See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | |
| | | 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 |
| | |
| Repurchase 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 | ) |
|
| | | | | | | | | | | | | | | |
| | | Number of Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Treasury Stock |
| Balance as of December 31, 2019 | | 54,220,854 |
| | $ | 1,256 |
| | $ | 1,190,058 |
| | $ | (463,704 | ) |
| Net income (loss) | | | | | | | | |
| Other comprehensive loss | | | | | | | | |
| Stock issued under employee stock plans | | 80,519 |
| | 1 |
| | 1,701 |
| | (249 | ) |
| Share-based compensation | | | | | | 6,338 |
| | |
| Repurchase of shares | | (2,095,683 | ) | | | | | | (239,763 | ) |
| Balance as of March 31, 2020 | | 52,205,690 |
| | $ | 1,257 |
| | $ | 1,198,097 |
| | $ | (703,716 | ) |
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
(Unaudited, in thousands)
|
| | | | | | | | | | | | | | | | |
| | | 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 | | | | | | | | (42,917 | ) |
| Balance as of March 31, 2019 | | $ | 704,348 |
| | $ | (167,199 | ) | | $ | 176 |
| | $ | 1,287,910 |
|
|
| | | | | | | | | | | | | | | | |
| | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
| Balance as of December 31, 2019 | | $ | 1,016,554 |
| | $ | (164,890 | ) | | $ | 68 |
| | $ | 1,579,342 |
|
| Net income (loss) | | 1,921 |
| | | | (201 | ) | | 1,720 |
|
| Other comprehensive loss | | | | (59,777 | ) | | (41 | ) | | (59,818 | ) |
| Stock issued under employee stock plans | | | | | | | | 1,453 |
|
| Share-based compensation | | | | | | | | 6,338 |
|
| Repurchase of shares | | | | | | | | (239,763 | ) |
| Balance as of March 31, 2020 | | $ | 1,018,475 |
| | $ | (224,667 | ) | | $ | (174 | ) | | $ | 1,289,272 |
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands) |
| | | | | | | |
| | Three Months Ended
March 31, |
| | 2020 | | 2019 |
| Net income | $ | 1,720 |
| | $ | 34,579 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 30,816 |
| | 26,640 |
|
| Share-based compensation | 6,338 |
| | 4,490 |
|
| Unrealized foreign exchange loss (gain), net | 18,806 |
| | (3,208 | ) |
| Deferred income taxes | (2,043 | ) | | 3,468 |
|
| Accretion of convertible debt discount and amortization of debt issuance costs | 4,616 |
| | 4,071 |
|
| Changes in working capital, net of amounts acquired: |
| |
|
| Income taxes payable, net | (10,454 | ) | | 635 |
|
| Trade accounts receivable | 300,063 |
| | (31,456 | ) |
| Prepaid expenses and other current assets | (119,648 | ) | | 33,787 |
|
| Trade accounts payable | (126,242 | ) | | (115,380 | ) |
| Deferred revenue | 4,119 |
| | 3,005 |
|
| Accrued expenses and other current liabilities | 14,811 |
| | 51,377 |
|
| Changes in noncurrent assets and liabilities | (17,018 | ) | | 953 |
|
| Net cash provided by operating activities | 105,884 |
| | 12,961 |
|
| Cash flows from investing activities: | | |
|
| Acquisitions, net of cash acquired | 475 |
| | — |
|
| Purchases of property and equipment | (30,392 | ) | | (31,390 | ) |
| Purchases of other long-term assets | (2,046 | ) | | (1,783 | ) |
| Other, net | 357 |
| | 187 |
|
| Net cash used in investing activities | (31,606 | ) | | (32,986 | ) |
| Cash flows from financing activities: | | | |
| Proceeds from issuance of shares | 1,700 |
| | 5,171 |
|
| Repurchase of shares | (240,530 | ) | | (2,275 | ) |
| Borrowings from revolving credit agreements | 805,500 |
| | 1,209,446 |
|
| Repayments of revolving credit agreements | (805,500 | ) | | (1,425,398 | ) |
| Proceeds from long-term debt obligations | — |
| | 525,000 |
|
| Repayments of long-term debt obligations | — |
| | (94,199 | ) |
| Net borrowing from short-term debt obligations | (2,163 | ) | | (11,779 | ) |
| Debt issuance costs | — |
| | (11,812 | ) |
| Other, net | (1,651 | ) | | (1,452 | ) |
| Net cash (used in) provided by financing activities | (242,644 | ) | | 192,702 |
|
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | (59,260 | ) | | (12,387 | ) |
| (Decrease) increase in cash and cash equivalents and restricted cash | (227,626 | ) | | 160,290 |
|
| Cash and cash equivalents and restricted cash at beginning of period | 1,817,379 |
| | 1,130,952 |
|
| | | | |
| Cash and cash equivalents and restricted cash at end of period | $ | 1,589,753 |
| | $ | 1,291,242 |
|
| | | | |
| Supplemental disclosure of cash flow information: | | | |
| Interest paid during the period | $ | 3,678 |
| | $ | 5,491 |
|
| Income taxes paid during the period | $ | 16,064 |
| | $ | 12,074 |
|
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(the “Company” or “Euronet”) was established as a Delaware corporation on December 13, 1997 and succeeded Euronet Holding N.V. as the group holding company, which was founded and established in 1994. 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 payment 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, 20162019, including the notes thereto, set forth in the Company’s 20162019 Annual Report on Form 10-K.
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 reportedreporting 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, 2017.2020.
Seasonality
Euronet’s EFTElectronic Funds Transfer ("EFT") Processing Segment experiences its heaviest demand for dynamic currency conversion ("DCC") services during the third quarter of the fiscal year, normally coinciding with the tourism season. Additionally, the EFT Processing and epay Segments are normally 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 Segmentmoney transfer segment varies by regionsregion 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 eachthe year.
COVID-19 (coronavirus)
The outbreak of the COVID-19 (coronavirus) pandemic has resulted in travel restrictions across borders, and shelter-in-place orders in most of the countries where the Company operates. The majority of these orders went into effect in late February 2020 or early March 2020. These orders have negatively impacted all of our three operating segments. The EFT Segment has experienced declines in transaction volumes due to these restrictions, especially high-margin cross-border transactions. Although the epay Segment has experienced revenue growth from increased digital content purchases which can be completed remotely, many of its POS retail locations have been closed, reducing in person transactions. Our Money Transfer Segment has experienced declines in transaction volumes due to the restrictions noted above, which have also led to the temporary closure of many of our company owned stores and agents. The Money Transfer Segment has experienced an increase in receivable delinquencies as our agents have been temporarily closed as nonessential services.
In response to the COVID-19 driven impacts, the Company has implemented several key measures to offset the impact across the business, including negotiating certain third party contracts, reducing travel, decreasing planned 2020 capital expenditures, and expanding ATM winterizations (placing them in dormancy status) in more sites and more markets.
(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
In May 2014,March 2020, the FASB issuedFinancial Accounting Standards Update (“ASU”Board ("FASB") 2014-09, Revenue from Contracts with Customersissued ASU 2020-04, Reference Rate Reform (Topic 606)848), which requires an entity to recognize the amount of revenue to which it expects to be entitledprovides optional expedients and exceptions 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 permits 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 Obligationscontracts, hedging relationships, 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 standardother transactions affected by reference rate reform due to the change in presentationanticipated cessation of LIBOR on or before December 31, 2021. This guidance is effective from March 12, 2020 through December 31, 2022 and classification of certain revenue forcould impact 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 includes a number of optional practical expedients that the Company may elect to apply. The Company is currently evaluating the expected impact of the adoption of this 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 recognized in the statement of income as a component 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 tax assets and retained earnings. Additionally, the Company applied the prospective transition method for the presentation of excess tax benefits from a financing activity to an operating activityLIBOR provisions 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 $40.2 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, 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 FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. The amendments of this ASU are effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted and prospective application is required.unsecured credit agreement. The Company does not expect that the adoption of this guidance towill have a significant impact on its consolidated financial statements.
The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), as of January 1, 2020, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaced the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The adoption of this standard did not have a significant impact on the Company's consolidated financial statements and related disclosures.
(3) SETTLEMENT ASSETS AND OBLIGATIONS
Settlement assets represent funds received or to be received from agents for unsettled money transfers and from merchants for unsettled prepaid transactions. The Company records corresponding settlement obligations relating to amounts payable. Settlement assets consist of cash and cash equivalents, restricted cash, accounts receivable and prepaid expenses and other current assets. Cash received by Euronet agents and merchants generally become available to the Company within two weeks after initial receipt by the business partner. Receivables from business partners represent funds collected by such business partners that are in transit to the Company.
Settlement obligations consist of money transfers and accounts payable to agents and content providers. Money transfer accounts payable represent amounts to be paid to transferees when they request funds. Most agents typically settle with transferees first then obtain reimbursement from the Company. Money order accounts payable represent amounts not yet presented for payment. Due to the agent funding and settlement process, accounts payable to agents represent amounts due to agents for money transfers that have not been settled with transferees.
|
| | | | | | | | |
| | | As of |
| (in thousands) | | March 31, 2020 | | December 31, 2019 |
| Settlement assets: | | | | |
| Settlement cash and cash equivalents | | $ | 256,456 |
| | $ | 282,188 |
|
| Settlement restricted cash | | 36,243 |
| | 49,168 |
|
| Accounts receivable | | 364,148 |
| | 574,410 |
|
| Prepaid expenses and other current assets | | 116,489 |
| | 107,301 |
|
| Total settlement assets | | $ | 773,336 |
| | $ | 1,013,067 |
|
| Settlement obligations: | | | | |
| Trade account payables | | $ | 353,498 |
| | $ | 504,667 |
|
| Accrued expenses and other current liabilities | | 419,838 |
| | 508,400 |
|
| Total settlement obligations | | $ | 773,336 |
| | $ | 1,013,067 |
|
A portion of the Company's credit losses are recorded in the accounts receivable within settlement assets. The balance of credit losses related to accounts receivable within settlement assets was $28.3 million and $24.0 million as of March 31, 2020 and December 31, 2019, respectively.
The table below reconciles cash and cash equivalents, restricted cash, ATM cash, settlement cash and cash equivalents, and settlement restricted cash as presented within "Cash and cash equivalents and restricted cash" in the Consolidated Statement of Cash Flows.
(3) |
| | | | | | | | | | | | | | | | |
| | | As of |
| (in thousands) | | March 31, 2020 | | December 31, 2019 | | March 31, 2019 | | December 31, 2018 |
| Cash and cash equivalents | | $ | 709,521 |
| | $ | 786,081 |
| | $ | 558,454 |
| | $ | 385,031 |
|
| Restricted cash | | 28,953 |
| | 34,301 |
| | 34,398 |
| | 31,237 |
|
| ATM cash | | 558,580 |
| | 665,641 |
| | 421,897 |
| | 395,378 |
|
| Settlement cash and cash equivalents | | 256,456 |
| | 282,188 |
| | 235,946 |
| | 273,948 |
|
| Settlement restricted cash | | 36,243 |
| | 49,168 |
| | 40,547 |
| | 45,358 |
|
| Cash and cash equivalents and restricted cash at end of period | | $ | 1,589,753 |
| | $ | 1,817,379 |
| | $ | 1,291,242 |
| | $ | 1,130,952 |
|
(4) 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.period. 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 anythe potential dilution fromof options to purchase the Company's common stock,Common Stock, assumed vesting of restricted stock and the assumed conversion of the Company’sCompany's convertible debentures. debt.
The following table provides the computation of diluted weighted average number of common shares outstanding:
|
| | | | | |
| Three Months Ended
March 31, |
| | 2020 | | 2019 |
| Computation of diluted weighted average shares outstanding: | | | |
| Basic weighted average shares outstanding | 53,607,104 |
| | 51,880,534 |
|
| Incremental shares from assumed exercise of stock options and vesting of restricted stock | 1,172,217 |
| | 1,285,139 |
|
| Incremental shares from assumed conversion of convertible debentures | — |
| | 2,411,194 |
|
| Diluted weighted average shares outstanding | 54,779,321 |
| | 55,576,867 |
|
|
| | | | | | | | | | | |
| 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’sCompany's weighted average common shares outstanding during the three and nine months ended September 30, 2017 and 2016.period. 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 458,000 and 884,000 for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and 2019 of approximately 552,000886,000 and 555,000 for the three and nine months ended September 30, 2016,402,000, respectively.
