.5$433.3 million and $358.3$653.9 million, respectively.
(9)(10) SEGMENT INFORMATION
The Company’s reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting. The Company currently operates in the following three3 reportable operating segments:
| |
1) | Through the EFT Processing Segment, the Company processes transactions for a network of ATMs and POS terminals across Europe, the Middle East, Asia Pacific and Asia Pacific.the United States. The Company provides comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion, domestic and international surcharge and other value added services. Through this segment, the Company also offers a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems. |
| |
2) | Through the epay Segment, the Company provides distribution, processing and collection services for prepaid mobile airtime and other electronic paymentdigital media products in Europe, the Middle East, Asia Pacific, the United States and South America. |
| |
3) | Through the Money Transfer Segment, the Company provides global money transfer services under the brand names Ria, HiFX, IME and xe. Ria and IME provide global consumer-to-consumer money transfer services through a network of sending agents, Company-owned stores and Company-owned websites, disbursing money transfers through a worldwide correspondent network. HiFXxe offers account-to-account international payment services to high-income individuals and small-to-medium sized businesses. xe is also a provider of foreign currency exchange information and offers money transfers on its currency data websites. The Company also offers customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services, foreign currency exchange services and mobile top-up. The Company provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses under the brand name HiFM. |
In addition, the Company accounts for non-operating activity, most share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in its administrative division, “Corporate Services, Eliminations and Other.” These services are not directly identifiable with the Company’s reportable operating segments.
The following tables present the Company’s reportable segment results for the three and nine months ended September 30, 20172019 and 20162018: |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2019 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 316,188 |
| | $ | 191,071 |
| | $ | 280,837 |
| | $ | (1,110 | ) | | $ | 786,986 |
|
Operating expenses: | | | | | | | | | | |
Direct operating costs | | 111,116 |
| | 145,410 |
| | 149,663 |
| | (1,108 | ) | | 405,081 |
|
Salaries and benefits | | 23,936 |
| | 15,188 |
| | 51,555 |
| | 10,675 |
| | 101,354 |
|
Selling, general and administrative | | 12,191 |
| | 8,838 |
| | 35,820 |
| | 1,866 |
| | 58,715 |
|
Depreciation and amortization | | 18,044 |
| | 1,572 |
| | 8,151 |
| | 79 |
| | 27,846 |
|
Total operating expenses | | 165,287 |
| | 171,008 |
| | 245,189 |
| | 11,512 |
| | 592,996 |
|
Operating income (expense) | | $ | 150,901 |
| | $ | 20,063 |
| | $ | 35,648 |
| | $ | (12,622 | ) | | $ | 193,990 |
|
| | | | For the Three Months Ended September 30, 2017 | | For the Three Months Ended September 30, 2018 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 226,321 |
| | $ | 184,234 |
| | $ | 228,105 |
| | $ | (826 | ) | | $ | 637,834 |
| | $ | 261,736 |
| | $ | 185,431 |
| | $ | 268,291 |
| | $ | (953 | ) | | $ | 714,505 |
|
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Direct operating costs | | 99,024 |
| | 143,023 |
| | 123,588 |
| | (820 | ) | | 364,815 |
| | 101,763 |
| | 142,665 |
| | 144,758 |
| | (950 | ) | | 388,236 |
|
Salaries and benefits | | 16,817 |
| | 13,955 |
| | 44,110 |
| | 7,252 |
| | 82,134 |
| | 21,653 |
| | 14,491 |
| | 48,945 |
| | 8,019 |
| | 93,108 |
|
Selling, general and administrative | | 8,878 |
| | 9,145 |
| | 28,648 |
| | 2,608 |
| | 49,279 |
| | 11,227 |
| | 9,968 |
| | 32,483 |
| | 2,109 |
| | 55,787 |
|
Depreciation and amortization | | 14,805 |
| | 2,461 |
| | 7,403 |
| | 36 |
| | 24,705 |
| | 16,694 |
| | 1,881 |
| | 7,854 |
| | 32 |
| | 26,461 |
|
Total operating expenses | | 139,524 |
| | 168,584 |
| | 203,749 |
| | 9,076 |
| | 520,933 |
| | 151,337 |
| | 169,005 |
| | 234,040 |
| | 9,210 |
| | 563,592 |
|
Operating income (expense) | | $ | 86,797 |
| | $ | 15,650 |
| | $ | 24,356 |
| | $ | (9,902 | ) | | $ | 116,901 |
| | $ | 110,399 |
| | $ | 16,426 |
| | $ | 34,251 |
| | $ | (10,163 | ) | | $ | 150,913 |
|
| | | | For the Three Months Ended September 30, 2016 | | For the Nine Months Ended September 30, 2019 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 152,586 |
| | $ | 167,226 |
| | $ | 204,611 |
| | $ | (398 | ) | | $ | 524,025 |
| | $ | 693,837 |
| | $ | 551,345 |
| | $ | 814,201 |
| | $ | (3,021 | ) | | $ | 2,056,362 |
|
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Direct operating costs | | 62,401 |
| | 128,212 |
| | 109,944 |
| | (398 | ) | | 300,159 |
| | 300,460 |
| | 419,362 |
| | 435,901 |
| | (2,998 | ) | | 1,152,725 |
|
Salaries and benefits | | 12,954 |
| | 13,352 |
| | 38,365 |
| | 7,228 |
| | 71,899 |
| | 64,706 |
| | 44,939 |
| | 155,424 |
| | 27,630 |
| | 292,699 |
|
Selling, general and administrative | | 7,642 |
| | 8,133 |
| | 23,924 |
| | 1,680 |
| | 41,379 |
| | 32,022 |
| | 26,314 |
| | 96,660 |
| | 5,708 |
| | 160,704 |
|
Depreciation and amortization | | 10,151 |
| | 2,734 |
| | 7,195 |
| | 40 |
| | 20,120 |
| | 52,464 |
| | 5,113 |
| | 24,448 |
| | 228 |
| | 82,253 |
|
Total operating expenses | | 93,148 |
| | 152,431 |
| | 179,428 |
| | 8,550 |
| | 433,557 |
| | 449,652 |
| | 495,728 |
| | 712,433 |
| | 30,568 |
| | 1,688,381 |
|
Operating income (expense) | | $ | 59,438 |
| | $ | 14,795 |
| | $ | 25,183 |
| | $ | (8,948 | ) | | $ | 90,468 |
| | $ | 244,185 |
| | $ | 55,617 |
| | $ | 101,768 |
| | $ | (33,589 | ) | | $ | 367,981 |
|
| | | | For the Nine Months Ended September 30, 2017 | | For the Nine Months Ended September 30, 2018 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 488,030 |
| | $ | 512,531 |
| | $ | 649,205 |
| | $ | (1,989 | ) | | $ | 1,647,777 |
| | $ | 592,333 |
| | $ | 528,739 |
| | $ | 768,943 |
| | $ | (2,771 | ) | | $ | 1,887,244 |
|
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Direct operating costs | | 238,753 |
| | 393,269 |
| | 348,724 |
| | (1,978 | ) | | 978,768 |
| | 279,927 |
| | 403,010 |
| | 412,895 |
| | (2,760 | ) | | 1,093,072 |
|
Salaries and benefits | | 46,125 |
| | 39,606 |
| | 125,273 |
| | 21,613 |
| | 232,617 |
| | 57,704 |
| | 43,235 |
| | 145,420 |
| | 24,178 |
| | 270,537 |
|
Selling, general and administrative | | 23,960 |
| | 27,628 |
| | 77,912 |
| | 10,208 |
| | 139,708 |
| | 30,557 |
| | 27,191 |
| | 93,610 |
| | 6,798 |
| | 158,156 |
|
Acquired intangible assets impairment | | 2,286 |
| | — |
| | — |
| | — |
| | 2,286 |
| |
Depreciation and amortization | | 39,816 |
| | 7,667 |
| | 21,941 |
| | 96 |
| | 69,520 |
| | 49,277 |
| | 5,653 |
| | 23,702 |
| | 94 |
| | 78,726 |
|
Total operating expenses | | 350,940 |
| | 468,170 |
| | 573,850 |
| | 29,939 |
| | 1,422,899 |
| | 417,465 |
| | 479,089 |
| | 675,627 |
| | 28,310 |
| | 1,600,491 |
|
Operating income (expense) | | $ | 137,090 |
| | $ | 44,361 |
| | $ | 75,355 |
| | $ | (31,928 | ) | | $ | 224,878 |
| | $ | 174,868 |
| | $ | 49,650 |
| | $ | 93,316 |
| | $ | (31,081 | ) | | $ | 286,753 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2016 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 354,282 |
| | $ | 497,945 |
| | $ | 587,664 |
| | $ | (1,105 | ) | | $ | 1,438,786 |
|
Operating expenses: | | | | | | | | | | |
Direct operating costs | | 165,520 |
| | 379,423 |
| | 309,706 |
| | (1,105 | ) | | 853,544 |
|
Salaries and benefits | | 37,601 |
| | 38,052 |
| | 114,582 |
| | 22,739 |
| | 212,974 |
|
Selling, general and administrative | | 22,154 |
| | 25,291 |
| | 68,930 |
| | 5,303 |
| | 121,678 |
|
Depreciation and amortization | | 28,411 |
| | 8,498 |
| | 21,868 |
| | 146 |
| | 58,923 |
|
Total operating expenses | | 253,686 |
| | 451,264 |
| | 515,086 |
| | 27,083 |
| | 1,247,119 |
|
Operating income (expense) | | $ | 100,596 |
| | $ | 46,681 |
| | $ | 72,578 |
| | $ | (28,188 | ) | | $ | 191,667 |
|
The following table presents the Company’s property and equipment and total assets by reportable segment:
|
| | | | | | | | | | | | | | | | |
| | Property and Equipment, net as of | | Total Assets as of |
(in thousands) | | September 30, 2019 | | December 31, 2018 | | September 30, 2019 | | December 31, 2018 |
EFT Processing | | $ | 237,627 |
| | $ | 215,106 |
| | $ | 1,766,369 |
| | $ | 1,220,141 |
|
epay | | 35,251 |
| | 31,172 |
| | 761,862 |
| | 780,220 |
|
Money Transfer | | 48,865 |
| | 45,517 |
| | 1,532,493 |
| | 1,310,775 |
|
Corporate Services, Eliminations and Other | | 59 |
| | 74 |
| | 253,400 |
| | 10,019 |
|
Total | | $ | 321,802 |
| | $ | 291,869 |
| | $ | 4,314,124 |
| | $ | 3,321,155 |
|
The following table presents the Company's revenues disaggregated by segment and region. Sales and usage-based taxes are excluded from revenues. The Company believes disaggregation by segment and region best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The disaggregation of revenues by segment and region is based on management's assessment of segment performance together with allocation of financial resources, both capital and operating support costs, on a segment and regional level. Both segments and regions benefit from synergies achieved through concentration of operations and are influenced by macro-economic, regulatory and political factors in the respective segment and region. |
| | | | | | | | | | | | | | | | |
| | Property and Equipment, net as of | | Total Assets as of |
(in thousands) | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
EFT Processing | | $ | 181,188 |
| | $ | 139,161 |
| | $ | 1,310,607 |
| | $ | 786,166 |
|
epay | | 27,139 |
| | 23,939 |
| | 616,596 |
| | 733,514 |
|
Money Transfer | | 42,047 |
| | 38,954 |
| | 1,229,899 |
| | 1,136,722 |
|
Corporate Services, Eliminations and Other | | 62 |
| | 91 |
| | 20,819 |
| | 56,470 |
|
Total | | $ | 250,436 |
| | $ | 202,145 |
| | $ | 3,177,921 |
| | $ | 2,712,872 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2019 | | For the Nine Months Ended September 30, 2019 |
(in thousands) | EFT Processing | | epay | | Money Transfer | | Total | | EFT Processing | | epay | | Money Transfer | | Total |
Europe | $ | 274,313 |
| | $ | 130,602 |
| | $ | 94,625 |
| | $ | 499,540 |
| | $ | 574,620 |
| | $ | 368,830 |
| | $ | 273,760 |
| | $ | 1,217,210 |
|
North America | 8,717 |
| | 37,218 |
| | 147,989 |
| | 193,924 |
| | 24,880 |
| | 114,614 |
| | 428,349 |
| | 567,843 |
|
Asia Pacific | 33,153 |
| | 19,039 |
| | 31,575 |
| | 83,767 |
| | 94,317 |
| | 55,333 |
| | 93,865 |
| | 243,515 |
|
Other | 5 |
| | 4,212 |
| | 6,648 |
| | 10,865 |
| | 20 |
| | 12,568 |
| | 18,227 |
| | 30,815 |
|
Eliminations | — |
| | — |
| | — |
| | (1,110 | ) | | — |
| | — |
| | — |
| | (3,021 | ) |
Total | $ | 316,188 |
| | $ | 191,071 |
| | $ | 280,837 |
| | $ | 786,986 |
| | $ | 693,837 |
| | $ | 551,345 |
| | $ | 814,201 |
| | $ | 2,056,362 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2018 | | For the Nine Months Ended September 30, 2018 |
(in thousands) | EFT Processing | | epay | | Money Transfer | | Total | | EFT Processing | | epay | | Money Transfer | | Total |
Europe | $ | 226,531 |
| | $ | 123,386 |
| | $ | 84,492 |
| | $ | 434,409 |
| | $ | 485,030 |
| | $ | 340,180 |
| | $ | 240,266 |
| | $ | 1,065,476 |
|
North America | 7,613 |
| | 41,346 |
| | 147,830 |
| | 196,789 |
| | 23,956 |
| | 124,667 |
| | 420,568 |
| | 569,191 |
|
Asia Pacific | 27,570 |
| | 17,505 |
| | 31,195 |
| | 76,270 |
| | 83,310 |
| | 52,116 |
| | 95,049 |
| | 230,475 |
|
Other | 22 |
| | 3,194 |
| | 4,774 |
| | 7,990 |
| | 37 |
| | 11,776 |
| | 13,060 |
| | 24,873 |
|
Eliminations | — |
| | — |
| | — |
| | (953 | ) | | — |
| | — |
| | — |
| | (2,771 | ) |
Total | $ | 261,736 |
| | $ | 185,431 |
| | $ | 268,291 |
| | $ | 714,505 |
| | $ | 592,333 |
| | $ | 528,739 |
| | $ | 768,943 |
| | $ | 1,887,244 |
|
(10)(11) INCOME TAXES
The Company's effective income tax rate was 13.4%21.2% and 19.3%26.0% for the three and nine months ended September 30, 20172019, respectively, compared to 25.5% and 23.7%27.4% for the three and nine months ended September 30, 2016,2018, respectively. The Company's effective income tax raterates for the three and nine months ended September 30, 20172019 and 2016 was lower2018 were higher than the applicable statutory income tax rate of 35% primarily attributable21% as a result of certain earnings of the Company in foreign jurisdictions being subject to the release in 2017 of a $16.3 million valuation allowance against certain foreign net deferred tax assets and, to a lesser extent, the Company's continued U.S.higher local statutory income tax positions. Due to the recent significant year-over-year and year-to-date profitability of ATMs under management in Europe, the Company believes certain foreign net deferred tax assets, including net operating loss carryforwards, will more likely than not be realized in future periods. In addition to the foreign valuation allowance release, the Company continues to have significant net operating loss carryforwards in the U.S. with no recent history of taxable income; therefore, the Company has recorded a valuation allowance against its U.S. net deferred tax assets. Accordingly, in instances when the Company generates U.S. GAAP income for the period, no income tax expense is recognized to the extent there are net operating loss carryforwards to offset that income.rates.
