The terms "Euronet," the "Company," "we" and "us" as used herein refer to Euronet Worldwide, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Generally, the words "believe," "expect," "anticipate," "intend," "estimate," "will" and similar expressions identify forward-looking statements. However, the absence of these words or similar expressions does not mean the statement is not forward-looking. All statements other than statements of historical facts included in this document are forward-looking statements, including, but not limited to, statements regarding the following:
- our business plans and financing plans and requirements;
trends affecting our business plans and financing plans and requirements;trends affecting our business;
the adequacy of capital to meet our capital requirements and expansion plans;
the assumptions underlying our business plans;
our ability to repay indebtedness;
our estimated capital expenditures;
the potential outcome of loss contingencies;
our expectations regarding the closing of any pending acquisitions;
business strategy;
government regulatory action;
the expected effects of changes in laws or accounting standards;
the impact of the COVID-19 pandemic on our results of operations and financial position;technological advances; and
projected costs and revenues.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct.
Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may materially differ from those in the forward-looking statements as a result of various factors, including, but not limited to, conditions in world financial markets and general economic conditions, including impacts from the COVID-19 pandemic; the effects in Europe of the recent Brexit voteU.K.'s departure from the 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; our ability to comply with increasingly stringent regulatory requirements, including anti-money laundering, anti-terrorism, anti-bribery, andsanctions, consumer and data protection and the European Union's General Data Protection Regulation and Second Revised Payment Service Directive 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; the cost of borrowing, availability of credit and terms of and compliance with debt covenants; and renewal of sources of funding as they expire and the availability of replacement funding 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, 20162020. 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
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”Automated Teller Machine ("ATM"), point-of-sale (“POS”("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- The EFT Processing Segment, which processes transactions for a network of
38,10545,520 active ATMs and approximately 227,000400,000 POS terminals across Europe, the Middle East, Asia Pacific, the United States and Asia Pacific.Africa. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal and deposit services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion ("DCC"), and other value added services. Through this segment, we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.The epay Segment, which provides distribution, processing and collection services for prepaid mobile airtime and other electronic payment products.content. We operate a network of approximately 696,000739,000 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, 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 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 332,000507,000 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%73% 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, 2020).
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%28% and 30%20% of total consolidated revenues for the third quarterthree and first nine months of 2017,ended September 30, 2021, respectively, are primarily derived from fees charged for transactions made by cardholders on our proprietary network of ATMs, fixed management fees and transaction fees we charge to customers for operating ATMs and processing debit and credit cards under outsourcing and cross-border acquiring agreements, foreign currency exchange margin on DCC transactions, domestic and international surcharge, foreign currency dispensing and other value added services such as advertising, prepaid telecommunication recharges, bill payment, and money transfers provided over ATMs. Revenues in this segment are also derived from 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%29% and 31%33% of total consolidated revenues for the third quarterthree and first nine months of 2017, ended September 30, 2021, respectively,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% 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 mobile wallets, 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%43% and 39%47% of total consolidated revenues for the third quarterthree and first nine months of 2017, areended September 30, 2021, respectively, are primarily derived from transaction fees, as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to customers at retail exchange rates. We have a sending agent network in place comprised of agents, customer service representatives, Company-owned stores, primarily in North America, Europe and Malaysia, and Ria, xeIME 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 offersWe offer 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 CHALLENGES
Our expansion plans
Opportunities and Challenges
The global product markets in which we operate are large and fragmented, which poses both opportunities are focusedand challenges for our technology to disrupt new and existing competition. As an organization, our focus is on eight primary areas:increasing our market presence through both physical (ATMs, POS terminals, company stores and agent correspondents) and digital assets and providing new and improved products and services for customers through all of our channels, which may in turn drive an increase in the number of ATMs and cash deposit terminals in our independent networks;
increasing transactions processed on our networknetworks. Each 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 bythese opportunities also presents us with challenges, including differentiating our EFT Processing Segment, including the sale of DCC, acquiring and other prepaid card services to banks and retailers;
expanding our epay processing network and portfolio of digital content;
expanding our money transfer services, cross-currency payment products and bill payment network;
expanding our cash management solutions and foreign currency risk management services; and
developing our credit and debit card outsourcing business.
EFT Processing Segment — The continued expansion and development of our EFT Processing Segment business will depend on various factors including, but not necessarily limited to, the following:
the impact of competition by banks and other ATM operators and service providers in our current target markets;
the demand for our ATM outsourcing services in our current target markets;
our ability to develop products or services, including value added services, to drive increases in transactions and revenues;
highly competitive markets, 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 and renew ATM network cash supply agreements with financial institutions;
the availability of financing for expansion;
our ability 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 reductions in ATM interchange fees;
our ability to expand and sign additional customers for the cross-border merchant processing and acquiring business; and
the continuedsuccessful development and implementation of our software products and their abilityaccess to interactfinancing for expansion.
- The EFT Processing Segment opportunities include physical expansion into target markets, developing value added products or services, increasing high value DCC and surcharge transactions and efficiently leveraging our portfolio of software solutions. Our opportunities are dependent on renewing and expanding our card acceptance, ATM and POS management and outsourcing, cash supply and other commercial agreements with
other leading products.