The Company 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 notesConvertible 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 for thethree months ended March 31, 2019 as the $142.59 market price per share of common stock as of March 31, 2019 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. The market price per share and theper share of common stock was $85.72, therefore, according to ASC Topic 260, Earnings per Share (“ASC 260”), there was 0 dilutive effect increases the more the market price exceeds the conversion price. As of September 30, 2017 and 2016, the stock price exceeded the conversion price and these notes were dilutive to earnings per share. Further, as a result of the share price increasing from $81.83 at September 30, 2016 to $94.79 at September 30, 2017, there was an increase in shares from the assumed conversion of the debentures as of March 31, 2020, whereas the dilutive effect was 2,411,194shares for the three months ended March 31, 2019. See Note 8, Debt Obligations, to the Consolidated Financial Statements for more information about the convertible notes.
Share repurchases
The Company's Board of Directors had authorized a stock repurchase program allowing Euronet to repurchase up to $375 million in value or 10.0 million shares of stock through March 31, 2020. 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 the Company's common stock through March 11, 2021. On February 26, 2020, the Company put a repurchase program in place to repurchase up to $250 million in value, but not more than 5.0 million shares of common stock through February 28, 2022. For the first quarter of 2020, the Company repurchased $239.8 million in value of Euronet common stock under the repurchase programs. 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.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive incomeloss consists entirely of foreign currency translation adjustments. The Company recorded foreign currency translation gainslosses of $26.7 million and $97.3$59.8 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and gains of $6.8 million and $13.5$16.2 million for the three and nine months ended September 30, 2016, respectively.March 31, 2019. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three and nine months ended September 30, 2017March 31, 2020 and 2016.2019.
(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the ninethree months ended September 30, 2017March 31, 2020 is presented below:
|
| | | | | | | | | | | | |
| (in thousands) | | Acquired Intangible Assets | | Goodwill | | Total Intangible Assets |
| Balance as of December 31, 2019 | | $ | 141,847 |
| | $ | 743,823 |
| | $ | 885,670 |
|
| Decreases: | | | | | | |
| Acquisition | | — |
| | (474 | ) | | (474 | ) |
| Amortization | | (5,726 | ) | | — |
| | (5,726 | ) |
| Other (primarily changes in foreign currency exchange rates) | | (5,944 | ) | | (28,850 | ) | | (34,794 | ) |
| Balance as of March 31, 2020 | | $ | 130,177 |
| | $ | 714,499 |
| | $ | 844,676 |
|
|
| | | | | | | | | | | | |
| (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,March 31, 2020, is expected to total $5.7$16.1 million for the remainder of 2017, $22.8 million for 2018, $21.8 million for 2019, $21.0 million for 2020, $20.1$20.8 million for 2021, and $19.0$19.8 million for 2022.2022, $15.3 million for 2023, $9.3 million for 2024 and $6.3 million for 2025.
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, 20162019 resulted in no impairment charge. The Company recorded a non-cashconsidered the impact of COVID-19 on its operations at the reporting unit level and determined that there was no impairment charge to customer relationshipsas 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.March 31, 2020.
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 20162019 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. In response to the COVID-19 pandemic, we will continue to monitor the evaluation of global medical experts and scientists. As information regarding the impact of the COVID-19 pandemic on the Company's business, including intangible assets, becomes available, the impacts to cash flows and the related impact on recovery of intangible assets will be evaluated.
(5)(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
|
| | | | | | | | |
| | | As of |
| (in thousands) | | March 31, 2020 | | December 31, 2019 |
| Accrued expenses | | $ | 228,724 |
| | $ | 246,699 |
|
| Derivative liabilities | | 130,555 |
| | 41,935 |
|
| Current portion of capital lease obligations | | 6,047 |
| | 5,919 |
|
| Deferred income taxes | | — |
| | 4 |
|
| Total | | $ | 365,326 |
| | $ | 294,557 |
|
|
| | | | | | | |
| | 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 |
|
(7) UNEARNED REVENUES
(6)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 increase in the deferred revenue balance for the first quarter of 2020 is primarily driven by $19.0 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations, largely offset by $15.7 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2019.
(8) DEBT OBLIGATIONS
Debt obligations consist of the following:
|
| | | | | | | | |
| | | As of |
| (in thousands) | | March 31, 2020 | | December 31, 2019 |
| Credit Facility: | | | | |
| Revolving credit agreement | | $ | — |
| | $ | — |
|
| Convertible Debt: | | | | |
| 0.75% convertible notes, unsecured, due 2049 | | 440,713 |
| | 436,965 |
|
| | | | | |
| 1.375% Senior Notes, due 2026 | | 661,560 |
| | 673,440 |
|
| | | | | |
| Other obligations | | 3,598 |
| | 6,215 |
|
| | | | | |
| Total debt obligations | | 1,105,871 |
| | 1,116,620 |
|
| Unamortized debt issuance costs | | (18,725 | ) | | (19,592 | ) |
| Carrying value of debt | | 1,087,146 |
| | 1,097,028 |
|
| Short-term debt obligations and current maturities of long-term debt obligations | | (3,528 | ) | | (6,089 | ) |
| Long-term debt obligations | | $ | 1,083,618 |
| | $ | 1,090,939 |
|
|
| | | | | | | |
| | 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 had a $675 million senior securedentered into an 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 loans or 0.375%2.0% (or 0.175% to 1.375%1.0% for base rate loans. Accordingly, the weighted average interest rateloans). The unsecured revolving credit agreement allows for borrowings outstanding under the Company'sin 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 revolving credit facility contains a $200 million sublimit for the issuance of letters of credit, a $50 million sublimit for U.S. Dollar swingline loans, and Term Loan Aa $90 million sublimit for certain foreign currencies swingline loans.
The unsecured revolving credit agreement contains customary affirmative and negative covenants, events of default and financial covenants. The Company was 3.04% and 2.86%, respectively,in compliance with all debt covenants, as of September 30, 2017.March 31, 2020.
Convertible Debt
TheOn March 18, 2019, the Company completed the sale of $525.0 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.share if certain conditions are met (relating to the closing price of Euronet Common Stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require the Company to purchase their notes on each of March 15, 2025, March 15, 2029, March 15, 2034,
March 15, 2039 and March 15, 2044 at par on October 1, 2020,a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and have additional optionsunpaid interest to, requirebut excluding, the relevant repurchase date.
On March 18, 2019, the Company provided a notice of redemption to purchase their notes at par on October 1, 2024, 2029, 2034, and 2039, or upon a change in controlthe trustee of the Company.
Holders may convertindenture governing the Company's 1.5% Convertible Senior Notes due 2044 (the "Retired Convertible Notes"), pursuant to which the Company would redeem all or any portion of theirthe remaining principal amount outstanding of the Retired Convertible Notes on May 28, 2019 (the "Redemption Date") for cash at their option at any time priora redemption price equal to October 1, 2044 only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter), if the closing sale price100% of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading dayprincipal amount of the immediately preceding calendar quarterRetired Convertible Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date.
In accordance with ASC 470-20-30-27, proceeds from the issuance of convertible debt is greater than 130%allocated between debt and equity components so that debt is discounted to reflect the Company's nonconvertible debt borrowing rate. ASC 470-20-35-13 requires the debt discount to be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The allocation resulted in an increase to additional paid-in capital 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$99.7 million 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 or shares of the Company's common stock, at the Company's option, to satisfy the principal amount and the conversion premium.Notes.
The Company's common stock was greater than 130% of the conversion price 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 became convertible at the holders’ option beginning on October 1, 2017 and ending on December 31, 2017.
Contractual interest expense for the Convertible Notes was $1.5 million and $4.5$1.0 million for the three and nine months ended September 30, 2017 and 2016, respectively.March 31, 2020. Accretion expense for the Convertible Notes was $2.8 million and $8.2$3.7 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020. Contractual interest expense for the Convertible Notes and $2.6Retired Convertible Notes was $0.2 million and $7.8$1.5 million, respectively for the three and nine months ended September 30, 2016, respectively.March 31, 2019. Accretion expense for the Convertible Notes and Retired Convertible Notes was $0.6 million and $2.9 million, respectively for the three months ended March 31, 2019. The effective interest rate was 4.7%4.4% for the three and nine months ended September 30, 2017.March 31, 2020. As of September 30, 2017,March 31, 2020, the unamortized discount was $36.0$84.3 million and will be amortized through October 1, 2020.March 2025.
ATM Credit Facility1.375% Senior Notes due 2026
On June 27, 2017,May 22, 2019, the Company completed the sale of €600 million ($669.9 million) aggregate principal amount of 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 March 31, 2020, the Company has outstanding €600 million ($661.6 million) principal amount of the Senior 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 unpaid interest.
Other obligations
Certain of the Company's subsidiaries have available lines of credit and overdraft credit facilities that generally provide for short-term borrowings that are used from time to time for working capital purposes. As of March 31, 2020 and December 31, 2019, borrowings under these arrangements were $3.6 million and $6.2 million, respectively.
Uncommitted Line of Credit
On September 4, 2019, the Company entered into a new credit facility (the "ATM Facility")an Uncommitted Loan Agreement with Bank of America which may provide Euronet up to $100.0 million under an uncommitted line of credit. Interest on borrowings is equal to LIBOR plus 0.65% and the agreement in whichexpires September 4, 2020. As of March 31, 2020, 0 amounts were outstanding under 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 expires on November 30, 2017.line of credit.
(7)(9) 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,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 currenciescertain foreign currency denominated other than the U.S. dollar.asset and liability positions. 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 815Derivatives and Hedging, , primarilydue to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates beingare reflected concurrently in earnings for both the derivative instrument and the transaction and havinghave an offsetting effect.
Foreign currency exchange contracts - Ria Operations and Corporate
In the United States, the Company's Ria operations useCompany uses 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,March 31, 2020, the Company held in its Ria operations had
foreign currency forward contracts outstanding in the U.S. with a notional value of $244 million,$213 million. The foreign currency forward contracts consist 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 denominatedshort-term borrowings that are payable in currencies other asset and liability positions.than the U.S dollar. As of September 30, 2017,March 31, 2020, the Company had foreign currency forward contracts outstanding with a notional value of $282$193 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 ofhedges 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$18.1 million and $48.4$18.6 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $14.4 million and $48.3 million for the three and nine months ended September 30, 2016,2019, respectively. All of the derivative contracts used in the Company's HiFXCompany' s xe 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, 2017March 31, 2020 was approximately $1.3$1.5 billion. The significant majority of customer contracts are written in major currencies such as the U.S. dollar, euro, New ZealandU.S. dollar, British pound, Australian dollar and AustralianNew Zealand 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 | | March 31, 2020 | | December 31, 2019 | | Balance Sheet Location | | March 31, 2020 | | December 31, 2019 |
| Derivatives not designated as hedging instruments | | | | | | | | | | | | |
| Foreign currency exchange contracts | | Prepaid expenses and other current assets | | $ | 142,148 |
| | $ | 54,765 |
| | Accrued expenses and other current liabilities | | $ | (130,555 | ) | | $ | (41,935 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | | 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, 2017March 31, 2020 and December 31, 20162019 (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 March 31, 2020 | | | 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 |
| | $ | 142,148 |
| | $ | — |
| | $ | 142,148 |
| | $ | (105,671 | ) | | $ | (14,633 | ) | | $ | 21,844 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2016 | | | | | | | | | | | | | |
| As of December 31, 2019 | | | | | | | | | | | | | |
| Derivatives subject to a master netting arrangement or similar agreement | | $ | 75,307 |
| | $ | — |
| | $ | 75,307 |
| | $ | (49,752 | ) | | $ | (7,562 | ) | | $ | 17,993 |
| | $ | 54,765 |
| | $ | — |
| | $ | 54,765 |
| | $ | (34,935 | ) | | $ | (7,362 | ) | | $ | 12,468 |
|
Offsetting of Derivative Liabilities
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | |
| As of March 31, 2020 | | 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 | | $ | (130,555 | ) | | $ | — |
| | $ | (130,555 | ) | | $ | 105,671 |
| | $ | 1,760 |
| | $ | (23,124 | ) |
| | | | | | | | | | | | | |
| As of December 31, 2019 | | | | | | | | | | | | |
| Derivatives subject to a master netting arrangement or similar agreement | | $ | (41,935 | ) | | $ | — |
| | $ | (41,935 | ) | | $ | 34,935 |
| | $ | 827 |
| | $ | (6,173 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | 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 8,10, 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, 2017March 31, 2020 and 2016:2019:
|
| | | | | | | | | | |
| | | | | Amount of Gain Recognized in Income on Derivative Contracts (a) |
| | | Location of Gain Recognized in Income on Derivative Contracts | | Three Months Ended
March 31, |
| (in thousands) | | | 2020 | | 2019 |
| Foreign currency exchange contracts - Ria Operations | | Foreign currency exchange gain, net | | $ | 1,019 |
| | $ | 2,459 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | 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.