(11)(12) COMMITMENTS
As of September 30, 2017,2019, the Company had $73.6$75.7 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $45.1$49.2 million are outstanding under the Credit Facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $3.4$3.6 million of cash deposits held by the respective issuing banks.
Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of September 30, 2017, theThe Company hadhas granted off balance sheet guarantees for cash in various ATM networks amounting to $16.9 million over the terms of the cash supply agreements amounting to
$12.0 million as of September 30, 2019and performance guarantees amounting to approximately $21.8 million over the terms of agreements with the customers.
Once eachcustomers amounting to approximately $42.0 million as of Euronet's subsidiaries reaches a certain size, it is required under the Credit Facility to provide a guarantee of all or a portion of the outstanding obligations under the Credit Facility depending upon whether the subsidiary is a domestic or foreign entity.September 30, 2019.
From time to time, the Company enters into agreements with commercial counterparties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Euronet's liability under such indemnification provisions may be
mitigated by relevant insurance coverage and may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnification obligations include the following:
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for damage to ATMs and theft of ATM network cash that, generally, is not recorded on the Company’s Consolidated Balance Sheets. As of September 30, 2017, the balance of cash used in the Company's ATM networks for which the Company was responsible was approximately $283 | |
• | In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for damage to ATMs and theft of ATM network cash that is not recorded on the Company’s Consolidated Balance Sheets. As of September 30, 2019, the balance of such cash used in the Company's ATM networks for which the Company was responsible was approximately $461 million. The Company maintains insurance policies to mitigate this exposure; |
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for losses suffered by its customers and other parties as a result of theany breach of its computer systems, including in particular, losses arising from fraudulent transactions made using information stolen through its processing systems. The Company maintains systems of internal controls and insurance policies to mitigate this exposure;
In connection with the license of proprietary systems to customers, the Company provides certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
Euronet has entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which the Company has agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from the Company’s use of the vendor’s product or the services of the vendor or consultant;
In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, the Company has entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions of operating units or assets made by Euronet, the Company has agreed to indemnify the seller against third-party claims made against the seller relating to the operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet has agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made; and
Euronet has entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to the Company’s benefit plans. Under such agreements, the Company has agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
The Company is also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company has money transfer operations. The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, the Company is not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of September 30, 20172019 or December 31, 2016.2018.
(12)(13) LITIGATION AND CONTINGENCIES
From time to time, the Company is a party to legal or regulatory proceedings arising in the ordinary course of its business. Currently, there are no legal proceedings or regulatory findings that management believes, either individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition or results of operations. In accordance with U.S. GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
(14) LEASES
The Company enters into operating leases for ATM sites, office spaces, retail stores and equipment. The Company's finance leases are immaterial. Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease terms.
The present value of lease payments is determined using the incremental borrowing rate based on information available at the lease commencement date. All leases with fixed payments, including leases with an initial term of 12 months or less are recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Most leases include an option to renew, with renewal terms that can extend the lease terms. The exercise of lease renewal options is at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease terms. The Company also has a unilateral termination right for a majority of the ATM site leases. Since the Company is not reasonably certain to exercise the renewal or terminal options, the options are not considered in determining the lease terms, and associated payment impacts are excluded from lease payments.
Certain of the Company's lease agreements include variable rental payments based on revenues generated from the use of the leased location and certain leases include rental payments adjusted periodically for inflation. Variable lease payments are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs and are excluded from the right of use assets and lease liabilities balances. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Future minimum lease payments
Future minimum lease payments under the operating leases as of September 30, 2019 are:
|
| | | |
| As of September 30, 2019 |
Maturity of Lease Liabilities (in thousands) | Operating Leases |
Remainder of 2019 | $ | 31,069 |
|
2020 | 112,601 |
|
2021 | 81,457 |
|
2022 | 56,546 |
|
2023 | 37,171 |
|
Thereafter | 57,783 |
|
Total lease payments | $ | 376,627 |
|
Less: imputed interest | (24,025 | ) |
Present value of lease liabilities | $ | 352,602 |
|
Future minimum lease payments under the non-cancelable operating leases (with initial lease terms in excess of one year) as of December 31, 2018 were:
|
| | | | |
(in thousands) | | Operating Leases |
Year ending December 31, | | |
2019 | | $ | 80,803 |
|
2020 | | 65,590 |
|
2021 | | 49,052 |
|
2022 | | 37,823 |
|
2023 | | 30,192 |
|
Thereafter | | 48,191 |
|
Total minimum lease payments | | $ | 311,651 |
|
Lease expense recognized in the Consolidated Statements of Income is summarized as follows:
|
| | | | | | | | | |
Lease Expense (in thousands) | Income Statement Classification | | Three Months Ended September 30, 2019 | | Nine months ended September 30, 2019 |
Operating lease expense | Selling, general and administrative and Direct operating costs | | $ | 35,068 |
| | $ | 98,641 |
|
Variable lease expense | Selling, general and administrative and Direct operating costs
| | 12,653 |
| | 31,541 |
|
Total lease expense | | | $ | 47,721 |
| | $ | 130,182 |
|
Other information about lease amounts recognized in the consolidated financial statements is summarized as follows:
|
| | | |
Lease Term and Discount Rate of Operating Leases | | As of September 30, 2019 |
Weighted- average remaining lease term (years) | | 4.5 |
|
Weighted- average discount rate | | 3.1 | % |
The following table presents supplemental cash flow and non-cash information related to leases:
|
| | | | |
Other Information (in thousands) | | Nine months ended September 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities (a) | | $ | 97,209 |
|
Supplemental non-cash information on lease liabilities arising from obtaining ROU assets: | | |
ROU assets obtained in exchange for new operating lease liabilities | | $ | 176,104 |
|
(a) Included in Net cash provided by operating activities on the Company's Consolidated Statements of Cash Flows.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms "Euronet," the "Company," "we" and "us" as used herein refer to Euronet Worldwide, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Generally, the words "believe," "expect," "anticipate," "intend," "estimate," "will" and similar expressions identify forward-looking statements. However, the absence of these words or similar expressions does not mean the statement is not forward-looking. All statements other than statements of historical facts included in this document are forward-looking statements, including, but not limited to, statements regarding the following:
our business plans and financing plans and requirements;
trends affecting our business plans and financing plans and requirements;
trends affecting our business;
the adequacy of capital to meet our capital requirements and expansion plans;
the assumptions underlying our business plans;
our ability to repay indebtedness;
our estimated capital expenditures;
the potential outcome of loss contingencies;
our expectations regarding the closing of any pending acquisitions;
business strategy;
government regulatory action;
the expected effects of changes in laws or accounting standards;
technological advances; and
projected costs and revenues.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct.
Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may materially differ from those in the forward-looking statements as a result of various factors, including, but not limited to, conditions in world financial markets and general economic conditions, including the effects in Europe of the recent Brexit votenegotiations related to the United Kingdom's proposed departure from the European Union (E.U.), and economic conditions in specific countries and regions; the effects of demonetization in India; technological developments affecting the market for our products and services; our ability to successfully introduce new products and services; foreign currency exchange rate fluctuations; the effects of any breach of our computer systems or those of our customers or vendors, including our financial processing networks or those of other third parties; interruptions in any of our systems or those of our vendors or other third parties; our ability to renew existing contracts at profitable rates; changes in fees payable for transactions performed for cards bearing international logos or over switching networks such as card transactions on ATMs; the impact of changes in rules imposed by international card organizations such as Visa and Mastercard on card transactions on ATMs, including reductions in ATM interchange fees, restrictions on the ability to apply direct access fees, the ability to offer DCC transactions on ATMs, and increases in fees charged on DCC transactions; the impact of changes in laws and regulations affecting the profitability of our services, including regulation of DCC transactions or ATM access fees by the E.U.; our ability to comply with increasingly stringent regulatory requirements, including anti-money laundering, anti-terrorism, anti-bribery, and consumer and data protection and the E.U.'s General Data Privacy Regulation and the Services Payment Directive ("PSD2"), requirements; changes in laws and regulations affecting our business, including tax and immigration laws;laws and any laws regulating payments, including DCC transactions; changes in our relationships with, or in fees charged by, our business partners; competition; the outcome of claims and other loss contingencies affecting Euronet; general economic, financial and market conditions and the duration and extent of any future economic downturns; the cost of borrowing, availability of credit and terms of and compliance with debt covenants; renewal of sources of funding as they expire and the availability of replacement funding; the outlook for markets we serve; and those factors referred to above and as set forth and more fully described in Part I, Item 1A — Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2016.2018 and in Part II, Item 1A-Risk Factors in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and September 30, 2019. Our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are available on the SEC's EDGAR website at www.sec.gov, and copies may also be obtained by contacting the Company. Any forward-looking statements made in this Form 10-Q speak only as of the date of this report. Except as required by law, we do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements.
OVERVIEW
COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES
Euronet is a leading electronic payments provider. We offer payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Our primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services,services; software solutions and cloud based payment solutions; electronic distribution of prepaid mobile airtime and other digital media and electronic payment products,products; foreign currency exchange services and global money transfer services. We operate in the following three segments:
The EFT Processing Segment, which processes transactions for a network of 38,105 ATMs and approximately 227,000 POS terminals across Europe, the Middle East and Asia Pacific. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal and deposit services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion ("DCC"), and other value added services. Through this segment, we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
The epay Segment, which provides distribution, processing and collection services for prepaid mobile airtime and other electronic payment products. We operate a network of approximately 696,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic payment products in Europe, the Middle East, Asia Pacific, the United States and South America. We also provide vouchers and physical gift fulfillment services in Europe.
The Money Transfer Segment, which provides global consumer-to-consumer money transfer services, primarily under the brand names Ria, IME and xe, and global account-to-account money transfer services under the brand name HiFX. We offer services under the brand names Ria and IME through a network of sending agents, Company-owned stores (primarily in North America, Europe and Malaysia) and Ria branded websites (riamoneytransfer.com and imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 332,000 locations. xe is a provider of foreign currency exchange information and offers money transfer services on its currency data websites (xe.com and x-rates.com). We offer services under the brand name HiFX through HiFX branded websites and HiFX customer service representatives. In addition to money transfers, we also offer customers bill payment services (primarily in the U.S.), payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services for a wide variety of issued checks, along with competitive foreign currency exchange services and prepaid mobile top-up. Through our HiFM brand, we offer cash management solutions and foreign currency risk management services to small-to-medium sized businesses.
| |
• | The EFT Processing Segment, which processes transactions for a network of 47,209 ATMs and approximately 305,000 POS terminals across Europe, the Middle East, Asia Pacific and the United States. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal and deposit services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, DCC, domestic and international surcharge and other value added services. Through this segment, we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems. |
| |
• | The epay Segment, which provides distribution, processing and collection services for digital media (formerly referred to as non-mobile content) and prepaid mobile airtime. We operate a network of approximately 710,000 POS terminals providing electronic processing of digital media and prepaid mobile airtime top-up services in Europe, the Middle East, Asia Pacific, the United States and South America. We also provide vouchers and physical gift fulfillment services in Europe. |
| |
• | The Money Transfer Segment, which provides global consumer-to-consumer money transfer services, primarily under the brand names Ria, IME and xe. xe also provides global account-to-account money transfer services. We offer services under the brand names Ria and IME through a network of sending agents, Company-owned stores (primarily in North America, Europe and Malaysia) and Ria branded websites (riamoneytransfer.com and online.imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 389,000 locations. xe offers money transfer services on its websites (xe.com and x-rates.com) and through its customer service representatives. The xe websites also provide foreign currency exchange information. In addition to money transfers, we also offer customers bill payment services (primarily in the U.S.), payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services for a wide variety of issued checks, along with competitive foreign currency exchange services and prepaid mobile top-up. We offer services under the brand name xe through our websites (www.xe.com and https://transfer.xe.com). Through our HiFM brand, we offer cash management solutions and foreign currency risk management services to small-to-medium sized businesses. |
We have six processing centers in Europe, five in Asia Pacific and two in North America. We have 3536 principal offices in Europe, 1114 in Asia Pacific, nine in North America, three in the Middle East, two in South America and one in Africa. Our executive offices are located in Leawood, Kansas, USA. With approximately 74% of our revenues denominated in currencies other than the U.S. dollar, any significant changes in foreign currency exchange rates will likely have a significant impact on our results of operations.
SOURCES OF REVENUES AND CASH FLOW
Euronet primarily earns revenues and income from ATM management fees, transaction fees, commissions and foreign currency exchange margin. Each operating segment’s sources of revenues are described below.
EFT Processing Segment — Revenues in the EFT Processing Segment, which represented approximately 35%40% and 30%34% of total consolidated revenues for the third quarter and first nine months of 2017,2019, respectively, are primarily derived from fees charged for transactions made by cardholders on our proprietary network of ATMs, fixed management fees and transaction fees we charge to customers for operating ATMs and processing debit and credit cards under outsourcing and cross-border acquiring agreements, foreign currency exchange margin on DCC transactions, domestic and international surcharge, foreign currency dispensing, and other value added services such as advertising, prepaid telecommunication recharges, bill payment, and money transfers provided over ATMs. Revenues in this segment are also derived from license fees, professional services and maintenance fees for proprietary application software and sales of related hardware.
epay Segment — Revenues in the epay Segment, which represented approximately 29%24% and 31%26% of total consolidated revenues for the third quarter and first nine months of 2017,2019, respectively, are derived from commissions or processing fees received from mobile phone operators for the processing and distribution of prepaid mobile airtime and commissions earned from the distribution of other electronic paymentdigital media products, vouchers, and physical gifts. The proportion of epay Segment revenues earned from the distribution of prepaid mobile phone time as compared with other electronic productsdigital media has decreased over time, and non-mobile contentdigital media now produces approximately 67%62% of epay Segment revenues. Other electronic paymentdigital media products offered by this segment include digital content such as music, games and software, as well as other products, including prepaid long distance calling card plans, prepaid Internet plans, prepaid debit cards, gift cards, vouchers, transport payments, lottery payments, bill payment, and money transfer. Agreements with mobile operators and prepaid content providers are important to the success of our business and these agreements permit us to distribute prepaid mobile airtime and other electronic payment products to retailers.