See Note 10, Fair Value Measurements, for the determination of the fair values of derivatives.
(8)(10) 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 March 31, 2020 |
| (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 | | $ | — |
| | $ | 142,148 |
| | $ | — |
| | $ | 142,148 |
|
| Liabilities | | | | | | | | | | | | | | | | |
| Foreign currency exchange contracts | | Other current liabilities | | $ | — |
| | $ | (31,947 | ) | | $ | — |
| | $ | (31,947 | ) | | Other current liabilities | | $ | — |
| | $ | (130,555 | ) | | $ | — |
| | $ | (130,555 | ) |
| | | | | As of December 31, 2016 | | As of December 31, 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 | | $ | — |
| | $ | 75,307 |
| | $ | — |
| | $ | 75,307 |
| | Other current assets | | $ | — |
| | $ | 54,765 |
| | $ | — |
| | $ | 54,765 |
|
| Liabilities | | | | | | | | | | | | | | | | |
| Foreign currency exchange contracts | | Other current liabilities | | $ | — |
| | $ | (63,772 | ) | | $ | — |
| | $ | (63,772 | ) | | Other current liabilities | | $ | — |
| | $ | (41,935 | ) | | $ | — |
| | $ | (41,935 | ) |
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable accrued expenses and other currentshort-term debt obligations approximate their fair values because of the relatively short-term maturities of these financial instruments.due to their short maturities. The carrying values of the Company’s long-term debt (other than the Convertible Notes), including the current portion,revolving credit agreements approximate fair valuevalues because interest is primarily based on LIBOR whichthat resets at various intervals of less than one year. The Company estimates the fair value of the Convertible Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of September 30, 2017 and DecemberMarch 31, 2016, 2020, the fair values of the Convertible Notes and Senior Notes were $550.5$597.0 million and $475.1$615.7 million, respectively, with carrying values of $366.5$440.7 million and $358.3$661.6 million, respectively.
(9)(11) SEGMENT INFORMATION
The Company’sEuronet’s reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting.Reporting (“ASC 280”). 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 and Asia Pacific. 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 payment products in Europe, the Middle East, Asia Pacific, the United StatesU.S. and South America. |
| |
| 3) | Through the Money Transfer Segment, the Company provides global money transfer services under the brand names, Ria, HiFX,AFEX Money Express, IME, and xe. Ria, AFEX Money Express 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.information. 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 CompanyFurthermore, xe provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses under the brand name HiFM.businesses. |
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, 2017March 31, 2020 and 2016:2019: |
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, 2020 |
| (in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
| Total revenues | | $ | 145,825 |
| | $ | 172,911 |
| | $ | 266,234 |
| | $ | (1,063 | ) | | $ | 583,907 |
|
| Operating expenses: | | | | | | | | | | |
| Direct operating costs | | 87,536 |
| | 130,074 |
| | 142,909 |
| | (1,063 | ) | | 359,456 |
|
| Salaries and benefits | | 22,091 |
| | 15,697 |
| | 53,864 |
| | 9,588 |
| | 101,240 |
|
| Selling, general and administrative | | 10,941 |
| | 8,838 |
| | 38,582 |
| | 2,432 |
| | 60,793 |
|
| Depreciation and amortization | | 20,322 |
| | 1,844 |
| | 8,571 |
| | 79 |
| | 30,816 |
|
| Total operating expenses | | 140,890 |
| | 156,453 |
| | 243,926 |
| | 11,036 |
| | 552,305 |
|
| Operating income (expense) | | $ | 4,935 |
| | $ | 16,458 |
| | $ | 22,308 |
| | $ | (12,099 | ) | | $ | 31,602 |
|
| | | | | For the Three Months Ended September 30, 2017 | | For the Three Months Ended March 31, 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 | | $ | 226,321 |
| | $ | 184,234 |
| | $ | 228,105 |
| | $ | (826 | ) | | $ | 637,834 |
| | $ | 145,703 |
| | $ | 176,114 |
| | $ | 256,581 |
| | $ | (889 | ) | | $ | 577,509 |
|
| Operating expenses: | | | | | | | | | | | | | | | | | | | | |
| Direct operating costs | | 99,024 |
| | 143,023 |
| | 123,588 |
| | (820 | ) | | 364,815 |
| | 83,776 |
| | 133,525 |
| | 137,404 |
| | (872 | ) | | 353,833 |
|
| Salaries and benefits | | 16,817 |
| | 13,955 |
| | 44,110 |
| | 7,252 |
| | 82,134 |
| | 19,431 |
| | 14,753 |
| | 51,156 |
| | 7,455 |
| | 92,795 |
|
| Selling, general and administrative | | 8,878 |
| | 9,145 |
| | 28,648 |
| | 2,608 |
| | 49,279 |
| | 9,086 |
| | 8,052 |
| | 29,109 |
| | 1,900 |
| | 48,147 |
|
| Depreciation and amortization | | 14,805 |
| | 2,461 |
| | 7,403 |
| | 36 |
| | 24,705 |
| | 16,642 |
| | 1,785 |
| | 8,138 |
| | 75 |
| | 26,640 |
|
| Total operating expenses | | 139,524 |
| | 168,584 |
| | 203,749 |
| | 9,076 |
| | 520,933 |
| | 128,935 |
| | 158,115 |
| | 225,807 |
| | 8,558 |
| | 521,415 |
|
| Operating income (expense) | | $ | 86,797 |
| | $ | 15,650 |
| | $ | 24,356 |
| | $ | (9,902 | ) | | $ | 116,901 |
| | $ | 16,768 |
| | $ | 17,999 |
| | $ | 30,774 |
| | $ | (9,447 | ) | | $ | 56,094 |
|
The following table presents the Company’s total assets by reportable segment: |
| | | | | | | |
| | Total Assets as of |
| (in thousands) | March 31, 2020 | | December 31, 2019 |
| EFT Processing | $ | 1,755,395 |
| | $ | 1,914,144 |
|
| epay | 763,636 |
| | 962,671 |
|
| Money Transfer | 1,406,116 |
| | 1,560,136 |
|
| Corporate Services, Eliminations and Other | 259,238 |
| | 220,715 |
|
| Total | $ | 4,184,385 |
| | $ | 4,657,666 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended September 30, 2016 |
| (in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
| Total revenues | | $ | 152,586 |
| | $ | 167,226 |
| | $ | 204,611 |
| | $ | (398 | ) | | $ | 524,025 |
|
| Operating expenses: | | | | | | | | | | |
| Direct operating costs | | 62,401 |
| | 128,212 |
| | 109,944 |
| | (398 | ) | | 300,159 |
|
| Salaries and benefits | | 12,954 |
| | 13,352 |
| | 38,365 |
| | 7,228 |
| | 71,899 |
|
| Selling, general and administrative | | 7,642 |
| | 8,133 |
| | 23,924 |
| | 1,680 |
| | 41,379 |
|
| Depreciation and amortization | | 10,151 |
| | 2,734 |
| | 7,195 |
| | 40 |
| | 20,120 |
|
| Total operating expenses | | 93,148 |
| | 152,431 |
| | 179,428 |
| | 8,550 |
| | 433,557 |
|
| Operating income (expense) | | $ | 59,438 |
| | $ | 14,795 |
| | $ | 25,183 |
| | $ | (8,948 | ) | | $ | 90,468 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, 2017 |
| (in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
| Total revenues | | $ | 488,030 |
| | $ | 512,531 |
| | $ | 649,205 |
| | $ | (1,989 | ) | | $ | 1,647,777 |
|
| Operating expenses: | | | | | | | | | | |
| Direct operating costs | | 238,753 |
| | 393,269 |
| | 348,724 |
| | (1,978 | ) | | 978,768 |
|
| Salaries and benefits | | 46,125 |
| | 39,606 |
| | 125,273 |
| | 21,613 |
| | 232,617 |
|
| Selling, general and administrative | | 23,960 |
| | 27,628 |
| | 77,912 |
| | 10,208 |
| | 139,708 |
|
| Acquired intangible assets impairment | | 2,286 |
| | — |
| | — |
| | — |
| | 2,286 |
|
| Depreciation and amortization | | 39,816 |
| | 7,667 |
| | 21,941 |
| | 96 |
| | 69,520 |
|
| Total operating expenses | | 350,940 |
| | 468,170 |
| | 573,850 |
| | 29,939 |
| | 1,422,899 |
|
| Operating income (expense) | | $ | 137,090 |
| | $ | 44,361 |
| | $ | 75,355 |
| | $ | (31,928 | ) | | $ | 224,878 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | 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 propertyCompany's revenues disaggregated by segment and equipmentregion. Sales and total assetsusage-based taxes are excluded from revenues. The Company believes disaggregation by reportable segment: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 March 31, 2020 |
| (in thousands) | | EFT Processing | | epay | | Money Transfer | | Total |
| Europe | | $ | 99,474 |
| | $ | 115,277 |
| | $ | 91,058 |
| | $ | 305,809 |
|
| North America | | 15,019 |
| | 33,852 |
| | 137,895 |
| | 186,766 |
|
| Asia Pacific | | 31,328 |
| | 19,274 |
| | 30,848 |
| | 81,450 |
|
| Other | | 4 |
| | 4,508 |
| | 6,433 |
| | 10,945 |
|
| Eliminations | | — |
| | — |
| | — |
| | (1,063 | ) |
| Total | | $ | 145,825 |
| | $ | 172,911 |
| | $ | 266,234 |
| | $ | 583,907 |
|
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, 2019 |
| (in thousands) | | EFT Processing | | epay | | Money Transfer | | Total |
| Europe | | $ | 107,611 |
| | $ | 114,906 |
| | $ | 85,559 |
| | $ | 308,076 |
|
| North America | | 8,205 |
| | 39,664 |
| | 134,832 |
| | 182,701 |
|
| Asia Pacific | | 29,877 |
| | 17,374 |
| | 30,713 |
| | 77,964 |
|
| Other | | 10 |
| | 4,170 |
| | 5,477 |
| | 9,657 |
|
| Eliminations | | — |
| | — |
| | — |
| | (889 | ) |
| Total | | $ | 145,703 |
| | $ | 176,114 |
| | $ | 256,581 |
| | $ | 577,509 |
|
(10)(12) INCOME TAXES
The Company's effective income tax rate was 13.4%58.7% and 19.3%31.6% for the three and nine months ended September 30, 2017, respectively, compared to 25.5%March 31, 2020 and 23.7% for the three and nine months ended September 30, 2016,2019, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2017 and 2016March 31, 2020 was lowerhigher than the applicable statutory income tax rate of 35%21% primarily attributableas a result of certain foreign earnings of the Company being subject to higher local statutory income tax rates. The Company's effective income tax rate for the three months ended March 31, 2019 was higher than the applicable statutory income tax rate of 21% largely because of the application to the release in 2017Company of a $16.3 million valuation allowance againstthe global intangible low-taxed income ("GILTI") tax provision and 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.
(11)(13) COMMITMENTS
As of September 30, 2017,March 31, 2020, the Company had $73.6$73.0 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $45.1$49.7 million are outstanding under the Credit Facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $3.4$3.9 million ofby 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,March 31, 2020, the Company had granted off balance sheet guarantees for cash in various ATM networks amounting to $16.9$11.4 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $21.8$37.5 million over the terms of agreements with the customers.
Once each 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.
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.cash. As of September 30, 2017,March 31, 2020, the balance of such cash used in the Company's ATM networks for which the Company was responsible was approximately $283$509 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 the 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-partythird 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, 2017March 31, 2020 or December 31, 2016.2019.
(12)(14) 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.
(15) 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 most of the ATM site leases. Since the Company is not reasonably certain to exercise the renewal or termination 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 non-cancelable operating leases (with initial lease terms in excess of one year) as of March 31, 2020 are:
|
| | | |
| | As of March 31, 2020 |
Maturity of Lease Liabilities (in thousands) | Operating Leases |
| Remainder of 2020 | $ | 98,827 |
|
| 2021 | 99,540 |
|
| 2022 | 70,832 |
|
| 2023 | 49,670 |
|
| 2024 | 30,813 |
|
| Thereafter | 46,573 |
|
| Total lease payments | $ | 396,255 |
|
| Less: imputed interest | (23,465 | ) |
| Present value of lease liabilities | $ | 372,790 |
|
Lease expense recognized in the Consolidated Statements of Income is summarized as follows:
|
| | | | | |
Lease Expense (in thousands) | Income Statement Classification | | Three Months Ended March 31, 2020 |
| Operating lease expense | Selling, general and administrative and Direct operating costs | | $ | 33,188 |
|
| Variable lease expense | Selling, general and administrative and Direct operating costs
| | 8,680 |
|
| Total lease expense | | | $ | 41,868 |
|
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 March 31, 2020 |
| Weighted- average remaining lease term (years) | | 4.4 |
|
| Weighted- average discount rate | | 3.0 | % |
The following table presents supplemental cash flow and non-cash information related to leases.
|
| | | | |
Other Information (in thousands) | | Three Months Ended March 31, 2020 |
Cash paid for amounts included in the measurement of lease liabilities (a) | | $ | 32,792 |
|
| Supplemental non-cash information on lease liabilities arising from obtaining ROU assets | | |
| ROU assets obtained in exchange for new operating lease liabilities | | $ | 50,525 |
|
(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;
the effect of the COVID-19 pandemic on our business;
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, the effect of the COVID-19 pandemic on our business; 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 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") and Part II, Item 1A of this Quarterly Report on Form 10-Q, 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 economic downturns related to the COVID-19 pandemic or future events; 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, 2016.2019 and Part II, Item 1A of this Quarterly Report on Form 10-Q. Our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q areis 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”),ATM, POS, card outsourcing, card issuing and merchant acquiring services, software solutions, electronic distribution of prepaid mobile airtime and other electronic payment 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 38,10542,176 ATMs and approximately 227,000329,000 POS terminals across Europe, the Middle East, Asia Pacific, and Asia Pacific.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, dynamic currency conversion ("DCC"),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.content. We operate a network of approximately 696,000732,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic payment productscontent 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, AFEX Money Express, IME and xe and global account-to-account money transfer services under the brand name HiFX.xe. We offer services under the brand names Ria, AFEX Money Express and IME through a network of sending agents, Company-owned stores (primarily in North America, Europe and Malaysia) and Ria brandedour websites (riamoneytransfer.com and imeremit.com)online.imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 332,000402,000 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 HiFMxe 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, nine10 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%70% 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.operations (for a further discussion, see Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019).
SOURCES OF REVENUES AND CASH FLOW
Euronet primarily earns revenues and income primarily 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% and 30%25% of total consolidated revenues for the thirdfirst quarter and first nine months of 2017,2020, 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 cardless payment, banknote recycling, tax refund services, 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% and 31%30% of total consolidated revenues for the thirdfirst quarter and first nine months of 2017,2020, are primarily 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 payment products,content, vouchers, and physical gifts. The proportion of epay Segment revenues earned from the distribution of prepaid mobile phone time as compared with other electronic products has decreased over time, and non-mobiledigital media content now produces approximately 67%40% of epay Segment revenues. Other electronic payment productscontent offered by this segment includeincludes 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%45% of total consolidated revenues for the thirdfirst quarter and first nine months of 2017,2020, 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’sRia'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 and2023. 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 CHALLENGESOpportunities 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 ATM 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 paymentpayments 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 where our licenses are not applicable;
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 by the E.U.;
the impact of overall market trends on ATM transactions in our current target markets:
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.products; and
the duration and severity of the COVID-19 pandemic may limit access to ATM locations, create consumer fear regarding contracting the virus by touching ATM screens, keyboards or cash, impact consumer cross-border travel habits and reduce high margin cross-border transactions.
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;
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.expansion; and
the duration and severity of the COVID-19 pandemic may limit access to POS merchant locations, our ability to maintain and grow our relationships with digital content providers that are experiencing increased demand due to the COVID-19 pandemic, and increase our credit risk as many of our merchants are temporarily closed as nonessential services.
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 digitalelectronic 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 digitalelectronic 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 payment products,content, expansion of our network of retailers and access to products of mobile operators and other content 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 theour 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 Second Payment Services Directive ("PSD2") and using our various licenses in the United States; and
our ability to provide additional value-added products under the xe brand.brand; and
the duration and severity of the COVID-19 pandemic impact on worker migration and employment opportunities, the ability of our customers to access agent network locations due to government ordered business closures, and the potential for an increase in credit risk and customer agent receivable defaults.
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, 2017March 31, 2020 and 20162019 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 March 31, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase
(Decrease) Amount | | Increase Percent | | 2017 | | 2016 | | Increase
(Decrease) Amount | | Increase Percent | | 2020 | | 2019 | | Increase
(Decrease) Amount | | Increase (Decrease) Percent |
| EFT Processing | | $ | 226,321 |
| | $ | 152,586 |
| | $ | 73,735 |
| | 48 | % | | $ | 488,030 |
| | $ | 354,282 |
| | $ | 133,748 |
| | 38 | % | | $ | 145,825 |
| | $ | 145,703 |
| | $ | 122 |
| | — | % |
| epay | | 184,234 |
| | 167,226 |
| | 17,008 |
| | 10 | % | | 512,531 |
| | 497,945 |
| | 14,586 |
| | 3 | % | | 172,911 |
| | 176,114 |
| | (3,203 | ) | | (2 | )% |
| Money Transfer | | 228,105 |
| | 204,611 |
| | 23,494 |
| | 11 | % | | 649,205 |
| | 587,664 |
| | 61,541 |
| | 10 | % | | 266,234 |
| | 256,581 |
| | 9,653 |
| | 4 | % |
| Total | | 638,660 |
| | 524,423 |
| | 114,237 |
| | 22 | % | | 1,649,766 |
| | 1,439,891 |
| | 209,875 |
| | 15 | % | | 584,970 |
| | 578,398 |
| | 6,572 |
| | 1 | % |
| Corporate services, eliminations and other | | (826 | ) | | (398 | ) | | (428 | ) | | 108 | % | | (1,989 | ) | | (1,105 | ) | | (884 | ) | | 80 | % | | (1,063 | ) | | (889 | ) | | (174 | ) | | 20 | % |
| Total | | $ | 637,834 |
| | $ | 524,025 |
| | $ | 113,809 |
| | 22 | % | | $ | 1,647,777 |
| | $ | 1,438,786 |
| | $ | 208,991 |
| | 15 | % | | $ | 583,907 |
| | $ | 577,509 |
| | $ | 6,398 |
| | 1 | % |
| | | | | 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 March 31, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase
(Decrease)Amount | | Increase
(Decrease) Percent | | 2017 | | 2016 | | Increase
(Decrease)Amount | | Increase
(Decrease) Percent | | 2020 | | 2019 | | Increase (Decrease)
Amount | | Increase (Decrease)
Percent |
| EFT Processing | | $ | 86,797 |
| | $ | 59,438 |
| | $ | 27,359 |
| | 46 | % | | $ | 137,090 |
| | $ | 100,596 |
| | $ | 36,494 |
| | 36 | % | | $ | 4,935 |
| | $ | 16,768 |
| | $ | (11,833 | ) | | (71 | )% |
| epay | | 15,650 |
| | 14,795 |
| | 855 |
| | 6 | % | | 44,361 |
| | 46,681 |
| | (2,320 | ) | | (5 | )% | | 16,458 |
| | 17,999 |
| | (1,541 | ) | | (9 | )% |
| Money Transfer | | 24,356 |
| | 25,183 |
| | (827 | ) | | (3 | )% | | 75,355 |
| | 72,578 |
| | 2,777 |
| | 4 | % | | 22,308 |
| | 30,774 |
| | (8,466 | ) | | (28 | )% |
| Total | | 126,803 |
| | 99,416 |
| | 27,387 |
| | 28 | % | | 256,806 |
| | 219,855 |
| | 36,951 |
| | 17 | % | | 43,701 |
| | 65,541 |
| | (21,840 | ) | | (33 | )% |
| Corporate services, eliminations and other | | (9,902 | ) | | (8,948 | ) | | (954 | ) | | 11 | % | | (31,928 | ) | | (28,188 | ) | | (3,740 | ) | | 13 | % | | (12,099 | ) | | (9,447 | ) | | (2,652 | ) | | 28 | % |
| Total | | $ | 116,901 |
| | $ | 90,468 |
| | $ | 26,433 |
| | 29 | % | | $ | 224,878 |
| | $ | 191,667 |
| | $ | 33,211 |
| | 17 | % | | $ | 31,602 |
| | $ | 56,094 |
| | $ | (24,492 | ) | | (44 | )% |
Impact of changes in foreign currency exchange rates
Our revenues and local expenses are recorded in the functional currencies of our operating entities, and then are 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,If significant, in our discussion we estimate that our reported consolidated operating income for the third quarter and the first nine months of 2017 was 5% and 1% more duewill refer to the changesimpact of fluctuations in foreign currency exchange rates when compared to the same periodsin our comparison of 2016.operating segment results.