Money Transfer Segment — Revenues in the Money Transfer Segment, which represented approximately 36% and 39%40% of total consolidated revenues for the third quarter and first nine months of 2017,2019, respectively, are primarily derived from transaction fees, as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to customers at retail exchange rates. We have a sending agent network in place comprised of agents, customer service representatives, Company-owned stores, primarily in North America, Europe, and Malaysia, and Ria, xe and HiFXxe branded websites, along with a worldwide network of correspondent agents, consisting primarily of financial institutions in the transfer destination countries. Sending and correspondent agents each earn fees for cash collection and distribution services, which are recognized as direct operating costs at the time of sale.
The Company offers a money transfer product called Walmart-2-Walmart Money Transfer Service which allows customers to transfer money to and from Walmart stores in the U.S. Our Ria business executes the transfers with Walmart serving as both the sending agent and payout correspondent. Ria earns a lower margin from these transactions than its traditional money transfers; however, the arrangement has added a significant number of transactions to Ria’s business. The agreement with Walmart establishes Ria as the only party through which Walmart will sell U.S. domestic money transfers branded with Walmart marks. The agreement had an initial term of three years from the launch date of April 2014, and was renewed for an additional three yearsis effective until April 2020 and2020. Thereafter, it will automatically renew for subsequent one year terms unless either party provides notice to the contrary. The agreement imposes certain obligations on each party, the most significant being service level requirements by Ria and money transfer compliance requirements by Walmart. Any violation of these requirements by Ria could result in an obligation to indemnify Walmart or termination of the contract by Walmart. However, the agreement allows the parties to resolve disputes by mutual agreement without termination of the agreement.
Corporate Services, Eliminations and Other - In addition to operating in our principal operating segments described above, our “Corporate Services, Eliminations and Other” category includes non-operating activity, certain inter-segment eliminations and the cost of providing corporate and other administrative services to the operating segments, including most share-based compensation expense. These services are not directly identifiable with our reportable operating segments.
OPPORTUNITIES AND CHALLENGES
Our expansion plans and opportunities are focused on eight primary areas:
increasing the number of ATMs and cash deposit terminals in our independent networks;
increasing transactions processed on our network of owned and operated ATMs and POS devices;
signing new outsourced ATM and POS terminal management contracts;
expanding value added services and other products offered by our EFT Processing Segment, including the sale of DCC, acquiring and other prepaid card services to banks and retailers;
expanding our epay processing network and portfolio of digital content;
expanding our money transfer services, cross-currency payment products and bill payment network;
expanding our cash management solutions and foreign currency risk management services; and
developing our credit and debit card outsourcing business.
EFT Processing Segment — The continued expansion and development of our EFT Processing Segment business will depend on various factors including, but not necessarily limited to, the following:
the impact of competition by banks and other ATM operators and service providers in our current target markets;
the demand for our ATM outsourcing services in our current target markets;
our ability to develop products or services, including value added services, to drive increases in transactions and revenues;
the expansion of our various business lines in markets where we operate and in new markets;
our entry into additional card acceptance and ATM management agreements with banks;
our ability to obtain required licenses in markets we intend to enter or expand services;
our ability to enter into sponsorship agreements;
our ability to enter into and renew ATM network cash supply agreements with financial institutions;
the availability of financing for expansion;
our ability to efficiently to install ATMs contracted under newly awarded outsourcing agreements;
our ability to renew existing contracts at profitable rates;
our ability to maintain pricing at current levels or mitigate price reductions in certain markets;
the impact of changes in rules imposed by international card organizations such as Visa and Mastercard on card transactions on ATMs, including reductions in ATM interchange fees;fees, restrictions on the ability to apply direct access fees, the ability to offer DCC transactions on ATMs, and increases in fees charged on DCC transactions;
the impact of changes in laws and regulations affecting the profitability of our services, including regulation of DCC transactions or ATM access fees by the E.U.;
our ability to expand and sign additional customers for the cross-border merchant processing and acquiring business; and
the continued development and implementation of our software products and their ability to interact with other leading products.
We consistently evaluate and add prospects to our list of potential ATM outsource customers. However, we cannot predict the increase or decrease in the number of ATMs we manage under outsourcing agreements because this depends largely on the willingness of banks to enter into outsourcing contracts with us. Due to the thorough internal reviews and extensive negotiations conducted by existing and prospective banking customers in choosing outsource vendors, the process of entering into or renewing outsourcing agreements can take several months. The process is further complicated by the legal and regulatory considerations of local countries. These agreements tend to cover large numbers of ATMs, so significant increases and decreases in our pool of managed ATMs could result from the acquisition or termination of one or more of these management contracts. Therefore, the timing of both current and new contract revenues is uncertain and unpredictable.
Software products are an integral part of our product lines, and our investment in research, development, delivery and customer support reflects our ongoing commitment to an expanded customer base.
epay Segment — The continued expansion and development of the epay Segment business will depend on various factors, including, but not necessarily limited to, the following:
our ability to maintain and renew existing agreements, and to negotiate new agreements in additional markets with mobile operators, digital content providers, agent financial institutions and retailers;
our ability to use existing expertise and relationships with mobile operators, digital content providers and retailers to our advantage;
the continued use of third-party providers such as ourselves to supply electronic processing solutions for existing and additional digital content;
the development of mobile phone networks in the markets in which we do business and the increase in the number of mobile phone users;
the overall pace of growth in the prepaid mobile phone and digital content market, including consumer shifts between prepaid and postpaid services;services and moves by mobile operators to sell prepaid mobile airtime directly to consumers;
the effect of competition among mobile operators on the cost of mobile data and airtime which results in fewer or less frequent purchases of prepaid mobile airtime by consumers;
our market share of the retail distribution capacity;
the development of new technologies that may compete with POS distribution of prepaid mobile airtime and other products;
the level of commission that is paid to the various intermediaries in the electronic payment distribution chain;
our ability to fully recover monies collected by retailers;
our ability to add new and differentiated products in addition to those offered by mobile operators;
our ability to develop and effectively market additional value added services;
our ability to take advantage of cross-selling opportunities with our EFT Processing and Money Transfer Segments, including providing money transfer services through our distribution network; and
the availability of financing for further expansion.
In all of the markets in which we operate, we are experiencing significant competition which will impact the rate at which we may be able to grow organically. Competition among prepaid mobile airtime and digital content distributors results in the increase of commissions paid to retailers and increases in retailer attrition rates. To grow, we must capture market share from other prepaid mobile airtime and digital content distributors, offer a superior product offering and demonstrate the value of a global network. In certain markets in which we operate, many of the factors that may contribute to rapid growth (growth in electronic paymentdigital media products, expansion of our network of retailers and access to products of mobile operators and other contentdigital media providers) remain present.
Money Transfer Segment — The continued expansion and development of our Money Transfer Segment business will depend on various factors, including, but not necessarily limited to, the following:
the continued growth in worker migration and employment opportunities;
the mitigation of economic and political factors that have had an adverse impact on money transfer volumes, such as changes in the economic sectors in which immigrants work and the developments in immigration policies in the countries in which we operate;
the continuation of the trend of increased use of electronic money transfer and bill payment services among high-income individuals, immigrant workers and the unbanked population in our markets;
our ability to maintain our agent and correspondent networks;
our ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions;
the development of new technologies that may compete with our money transfer network;network, and our ability to acquire, develop and implement new technologies;
the expansion of our services in markets where we operate and in new markets;
our ability to strengthen our brands;
our ability to fund working capital requirements;
our ability to recover from agents funds collected from customers and our ability to recover advances made to correspondents;
our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;
our ability to take advantage of cross-selling opportunities with the epay Segment, including providing prepaid services through our stores and agents worldwide;
our ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to Europe, Asia and Africa, including high growth corridors to Central and Eastern European countries;
the availability of financing for further expansion;
the ability to maintain banking relationships necessary for us to service our customers;
our ability to successfully expand our agent network in Europe using our payment institution licenses under the Payment Services DirectivePSD2 and using our various licenses in the United States; and
our ability to provide additional value-added products under the xe brand.
For all segments, our continued expansion may involve additional acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services. Our ability to effectively manage our growth has required us to expand our operating systems and employee base, particularly at the management level, which has
added incremental operating costs. An inability to continue to effectively manage expansion could have a material adverse effect on our business, growth, financial condition or results of operations. Inadequate technology and resources would impair our ability to maintain current processing technology and efficiencies, as well as deliver new and innovative services to compete in the marketplace.
SEGMENT SUMMARY RESULTS OF OPERATIONS
Revenues and operating income by segment for the three and nine months ended September 30, 20172019 and 20162018 are summarized in the tables below:
| | | | Revenues for the Three Months Ended September 30, | | Year-over-Year Change | | Revenues for the Nine Months Ended September 30, | | Year-over-Year Change | | Revenues for the Three Months Ended September 30, | | Year-over-Year Change | | Revenues for the Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase Percent | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase Percent | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase Percent | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase Percent |
EFT Processing | | $ | 226,321 |
| | $ | 152,586 |
| | $ | 73,735 |
| | 48 | % | | $ | 488,030 |
| | $ | 354,282 |
| | $ | 133,748 |
| | 38 | % | | $ | 316,188 |
| | $ | 261,736 |
| | $ | 54,452 |
| | 21 | % | | $ | 693,837 |
| | $ | 592,333 |
| | $ | 101,504 |
| | 17 | % |
epay | | 184,234 |
| | 167,226 |
| | 17,008 |
| | 10 | % | | 512,531 |
| | 497,945 |
| | 14,586 |
| | 3 | % | | 191,071 |
| | 185,431 |
| | 5,640 |
| | 3 | % | | 551,345 |
| | 528,739 |
| | 22,606 |
| | 4 | % |
Money Transfer | | 228,105 |
| | 204,611 |
| | 23,494 |
| | 11 | % | | 649,205 |
| | 587,664 |
| | 61,541 |
| | 10 | % | | 280,837 |
| | 268,291 |
| | 12,546 |
| | 5 | % | | 814,201 |
| | 768,943 |
| | 45,258 |
| | 6 | % |
Total | | 638,660 |
| | 524,423 |
| | 114,237 |
| | 22 | % | | 1,649,766 |
| | 1,439,891 |
| | 209,875 |
| | 15 | % | | 788,096 |
| | 715,458 |
| | 72,638 |
| | 10 | % | | 2,059,383 |
| | 1,890,015 |
| | 169,368 |
| | 9 | % |
Corporate services, eliminations and other | | (826 | ) | | (398 | ) | | (428 | ) | | 108 | % | | (1,989 | ) | | (1,105 | ) | | (884 | ) | | 80 | % | | (1,110 | ) | | (953 | ) | | (157 | ) | | 16 | % | | (3,021 | ) | | (2,771 | ) | | (250 | ) | | 9 | % |
Total | | $ | 637,834 |
| | $ | 524,025 |
| | $ | 113,809 |
| | 22 | % | | $ | 1,647,777 |
| | $ | 1,438,786 |
| | $ | 208,991 |
| | 15 | % | | $ | 786,986 |
| | $ | 714,505 |
| | $ | 72,481 |
| | 10 | % | | $ | 2,056,362 |
| | $ | 1,887,244 |
| | $ | 169,118 |
| | 9 | % |
| | | | Operating Income (Expense) for the Three Months Ended September 30, | | Year-over-Year Change | | Operating Income (Expense) for the Nine Months Ended September 30, | | Year-over-Year Change | | Operating Income (Expense) for the Three Months Ended September 30, | | Year-over-Year Change | | Operating Income (Expense) for the Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease)Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase (Decrease)Amount | | Increase (Decrease) Percent | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase Percent | | 2019 | | 2018 | | Increase Amount | | Increase (Decrease) Percent |
EFT Processing | | $ | 86,797 |
| | $ | 59,438 |
| | $ | 27,359 |
| | 46 | % | | $ | 137,090 |
| | $ | 100,596 |
| | $ | 36,494 |
| | 36 | % | | $ | 150,901 |
| | $ | 110,399 |
| | $ | 40,502 |
| | 37 | % | | $ | 244,185 |
| | $ | 174,868 |
| | $ | 69,317 |
| | 40 | % |
epay | | 15,650 |
| | 14,795 |
| | 855 |
| | 6 | % | | 44,361 |
| | 46,681 |
| | (2,320 | ) | | (5 | )% | | 20,063 |
| | 16,426 |
| | 3,637 |
| | 22 | % | | 55,617 |
| | 49,650 |
| | 5,967 |
| | 12 | % |
Money Transfer | | 24,356 |
| | 25,183 |
| | (827 | ) | | (3 | )% | | 75,355 |
| | 72,578 |
| | 2,777 |
| | 4 | % | | 35,648 |
| | 34,251 |
| | 1,397 |
| | 4 | % | | 101,768 |
| | 93,316 |
| | 8,452 |
| | 9 | % |
Total | | 126,803 |
| | 99,416 |
| | 27,387 |
| | 28 | % | | 256,806 |
| | 219,855 |
| | 36,951 |
| | 17 | % | | 206,612 |
| | 161,076 |
| | 45,536 |
| | 28 | % | | 401,570 |
| | 317,834 |
| | 83,736 |
| | 26 | % |
Corporate services, eliminations and other | | (9,902 | ) | | (8,948 | ) | | (954 | ) | | 11 | % | | (31,928 | ) | | (28,188 | ) | | (3,740 | ) | | 13 | % | | (12,622 | ) | | (10,163 | ) | | (2,459 | ) | | 24 | % | | (33,589 | ) | | (31,081 | ) | | (2,508 | ) | | 8 | % |
Total | | $ | 116,901 |
| | $ | 90,468 |
| | $ | 26,433 |
| | 29 | % | | $ | 224,878 |
| | $ | 191,667 |
| | $ | 33,211 |
| | 17 | % | | $ | 193,990 |
| | $ | 150,913 |
| | $ | 43,077 |
| | 29 | % | | $ | 367,981 |
| | $ | 286,753 |
| | $ | 81,228 |
| | 28 | % |
Impact of changes in foreign currency exchange rates
Our revenues and local expenses are recorded in the functional currencies of our operating entities and translated into U.S. dollars for financial reporting purposes; therefore, amounts we earn outside the U.S. are negatively impacted by a stronger U.S. dollar and positively impacted by a weaker U.S. dollar. Considering the results by country and the associated functional currency, we estimate that our reported consolidated operating income for the third quarter and the first nine months of 2017 was2019 were approximately 4% and 5% and 1% moreless, respectively, due to the changes in foreign currency exchange rates when compared to the same periods of 2016.2018.