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 March 31, | | Decrease Percent |
| Currency (dollars per foreign currency) | | 2017 | | 2016 | | 2017 | | 2016 | | | 2020 | | 2019 | |
| Australian dollar | | $ | 0.7896 |
| | $ | 0.7577 |
| | 4 | % | | $ | 0.7661 |
| | $ | 0.7418 |
| | 3 | % | | $ | 0.6144 |
| | $ | 0.7125 |
| | (14 | )% |
| British pound | | $ | 1.3091 |
| | $ | 1.3125 |
| | — | % | | $ | 1.2756 |
| | $ | 1.3931 |
| | (8 | )% | | $ | 1.2405 |
| | $ | 1.3024 |
| | (5 | )% |
| euro | | $ | 1.1754 |
| | $ | 1.1156 |
| | 5 | % | | $ | 1.1136 |
| | $ | 1.1162 |
| | — | % | | $ | 1.1026 |
| | $ | 1.1354 |
| | (3 | )% |
| Hungarian forint | | $ | 0.0038 |
| | $ | 0.0036 |
| | 6 | % | | $ | 0.0036 |
| | $ | 0.0036 |
| | — | % | | $ | 0.0031 |
| | $ | 0.0036 |
| | (14 | )% |
| Indian rupee | | $ | 0.0156 |
| | $ | 0.0149 |
| | 5 | % | | $ | 0.0153 |
| | $ | 0.0149 |
| | 3 | % | | $ | 0.0133 |
| | $ | 0.0142 |
| | (6 | )% |
| Malaysian ringgit | | $ | 0.2347 |
| | $ | 0.2472 |
| | (5 | )% | | $ | 0.2302 |
| | $ | 0.2452 |
| | (6 | )% | | $ | 0.2319 |
| | $ | 0.2445 |
| | (5 | )% |
| New Zealand dollar | | $ | 0.7309 |
| | $ | 0.7221 |
| | 1 | % | | $ | 0.7156 |
| | $ | 0.6922 |
| | 3 | % | | $ | 0.5966 |
| | $ | 0.6813 |
| | (12 | )% |
| Polish zloty | | $ | 0.2762 |
| | $ | 0.2573 |
| | 7 | % | | $ | 0.2613 |
| | $ | 0.2563 |
| | 2 | % | | $ | 0.2418 |
| | $ | 0.2639 |
| | (8 | )% |
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2020 AND 20162019
EFT PROCESSING SEGMENT
The following table presentssummarizes the results of operations for the three and nine months ended September 30, 2017 and 2016 for our EFT Processing Segment:Segment for the three months ended March 31, 2020 and 2019: | | | | | Three Months Ended
September 30, | | Year-over-Year Change | | Nine Months Ended
September 30, | | Year-over-Year Change | | Three Months Ended
March 31, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase Amount | | Increase Percent | | 2017 | | 2016 | | Increase Amount | | Increase Percent | | 2020 | | 2019 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| Total revenues | | $ | 226,321 |
| | $ | 152,586 |
| | $ | 73,735 |
| | 48 | % | | $ | 488,030 |
| | $ | 354,282 |
| | $ | 133,748 |
| | 38 | % | | $ | 145,825 |
| | $ | 145,703 |
| | $ | 122 |
| | — | % |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Direct operating costs | | 99,024 |
| | 62,401 |
| | 36,623 |
| | 59 | % | | 238,753 |
| | 165,520 |
| | 73,233 |
| | 44 | % | | 87,536 |
| | 83,776 |
| | 3,760 |
| | 4 | % |
| Salaries and benefits | | 16,817 |
| | 12,954 |
| | 3,863 |
| | 30 | % | | 46,125 |
| | 37,601 |
| | 8,524 |
| | 23 | % | | 22,091 |
| | 19,431 |
| | 2,660 |
| | 14 | % |
| Selling, general and administrative | | 8,878 |
| | 7,642 |
| | 1,236 |
| | 16 | % | | 23,960 |
| | 22,154 |
| | 1,806 |
| | 8 | % | | 10,941 |
| | 9,086 |
| | 1,855 |
| | 20 | % |
| 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 | % | | 20,322 |
| | 16,642 |
| | 3,680 |
| | 22 | % |
| Total operating expenses | | 139,524 |
| | 93,148 |
| | 46,376 |
| | 50 | % | | 350,940 |
| | 253,686 |
| | 97,254 |
| | 38 | % | | 140,890 |
| | 128,935 |
| | 11,955 |
| | 9 | % |
| Operating income | | $ | 86,797 |
| | $ | 59,438 |
| | $ | 27,359 |
| | 46 | % | | $ | 137,090 |
| | $ | 100,596 |
| | $ | 36,494 |
| | 36 | % | | $ | 4,935 |
| | $ | 16,768 |
| | $ | (11,833 | ) | | (71 | )% |
| Transactions processed (millions) | | 615 |
| | 488 |
| | 127 |
| | 26 | % | | 1,726 |
| | 1,370 |
| | 356 |
| | 26 | % | | 785 |
| | 691 |
| | 94 |
| | 14 | % |
| ATMs as of September 30, | | 38,105 |
| | 29,276 |
| | 8,829 |
| | 30 | % | | 38,105 |
| | 29,276 |
| | 8,829 |
| | 30 | % | |
| ATMs as of March 31, | | | 42,176 |
| | 42,034 |
| | 142 |
| | — | % |
| Average ATMs | | 38,123 |
| | 27,350 |
| | 10,773 |
| | 39 | % | | 36,524 |
| | 25,802 |
| | 10,722 |
| | 42 | % | | 44,813 |
| | 40,918 |
| | 3,895 |
| | 10 | % |
Revenues
EFT Processing Segment total revenues for the three and nine months ended September 30, 2017March 31, 2020 were $226.3$145.8 million and $488.0$145.7 million respectively, an increase of $73.7 million or 48% and $133.7 million or 38% as compared tofor the same periodsperiod in 2016. The increases in total2019. Total revenues for the three and nine months ended September 30, 2017 were primarilyMarch 31, 2020 slightly increased due to an increasegrowth in the number of ATMs under management in Europe. Specifically, the increase in the number of ATMs contributed to increases in the number of transactions processed, including dynamic currency conversion ("DCC") transactions. For the
three months ended September 30, 2017, revenues were also higher than the same period in the prior year as a result of a higher
volume of sales of POS devices in GreeceAsia Pacific and the acquisition of YourCash, completed during the fourth 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 partiallyUnited States markets, offset by the impact of a cash shortage duefewer European ATM transactions, especially high-margin cross-border transactions (DCC), related to the demonetization initiatedCOVID-19 pandemic driven government imposed border closures and shelter-in-place orders. The government imposed border closures went into place throughout Europe in late February 2020 and early March 2020. These closures resulted in a decrease in revenues in the fourthmonth of March 2020 compared to March 2019. While the EFT Segment had an overall slight increase in revenues for the quarter of 2016ended March 31, 2020, the growth rate was reduced by the decrease in India. In the third quarter, the India cash supply was returnedrevenues in March 2020 compared to near pre-demonetization levels.March 2019. Foreign currency movements increaseddecreased total revenues by approximately $10.3$3.8 million for the three months ended September 30, 2017 asMarch 31, 2020 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 2016.2019.
Average monthly revenues per ATM were $1,979 and $1,485$1,085 for the three and nine months ended September 30, 2017, respectively, compared to $1,860March 31, 2020 and $1,526$1,187 for the three and nine months ended September 30, 2016, respectively. The decrease for the nine months ended September 30, 2017 was primarily due to the India cash shortage and low-margin ATMs in India.March 31, 2019. Revenues per transaction were $0.37$0.19 for the third quarter and $0.28three months ended March 31, 2020 compared to $0.21 for the first nine months of 2017, respectively, compared to $0.31 for the third quartersame period in 2019. The decreases in average monthly revenues per ATM and $0.26 for the first nine months of 2016, respectively. The increases in revenuerevenues per transaction were primarilyattributable to the result of revenue growthdecrease from DCC, which earns higher revenues per transaction than other ATM or card-based services, which were partially offset bysurcharges and the impact of the low margin ATM transactions in India.U.S. dollar strengthening against key foreign currencies.
Direct operating costs
EFT Processing Segment direct operating costs were $99.0 million and $238.8$87.5 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020, an increase of $36.6$3.8 million or 59% and $73.2 million or 44% as4% compared to the same periodsperiod in 2016.2019. Direct operating costs in the EFT Processing Segment consist primarily of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications, payment schemes processing fees, 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 increasesincrease in direct operating costs for the three and nine months ended September 30, 2017 werewas primarily due to anthe increase in the number of ATMs under management, particularly our independent ATM network which has more seasonal revenue generation and the impact of our acquisition of YourCash. The increasemanagement. Foreign currency movements decreased direct operating costs for the three months ended September 30, 2017 was also dueMarch 31, 2020 by approximately $2.7 million compared to the net impact of the U.S. dollar weakening against key foreign currencies.same period in 2019.
Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $127.3 million and $249.3$58.3 million for the three and nine months ended September 30, 2017, respectively, as compared to $90.2 millionMarch 31, 2020 and $188.8$61.9 million for the three and nine months ended September 30, 2016, respectively.March 31, 2019. The increasesdecrease in gross profit werewas primarily due to the growthincreases in revenues from thedirect operating costs related to an increase in ATMsATM's under management, DCC transactions processed and the net impact of the U.S. dollar weakening against key foreign currencies.management. Gross profit as a percentage of revenues (“gross margin”) was 56.2% and 51.1%decreased to 40.0% for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020, compared to 59.1% and 53.3%42.5% for the three and nine months ended September 30, 2016, respectively.same period in 2019. The decreasesdecrease in gross profit as a percentage of revenue were primarily duemargin was attributable to increased operating costs due to the expansion 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.DCC transactions and domestic and international surcharge.
Salaries and benefits
Salaries and benefits expense increased $3.9$2.7 million or 30% and $8.5 million or 23%14% for the three and nine months ended September 30, 2017, respectively,March 31, 2020, compared to the same periodsperiod in 2016.2019. The increases in salaries and benefits wereincrease was primarily attributabledue to additional headcount to support an increase in the number of ATMs and POS devices under management. The shelter-in-place orders that went into place in late February 2020 and March 2020 in response to the COVID-19 pandemic reduced transaction volumes and revenues during that time period, but human resources to support actual and planned growth were added throughout 2019 as well as the early part of the first quarter of 2020 before the COVID-19 pandemic took effect, which led to lower transactions and revenues in the quarter, especially high-margin cross-border transactions. As a percentage of revenues, these costs decreasedincreased to 7.4%15.1% for the third quarter and 9.5%three months ended March 31, 2020, compared to 13.3% for the first nine months of 2017, respectively, compared to 8.5% for the third quarter and 10.6% for the first nine months of 2016, respectively. The decreases were primarily due to the growthsame period in revenues earned from DCC and other value added service transactions on our ATMs under management, which require minimal incremental support costs.2019.
Selling, general and administrative
Selling, general and administrative expenses increased $1.9 million or 20% for the three and nine months ended September 30, 2017 were $8.9 million and $24.0 million, respectively, an increase of $1.2 million or 16% and $1.8 million or 8% asMarch 31, 2020, compared to the same periodsperiod in 2016.2019. The increases in selling, general and administrative expenses wereincrease was primarily due to the impact of our acquisition of YourCash which was partly offset by an increaseincreases in additional support cost in 2016 that did not recur in 2017.professional fees. As a percentage of revenues, selling, general and administrative expenses were 3.9% and 4.9%increased to 7.5% for the three and nine months ended September 30, 2017, respectively,March 31, 2020, compared to 5.0% and 6.3%6.2% for the three and nine months ended September 30, 2016, respectively. The decreases were primarily due to the growthsame period in revenues earned from DCC and other value added service transactions on our ATMs under management, which require minimal incremental 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 2016.2019.
Depreciation and amortization
Depreciation and amortization expense increased $4.7$3.7 million and $11.4 millionor 22% for the three and nine months ended September 30, 2017, respectively,March 31, 2020, compared to the same periodsperiod in 2016.2019. The increases wereincrease was primarily attributabledue 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%expenses increased to 13.9% for the third quarter and 8.2% for the first ninethree months of 2017 asended March 31, 2020, compared to 6.7% and 8.0%11.4% for the same periods of 2016.
period in 2019.
Operating income
EFT Processing Segment operating income for the three and nine months ended September 30, 2017March 31, 2020 was $86.8$4.9 million, and $137.1 million, respectively, an increasea decrease of $27.4$11.8 million or 46% and $36.5 million or 36% as71% compared to the same periodsperiod in 2016. EFT Processing Segment operating income for the three and nine months ended September 30, 2017 increased primarily due to higher operating revenues from the additional number of ATMs under management, the YourCash acquisition, growth in revenues earned from DCC transactions and the net impact of the U.S. dollar weakening against key foreign currencies.
2019. Operating income as a percentage of revenues (“operating margin”) was 38.4%decreased to 3.4% for the third quarter and 28.1%three months ended March 31, 2020 from 11.5% for the first nine months of 2017 compared to 39.0% for the third quarter and 28.4% for the first nine months of 2016.same period in 2019. The slight decreases in operating marginsincome and operating margin were attributableprimarily due to an increase in direct operating costs to support the additional costs for ATMs addedunder management and a change in product mix. During late February 2020 and throughout March 2020, high margin cross-border transactions (DCC) decreased throughout Europe due to the yearCOVID-19 pandemic driven government imposed border closures and the impact of lower margin ATM transactions for YourCash and in India.shelter-in-place orders. Operating income per transaction was $0.14decreased to $0.01 for the third quarter and $0.08 for the first ninethree months of 2017 asended March 31, 2020 compared to $0.12 and $0.07$0.02 for the same periods of 2016.period in 2019.
EPAY SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 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
March 31, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase
(Decrease)Amount | | Increase
(Decrease)Percent | | 2020 | | 2019 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| Total revenues | | $ | 184,234 |
| | $ | 167,226 |
| | $ | 17,008 |
| | 10 | % | | $ | 512,531 |
| | $ | 497,945 |
| | $ | 14,586 |
| | 3 | % | | $ | 172,911 |
| | $ | 176,114 |
| | $ | (3,203 | ) | | (2 | )% |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Direct operating costs | | 143,023 |
| | 128,212 |
| | 14,811 |
| | 12 | % | | 393,269 |
| | 379,423 |
| | 13,846 |
| | 4 | % | | 130,074 |
| | 133,525 |
| | (3,451 | ) | | (3 | )% |
| Salaries and benefits | | 13,955 |
| | 13,352 |
| | 603 |
| | 5 | % | | 39,606 |
| | 38,052 |
| | 1,554 |
| | 4 | % | | 15,697 |
| | 14,753 |
| | 944 |
| | 6 | % |
| Selling, general and administrative | | 9,145 |
| | 8,133 |
| | 1,012 |
| | 12 | % | | 27,628 |
| | 25,291 |
| | 2,337 |
| | 9 | % | | 8,838 |
| | 8,052 |
| | 786 |
| | 10 | % |
| Depreciation and amortization | | 2,461 |
| | 2,734 |
| | (273 | ) | | (10 | )% | | 7,667 |
| | 8,498 |
| | (831 | ) | | (10 | )% | | 1,844 |
| | 1,785 |
| | 59 |
| | 3 | % |
| Total operating expenses | | 168,584 |
| | 152,431 |
| | 16,153 |
| | 11 | % | | 468,170 |
| | 451,264 |
| | 16,906 |
| | 4 | % | | 156,453 |
| | 158,115 |
| | (1,662 | ) | | (1 | )% |
| Operating income | | $ | 15,650 |
| | $ | 14,795 |
| | $ | 855 |
| | 6 | % | | $ | 44,361 |
| | $ | 46,681 |
| | $ | (2,320 | ) | | (5 | )% | | $ | 16,458 |
| | $ | 17,999 |
| | $ | (1,541 | ) | | (9 | )% |
| Transactions processed (millions) | | 293 |
| | 314 |
| | (21 | ) | | (7 | )% | | 901 |
| | 949 |
| | (48 | ) | | (5 | )% | | 447 |
| | 338 |
| | 109 |
| | 32 | % |
Revenues
epay Segment total revenues for the three and nine months ended September 30, 2017March 31, 2020 were $184.2$172.9 million, and $512.5a decrease of $3.2 million respectively, an increase of $17.0 million or 10% and $14.6 million or 3% as compared to the same periodsperiod in 2016.2019. The increasesdecrease in total revenues werewas primarily due to the U.S. dollar strengthening against key foreign currencies, partially offset by an increase in the number of non-mobile transactions processed in Germany, an increase in vouchers distributeddriven by our cadooz subsidiary following the acquisition of new customers and the net impact of of the U.S. dollar weakening against key foreign currencies.continued digital media growth. Foreign currency movements increaseddecreased total revenues by approximately $7.6$5.3 million for the three months ended September 30, 2017March 31, 2020, compared to the same period in 20162019. The epay segment was impacted by the COVID-19 pandemic government imposed shelter-in-place orders, primarily at retail outlets, which was partially offset by increases in digital product offerings in Asia. Overall, revenues decreased in March 2020 compared to March 2019 due to consumer movement restrictions and had minimal effect on total revenuestemporary retail outlet closures as a result of the COVID-19 pandemic.