To provide further perspective on the impact of foreign currency exchange rates, the following table shows the changes in values relative to the U.S. dollar of the currencies of the countries in which we have our most significant operations:
|
|
|
| | | Average Translation Rate Three Months Ended September 30, | | Increase (Decrease) Percent | | Average Translation Rate Nine Months Ended September 30, | | Increase (Decrease) Percent | | Average Translation Rate Three Months Ended September 30, | | Decrease Percent | | Average Translation Rate Nine Months Ended September 30, | | Decrease Percent |
Currency (dollars per foreign currency) | | 2017 | | 2016 | | 2017 | | 2016 | | | 2019 | | 2018 | | 2019 | | 2018 | |
Australian dollar | | $ | 0.7896 |
| | $ | 0.7577 |
| | 4 | % | | $ | 0.7661 |
| | $ | 0.7418 |
| | 3 | % | | $ | 0.6852 |
| | $ | 0.7311 |
| | (6 | )% | | $ | 0.6993 |
| | $ | 0.7579 |
| | (8 | )% |
British pound | | $ | 1.3091 |
| | $ | 1.3125 |
| | — | % | | $ | 1.2756 |
| | $ | 1.3931 |
| | (8 | )% | | $ | 1.2326 |
| | $ | 1.3027 |
| | (5 | )% | | $ | 1.2734 |
| | $ | 1.3516 |
| | (6 | )% |
euro | | $ | 1.1754 |
| | $ | 1.1156 |
| | 5 | % | | $ | 1.1136 |
| | $ | 1.1162 |
| | — | % | | $ | 1.1114 |
| | $ | 1.1624 |
| | (4 | )% | | $ | 1.1235 |
| | $ | 1.1944 |
| | (6 | )% |
Hungarian forint | | $ | 0.0038 |
| | $ | 0.0036 |
| | 6 | % | | $ | 0.0036 |
| | $ | 0.0036 |
| | — | % | | $ | 0.0034 |
| | $ | 0.0036 |
| | (6 | )% | | $ | 0.0035 |
| | $ | 0.0038 |
| | (8 | )% |
Indian rupee | | $ | 0.0156 |
| | $ | 0.0149 |
| | 5 | % | | $ | 0.0153 |
| | $ | 0.0149 |
| | 3 | % | | $ | 0.0142 |
| | $ | 0.0143 |
| | (1 | )% | | $ | 0.0143 |
| | $ | 0.0149 |
| | (4 | )% |
Malaysian ringgit | | $ | 0.2347 |
| | $ | 0.2472 |
| | (5 | )% | | $ | 0.2302 |
| | $ | 0.2452 |
| | (6 | )% | | $ | 0.2403 |
| | $ | 0.2444 |
| | (2 | )% | | $ | 0.2420 |
| | $ | 0.2509 |
| | (4 | )% |
New Zealand dollar | | $ | 0.7309 |
| | $ | 0.7221 |
| | 1 | % | | $ | 0.7156 |
| | $ | 0.6922 |
| | 3 | % | | $ | 0.6483 |
| | $ | 0.6684 |
| | (3 | )% | | $ | 0.6640 |
| | $ | 0.6999 |
| | (5 | )% |
Polish zloty | | $ | 0.2762 |
| | $ | 0.2573 |
| | 7 | % | | $ | 0.2613 |
| | $ | 0.2563 |
| | 2 | % | | $ | 0.2573 |
| | $ | 0.2702 |
| | (5 | )% | | $ | 0.2613 |
| | $ | 0.2814 |
| | (7 | )% |
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172019 AND 20162018
EFT PROCESSING SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 20172019 and 20162018 for our EFT Processing Segment: | | | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2017 | | 2016 | | Increase Amount | | Increase Percent | | 2017 | | 2016 | | Increase Amount | | Increase Percent | | 2019 | | 2018 | | Increase Amount | | Increase Percent | | 2019 | | 2018 | | Increase Amount | | Increase Percent |
Total revenues | | $ | 226,321 |
| | $ | 152,586 |
| | $ | 73,735 |
| | 48 | % | | $ | 488,030 |
| | $ | 354,282 |
| | $ | 133,748 |
| | 38 | % | | $ | 316,188 |
| | $ | 261,736 |
| | $ | 54,452 |
| | 21 | % | | $ | 693,837 |
| | $ | 592,333 |
| | $ | 101,504 |
| | 17 | % |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating costs | | 99,024 |
| | 62,401 |
| | 36,623 |
| | 59 | % | | 238,753 |
| | 165,520 |
| | 73,233 |
| | 44 | % | | 111,116 |
| | 101,763 |
| | 9,353 |
| | 9 | % | | 300,460 |
| | 279,927 |
| | 20,533 |
| | 7 | % |
Salaries and benefits | | 16,817 |
| | 12,954 |
| | 3,863 |
| | 30 | % | | 46,125 |
| | 37,601 |
| | 8,524 |
| | 23 | % | | 23,936 |
| | 21,653 |
| | 2,283 |
| | 11 | % | | 64,706 |
| | 57,704 |
| | 7,002 |
| | 12 | % |
Selling, general and administrative | | 8,878 |
| | 7,642 |
| | 1,236 |
| | 16 | % | | 23,960 |
| | 22,154 |
| | 1,806 |
| | 8 | % | | 12,191 |
| | 11,227 |
| | 964 |
| | 9 | % | | 32,022 |
| | 30,557 |
| | 1,465 |
| | 5 | % |
Acquired intangible assets impairment | | — |
| | — |
| | — |
| | n/m |
| | 2,286 |
| | — |
| | 2,286 |
| | n/m |
| |
Depreciation and amortization | | 14,805 |
| | 10,151 |
| | 4,654 |
| | 46 | % | | 39,816 |
| | 28,411 |
| | 11,405 |
| | 40 | % | | 18,044 |
| | 16,694 |
| | 1,350 |
| | 8 | % | | 52,464 |
| | 49,277 |
| | 3,187 |
| | 6 | % |
Total operating expenses | | 139,524 |
| | 93,148 |
| | 46,376 |
| | 50 | % | | 350,940 |
| | 253,686 |
| | 97,254 |
| | 38 | % | | 165,287 |
| | 151,337 |
| | 13,950 |
| | 9 | % | | 449,652 |
| | 417,465 |
| | 32,187 |
| | 8 | % |
Operating income | | $ | 86,797 |
| | $ | 59,438 |
| | $ | 27,359 |
| | 46 | % | | $ | 137,090 |
| | $ | 100,596 |
| | $ | 36,494 |
| | 36 | % | | $ | 150,901 |
| | $ | 110,399 |
| | $ | 40,502 |
| | 37 | % | | $ | 244,185 |
| | $ | 174,868 |
| | $ | 69,317 |
| | 40 | % |
Transactions processed (millions) | | 615 |
| | 488 |
| | 127 |
| | 26 | % | | 1,726 |
| | 1,370 |
| | 356 |
| | 26 | % | | 800 |
| | 711 |
| | 89 |
| | 13 | % | | 2,244 |
| | 2,010 |
| | 234 |
| | 12 | % |
ATMs as of September 30, | | 38,105 |
| | 29,276 |
| | 8,829 |
| | 30 | % | | 38,105 |
| | 29,276 |
| | 8,829 |
| | 30 | % | | 47,209 |
| | 41,902 |
| | 5,307 |
| | 13 | % | | 47,209 |
| | 41,902 |
| | 5,307 |
| | 13 | % |
Average ATMs | | 38,123 |
| | 27,350 |
| | 10,773 |
| | 39 | % | | 36,524 |
| | 25,802 |
| | 10,722 |
| | 42 | % | | 47,086 |
| | 41,761 |
| | 5,325 |
| | 13 | % | | 44,574 |
| | 39,975 |
| | 4,599 |
| | 12 | % |
Revenues
EFT Processing Segment total revenues for the three and nine months ended September 30, 20172019 were $226.3$316.2 million and $488.0$693.8 million, respectively, an increase of $73.7$54.5 million or 48%21% and $133.7$101.5 million or 38%17% as compared to the same periods in 2016.2018, respectively. The increases in total revenues for the three and nine months ended September 30, 20172019 were primarily due to an increase in the number of ATMs under management in Europe.Europe and Asia Pacific. Specifically, the increase in the number of ATMs contributed to increases in the number of transactions processed, including dynamic currency conversion ("DCC") transactions. Forprocessed. The transaction growth includes an increase in value-added transactions on the
three months ended September 30, 2017, revenues were also higher than the same period ATMs and point-of-sale terminals, primarily attributable to increases in the prior year as a result of a higher
volume of sales of POS devices in Greece and the acquisition of YourCash, completed during the fourthDCC transactions due to Visa's rule change to allow our ATMs to provide DCC beginning second quarter of 2016. The acquisition of YourCash also contributed to the increase in total revenues for the first nine months of 2017. The increase for the nine months ended September 30, 2017 was partially offset by the impact of a cash shortage due to the demonetization initiated in the fourth quarter of 2016 in India. In the third quarter, the India cash supply was returned to near pre-demonetization levels.2019, domestic and international surcharge, and foreign currency dispensing. Foreign currency exchange rate movements increaseddecreased total revenues by approximately $10.3$12.7 million for the three months ended September 30, 2017 as compared to the same period in 2016 and had minimal effect on total revenues for the first nine months of 2017 as compared to the same period in 2016.
Average monthly revenues per ATM were $1,979 and $1,485$37.5 million for the three and nine months ended September 30, 2017,2019, respectively, as compared to $1,860the same periods in 2018, respectively.
Average monthly revenues per ATM were $2,238 and $1,526$1,730 for the three and nine months ended September 30, 2016, respectively. The decrease2019, respectively, compared to $2,089 and $1,646 for the three and nine months ended September 30, 2017 was primarily due to the India cash shortage and low-margin ATMs in India.2018, respectively. Revenues per transaction were $0.37$0.40 for the third quarter of 2019 and $0.28$0.31 for the first nine months of 2017, respectively,2019, compared to $0.31$0.37 for the third quarter of 2018 and $0.26$0.29 for the first nine months of 2016, respectively.2018. The increases in revenueaverage monthly revenues per transactionATM for the three and nine months ended September 30, 2019 were primarily the result of revenue growth froman increase in value-added transactions on the ATMs and point-of-sale terminals, including increases in DCC which earns higher revenues per transaction than other ATM or card-based services, which were partially offset by the impacttransactions due to Visa's rule change to allow our ATMs to provide DCC beginning second quarter of the low margin ATM transactions in India.2019, domestic and international surcharge, and foreign currency dispensing.
Direct operating costs
EFT Processing Segment direct operating costs were $99.0$111.1 million and $238.8$300.5 million for the three and nine months ended September 30, 2017,2019, respectively, an increase of $36.6$9.4 million or 59%9% and $73.2$20.5 million or 44%7% as compared to the same periods in 2016.2018, respectively. Direct operating costs in the EFT Processing Segment consist primarily of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications, data center operations-related personnel, as well as the
processing centers’ facility-related costs and other processing center-related expenses and commissions paid to retail merchants, banks and card processors involved with POS DCC transactions. The increases in direct operating costs for the three and nine months ended September 30, 20172019 were primarily due to an increase in the number of ATMs under management, particularly our independent ATM network, which has more seasonal revenue generation andpartly offset by the impact of our acquisition of YourCash. The increase for the three months ended September 30, 2017 was also due to the net impactstrengthening of the U.S. dollar weakening against key foreign currencies.
Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $127.3$205.1 million and $249.3$393.4 million for the three and nine months ended September 30, 2017,2019, respectively, as compared to $90.2$160.0 million and $188.8$312.4 million for the three and nine months ended September 30, 2016,2018, respectively. The increases in gross profit were primarily due to the growth in revenues from the increaseincreases in ATMs under management, DCC transactions, processeddomestic and theinternational surcharge, and foreign currency dispensing. The net impact of the U.S. dollar weakeningstrengthening against key foreign currencies.currencies partly offset the increase in gross profit for the three and nine months ended September 30, 2019. Gross profit as a percentage of revenues (“gross margin”) was 56.2%64.9% and 51.1%56.7% for the three and nine months ended September 30, 2017,2019, respectively, as compared to 59.1%61.1% and 53.3%52.7% for the three and nine months ended September 30, 2016,2018, respectively. The decreasesFor the three and nine months ended September 30, 2019, the increase in gross profit as a percentage of revenue weremargin was primarily attributable to increases in DCC transactions due to increased operating costs dueVisa's rule change to the expansionallow our ATMs to provide DCC beginning second quarter of our ATM network, which includes fixed costs for our independent ATMs, the YourCash transactions which earn lower margins per transaction than other ATM or card-based services in Europe, along with ATM growth in the India market where we earn lower revenue per transaction and have experienced a cash shortage due to the demonetization initiative in the region. For the third quarter, the decrease in gross margins was also attributable to the higher volume of sales of POS devices in Greece from which we earn a lower margin from these transactions.2019.
Salaries and benefits
Salaries and benefits expense increased $3.9$2.3 million or 30%11% and $8.5$7.0 million or 23%12% for the three and nine months ended September 30, 2017,2019, respectively, compared to the same periods in 2016. The increases in salaries and benefits were primarily attributable to additional headcount to support an increase in the number of ATMs and POS devices under management.2018, respectively. As a percentage of revenues, these costs decreased to 7.4%7.6% and 9.3% for the third quarter and 9.5% for the first nine months of 2017,2019, respectively, compared to 8.5%8.3% and 9.7% and for the third quarter of 2018 and 10.6% for the first nine months of 2016,2018, respectively. The decreases in salaries and benefits as a percentage of revenues were primarily due to the growth in revenues earned from DCC and other value added service transactions ondue to Visa's rule change to allow our ATMs under management,to provide DCC beginning second quarter of 2019, domestic and international surcharge, and foreign currency dispensing, which require minimal incremental support costs.
Selling, general and administrative
Selling, general and administrative expenses for the three and nine months ended September 30, 20172019 were $8.9$12.2 million and $24.0$32.0 million, respectively, an increase of $1.2$1.0 million or 16% and $1.8$1.5 million or 8% as compared tofor the same periods in 2016.three and nine months ended September 30, 2018, respectively. The increases in selling, general and administrative expenses were primarily due to an increase in costs to support the impact of our acquisition of YourCash which wasgrowth in the business partly offset by an increase in additional support cost in 2016 that did not recur in 2017.the strengthening of the U.S. dollar against key foreign currencies. As a percentage of revenues, selling, general and administrative expenses were 3.9% and 4.9%4.6% for the three and nine months ended September 30, 2017,2019, respectively, compared to 5.0%4.3% and 6.3%5.2% for the three and nine months ended September 30, 2016,2018, respectively. The decreases in selling, general and administrative expenses as a percentage of revenues were primarily attributable to the increases in the number of DCC transactions processed due to the growth in revenues earned from DCC and other value added service transactions onVisa's rule change to allow our ATMs under management,to provide DCC beginning second quarter of 2019, domestic and international surcharge, and foreign currency dispensing, which did not require minimal incrementalsimilar increases in support costs.