Revenues per transaction decreased to $0.39 for the first ninethree months of 2017 asended March 31, 2020 compared to $0.52 for the same period 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.
Revenues per transaction were $0.63 for the third quarter and $0.57 for the first nine months of 2017 compared to $0.53 and $0.52 for the same periods in 20162019. 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 impactedprimarily driven by the loss of a high-volume, low-margin customerincrease in the Middle East.
number of mobile transactions processed in a region where we generally earn lower revenues per transaction.
Direct operating costs
epay Segment direct operating costs were $143.0 million and $393.3$130.1 million for the three and nine months ended September 30, 2017, respectively, an increaseMarch 31, 2020, a decrease of $14.8$3.5 million and $13.8 million as compared to the same periodsperiod in 2016.2019. Direct operating costs in our epay Segment include the commissions we paypaid 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 increasesdecrease in direct operating costs werewas primarily due to the increase in vouchers distributed by our cadooz subsidiary and non-mobile transactions processed in Germany. The increaseU.S. dollar strengthening against key foreign currencies. Foreign currency movements decreased direct operating costs for the three months ended September 30, 2017 was also partly dueMarch 31, 2020 by approximately $3.9 million compared to the net impact of the U.S. dollar weakening against key foreign currencies.same period in 2019.
Gross profit
Gross profit was $41.2 million and $119.3$42.8 million for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020 compared to $39.0 million and $118.5$42.6 million for the three and nine months ended September 30, 2016, respectively. The increases in gross profit were primarily dueMarch 31, 2019. Gross margin increased to growth in non-mobile transactions processed in Germany partly offset by a decrease in promotional activities24.8% for non-mobile transactions processed in a particular market. For the third quarter, the increase was also partly due to the net impact of the U.S. dollar weakening against key foreign currencies.
During the three and nine months ended September 30, 2017, the gross margin was 22.4% and 23.3%, asMarch 31, 2020, compared to 23.3% and 23.8%24.2% for the same periodsperiod in 2016. The decreases in gross margins for2019 due to overall growth of 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.business.
Salaries and benefits
Salaries and benefits expense increased slightly$0.9 million or 6% for the three and nine months ended September 30, 2017March 31, 2020, compared to the same periodsperiod in 2016. The increases were mainly driven by higher headcount in an effort2019 to growsupport continued growth of the segment.business. As a percentage of revenues, salaries and benefits were 7.6% and 7.7%increased to 9.1% for the three and nine months ended September 30, 2017, asMarch 31, 2020, compared to 8.0% and 7.6%8.4% for the same periodsperiod in 2016.2019.
Selling, general and administrative
Selling, general and administrative expenses were $9.1 million and $27.6$8.8 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020, an increase of 12% and 9% as$0.8 million or 10% compared to the same periodsperiod 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.2019. As a percentage of revenues, selling, general and administrative expenses were 5.0% and 5.4%increased to 5.1% for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020, compared to 4.9% and 5.1%4.6% for the same periodsperiod in 2016.2019.
Depreciation and amortization
Depreciation and amortization expense primarily represents depreciation of POS terminals we placeinstall in retail stores and the amortization of acquired intangible assets. Depreciation and amortization expense decreased slightlyexpenses increased $0.1 million or 3% for the three and nine months ended September 30, 2017 asMarch 31, 2020, compared to the same periodsperiod in 2016.2019. As a percentage of revenues, depreciation and amortization expense was 1.3% and 1.5%increased to 1.1% for the three and nine months ended September 30, 2017, respectively, and 1.6% and 1.7%March 31, 2020 compared to 1.0% for the three and nine months ended September 30, 2016, respectively.same period in 2019.
Operating income
epay Segment operating income for the three and nine months ended September 30, 2017March 31, 2020 was $15.7$16.5 million, and $44.4 million, respectively, an increase of $0.9 million and a decrease of $2.3$1.5 million asor 9% compared to the same periodsperiod in 2016.2019. Operating margin decreased to 9.5% for the three months ended March 31, 2020 from 10.2% for the same period in 2019. Operating income per transaction decreased to $0.04 for the ninethree months ended September 30, 2017 decreased asMarch 31, 2020 compared to $0.05 in the result of additional costsame period in 2019. The decreases in operating income and operating margin were primarily due to the U.S. dollar strengthening against key foreign currencies, an increase in headcount to support the transaction growth of our non-mobile productsthe business, and decreased revenue growth in Germany and a decrease in promotion driven revenues from non-mobile transactions, partly offsetcertain markets that were negatively impacted by an increase in gross profit from non-mobile products in Germany. Operatingthe COVID-19 pandemic. Foreign currency movements decreased 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 offsetMarch 31, 2020 by the decrease in promotion driven revenues from non-mobile transactions processed in a particular market.
Operating margin decreasedapproximately $0.4 million compared to 8.5% and 8.7% for the three and nine months ended September 30, 2017, respectively, from 8.8% and 9.4% for the same periodsperiod in 2016. Operating income per transaction was $0.05 for the three and nine months ended September 30, 2017 and 2016, respectively.2019.
MONEY TRANSFER SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 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
March 31, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase
Amount | | Increase Percent | | 2020 | | 2019 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| Total revenues | | $ | 228,105 |
| | $ | 204,611 |
| | $ | 23,494 |
| | 11 | % | | $ | 649,205 |
| | $ | 587,664 |
| | $ | 61,541 |
| | 10 | % | | $ | 266,234 |
| | $ | 256,581 |
| | $ | 9,653 |
| | 4 | % |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Direct operating costs | | 123,588 |
| | 109,944 |
| | 13,644 |
| | 12 | % | | 348,724 |
| | 309,706 |
| | 39,018 |
| | 13 | % | | 142,909 |
| | 137,404 |
| | 5,505 |
| | 4 | % |
| Salaries and benefits | | 44,110 |
| | 38,365 |
| | 5,745 |
| | 15 | % | | 125,273 |
| | 114,582 |
| | 10,691 |
| | 9 | % | | 53,864 |
| | 51,156 |
| | 2,708 |
| | 5 | % |
| Selling, general and administrative | | 28,648 |
| | 23,924 |
| | 4,724 |
| | 20 | % | | 77,912 |
| | 68,930 |
| | 8,982 |
| | 13 | % | | 38,582 |
| | 29,109 |
| | 9,473 |
| | 33 | % |
| Depreciation and amortization | | 7,403 |
| | 7,195 |
| | 208 |
| | 3 | % | | 21,941 |
| | 21,868 |
| | 73 |
| | — | % | | 8,571 |
| | 8,138 |
| | 433 |
| | 5 | % |
| Total operating expenses | | 203,749 |
| | 179,428 |
| | 24,321 |
| | 14 | % | | 573,850 |
| | 515,086 |
| | 58,764 |
| | 11 | % | | 243,926 |
| | 225,807 |
| | 18,119 |
| | 8 | % |
| Operating income | | $ | 24,356 |
| | $ | 25,183 |
| | $ | (827 | ) | | (3 | )% | | $ | 75,355 |
| | $ | 72,578 |
| | $ | 2,777 |
| | 4 | % | | $ | 22,308 |
| | $ | 30,774 |
| | $ | (8,466 | ) | | (28 | )% |
| Transactions processed (millions) | | 23.9 |
| | 21.3 |
| | 2.6 |
| | 12 | % | | 67.4 |
| | 60.5 |
| | 6.9 |
| | 11 | % | | 27.4 |
| | 26.6 |
| | 0.8 |
| | 3 | % |
Revenues
Money Transfer Segment total revenues for the three and nine months ended September 30, 2017March 31, 2020 were $228.1$266.2 million, and $649.2 million, respectively, an increase of $23.5$9.7 million or 11% and $61.5 million or 10% as4% compared to the same periodsperiod in 2016.2019. The increasesincrease in total revenues for the three and nine months ended September 30, 2017 werewas primarily due to increases in the number of international money transfers processed, driven by growth in theour U.S. and foreign agent and correspondent payout networks, and an increasegrowth in transactions in our domestic Walmart-2-Walmart money transfer service. These increases were partly offsetxe, driven by the reduced rates for our Walmart-2-Walmart product beginning in the second quarter of 2017, the effects of the hurricanes in Texas, Florida and Puerto Rico and a decrease in transactions processed by HiFX as a result ofrecent currency volatility from the Brexit vote during the prior year which did not recur in the current period.
volatility. Revenues per transaction decreasedincreased to $9.54$9.72 for the third quarter and $9.63three months ended March 31, 2020 compared to $9.65 for the first nine months of 2017 from $9.61 forsame period in 2019. The overall growth rate in revenues was negatively impacted by the third quarter and $9.71 for the first nine months of 2016. The decreases were primarilyCOVID-19 pandemic due to the impacttemporary closure of the increase in volume from our Walmart money transfer product, which earns lower revenues per transaction than other money transfer servicesCompany owned stores and reduced rates chargedretail agents due to government imposed shelter-in-place orders. Revenues decreased for the Walmart-2-Walmart product beginningmonth of March 2020 compared to March 2019. Foreign currency movements decreased total revenues by approximately $4.5 million for the three months ended March 31, 2020 compared to the same period 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.2019.
Direct operating costs
Money Transfer Segment direct operating costs were $123.6 million and $348.7$142.9 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020, an increase of $13.6$5.5 million or 12% and $39.0 million or 13% as4% compared to the same periodsperiod in 2016.2019. 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 increasesincrease in direct operating costs for the three and nine months of 2017 werewas primarily due to growth in the number of money transfer transactions processed in both the U.S. and foreign markets.markets, partially offset by the impact of the U.S. dollar strengthening against key foreign currencies. Foreign currency movements decreased direct operating costs for the three months ended March 31, 2020 by approximately $1.9 million compared to the same period in 2019.
Gross profit
Gross profit was $104.5 million and $300.5$123.3 million for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020 compared to $94.7 million and $278.0$119.2 million for the three and nine months ended September 30, 2016, respectively.March 31, 2019. The increasesincrease in gross profit werewas 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, gross margin decreased to 45.8% and Gross margins of 46.3% for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020 were essentially flat compared to 46.3% and 47.3%46.4% for the three and nine months ended September 30, 2016, respectively. The decreases are primarily due to the growth of our Walmart money transfer productsame period 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 2017.2019.
Salaries and benefits
Salaries and benefits expense increased $5.7$2.7 million or 15% and $10.7 million or 9%5% for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020, compared to the same periodsperiod in 2016.2019. The increasesincrease in salaries and benefits werewas primarily due to the expansion of our operations in foreign markets.operations. As a percentage of revenues, salaries and benefits were 19.3%increased to 20.2% for the three and nine months ended September 30, 2017, asMarch 31, 2020, compared to 18.8% and 19.5%19.9% for the threesame period in 2019. The increase in salaries and nine months ended September 30, 2016, respectively.benefits was the result of headcount increases in place to support the growth of the business in advance of the COVID-19 pandemic.
Selling, general and administrative
Selling, general and administrative expenses for the three and nine months ended September 30, 2017March 31, 2020 were $28.6 million and $77.9$38.6 million, an increase of $4.7$9.5 million or 20% and $9.0 million or 13% as33% compared to the same periodsperiod in 2016.2019. The increases wereincrease was primarily due to expenses incurred to support the growth of our money transfer services, and the expansion of new products in both the U.S. and foreign markets.
markets, and an increase in additional charges taken to cover anticipated agent receivable defaults as a result of government ordered business closures required to manage the COVID-19 pandemic. As a percentage of revenues, selling, general and administrative expenses increased to 12.6% and 12.0%14.5% for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020, compared to 11.7%11.3% for both of the same periodsperiod in 2016. This increase was primarily due to the growth rate of support costs exceeding the growth rate of money transfer revenues as we develop and promote expanded payout locations and new products.2019.
Depreciation and amortization
Depreciation and amortization expense increased $0.4 million or 5% for the three months ended March 31, 2020, compared to the same period in 2019. Depreciation and amortization primarily representsrepresent 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 flat for the three and nine months ended September 30, 2017 as compared to the same periods in 2016.
As a percentage of revenues, depreciation and amortization expense wasexpenses were flat at 3.2% for the third quarterthree months ended March 31, 2020 and 3.4% for the first nine months of 2017 as compared to 3.5% and 3.7% 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.2019.
Operating income
Money Transfer Segment operating income for the three and nine months ended September 30, 2017March 31, 2020 was $24.4 million and $75.4$22.3 million, a decrease of $0.8$8.5 million or 3% and an increase of $2.8 million or 4% as28% compared to the same periods of 2016.period in 2019. Operating incomemargin decreased to 8.4% for the three months ended September 30, 2017 decreasedMarch 31, 2020, compared to 12.0% for the same period in 2019. The decreases in operating income and operating margin were primarily as a result ofdue to the the reduced rates for our Walmart-2-Walmart product, the effects of the hurricanesincrease in Texas, Floridaselling, general and Puerto Rico and additional salaries and benefits and other costsadministrative expenses incurred to support the currentexpansion of new products and future growth in the business. Operating income for the nine months ended September 30, 2017 increased primarily due to the growth in the number of money transfers processed. The increase was partly offset by the additional salariesmarkets 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.
As a percentage of revenues, operating margin was 10.7% and 11.6% for the three and nine months ended September 30, 2017 as compared to 12.3% and 12.4% for the same periods in 2016.COVID-19 pandemic related anticipated agent receivables default charges. Operating income per transaction decreased to $1.02$0.81 for the third quarter and $1.12 for the first ninethree months of 2017 from $1.18 and $1.20ended March 31, 2020, compared to $1.16 for the same periodsperiod in 2016. Operating margin and operating income per transaction decreased 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.2019.
CORPORATE SERVICES
The following table presents the operating expenses for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 for Corporate Services:
|
|
|
| | | | Three Months Ended
September 30, | | Year-over-Year Change | | Nine Months Ended
September 30, | | Year-over-Year Change | | Three Months Ended
March 31, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2020 | | 2019 | | Increase Amount | | Increase Percent |
| Salaries and benefits | | $ | 7,252 |
| | $ | 7,228 |
| | $ | 24 |
| | — | % | | $ | 21,613 |
| | $ | 22,739 |
| | $ | (1,126 | ) | | (5 | )% | | $ | 9,588 |
| | $ | 7,455 |
| | $ | 2,133 |
| | 29 | % |
| Selling, general and administrative | | 2,614 |
| | 1,680 |
| | 934 |
| | 56 | % | | 10,219 |
| | 5,303 |
| | 4,916 |
| | 93 | % | | 2,432 |
| | 1,917 |
| | 515 |
| | 27 | % |
| Depreciation and amortization | | 36 |
| | 40 |
| | (4 | ) | | (10 | )% | | 96 |
| | 146 |
| | (50 | ) | | (34 | )% | | 79 |
| | 75 |
| | 4 |
| | 5 | % |
| Total operating expenses | | $ | 9,902 |
| | $ | 8,948 |
| | $ | 954 |
| | 11 | % | | $ | 31,928 |
| | $ | 28,188 |
| | $ | 3,740 |
| | 13 | % | | $ | 12,099 |
| | $ | 9,447 |
| | $ | 2,652 |
| | 28 | % |
Corporate operating expenses
Overall, operating expenses for Corporate Services were $9.9 million and $31.9 millionincreased 28% for the three and nine months ended September 30, 2017, an increase of 11% and 13% asMarch 31, 2020 compared to the same periodsperiod in 2016.2019. The decrease in salaries and benefits for the first nine months of 2017 wasincrease is primarily due to an increase in stock compensation driven by the issuance of a decreasespecial retention stock incentive award granted to key executives in bonus expense relatedApril of 2019. These awards vest based on the Company’s achievement of certain long-term performance targets over the next three 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 incurred in connection with the proposed acquisition of MoneyGram International, Inc.four years.
OTHER INCOME (EXPENSE), NET |
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2020 | | 2019 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| Interest income | | $ | 567 |
| | $ | 343 |
| | $ | 224 |
| | 65 | % |
| Interest expense | | (9,233 | ) | | (8,199 | ) | | (1,034 | ) | | 13 | % |
| Foreign currency exchange (loss) gain, net | | (18,806 | ) | | 3,208 |
| | (22,014 | ) | | (686 | )% |
Loss on early extinguishment of debt
| | — |
| | (928 | ) | | 928 |
| | n/m |
|
| Other (loss) gains | | 31 |
| | 25 |
| | 6 |
| | 24 | % |
| Other expense, net | | $ | (27,441 | ) | | $ | (5,551 | ) | | $ | (21,890 | ) | | 394 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 increasesincrease in interest income for the three and nine months ended September 30, 2017March 31, 2020 compared to the same periodsperiod in 2016 were2019 is primarily due to an increase in interest earnedrates on a tax refund received in India in the first quarter of 2017.cash balances held at banks.
Interest expense
The increasesincrease in interest expense for the three and nine months ended September 30, 2017March 31, 2020 compared to the same periodsperiod in 2016 were2019 was primarily related to higher interest rates and additional borrowings under the Credit Facility throughoutissuance of the third quarter and first nine months of 2017 to fundSenior Notes partially offset by a decrease in Convertible Notes outstanding in the operating cash for our Independent ATM Deployed (“IAD”) networks.period.
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 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 million and $21.0$18.8 million for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2020, compared to a net foreign currency loss of $1.5 million and gain of $1.3 million for the same periods in 2016. These realized and unrealized net foreign currency exchange gains of $3.2 million for the same period in 2019. These realized and unrealized foreign currency exchange losses and gains 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%58.7% and 19.3%31.6% for the three and nine months ended September 30, 2017, respectively, as compared to 25.5%March 31, 2020 and 23.7% for the same periods in 2016.2019, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2017 and 2016March 31, 2020 was lowerhigher than the applicable statutory income tax rate of 35%21% primarily attributableas a result of certain foreign earnings of the Company being subject to higher local statutory income tax rates. The Company’s effective income tax rate for the three months ended March 31, 2019 was higher than the applicable statutory income tax rate of 21% largely because of the application to the release in 2017Company of a $16.3 million valuation allowance againstthe global intangible low-taxed income ("GILTI") tax provision and 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 decreaseincrease in the effective tax ratesrate for 2017the first quarter of 2020 compared to 2016 isthe same period in 2019 was largely duethe result of the mix of earnings and the rates of tax being applied to the the release of valuation allowance against certain foreign net deferred tax assets.those earnings.
NET (INCOME) LOSSINCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests representsrepresent 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 $100.3$1.9 million and $179.8$34.5 million for the three and nine months ended September 30, 2017, respectively, an increase of $39.6March 31, 2020 and 2019, respectively. Net income attributable to Euronet decreased $32.6 million and $34.3 million asfor the three months ended March 31, 2020 compared to the same periodsperiod in 2016.2019. The increasedecrease in net income for the first ninethree months of 2017ended March 31, 2020 was primarily due to an increasea decrease in operating income of $33.2$24.5 million, an increase of $22.3$22.0 million in net foreign currency exchange gains,losses, an increase in interest incomeexpense of $0.8$1.0 million, andpartially offset by a decrease in income tax expense of $2.0 million. The$13.5 million, a decrease in loss on early retirement of debt of $0.9 million, an increase was partly offset by a $19.4in net income attributable to noncontrolling interests of $0.2 million, gain from the sale of our investment in Visa Europe in 2016 which did not recur in the current period and an increase in interest expenseincome of $4.1$0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
Working capital
As of September 30, 2017 and DecemberMarch 31, 2016,2020, we had working capital of $1,011.0 million, which is calculated as the difference between total current assets and total current liabilities, compared to working capital of $626.1$1,284.8 million and $405.9as of December 31, 2019. The decrease in working capital is primarily due to $239.8 million respectively.of share repurchases during the first quarter of 2020. Our ratio of current assets to current liabilities was 1.69 and 1.79 at September 30, 2017March 31, 2020 and December 31, 2016 was 1.48 and 1.34,2019, respectively.
We require substantial working capital to finance operations. In theThe Money Transfer Segment we fundfunds 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 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 certain countries, we fund the cash required to operate our ATM network from borrowings under ourthe revolving credit facilities and cash flows from operations. As of September 30, 2017,March 31, 2020, we had approximately $626$558.6 million of our own cash in use or designated for use in our ATM network, which is recorded in ATM cash and cash equivalents and trade accounts receivable, for ATM withdrawals pending settlement, on theEuronet's Consolidated Balance Sheet.
We hadThe Company has $709.5 million of unrestricted cash as of March 31, 2020 compared to $786.1 million as of December 31, 2019. The decrease in cash primarily due to $239.8 million in share repurchases during the first quarter of 2020, partially offset by cash generated from operations. Additionally, the Company has $558.6 million of cash in ATMs at March 31, 2020, giving the Company access to $1,268.1 million in available cash, and cash equivalents of $1,062.2$950.3 million at September 30, 2017, of which $939.1 million was held outside ofavailable under the United States andcredit facility with no significant long-term debt principal payments until March 2025. This liquidity is expectedavailable to be indefinitely reinvested for continued use in foreign operations. Repatriation of these assets tofund operations through the U.S. could have negative tax consequences.pandemic crisis.
The following table identifies cash and cash equivalents provided by/(used in) our operating, investing and financing activities for the ninethree month periods ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
| | | | Nine Months Ended
September 30, | Three Months Ended
March 31, |
| Liquidity | 2017 | | 2016 | 2020 | | 2019 |
| 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 |
| $ | 105,884 |
| | $ | 12,961 |
|
| Investing activities | (74,023 | ) | | (55,581 | ) | (31,606 | ) | | (32,986 | ) |
| Financing activities | 126,615 |
| | 31,234 |
| (242,644 | ) | | 192,702 |
|
| 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 | | (59,260 | ) | | (12,387 | ) |
| (Decrease) increase in cash and cash equivalents and restricted cash | | $ | (227,626 | ) | | $ | 160,290 |
|
Operating activity cash flow
Cash flows provided by operating activities were $230.5$105.9 million for the first nine monthsquarter of 20172020 compared to $217.5$13.0 million for the first nine monthsquarter of 2016.2019. The increase isin operating cash flows was 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, and with card organizations and banks in the EFT Processing Segment.
Investing activity cash flow
Cash flows used in investing activities were $74.0$31.6 million for the first nine monthsquarter of 20172020 compared to $55.6$33.0 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 interestsame period in Visa Europe in 2016. During the first nine months of 2017, we2019. We used $70.9$30.4 million for purchases of property and equipment for the first quarter of 2020 compared to $61.6$31.4 million duringfor the first nine monthsquarter of 2016.2019. Cash used for software development and other investing activities totaled $3.2$1.7 million and $3.7$1.6 million for the first nine monthsquarter of 20172020 and 2016,2019, respectively.