Acquired intangible assets impairment
The Company recorded a non-cash impairment charge of $2.3 million for the nine months ended September 30, 2017 related to certain customer relationships as a result of the closure of the Pure Commerce office in South Korea. No impairment charges were recorded in 2016.
Depreciation and amortization
Depreciation and amortization expense increased $4.7$1.4 million and $11.4$3.2 million for the three and nine months ended September 30, 2017,2019, respectively, compared to the same periods in 2016.2018, respectively. The increases were primarily attributable to the deployment of additional ATMs under management including more expensive cash recycling ATMs,and software assets, and the amortization of intangible assets related to the acquisition of YourCash.assets. As a percentage of revenues, depreciation and amortization expense was 6.5%5.7% and 7.6% for the third quarter and 8.2% for the first nine months of 20172019, respectively, as compared to 6.7%6.4% and 8.0%8.3% for the same periods of 2016.
2018. The decreases in depreciation and amortization expenses as a percentage of revenues were primarily attributable to the increases in the number of DCC transactions processed due to Visa's rule change to allow our ATMs to provide DCC beginning second quarter of 2019, domestic and international surcharge, and foreign currency dispensing, which did not require similar increases in fixed assets.
Operating income
EFT Processing Segment operating income for the three and nine months ended September 30, 20172019 was $86.8$150.9 million and $137.1$244.2 million, respectively, an increase of $27.4$40.5 million or 46%37% and $36.5$69.3 million or 36%40% as compared to the same periods in 2016.2018, respectively. EFT Processing Segment operating income for the three and nine months ended September 30, 20172019 increased primarily due to higher operating revenues fromincreases in the additionalnumber of DCC transactions due to Visa's rule change to allow our ATMs to provide DCC beginning second quarter of 2019, domestic and international surcharge, and foreign currency dispensing as a result of the increased number of ATMs, under management,partly offset by the YourCash acquisition, growth in revenues earned from DCC transactions and the net impact of the strengthening of the U.S. dollar weakening against key foreign currencies.
Operating income as a percentage of revenues (“operating margin”) was 38.4%47.7% and 35.2% for the third quarter and 28.1% for the first nine months of 20172019, respectively, compared to 39.0%42.2% and 29.5% for the same periods of 2018. The increase in operating margin was primarily due to higher revenues partially offset by higher operating expenses incurred to support the increased revenues and additional ATMs under management. Operating income per transaction was $0.19 and $0.11 for the third quarter and 28.4% for the first nine months of 2016. The slight decreases in operating margins were attributable to additional costs for ATMs added throughout the year and the impact of lower margin ATM transactions for YourCash and in India. Operating income per transaction was $0.14 for the third quarter and $0.08 for the first nine months of 20172019 as compared to $0.12$0.16 and $0.07$0.09 for the same periods of 2016.2018.
EPAY SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 20172019 and 20162018 for our epay Segment:
| | | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase (Decrease)Amount | | Increase (Decrease)Percent | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2019 | | 2018 | | Increase (Decrease)Amount | | Increase (Decrease)Percent |
Total revenues | | $ | 184,234 |
| | $ | 167,226 |
| | $ | 17,008 |
| | 10 | % | | $ | 512,531 |
| | $ | 497,945 |
| | $ | 14,586 |
| | 3 | % | | $ | 191,071 |
| | $ | 185,431 |
| | $ | 5,640 |
| | 3 | % | | $ | 551,345 |
| | $ | 528,739 |
| | $ | 22,606 |
| | 4 | % |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating costs | | 143,023 |
| | 128,212 |
| | 14,811 |
| | 12 | % | | 393,269 |
| | 379,423 |
| | 13,846 |
| | 4 | % | | 145,410 |
| | 142,665 |
| | 2,745 |
| | 2 | % | | 419,362 |
| | 403,010 |
| | 16,352 |
| | 4 | % |
Salaries and benefits | | 13,955 |
| | 13,352 |
| | 603 |
| | 5 | % | | 39,606 |
| | 38,052 |
| | 1,554 |
| | 4 | % | | 15,188 |
| | 14,491 |
| | 697 |
| | 5 | % | | 44,939 |
| | 43,235 |
| | 1,704 |
| | 4 | % |
Selling, general and administrative | | 9,145 |
| | 8,133 |
| | 1,012 |
| | 12 | % | | 27,628 |
| | 25,291 |
| | 2,337 |
| | 9 | % | | 8,838 |
| | 9,968 |
| | (1,130 | ) | | (11 | )% | | 26,314 |
| | 27,191 |
| | (877 | ) | | (3 | )% |
Depreciation and amortization | | 2,461 |
| | 2,734 |
| | (273 | ) | | (10 | )% | | 7,667 |
| | 8,498 |
| | (831 | ) | | (10 | )% | | 1,572 |
| | 1,881 |
| | (309 | ) | | (16 | )% | | 5,113 |
| | 5,653 |
| | (540 | ) | | (10 | )% |
Total operating expenses | | 168,584 |
| | 152,431 |
| | 16,153 |
| | 11 | % | | 468,170 |
| | 451,264 |
| | 16,906 |
| | 4 | % | | 171,008 |
| | 169,005 |
| | 2,003 |
| | 1 | % | | 495,728 |
| | 479,089 |
| | 16,639 |
| | 3 | % |
Operating income | | $ | 15,650 |
| | $ | 14,795 |
| | $ | 855 |
| | 6 | % | | $ | 44,361 |
| | $ | 46,681 |
| | $ | (2,320 | ) | | (5 | )% | | $ | 20,063 |
| | $ | 16,426 |
| | $ | 3,637 |
| | 22 | % | | $ | 55,617 |
| | $ | 49,650 |
| | $ | 5,967 |
| | 12 | % |
Transactions processed (millions) | | 293 |
| | 314 |
| | (21 | ) | | (7 | )% | | 901 |
| | 949 |
| | (48 | ) | | (5 | )% | | 398 |
| | 284 |
| | 114 |
| | 40 | % | | 1,105 |
| | 805 |
| | 300 |
| | 37 | % |
Revenues
epay Segment total revenues for the three and nine months ended September 30, 20172019 were $184.2$191.1 million and $512.5$551.3 million, respectively, an increase of $17.0$5.6 million or 10% and $14.6$22.6 million or 3% as compared to the same periods in 2016.2018, respectively. The increases in total revenues were primarily due to an increase in the number of non-mobilepromotional digital media transactions processed in Germany, an increase in vouchers distributedfulfilled by our cadooz subsidiary followingthat were recorded on a gross value basis and an increase in the acquisitionnumber of new customers and the net impact of of the U.S. dollar weakening against key foreign currencies.digital media transactions processed. Foreign currency exchange rate movements increaseddecreased total revenues by approximately $7.6$6.8 million for the three months ended September 30, 2017 compared to the same period in 2016third quarter of 2019 and had minimal effect on total revenues$27.7 million for the first nine months of 20172019 as compared to the same periodperiods in 2016. The increases in total revenues were partially offset by the decrease in prepaid mobile transactions processed in the U.S. and U.K. due to competitive pressures on prepaid mobile carriers and the result of high promotion driven revenues from non-mobile transactions in a particular market during the prior year which did not recur in the current period.2018, respectively.
Revenues per transaction were $0.63$0.48 for the third quarter and $0.57$0.50 for the first nine months of 20172019 compared to $0.53$0.65 and $0.52$0.66 for the same periods in 2016.2018, respectively. The increases in revenues per transaction were primarily driven by the revenue growth from non-mobile transactions processed, for which we generally earn higher revenues per transaction than mobile transactions and the net impact of the U.S. dollar weakening against key foreign currencies. The increasedecrease in revenues per transaction was also favorably impacted byprimarily the lossresult of the increase in a high-volume, low-margin customerhigh volume of low-value transactions processed in the Middle East.
India.
Direct operating costs
epay Segment direct operating costs were $143.0$145.4 million and $393.3$419.4 million for the three and nine months ended September 30, 2017,2019, respectively, an increase of $14.8$2.7 million and $13.8$16.4 million as compared to the same periods in 2016.2018, respectively. Direct operating costs in our epay Segment include the commissions we pay to retail merchants for the distribution and sale of prepaid mobile airtime and other prepaid products, expenses incurred to operate POS terminals and the cost of vouchers sold and physical gifts fulfilled. The increases in direct operating costs for the third quarter and first nine months of 2019 were primarily due to the increaseincreases in vouchers distributedpromotional digital media transactions fulfilled by our cadooz subsidiary and non-mobile transactions processed in Germany. The increase forcommission paid to wholesalers partially offset by the three months ended September 30, 2017 was also partly due to the net impact of the U.S. dollar weakeningstrengthening against key foreign currencies.
Gross profit
Gross profit was $41.2$45.7 million and $119.3$132.0 million for the three and nine months ended September 30, 2017,2019, respectively, as compared to $39.0$42.8 million and $118.5$125.7 million for the three and nine months ended September 30, 2016,2018, respectively. The increases in gross profit were primarily due to the growth in non-mobiledigital media transactions processed, in Germany partly offset by a decrease in promotional activities for non-mobileprepaid mobile transactions processed in a particular market. For the third quarter, the increase was also partly due tocertain markets and the net impact of the U.S. dollar weakeningstrengthening against key foreign currencies.
During the three and nine months ended September 30, 2017,2019, the gross margin was 22.4%essentially flat compared to the same periods in the prior year. Gross margin was 23.9% for both the three and 23.3%,nine months ended September 30, 2019, as compared to 23.3%23.1% and 23.8% for the same periods in 2016. The decreases in gross margins for the third quarter were impacted by lower gross margins realized on voucher distributions and the result of high promotion driven revenues from non-mobile transactions in a particular market during the prior year which did not recur in the current period.2018, respectively.
Salaries and benefits
Salaries and benefits expense increased slightly$0.7 million or 5% and $1.7 million or 4% for the three and nine months ended September 30, 20172019, respectively, compared to the same periods in 2016.2018, respectively. The increases were mainly driven by higherincreased headcount in an effort to growsupport growth in the segment. As a percentage of revenues, salaries and benefits were 7.6%7.9% and 7.7%8.2% for the three and nine months ended September 30, 2017, as compared to 8.0%2019, respectively, which were generally consistent with 7.8% and 7.6%8.2% for the same periods in 2016.2018, respectively.
Selling, general and administrative
Selling, general and administrative expenses were $9.1$8.8 million and $27.6$26.3 million for the three and nine months ended September 30, 2017,2019, respectively, an increasea decrease of 12%11% and 9%3% as compared to the same periods in 2016. The increases in selling, general and administrative expenses were mainly due to increased promotional cost for our non-mobile products in Germany and other costs related to the settlement of disputes in certain foreign markets.2018, respectively. As a percentage of revenues, selling, general and administrative expenses were 5.0%4.6% and 5.4%4.8% for the three and nine months ended September 30, 2017, respectively, as2019 compared to 4.9%5.4% and 5.1% for the same periods in 2016.2018, respectively. The decreases in selling, general and administrative expenses and as a percentage of revenues for both the three and nine months ended September 30, 2019 were mainly due to cost control efforts.
Depreciation and amortization
Depreciation and amortization expense primarily represents depreciation of POS terminals we place in retail stores and the amortization of acquired intangible assets. Depreciation and amortization expense decreased slightlywas $1.6 million and $5.1 million for the three and nine months ended September 30, 20172019, respectively, a decrease of 16% and 10% as compared to the same periods in 2016.2018, respectively. The decreases were primarily due to certain intangible assets becoming fully amortized in 2019. As a percentage of revenues, depreciation and amortization expense was 1.3%0.8% and 1.5%0.9% for the three and nine months ended September 30, 2017,2019, respectively, as compared to 1.0% and 1.6% and 1.7%1.1% for the three and nine months ended September 30, 2016,2018, respectively.
Operating income
epay Segment operating income for the three and nine months ended September 30, 20172019 was $15.7$20.1 million and $44.4$55.6 million, respectively, an increase of $0.9$3.6 million and a decrease of $2.3$6.0 million as compared to the same periods in 2016.2018, respectively. Operating income for the nine months ended September 30, 2017 decreased as the result of additional cost to support the transaction growth of our non-mobile products in Germany and a decrease in promotion driven revenues from non-mobile transactions, partly offset by an increase in gross profit from non-mobile products in Germany. Operating income for the three months ended September 30, 2017 improved as a result of increased gross profit from non-mobile products in Germany, along with the net impact of the U.S. dollar weakening against key foreign currencies, partly offset by the decrease in promotion driven revenues from non-mobile transactions processed in a particular market.
Operating margin decreased to 8.5% and 8.7% for the three and nine months ended September 30, 2017, respectively, from 8.8% and 9.4% for2019 improved as a result of the same periodsincrease in 2016. the portion of higher-margin digital media transactions.
Operating income per transaction was $0.05margin for the three and nine months ended September 30, 20172019 was 10.5% and 2016,10.1%, respectively, as compared to the 8.9% and 9.4% for the same periods in 2018, respectively. The increases were primarily driven by an increase in the percentage of revenues from digital media products which earn a higher margin than mobile transactions. Operating income per transaction decreased to $0.05 for both the three and nine months ended September 30, 2019, respectively, from $0.06 for both the same periods in 2018, respectively. The decreases in the three and nine months ended September 30, 2019 were primarily due to the increase in high volume, low margin transactions processed in India.