Financing activity cash flow
Cash flows used in financing activities were $242.6 million for the first quarter of 2020 compared to cash flows provided by financing activities were $126.6of $192.7 million for the first nine months of 2017 compared to $31.2 million for the first nine months of 2016.same period in 2019. Our financing activities for the first nine monthsquarter of 20172020 consisted of net borrowingscash outflows of $123.8$2.2 million compared to net debt borrowings of $103.9$203.1 million for the first nine monthsquarter of 2016.2019. The increasedecrease in net borrowings for the first nine monthsquarter of 20172020 compared to the same period of 2016in 2019 was the result of additional borrowings under the credit facilitiesissuance of $525.0 million of convertible notes in the first quarter of 2019 which was used to fund the operating cash of our IAD networks. Additionally, we used $3.5networks, repay revolving credit facility borrowings and repurchase a portion of existing convertible notes. We repurchased $240.5 million and $2.0$2.3 million of our common stock during the first quarter of 2020 and 2019, respectively. Of the $240.5 million repurchased shares, $239.8 million of Euronet Common Stock was repurchased under the Repurchase Program. We received proceeds of $1.7 million and $5.2 million during the first nine monthsquarter of 20172020 and 2016,2019, respectively, for capital lease repayments. We repurchased $2.3 million and $76.5 millionthe issuance of stock in connection with our stock during the first nine months of 2017 and 2016, respectively. During the first nine months of 2017, we paid $2.3 million 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. We received proceeds from stock option exercises of $8.3 million and $5.1 million for the first nine months of 2017 and 2016, respectively.Stock Incentive Plan.
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 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, euros, British pounds, Australian dollars and/or Indian rupees andDollars. The Credit Facility contains a $200 million sublimit for the issuance of letters of credit, and a $25$50 million sublimit for U.S. Dollar swingline loans, and a $90 million sublimit for certain foreign currencies 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.
As of September 30, 2017,March 31, 2020, fees and interest on borrowings variedare based upon the Company's consolidated total leverage ratiocorporate credit rating (as defined in the Credit Facility)credit agreement) 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,March 31, 2020, we had borrowings of $53.4 million outstanding under the term loan. We had $191.6 million ofno borrowings and $45.1$49.7 million of stand-by letters of credit outstanding under the revolving credit facility as of September 30, 2017.Credit Facility. The remaining $363.3$950.3 million under the revolving credit facilityCredit Facility was available for borrowing.
Uncommitted Line of Credit - On September 4, 2019, the Company entered into an Uncommitted Loan Agreement with Bank of America which may provide Euronet up to $100.0 million under an uncommitted line of credit. Interest on borrowings is equal to LIBOR plus 0.65% and the agreement expires September 4, 2020. As of September 30, 2017, the weighted average interest ratesMarch 31, 2020, no amounts were outstanding under the revolving credit facility and Term Loan A were 3.04% and 2.86%, respectively, excluding amortizationline of deferred financing costs.credit.
Convertible debt - We have $402.5On March 18, 2019, we completed the sale of $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 Stockcommon 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 Stockcommon stock exceeding certain thresholds for specified periods). During the quarter ended 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 value of the Convertible Notes exceeding their conversion value. As of September 30, 2017, the fair value of the Convertible Notes was $550.5 million 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.
Additionally, holdersHolders of the Convertible Notes have the option to require usthe Company to purchaserepurchase for cash all or part of their notes at parConvertible Notes on October 1, 2020, and have additional options to require us to purchase their notes at par on October 1, 2024,each of March 15, 2025, 2029, 2034, 2039 and 2039, or upon2044 at a change in controlrepurchase price equal to 100% of the Company.principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date. In connection with the issuance of the Convertible Notes, we recorded $10.7$12.8 million in debt issuance costs, which are being amortized through OctoberMarch 1, 2020.2025.
ATM FacilitySenior Notes - On June, 27, 2017, we entered into a short-term credit facility inMay 22, 2019, the Company completed the sale of €600 million ($669.9 million) aggregate principal amount of $100 million for the sole purpose of providing cash for our ATM network. Interest is chargedSenior Notes that expire on this financing on an annual basis at the Overnight LIBOR rate plus 2.0%May 2026 (the “Senior Notes”). The 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 March 31, 2020, the Company has outstanding €600 million ($661.6 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.
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, there was $24.8requirements, when necessary. There were $3.6 million and $6.2 million outstanding under these other obligation arrangements. Short-term debt obligations, excluding the ATM facility,arrangements as of September 30, 2017 were primarily comprised of $24.7 million due in the next twelve months under these other obligation arrangementsMarch 31, 2020 and $12.2 million of payments due in the next twelve months under the Term Loan A.
December 31, 2019, respectively.
Other uses of capital
Capital expenditures and needs - Total capital expenditures including capital lease expenditures, for the first nine monthsquarter of 20172020 were $76.8$30.4 million. These capital expenditures were made primarily for the purchase of ATMs to expand our independent ATMIAD network in Europe, 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 20172020 are currently estimated to range from approximately $105$65 million to $115$70 million. The Company has reduced estimated capital expenditures for 2020 due to the COVID-19 pandemic.
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.
Share repurchase plan
The Company's Board of Directors had authorized a stock repurchase program allowing Euronet to repurchase up to $375 million in value or 10.0 million shares of stock through March 31, 2020. The Company has repurchased all $375 million of stock under this 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 the Company's common stock through March 11, 2021. The Company has repurchased $110.4 million of stock under this program. On February 26, 2020, the Company put a repurchase program in place to repurchase up to $250 million in value, but not more than 5.0 million shares of common stock through February 28, 2022. For the three months ended March 31, 2020, the Company repurchased 2.1 million shares under the repurchase programs at a weighted average purchase price of $114.41 for a total value of $239.8 million. 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.
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, 2017March 31, 2020, there were no material changes from the disclosure in our Annual Report on Form 10-K for the year ended December 31, 20162019. 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, 2017.March 31, 2020. See also Note 11,13, Commitments, to the unaudited consolidated financial statements included elsewhere in this report.
CONTRACTUAL OBLIGATIONS
As of September 30, 2017,March 31, 2020, 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, 2019, 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, 2017March 31, 2020, our total debt outstanding, excluding unamortized debt issuance costs, was $736.3$1,105.9 million. Of this amount, $366.5$440.7 million, net of debt discounts, or 50%40% of our total debt obligations, relates to our Convertible Notes that havecontingent convertible notes having a fixed coupon rate. Our $402.5$525.0 million outstanding principal amount of Convertible Notes, issued in October 2014,contingent convertible notes 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,March 31, 2020, the fair value of our fixed rate Convertible Notesconvertible notes was $550.5$597.0 million, compared to a carrying value of $366.5$440.7 million. Interest expense for these notes, including accretion and amortization of deferred debt issuance costs, has a weighted average interest rate of 4.7%4.4% annually. Further, as of March 31, 2020 we had no borrowings under our Credit Facility. Additionally, $345.0$661.6 million, or 47%60% of our total debt obligations, relates to debt borrowings underSenior Notes having a fixed coupon rate. Our €600 million outstanding principal amount of Senior Notes accrue cash interest at a rate of 1.375% of the principal per annum. Based on quoted market prices, as of March 31, 2020, the fair value of our Credit Facility and ATM Facility. If we werefixed rate Senior Notes was $615.7 million, compared to maximize the potential borrowings available under the revolving credit 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 Companycarrying value of approximately $6.1$661.6 million.
The remaining $24.8$3.6 million, or 3%,0.3% of our total debt obligations, 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 monthsquarter of 2017,2020, approximately 74%70% and 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, 2017,March 31, 2020, 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$38.0 million to $145$43.0 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$138.0 million to $105$143.0 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 isare 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, 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 involvesinvolve 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 (loss) gain, net on the Consolidated Statements of Income. As of September 30, 2017,March 31, 2020, we had foreign currency derivative contracts outstanding with a notional value of $244$213 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 forto 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,March 31, 2020, we held foreign currency derivative contracts outstanding with a notional value of $1.3$1.5 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,March 31, 2020, the Company had foreign currency forward contracts outstanding with a notional value of $282$193 million, primarily in British pounds, euros and Polish zloty.euros.
See Note 7,9, 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, 2017.March 31, 2020. 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 nothas been any changesno change in our internal control over financial reporting during the three months ended September 30, 2017first quarter of 2020 that havehas materially affected, or areis 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 12,14, 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
ThereExcept as otherwise described herein, 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, 2016,2019, as filed with the SEC.
The outbreak of COVID-19 (coronavirus) has negatively impacted and could continue to negatively impact the global economy. In addition, the COVID-19 pandemic could disrupt or otherwise negatively impact global credit markets and our operations, including the demand for our products and services.
The significant outbreak of COVID-19 has resulted in a widespread health crisis, which has negatively impacted and could continue to negatively impact the global economy. In addition, the global and regional impact of the outbreak, including official or unofficial quarantines and governmental restrictions on activities taken in response to such event, could have a negative impact on our operations, including voluntary or mandatory temporary closures of our facilities or offices; interruptions in our supply chain, which could impact the cost or availability of raw materials; disruptions or restrictions on our ability to travel or to market and distribute our products and services; reduced consumer demand for our products and services due to reduced consumer traffic in, or closure of, retail and other locations where our products and services are offered; and labor shortages.
For example, the COVID-19 pandemic has resulted in travel restrictions within and between countries, and sheltering in place orders in most of the countries where we do business. The majority of these orders went into effect at the end of February and throughout various times in March. These orders have negatively impacted all of our three operating segments. The EFT operating segment has experienced declines in transaction volumes as the restrictions noted above have reduced transactions on our network of ATMs. The epay Segment has experienced the closure of many of its POS retail locations. Finally, our money transfer segment has experienced declines in transaction volumes. Our network of company owned stores, and agents have experienced closures as many of our agents and stores were deemed nonessential services and ordered to close.
More broadly, the outbreak could potentially lead to an economic downturn that could affect demand for our products and services. Furthermore, our offices and the retail and other locations where our products and services are offered and those of our suppliers and vendors must comply with new and additional regulations imposed by state and local governments in response to the recent coronavirus outbreak, including COVID-19 safety guidance for indoor facilities. The implementation of compliance measures may cause a reduction in the number of transactions that we process.
The COVID-19 outbreak could disrupt or otherwise negatively impact credit markets, which could adversely affect the availability and cost of capital. Such impacts could limit our ability to fund our operations and satisfy our obligations.
A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to the locations where our products and services are offered and to our customers, management, support staff, professional advisors and our independent auditors. These factors, in turn, may not only impact our operations, financial condition and demand for our products and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.
The extent and potential impact of the COVID-19 outbreak on our operational and financial performance will depend on future developments, including the duration, severity and spread of the virus, actions that may be taken by governmental authorities and the impact on our supply chain, customers, operations, workforce and the financial markets, all of which are highly uncertain and cannot be predicted. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition and results of operations.
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 March 31, 2020.
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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) |
| January 1 - January 31, 2020 | | — |
| | $ | — |
| | — |
| | $ | 249,124 |
|
| February 1 - February 28, 2020 | | 862,130 |
| | 132.22 |
| | 862,130 |
| | $ | 385,133 |
|
| March 1 - March 31, 2020 | | 1,233,533 |
| | 101.96 |
| | 1,233,533 |
| | $ | 259,362 |
|
| Total | | 2,095,683 |
| | $ | 114.41 |
| | 2,095,663 |
| | |
(1) Amount remaining to be repurchased at the end of the period. The Board of Directors had authorized a stock repurchase program allowing Euronet to repurchase up to $375 million in value or 10.0 million shares of stock through March 31, 2020. The Company has repurchased all $375 million of stock under this 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. Euronet has repurchased $110.4 million of stock under this program. On February 26, 2020, the Company put a repurchase program in place to repurchase up to $250 million in value, but not more than 5.0 million shares of common stock through February 28, 2022. Repurchases under either remaining 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 |
| | | |
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,March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2017March 31, 2020 (unaudited) and December 31, 2016,2019, (ii) Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three ended March 31, 2020 and nine2019, (iv) Consolidated Statements of Changes in Equity (unaudited) for the three months ended September 30, 2017March 31, 2020 and 2016, (iv)2019 (v) Consolidated Statements of Cash Flows (unaudited) for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, and (v)(vi) Notes to the Unaudited Consolidated Financial Statements. |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* 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,SEC, we have filed or incorporated by reference the agreements referenced above as exhibits to this QuarterlyAnnual Report on Form 10-Q.10-K. 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, 2017May 7, 2020
Euronet Worldwide, Inc.
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| By: | /s/ MICHAEL J. BROWN | |
| | Michael J. Brown | |
| | Chief Executive Officer | |
| | | |
| | | |
| By: | /s/ RICK L. WELLER | |
| | Rick L. Weller | |
| | Chief Financial Officer | |