MONEY TRANSFER SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 20172019 and 20162018 for the Money Transfer Segment:
| | | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase Amount | | Increase Percent | | 2019 | | 2018 | | Increase Amount | | Increase Percent | | 2019 | | 2018 | | Increase (Decrease)Amount | | Increase Percent |
Total revenues | | $ | 228,105 |
| | $ | 204,611 |
| | $ | 23,494 |
| | 11 | % | | $ | 649,205 |
| | $ | 587,664 |
| | $ | 61,541 |
| | 10 | % | | $ | 280,837 |
| | $ | 268,291 |
| | $ | 12,546 |
| | 5 | % | | $ | 814,201 |
| | $ | 768,943 |
| | $ | 45,258 |
| | 6 | % |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating costs | | 123,588 |
| | 109,944 |
| | 13,644 |
| | 12 | % | | 348,724 |
| | 309,706 |
| | 39,018 |
| | 13 | % | | 149,663 |
| | 144,758 |
| | 4,905 |
| | 3 | % | | 435,901 |
| | 412,895 |
| | 23,006 |
| | 6 | % |
Salaries and benefits | | 44,110 |
| | 38,365 |
| | 5,745 |
| | 15 | % | | 125,273 |
| | 114,582 |
| | 10,691 |
| | 9 | % | | 51,555 |
| | 48,945 |
| | 2,610 |
| | 5 | % | | 155,424 |
| | 145,420 |
| | 10,004 |
| | 7 | % |
Selling, general and administrative | | 28,648 |
| | 23,924 |
| | 4,724 |
| | 20 | % | | 77,912 |
| | 68,930 |
| | 8,982 |
| | 13 | % | | 35,820 |
| | 32,483 |
| | 3,337 |
| | 10 | % | | 96,660 |
| | 93,610 |
| | 3,050 |
| | 3 | % |
Depreciation and amortization | | 7,403 |
| | 7,195 |
| | 208 |
| | 3 | % | | 21,941 |
| | 21,868 |
| | 73 |
| | — | % | | 8,151 |
| | 7,854 |
| | 297 |
| | 4 | % | | 24,448 |
| | 23,702 |
| | 746 |
| | 3 | % |
Total operating expenses | | 203,749 |
| | 179,428 |
| | 24,321 |
| | 14 | % | | 573,850 |
| | 515,086 |
| | 58,764 |
| | 11 | % | | 245,189 |
| | 234,040 |
| | 11,149 |
| | 5 | % | | 712,433 |
| | 675,627 |
| | 36,806 |
| | 5 | % |
Operating income | | $ | 24,356 |
| | $ | 25,183 |
| | $ | (827 | ) | | (3 | )% | | $ | 75,355 |
| | $ | 72,578 |
| | $ | 2,777 |
| | 4 | % | | $ | 35,648 |
| | $ | 34,251 |
| | $ | 1,397 |
| | 4 | % | | $ | 101,768 |
| | $ | 93,316 |
| | $ | 8,452 |
| | 9 | % |
Transactions processed (millions) | | 23.9 |
| | 21.3 |
| | 2.6 |
| | 12 | % | | 67.4 |
| | 60.5 |
| | 6.9 |
| | 11 | % | | 29.3 |
| | 27.8 |
| | 1.5 |
| | 5 | % | | 84.8 |
| | 79.0 |
| | 5.8 |
| | 7 | % |
Revenues
Money Transfer Segment total revenues for the three and nine months ended September 30, 20172019 were $228.1$280.8 million and $649.2$814.2 million, respectively, an increase of $23.5$12.5 million or 11%5% and $61.5$45.3 million or 10%6% as compared to the same periods in 2016.2018. The increases in total revenues for the three and nine months ended September 30, 20172019 were primarily due to increasesan increase in the number of money transfers processed, driven by growth in the U.S. and foreign agent and correspondent payout networks, and an increase in transactions in our domestic Walmart-2-Walmart money transfer service. These increases were partly offsetnetworks. Foreign currency exchange rate movements decreased total revenues by approximately $5.4 million for the reduced rates for our Walmart-2-Walmart product beginning in the secondthird quarter of 2017,2019 and $22.5 million for the effectsfirst nine months of 2019 as compared to the hurricanessame periods in Texas, Florida and Puerto Rico and a decrease in transactions processed by HiFX as a result of currency volatility from the Brexit vote during the prior year which did not recur in the current period.2018.
Revenues per transaction decreased to $9.54$9.58 and $9.60 for the third quarter and $9.63 for the first nine months of 20172019, respectively, from $9.61$9.65 and $9.73 for the third quarter and $9.71 for the first nine months of 2016.same periods in 2018. The decreases were primarily due to the impact of the increase in volume from our Walmart money transfer product, which earns lower revenues per transaction than other money transfer services and reduced rates charged for the Walmart-2-Walmart product beginning in the second quarter of 2017. In the fourth quarter of 2016, the Company took over the processing of xe money transfers from a third party and began recording the full customer fees as revenues, which partly offset the decreases in revenues per transaction.U.S. dollar strengthening against key foreign currencies.
Direct operating costs
Money Transfer Segment direct operating costs were $123.6$149.7 million and $348.7$435.9 million for the three and nine months ended September 30, 2017,2019, respectively, an increase of $13.6$4.9 million or 12%3% and $39.0$23.0 million or 13%6% as compared to the same periods in 2016.2018. Direct operating costs in the Money Transfer Segment primarily consist of commissions paid to agents who originate money transfers on our behalf and correspondent agents who disburse funds to the customers’ destination beneficiaries, together with less significant costs, such as bank depository fees. The increases in direct operating costs for the three and nine months of 20172019 were primarily due to growth in the number of money transfer transactions processed in both the U.S. and foreign markets.
Gross profit
Gross profit was $104.5$131.2 million and $300.5$378.3 million for the three and nine months ended September 30, 2017,2019, respectively, as compared to $94.7$123.5 million and $278.0$356.0 million for the three and nine months ended September 30, 2016,2018, respectively. The increases in gross profit were primarily due to growth in the number of money transfer transactions processed in both the U.S. and foreign markets.
During the three and nine months ended September 30, 2017,2019, gross margin decreasedremained flat at 46.7% and 46.5%, respectively, as compared to 45.8%46.0% and 46.3% for the same periods in 2018, respectively.
Salaries and benefits
Salaries and benefits expense increased $2.6 million or 5% and $10.0 million or 7% for the three and nine months ended September 30, 2017, respectively, as compared to 46.3% and 47.3% for the three and nine months ended September 30, 2016, respectively. The decreases are primarily due to the growth of our Walmart money transfer product in the U.S., which earns a lower gross profit per transaction than other money transfer services and reduced rates charged for the Walmart-2-Walmart product beginning in the second quarter of 2017.
Salaries and benefits
Salaries and benefits expense increased $5.7 million or 15% and $10.7 million or 9% for the three and nine months ended September 30, 2017,2019, respectively, as compared to the same periods in 2016.2018. The increases in salaries and benefits were primarily due to the expansion of our operations in the U.S. and foreign markets. As a percentage of revenues, salaries and benefits were 19.3%essentially flat at 18.4% and 19.1% for the three and nine months ended September 30, 2017,2019, respectively, as compared to 18.8%18.2% and 19.5%18.9% for the three and nine months ended September 30, 2016same periods in 2018, respectively.
Selling, general, and administrative
Selling, general and administrative expenses for the three and nine months ended September 30, 20172019 were $28.6$35.8 million and $77.9$96.7 million, respectively, an increase of $4.7$3.3 million or 20%10% and $9.0$3.1 million or 13%3% as compared to the same periods of 2018, respectively. The increase in 2016. The increases werethe third quarter of 2019 was primarily due to the increase in expenses incurred to support double digit growth in U.S. outbound and international originated remittances, partially offset by limited growth from the growth of our money transfer servicesxe business stemming from Brexit uncertainties and the expansionpreviously announced decline in U.S. domestic transfers as a result of new products in both the U.S. and foreign markets.additional ID requirements on domestic transactions.
As a percentage of revenues, selling, general and administrative expenses increased to 12.6%were 12.8% and 12.0%11.9% for the three and nine months ended September 30, 2017,2019, respectively, as compared to 11.7%12.1% and 12.2% for both of the same periods in 2016. This2018, respectively. For the third quarter of 2019, the increase in selling, general and administrative expenses as a percentage of revenues was primarily due to the increase in expenses to support double digit growth ratein U.S. outbound and international originated remittances, partially offset by limited growth from the xe business stemming from Brexit uncertainties and the previously announced decline in U.S. domestic transfers as a result of support costs exceedingadditional ID requirements on domestic transactions. For the growth ratefirst nine months of 2019, the decrease on selling, general and administrative expenses as a percentage of revenue was primarily due to increases in the number of money transfer revenues as we develop and promote expanded payout locations and new products.transfers processed, which require minimal incremental support costs.
Depreciation and amortization
Depreciation and amortization primarily represents amortization of acquired intangible assets and depreciation of money transfer terminals, computers and software, leasehold improvements and office equipment. Depreciation and amortization expense was essentially flatincreased $0.3 million or 4% and $0.7 million or 3% for the three and nine months ended September 30, 20172019, respectively, as compared to the same periods in 2016.2018, largely due to the increased capital additions as a result of business growth.
As a percentage of revenues, depreciation and amortization expense was 3.2%2.9% for the third quarter of 2019 and 3.4%3.0% for the first nine months of 2017 as2019, which was essentially unchanged compared to 3.5%2.9% and 3.7%3.1% for the same periods of 2016. The decreases were primarily due to the effect of revenues earned from our Walmart money transfer product, which requires less capital investment than other money transfer products.2018, respectively.
Operating income
Money Transfer Segment operating income for the three and nine months ended September 30, 20172019 was $24.4$35.6 million and $75.4$101.8 million, a decrease of $0.8 million or 3% andrespectively, an increase of $2.8$1.4 million or 4% and $8.5 million or 9% as compared to the same periods of 2016.2018, respectively. Operating income for the three months ended September 30, 2017 decreased primarily as a result of the the reduced rates for our Walmart-2-Walmart product, the effects of the hurricanes in Texas, Florida and Puerto Rico and additional salaries and benefits and other costs incurred to support the current and future growth in the business. Operating income for the nine months ended September 30, 20172019 increased primarily due to the growth in the number of money transfers processed. The increase wasprocessed partly offset by the additional salaries and benefits and other costs incurred, reduced rates for Walmart-2-Walmart transfer services as well as increased transactions processed by HiFX as a result of the Brexit vote in the prior period, which did not recur in the current period.incurred.
As a percentage of revenues, operating margin was 10.7%12.7% and 11.6%12.5% for the three and nine months ended September 30, 20172019, respectively, as compared to 12.3%12.8% and 12.4%12.1% for the same periods in 2016.2018, respectively. Operating income per transaction decreasedwas $1.22 and $1.20 for the three and nine months ended September 30, 2019, respectively, as compared to $1.02$1.23 and $1.18 for the same periods in 2018, respectively. The decreases in operating margin and operating income per transaction for the third quarter of 2019 were primarily due to the increase in expenses to support double digit U.S. outbound and $1.12international originated remittances, partially offset by limited growth from the xe business stemming from Brexit uncertainties and the previously announced decline in U.S. domestic transfers as a result of additional ID requirements on domestic transactions. The increases in operating margin and operating income per transaction for the first nine months of 2017 from $1.18 and $1.20 for the same periods in 2016. Operating margin and operating income per transaction decreased2019 were primarily due to the decrease in margin realized with the renewal of the Walmart-2-Walmart agreement and the additional salaries and benefits and other costs incurred to support the growth in the business.
number of money transfers processed which did not require similar increases in support costs.
CORPORATE SERVICES
The following table presents the operating expenses for the three and nine months ended September 30, 20172019 and 20162018 for Corporate Services:
|
|
|
| | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change | | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Salaries and benefits | | $ | 7,252 |
| | $ | 7,228 |
| | $ | 24 |
| | — | % | | $ | 21,613 |
| | $ | 22,739 |
| | $ | (1,126 | ) | | (5 | )% | | $ | 10,675 |
| | $ | 8,019 |
| | $ | 2,656 |
| | 33 | % | | $ | 27,630 |
| | $ | 24,178 |
| | $ | 3,452 |
| | 14 | % |
Selling, general and administrative | | 2,614 |
| | 1,680 |
| | 934 |
| | 56 | % | | 10,219 |
| | 5,303 |
| | 4,916 |
| | 93 | % | | 1,868 |
| | 2,112 |
| | (244 | ) | | (12 | )% | | 5,731 |
| | 6,809 |
| | (1,078 | ) | | (16 | )% |
Depreciation and amortization | | 36 |
| | 40 |
| | (4 | ) | | (10 | )% | | 96 |
| | 146 |
| | (50 | ) | | (34 | )% | | 79 |
| | 32 |
| | 47 |
| | 147 | % | | 228 |
| | 94 |
| | 134 |
| | 143 | % |
Total operating expenses | | $ | 9,902 |
| | $ | 8,948 |
| | $ | 954 |
| | 11 | % | | $ | 31,928 |
| | $ | 28,188 |
| | $ | 3,740 |
| | 13 | % | | $ | 12,622 |
| | $ | 10,163 |
| | $ | 2,459 |
| | 24 | % | | $ | 33,589 |
| | $ | 31,081 |
| | $ | 2,508 |
| | 8 | % |
Corporate operating expenses
Overall, operating expenses for Corporate Services were $9.9$12.6 million and $31.9$33.6 million for the three and nine months ended September 30, 2017,2019, respectively, an increase of 11%24% and 13% as8% when compared to the same periods in 2016.2018, respectively. The decrease in salaries and benefits for the first nine months of 2017 was primarily due to a decrease in bonus expense related to the Company's performance relative to its targets. The increases in selling, general and administrative expenses were primarily attributable to professional services and other costs incurredan increase in connection with the proposed acquisition of MoneyGram International, Inc.bonus expense due to our improved operating results compared to targets.
OTHER INCOME (EXPENSE), NET |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2019 | | 2018 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Interest income | | $ | 568 |
| | $ | 288 |
| | $ | 280 |
| | 97 | % | | 1,424 |
| | 1,000 |
| | 424 |
| | 42 | % |
Interest expense | | (9,093 | ) | | (11,269 | ) | | 2,176 |
| | (19 | )% | | (27,321 | ) | | (28,936 | ) | | 1,615 |
| | (6 | )% |
Loss on early retirement of debt
| | — |
| | — |
| | — |
| | n/m |
| | (9,831 | ) | | — |
| | (9,831 | ) | | n/m |
|
Foreign currency exchange loss, net | | (10,967 | ) | | (2,704 | ) | | (8,263 | ) | | n/m |
| | (7,880 | ) | | (21,459 | ) | | 13,579 |
| | n/m |
|
Loss from unconsolidated affiliates | | — |
| | — |
| | — |
| | n/m |
| | — |
| | (117 | ) | | 117 |
| | n/m |
|
Other (loss) gains | | — |
| | (34 | ) | | 34 |
| | n/m |
| | (4 | ) | | 26 |
| | (30 | ) | | n/m |
|
Other expense, net | | $ | (19,492 | ) | | $ | (13,719 | ) | | $ | (5,773 | ) | | n/m |
| | $ | (43,612 | ) | | $ | (49,486 | ) | | $ | 5,874 |
| | n/m |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Year-over-Year Change | | Nine Months Ended September 30, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Interest income | | $ | 380 |
| | $ | 349 |
| | $ | 31 |
| | 9 | % | | 2,009 |
| | 1,244 |
| | 765 |
| | 61 | % |
Interest expense | | (9,534 | ) | | (7,724 | ) | | (1,810 | ) | | 23 | % | | (25,058 | ) | | (20,968 | ) | | (4,090 | ) | | 20 | % |
Foreign currency exchange gain (loss), net | | 8,179 |
| | (1,527 | ) | | 9,706 |
| | n/m |
| | 21,035 |
| | (1,299 | ) | | 22,334 |
| | n/m |
|
Other gains | | — |
| | — |
| | — |
| | n/m |
| | 35 |
| | 19,903 |
| | (19,868 | ) | | n/m |
|
Other expense, net | | $ | (975 | ) | | $ | (8,902 | ) | | $ | 7,927 |
| | (89 | )% | | $ | (1,979 | ) | | $ | (1,120 | ) | | $ | (859 | ) | | 77 | % |
________________n/m — Not meaningful
Interest income
The increases in interest income for the three and nine months ended September 30, 20172019 when compared to the same periods in 20162018 were primarily due to the interest earned on a tax refundfrom the immediate proceeds we received in Indiafrom the issuance of Convertible Notes and the Senior Notes before they were fully utilized in the first quarter of 2017.business.
Interest expense
The increasesdecreases in interest expense for the three and nine months ended September 30, 20172019 when compared to the same periods in 20162018 were primarily related to higher interest rates and additional borrowings under the Credit Facility throughoutlower weighted average borrowing rates.
Loss on early retirement of debt
The increase in loss on early retirement of debt for the third quarter and first nine months of 20172019 when compared to fund the operating cash for our Independent ATM Deployed (“IAD”) networks.same period in 2018 was due to the early retirement of the Retired Convertible Notes that were scheduled to mature in 2044 on May 28, 2019.
Foreign currency exchange (loss) gain, (loss), net
Foreign currency exchange activity includes gains and losses on certain foreign currency exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies. Assets and liabilities denominated in currencies other than the local currency of each of our subsidiaries give rise to foreign currency exchange gains and losses. Foreign currency exchange gains and losses that result from remeasurement of these assets and liabilities are recorded in net income. The majority of our foreign currency exchange gains or losses are due to the remeasurement of the change in USD value of our euro-denominated Senior Notes beginning second quarter of 2019 and intercompany loans which are not considered a long-term investment in nature and are in a currency other than the functional currency of one of the parties to the loan. For example, we make intercompany loans based in euros from our corporate division, which is composed of U.S. dollar functional currency entities, to certain European entities that use the euro as the functional currency. As the U.S.
dollar strengthens against the euro, foreign currency exchange losses are recognized by our corporate entities because the number of euros to be received in settlement of the loans decreases in U.S. dollar terms. Conversely, in this example, in periods where the U.S. dollar weakens, our corporate entities will record foreign currency exchange gains.
We recorded net foreign currency exchange gainslosses of $8.2$11.0 million and $21.0$7.9 million for the three and nine months ended September 30, 2017,2019, respectively, as compared to a net foreign currency lossexchange losses of $1.5$2.7 million and gain of $1.3$21.5 million for the same periods in 2016.2018, respectively. These realized and unrealized net foreign currency exchange gains and losses reflect the fluctuation in the value of the U.S. dollar against the currencies of the countries in which we operated during the respective periods.
Other gains
The results for the first nine months of 2016 included an investment gain of $19.4 million related to the sale of the sale of our membership in Visa Europe Limited ("Visa Europe") to Visa, Inc. ("Visa") on June 21, 2016.
INCOME TAX EXPENSE
The Company's effective income tax rate was 13.4%21.2% and 19.3%26.0% for both the three and nine months ended September 30, 2019, respectively, as compared to 25.5% and 27.4% for the three and nine months ended September 30, 2017, respectively, as compared to 25.5% and 23.7% for the same periods in 2016.2018, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 20172019 and 20162018 was lowerhigher than the applicable statutory income tax rate of 35% primarily attributable to the release in 201721% as a result of a $16.3 million valuation allowance against certain foreign net deferred tax assets and,earnings of the Company being subject to a lesser extent, the Company's continued U.S.higher local statutory income tax positions. Due to the recent significant year over year and year to date profitability of ATMs under management in Europe, the Company believes certain foreign net deferred tax assets, including net operating loss carryforwards, will more likely than not be realized in future periods. In addition to the foreign valuation allowance release, the Company continues to have significant net operating loss carryforwards in the U.S. with no recent history of taxable income; therefore, the Company has recorded a valuation allowance against its U.S. net deferred tax assets. Accordingly, in instances when the Company generates U.S. GAAP income for the period, no income tax expense is recognized to the extent there are net operating loss carryforwards to offset that income.rates. The decrease in the effective tax rates for 2017the three and nine of 2019 ended September 30, 2019 compared to 2016 isthe same periods in 2018 was largely due to the recognition of tax benefits from income tax return to provision true ups, and a decrease in the statutory rate in India, partially offset by the release of valuation allowance against certain foreign net deferredunrecognized tax assets.benefits in the first half of 2018 from the settlement or expiration of tax audit examinations.
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests represents the elimination of net income or loss attributable to the minority shareholders’ portion of the following consolidated subsidiaries that are not wholly owned: |
| | | | |
Subsidiary | | Percent Owned | | Segment - Country |
Movilcarga | | 95% | | epay - Spain |
Euronet China | | 85% | | EFT - China |
Euronet Pakistan | | 70% | | EFT - Pakistan |
Universal Solution Providers (1)Euronet Infinitium Solutions | | 100%65% | | EFT - UAEIndia |
______________(1) The Company purchased the 49% noncontrolling interest during the three months ended September 30, 2017.
NET INCOME ATTRIBUTABLE TO EURONET
Net income attributable to Euronet was $100.3137.6 million and $179.8$240.3 million for the three and nine months ended September 30, 2017,2019, respectively, an increase of $39.6$34.9 million and $34.3$67.4 million as compared to the same periods in 2016.2018. The increase in net income for the first nine months of 20172019 was primarily due to an increase in operating income of $33.2$81.2 million, an increase of $22.3a $13.6 million decrease in net foreign currency exchange gains, an increase in interest income of $0.8 millionloss, and a decrease in income taxinterest expense of $2.0 million. The increase was$1.6 million, partly offset by a $19.4$19.2 million gain from the sale of our investment in Visa Europe in 2016 which did not recur in the current period and increase in interestincome tax expense and an increase in loss on early retirement on debt of $4.1$9.8 million.
LIQUIDITY AND CAPITAL RESOURCES
Working capital
As of September 30, 20172019 and December 31, 2016,2018, we had working capital, which is calculated as the difference between total current assets and total current liabilities, of $626.1$1,283 million and $405.9$709 million, respectively. Our ratio of current assets to current liabilities at September 30, 20172019 and December 31, 20162018 was 1.481.88 and 1.34,1.51, respectively. The increase in working capital was primarily due to the ATM cash funded by the long-term debt and improved operating results .
We require substantial working capital to finance operations. In the Money Transfer Segment, we fund the payout of the majority of our consumer-to-consumer money transfer services before receiving the benefit of amounts collected from customers by agents. Working capital needs increase due to weekends, and domestic and international banking holidays. As a result, we may report more or less working capital for the Money Transfer Segment based solely upon the day on which the reporting period ends. The epay Segment produces positive working capital, but much of it is restricted in connection with the administration of its customer collection and vendor remittance activities. In our EFT Processing Segment, we obtain a significant portion of the cash required to operate our ATMs through various cash supply arrangements, the amount of which is not recorded on Euronet's Consolidated Balance Sheets. However, in certainseveral countries, we fund the cash required to operate our ATM network from borrowings under our revolving credit facilities and cash flows from operations. As of September 30, 2017,2019, we had approximately $626$738 million of our own cash in use or designated for use in our ATM network, which is recorded in cash and cash equivalents and trade accounts receivable, for ATM withdrawals pending settlement, on the Consolidated Balance Sheet.
We had cash and cash equivalents of $1,062.2$1,731 million at September 30, 2017,2019, of which $939.1$1,288 million was held outside of the United States and is expected to be indefinitely reinvested for continued use in foreign operations. Repatriation of these assets to the U.S. could have negative tax consequences.
The following table identifies cash and cash equivalents provided by/(used in) our operating, investing and financing activities for the nine month periods ended September 30, 20172019 and 20162018 (in thousands):
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
Liquidity | 2017 | | 2016 | 2019 | | 2018 |
Cash and cash equivalents provided by (used in): | | | | |
Cash and cash equivalents and restricted cash provided by (used in): | | | | |
Operating activities | $ | 230,496 |
| | $ | 217,491 |
| $ | 364,379 |
| | $ | 192,573 |
|
Investing activities | (74,023 | ) | | (55,581 | ) | (104,401 | ) | | (99,369 | ) |
Financing activities | 126,615 |
| | 31,234 |
| 461,632 |
| | 247,087 |
|
Effect of foreign currency exchange rate changes on cash and cash equivalents | 44,739 |
| | 10,634 |
| |
Increase in cash and cash equivalents | $ | 327,827 |
| | $ | 203,778 |
| |
Effect of foreign currency exchange rate changes on cash and cash equivalents and restricted cash | | (57,807 | ) | | (38,084 | ) |
Increase in cash and cash equivalents and restricted cash | | $ | 663,803 |
| | $ | 302,207 |
|
Operating activity cash flow
Cash flows provided by operating activities were $230.5$364.4 million for the first nine months of 20172019 compared to $217.5$192.6 million for the first nine months of 2016.2018. The increase is primarily due to improved operating results, partly offset by fluctuations in working capital, mainly associated with the timing of the settlement processes with content providers in the epay Segment and with correspondents in the Money Transfer Segment.Segment, and improved operating results.
Investing activity cash flow
Cash flows used in investing activities were $74.0$104.4 million for the first nine months of 20172019 compared to $55.6$99.4 million for the first nine months of 2016. The increase is primarily due to increased capital expenditures mainly related to our ATM network expansion and the proceeds of $11.9 million received for the sale of our ownership interest in Visa Europe in 2016.2018. During the first nine months of 2017,2018, we used $70.9$12.9 million for a business acquisition. There was no material acquisition in the first nine months of 2019. We used $100.4 million for purchases of property and equipment compared to $61.6 million duringfor the first nine months of 2016.2019 compared to $82.1 million for the first nine months of 2018. Cash used for software development and other investing activities totaled $3.2$4.0 million and $3.7$4.4 million for the first nine months of 20172019 and 2016,2018, respectively.
Financing activity cash flow
Cash flows provided by financing activities were $126.6$461.6 million for the first nine months of 20172019 compared to $31.2$247.1 million for the first nine months of 2016.2018. Our financing activities for the first nine months of 20172019 consisted of net borrowings of $123.8$514.2 million compared to net debt borrowings of $103.9$417.2 million for the first nine months of 2016.2018. The increase in net borrowings for the first nine months of 20172019 compared to the same period of 20162018 was the result of additional borrowings under the credit facilitiesissuance of $1,195 million of new Convertible Notes and Senior Notes to fund the operating cash of our IAD networks. Additionally,networks, net repayment of $215 million as compared to the $264 million net borrowing on revolving credit facility borrowings, early retirement of the $447 million Retired Convertible Notes, and the $200 million ATM credit facility that we used $3.5 million and $2.0 millionentered into during the first nine months of 2017 and 2016, respectively, for capital lease repayments.2018 which did not recur in the current period. During the first nine months of 2019, we repaid $19 million of short-term debt obligations. We repurchased $2.3$37.3 million and $76.5$177.2 million of our stock during the first nine months of 20172019 and 2016,2018, respectively. During the first nine months of 2017,2019 and 2018, respectively, we repurchased $34.5 million and $175.0 million of our shares, respectively, and paid $2.3$2.8 million and $2.2 million, respectively, for the amount of payroll taxes represented by the common stock withheld on restricted stock vestings and stock option exercises compared to $0.9 million for the same period of 2016.exercises. We received proceeds from stock option exercises of $8.3 million and $5.1$11.8 million for the first nine months of 20172019 and 2016,2018, respectively.
Other sources of capital
Credit Facility - As of September 30, 2017, we hadOn October 17, 2018, the Company entered into a $675 million senior secured$1.0 billion unsecured credit facility that matures on April 9, 2019agreement (the "Credit Facility") consisting of a $590 million revolving credit facility, a $10 million India revolving credit facility and a $75 million term loan ("Term Loan A"), which has been reduced to $53.4 million through principal amortization payments.that expires on October 17, 2023. The revolving credit facilityCredit Facility allows for borrowings in U.S. dollars, euros,Australian Dollars, British pounds, Australian dollars and/or Indian rupeesPounds Sterling, Canadian Dollars, Czech Koruna, Danish Krone, Euros, Hungarian Forints, Japanese Yen, New Zealand Dollars, Norwegian Krone, Polish Zlotys, Swedish Krona, Swiss Francs, and contains a $200 million sublimit for the issuance of letters of credit and a $25 million sublimit for swingline loans. We use the revolving credit facility primarily to fund working capital requirements which are expected to increase as we expand the Money Transfer business and our independent ATM network. Based on our current projected working capital requirements, we anticipate that our revolving credit facility will be sufficient to fund our working capital needs.US Dollars.
As of September 30, 2017,2019, fees and interest on borrowings variedare based upon the Company's consolidated total leverage ratiocorporate credit rating (as defined in the Credit Facility) and are based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over LIBORthe London InterBank Offered Rate ("LIBOR") or a margin over the base rate, as selected by us, with the applicable margin ranging from 1.375%1.125% to 2.375% for LIBOR loans and 0.375%2.0% (or 0.175% to 1.375%1.0% for base rate loans.loans).
As of September 30, 2017,2019, we had borrowings of $53.4 million outstanding under the term loan. We had $191.6$0.7 million of borrowings and $45.1$49.2 million of stand-by letters of credit outstanding under the revolving credit facility as of September 30, 2017.Credit Facility. The remaining $363.3$950.1 million under the revolving credit facilityCredit Facility was available for borrowing. Asborrowing based upon the borrowing base and financial covenants in our Credit Facility.
Convertible debt - On March 18, 2019, we completed the sale of September 30, 2017, the weighted average interest rates under the revolving credit facility and Term Loan A were 3.04% and 2.86%, respectively, excluding amortization of deferred financing costs.
Convertible debt - We have $402.5$525.0 million in principal amount of Convertible Senior Notes due 20442049 (“Convertible Notes”). The Convertible Notes were issued pursuant to an indenture, dated as of March 18, 2019 (the "Indenture"), by and between the Company and U.S. Bank National Association, as trustee. The Convertible Notes have an interest rate of 1.5%0.75% per annum payable semi-annually in AprilMarch and October,September, and are convertible into shares of Euronet Common Stock at a conversion price of approximately $72.18$188.73 per share if certain conditions are met (relating to the closing prices of Euronet Common Stock exceeding certain thresholds for specified periods). During
The Company may not redeem the quarter endedNotes prior to September 30, 2017, a conversion condition was met and the Convertible Notes became convertible at the holders’ option beginning on October 1, 2017 and ending on December 31, 2017.
While the Convertible Notes are convertible during the fourth quarter of 2017, we believe holders are unlikely to exercise their conversion rights, primarily due to the fair value20, 2022. The Company may redeem for cash all or any portion of the Convertible Notes, exceedingat its option, (i) on or after September 20, 2022 if the closing sale price of the Company's Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (ii) on or after March 20, 2025 and prior to the maturity date, regardless of the foregoing sale price condition, in each case at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes.
Additionally, holders have the right to require the Company to repurchase for cash all or part of their conversion value.Convertible Notes on each of March 15, 2025, March 15, 2029, March 15, 2034, March 15, 2039 and March 15, 2044 at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date. In addition, if a fundamental change, as defined in the Indenture, occurs prior to the maturity date, holders may require the Company to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
1.375% Senior Notes due 2026 - On May 22, 2019, the Company completed the sale of €600 million ($669.9 million) aggregate principal amount of the Senior Notes that expire on May 2026 (the “Senior Notes”). The Senior Notes accrue interest at a rate of 1.375% per year, payable annually in arrears commencing May 22, 2020, until maturity or earlier redemption. As of September 30, 2017,2019, the fair valueCompany has outstanding €600 million ($653.9 million) euro-denominated principal amount of the Convertible Notes was $550.5 millionSenior Notes. In addition, the Company may redeem some or all of these notes on or after February 22, 2026 at their principal amount plus any accrued and their conversion value was $528.5 million. However, should any holders exercise their conversion rights, we believe our capital resources are sufficient to satisfy any conversion.unpaid interest.
Additionally, holders of the Convertible Notes have the option to require us to purchase their notes at par on October 1, 2020, and have additional options to require us to purchase their notes at par on October 1, 2024, 2029, 2034, and 2039, or upon a change in control of the Company. In connection with the issuance of the Convertible Notes, we recorded $10.7 million in debt issuance costs, which are being amortized through October 1, 2020.
ATM Facility - On June, 27, 2017, we entered into a short-term credit facility in the amount of $100 million for the sole purpose of providing cash for our ATM network. Interest is charged on this financing on an annual basis at the Overnight LIBOR rate plus 2.0%. The facility expires on November 30, 2017.
Other debt obligations - Certain of our subsidiaries also have available credit lines and overdraft facilities to generally supplement short-term working capital requirements. As of September 30, 2017,2019, there was $24.8$18.8 million outstanding under these other obligation arrangements. Short-term debt obligations, excluding the ATM facility, as of September 30, 2017 were primarily comprised of $24.7 million due in the next twelve months under these other obligation arrangements and $12.2 million of payments due in the next twelve months under the Term Loan A.
Other uses of capital
Capital expenditures and needs - Total capital expenditures, including capital lease expenditures, for the first nine months of 20172019 were $76.8$105.6 million. These capital expenditures were made primarily for the purchase of ATMs to expand our independent ATM network in Europe and Asia, the purchase and installation of ATMs in key under-penetrated markets, the purchase of POS terminals for the epay and Money Transfer Segments, and office, data center and company store computer equipment and software. Total capital expenditures for 20172019 are currently estimated to range from approximately $105$135 million to $115$140 million.
At current and projected cash flow levels, we anticipate that cash generated from operations, together with cash on hand and amounts available under our revolving credit facilityCredit Facility and other existing and potential future financing sources, will be sufficient to meet our debt, leasing and capital expenditure obligations. If our capital resources are not sufficient to meet these obligations, we will seek to refinance our debt and/or issue additional equity under terms acceptable to us. However, we can offer no assurances that we will be able to obtain favorable terms for the refinancing of any of our debt or other obligations or for the issuance of additional equity.
Inflation and functional currencies
Generally, the countries in which we operate have experienced low and stable inflation in recent years. Therefore, the local currency in each of these markets is the functional currency. Currently, we do not believe that inflation will have a significant effect on our results of operations or financial position. We continually review inflation and the functional currency in each of the countries where we operate.
OFF BALANCE SHEET ARRANGEMENTS
On occasion, we grant guarantees of the obligations of our subsidiaries and we sometimes enter into agreements with unaffiliated third parties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. Our liability under such indemnification provisions may be subject to time and materiality limitations, monetary caps and other conditions and defenses. As of September 30, 20172019, there were no material changes from the disclosure in our Annual Report on Form 10-K for the year ended December 31, 20162018. To date, we are not aware of any significant claims made by the indemnified parties or parties to whom we have provided guarantees on behalf of our subsidiaries and, accordingly, no liabilities have been recorded as of September 30, 20172019. See also Note 11,12, Commitments, to the unaudited consolidated financial statements included elsewhere in this report.
CONTRACTUAL OBLIGATIONS
As of September 30, 2017,2019, there have been no material changes outside the ordinary course of business in our future contractual obligations have not changed significantly from the amounts reported within our 2016Annual Report on Form 10-K for the year ended December 31, 2018, other than those resulting from changes in the amount of debt outstanding debt discussed in the Liquidity and Capital Resources section.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
As of September 30, 2017,2019, our total debt outstanding was $736.3$1,107 million. Of this amount, $366.5$1,087 million, net of debt discounts, or 50%98% of our total debt obligations, relates to our Convertible Notes and Senior Notes that each have a fixed coupon rate. Our $402.5The $525 million aggregate principal amount of the Convertible Notes issued in October 2014,on March 18, 2019, accrue cash interest at a rate of 1.5%0.75% of the principal amount per annum. Based on quoted market prices, as of September 30, 2017, theThe fair value of ourthe fixed rate Convertible Notes was $550.5$587.3 million as of September 30, 2019 based on quoted market prices, compared to a carrying value of $366.5$433.3 million. Interest expense for these notes,the Convertible Notes, including accretion and amortization of deferred debt issuance costs, has a weighted average interest rate of 4.7% annually. Additionally, $345.04.4%. The €600 million or 47%aggregate principal amount of the Senior Notes, accrue cash interest at a rate of 1.375% of the principal amount per annum. Based on quoted market prices, as of September 30, 2019, the fair value of our total debt obligations, relatesfixed rate Senior Notes was $659.2 million, compared to debt borrowings under oura carrying value of $653.9 million. The Credit Facility and ATM Facility.borrowings were $0.7 million. If we were to maximize the potential borrowings available under the revolving credit facilityCredit Facility and maintain these borrowings for one year, a 1% (100 basis points) increase in the applicable interest rate would result in additional annual interest expense to the Company of approximately $6.1$9.5 million.
The remaining $24.8$18.8 million, or 3%2%, of our total debt obligations as of September 30, 2019, is related to borrowings by certain subsidiaries to fund, from time to time, working capital requirements. These arrangements generally are due within one year and accrue interest at variable rates.
Additionally, as of September 30, 2017, we had approximately $14.1 million of capitalized leases with fixed payment and interest terms that expire between 2017 and 2021.
Our excess cash is invested in instruments with original maturities of three months or less or in certificates of deposit that may be withdrawn at any time without penalty; therefore, as investments mature and are reinvested, the amount we earn will increase or decrease with changes in the underlying short-term interest rates.
Foreign currency exchange rate risk
For the first nine months of 2017,2019, approximately 74% of our revenues were generated in non-U.S. dollar countries and we expect to continue generating a significant portion of our revenues in countries with currencies other than the U.S. dollar.
We are particularly vulnerable to fluctuations in exchange rates of the U.S. dollar to the currencies of countries in which we have significant operations, primarily the euro, British pound, Australian dollar, Polish zloty, Indian rupee, New Zealand dollar, Malaysian ringgit and Hungarian forint. As of September 30, 20172019, we estimate that a 10% fluctuation in these foreign currency exchange rates would have the combined annualized effect on reported net income and working capital of approximately $140$120 million to $145$125 million. This effect is estimated by applying a 10% adjustment factor to our non-U.S. dollar results from operations, intercompany loans that generate foreign currency exchange gains or losses and working capital balances that require translation from the respective functional currency to the U.S. dollar reporting currency.
Additionally, we have other non-current, non-U.S. dollar assets and liabilities on our balance sheet that are translated to the U.S. dollar during consolidation. These items primarily represent goodwill and intangible assets recorded in connection with acquisitions in countries other than the U.S. We estimate that a 10% fluctuation in foreign currency exchange rates would have a non-cash impact on total comprehensive income of approximately $100$135 million to $105$140 million as a result of the change in value of these items during translation to the U.S. dollar. For the fluctuations described above, a strengthening U.S. dollar produces a financial loss, while a weakening U.S. dollar produces a financial gain.
We believe this quantitative measure has inherent limitations and does not take into account any governmental actions or changes in either customer purchasing patterns or our financing or operating strategies. Because a majority of our revenues and expenses is incurred in the functional currencies of our international operating entities, the profits we earn in foreign currencies are positively impacted by a weakening of the U.S. dollar and negatively impacted by a strengthening of the U.S. dollar. Additionally, a significant portion of our debt obligations are primarily in U.S. dollars; therefore, as foreign currency exchange rates fluctuate, the amount available for repayment of debt will also increase or decrease.
We use derivatives to minimize our exposures related to changes in foreign currency exchange rates and to facilitate foreign currency risk management services by writing derivatives to customers. Derivatives are used to manage the overall market risk associated with foreign currency exchange rates; however, we do not perform the extensive record-keeping required to account for the derivative transactions as hedges. Due to the relatively short duration of the derivative contracts, we use the derivatives primarily as economic hedges. Since we do not designate foreign currency derivatives as hedging instruments pursuant to the accounting standards, we record gains and losses on foreign exchange derivatives in earnings in the period of change.
A majority of our consumer-to-consumer money transfer operations involves receiving and disbursing different currencies, in which we earn a foreign currency spread based on the difference between buying currency at wholesale exchange rates and selling the currency to consumers at retail exchange rates. We enter into foreign currency forward and cross-currency swap contracts to minimize exposure related to fluctuations in foreign currency exchange rates. The changes in fair value related to these contracts are recorded in Foreign currency exchange gain,loss, net on the Consolidated Statements of Income. As of September 30, 2017,2019, we had foreign currency derivative contracts outstanding with a notional value of $244$146 million, primarily in Australian dollars, British pounds, Canadian dollars, euros and Mexican pesos, that were not designated as hedges and mature within a few days.
For derivative instruments our HiFXxe operations write for customers, we aggregate the foreign currency exposure arising from customer contracts, and hedge the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties as part of a broader foreign currency portfolio. The changes in fair value related to the total portfolio of positions are recorded in Revenues on the Consolidated Statements of Income. As of September 30, 2017,2019, we held foreign currency derivative contracts outstanding with a notional value of $1.3 billion, primarily in U.S. dollars, euros, British pounds, Australian dollars and New Zealand dollars, that were not designated as hedges and for which the majority mature within the next twelve months.
We use longer-term foreign currency forward contracts to mitigate risks associated with changes in foreign currency exchange rates on certain foreign currency denominated other asset and liability positions. As of September 30, 2017,2019, the Company had foreign currency forward contracts outstanding with a notional value of $282$80 million, primarily in British pounds, euros and Polish zloty.euros.
See Note 7,8, Derivative Instruments and Hedging Activities, to our Consolidated Financial Statements for additional information.
ITEM 4. CONTROLS AND PROCEDURES
Our executive management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of September 30, 20172019. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of these disclosure controls and procedures were effective as of such date to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Change in Internal Controls
There have not been any changes in internal control over financial reporting during the three months ended September 30, 20172019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to legal or regulatory proceedings arising in the ordinary course of its business.
The discussion regarding contingencies in Part I, Item 1 — Financial Statements (unaudited), Note 12,13, Litigation and Contingencies, to the unaudited consolidated financial statements in this report is incorporated herein by reference.
Currently, there are no legal or regulatory proceedings that management believes, either individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition or results of operations. In accordance with U.S. GAAP, we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These liabilities are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case or proceeding.
ITEM 1A. RISK FACTORS
There were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016,2018 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, as filed with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
The following table provides information with respect to shares of the Company's Common Stock that were purchased by the Company during the three months ended September 30, 2019.
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (in thousands) (1) |
July 1 - July 31, 2019 | | — |
| | $ | — |
| | — |
| | $ | 320,000 |
|
August 1 - August 31, 2019 | | — |
| | — |
| | — |
| | 320,000 |
|
September 1 - September 30, 2019 | | 275,181 |
| | 144.45 |
| | 275,181 |
| | 280,249 |
|
Total | | 275,181 |
| | $ | 144.45 |
| | 275,181 |
| | |
(1) Amount remaining to be repurchased at the end of the period. The Board of Directors has authorized a stock repurchase program ("Repurchase Program") allowing Euronet to repurchase up to $375 million in value or 10.0 million shares of stock through March 31, 2020. Euronet has repurchased $214.8 million of stock under the Repurchase Program. On March 11, 2019, in connection with the issuance of the Convertible Notes, the Board of Directors authorized an additional repurchase program of $120 million in value of Euronet’s common stock through March 11, 2021. Repurchases under either program may take place in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan.
ITEM 6. EXHIBITS
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Exhibit | | Description |
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12.1* | | |
31.1* | | |
31.2* | | |
32.1** | | |
32.2** | | |
101* | | The following materials from Euronet Worldwide, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 20172019 (unaudited) and December 31, 2016,2018, (ii) Consolidated Statements of Income (unaudited) for the three months and nine months ended September 30, 20172019 and 2016,2018, (iii) Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 20172019 and 2016,2018, (iv) Consolidated Statements of Changes in Equity (unaudited) for the three and nine months ended September 30, 2019 and 2018 (v) Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 20172019 and 2016,2018, and (v)(vi) Notes to the Unaudited Consolidated Financial Statements. |
_________________________* Filed herewith.
** Pursuant to Item 601(b)(32) of Regulation S-K, this Exhibit is furnished rather than filed with this Form 10-Q.
PLEASE NOTE: Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or incorporated by reference the agreements referenced above as exhibits to this Quarterly Report on Form 10-Q. The agreements have been filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other factual information about the Company or its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Company's public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Company or its business or operations on the date hereof.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
October 27, 2017November 7, 2019
Euronet Worldwide, Inc.
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By: | /s/ MICHAEL J. BROWN | |
| Michael J. Brown | |
| Chief Executive Officer | |
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By: | /s/ RICK L. WELLER | |
| Rick L. Weller | |
| Chief Financial Officer | |