We consistently evaluatecustomers and
add prospects to our list of potential ATM outsource customers. However, we cannot predict the increase or decreasefinancial institutions. Operational challenges in the
numberEFT Processing Segment include obtaining and maintaining the required licenses and sponsorship agreements in markets in which we operate and navigating frequently changing rules imposed by international card organizations, such as Visa® and Mastercard®, that govern ATM interchange fees, direct access fees and other restrictions. Our profitability is dependent on the laws and regulations that govern DCC transactions, specifically in the E.U., as well as the laws and regulations of each country that we operate in that may impact the volume of cross-border and cross-currency transactions. The timing and amount of revenues in the EFT Processing Segment is uncertain and unpredictable due to inherent limitations in managing our estate of ATMs, we manage under outsourcing agreements because this depends largelywhich is dependent on the willingnesscontracts that cover large numbers 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 furtherATMs, which are complicated by the legal and regulatory considerations of local countries. These agreements tendcountries, as well as our customers' decisions whether to cover large numbersoutsource ATMs.
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 maintainopportunities include renewing existing and renew existing agreements, and to negotiatenegotiating new agreements in additionaltarget markets in which we operate, primarily 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;
theretailers. The overall pace of growth rate in the prepaid mobile phone and digital media content market, including consumermarkets, shifts between prepaid and postpaid services;
services, and our market share in those respective markets will have a significant impact on our ability to maintain and grow the epay Segment revenues. There is significant competition in these markets that may impact our ability to grow organically and increase the margin we earn and the margin that we pay to retailers. The profitability of the retail distribution capacity;
the development ofepay Segment is dependent on our ability to adapt to new technologies that may compete with POS distribution of digital content and prepaid mobile airtime, and other products;
the level of commission that is paid to the various intermediaries in the electronic payment distribution chain;
as well as 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 ofleverage cross-selling opportunities with our EFT Processing and Money Transfer Segments, including providing money transfer services through our distribution network; and
the availability of financing for further expansion.
In all of the markets in which we operate, we are experiencing significant competition which will impact the rate at which weSegments. The epay Segment opportunities may be able to grow organically. Competition among prepaid mobile airtime and digitalimpacted by government-imposed restrictions on retailers and/or content distributors resultsproviderswith whom we partner in the increase of commissions paid to retailers and increases in retailer attrition rates. To grow, we must capture market share from other prepaid mobile airtime and digital content distributors, offer a superior product offering and demonstrate the value of a global network. In certain markets in which we operate, many of the factors that may contribute to rapid growth (growth in electronic payment products, 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;
have a presence, and corresponding licensure requirements mandated upon such parties to legally operate in such countries.- The Money Transfer Segment opportunities include expanding our portfolio of products and services to new and existing customers around 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 populationglobe, which in our markets;
turn may lead to an increase in transaction volumes. The opportunities to expand are contingent on our ability to maintaineffectively leverage our network of bank accounts for digital money transfer delivery, maintaining our physical agent network, cross selling opportunities with our EFT and correspondent networks;
epay segments and our penetration into high growth money transfer corridors. The challenges inherit in these opportunities include maintaining compliance with all regulatory requirements, maintaining all requiredlicenses, ensuring the recoverability of funds advanced to agents and the continued reliance on the technologies required to operate our business. The volume of transactions processed on our network is impacted by shifts in our customer base, which can change rapidly with worker migration patterns and changes in unbanked populations across the globe. Foreign regulations that impact cross-border migration patternsand the money transfer markets can significantly impact our ability to offergrow the number of transactions on 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;
the expansion of our services in markets where we operate and in new markets;
our ability to strengthen our brands;
our ability to fund working capital requirements;
our ability to recover from agents funds collected from customers and our ability to recover advances made to correspondents;
our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;
our ability to take advantage of cross-selling opportunities with the epay Segment, including providing prepaid services through our stores and agents worldwide;
our ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to Europe, Asia and Africa, including high growth corridors to Central and Eastern European countries;
the availability of financing for further expansion;
the ability to maintain banking relationships necessary for us to service our customers;
our ability to successfully expand our agent network in Europe using our payment institution licenses under the Payment Services Directive and in the United States; and
our ability to provide additional value-added products under the xe brand.
network.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.
COVID-19
The outbreak of the COVID-19 (coronavirus) pandemic has resulted in varying degrees of border and business closures, travel restrictions and other social distancing orders in most of the countries where we operate during the three and nine months ended September 30, 2021 and 2020. These types of orders were first put into effect in late February 2020 or early March 2020. As the number and rate of new cases has fluctuated in various locations around the global, the closures, restrictions and other social distancing orders have been modified, rescinded and/or re-imposed. Although vaccines for COVID-19 are widely available in the U.S. and the European Union, their availability is still limited in many parts of the world where we operate. In addition, the rate of acceptance and long term effectiveness of the vaccines, especially against new variants, are still unknown. The EFT Segment has experienced declines in certain transaction volumes due to these restrictions, especially high-margin cross-border transactions. The epay Segment has experienced the impacts of consumer movement restrictions in certain markets, while other markets have been positively impacted where we have a higher mix of digital distribution or a higher concentration of retailers that are deemed essential and have remained open during the pandemic. The Money Transfer Segment continues to be impacted by the pandemic-related restrictions in certain markets that limit customers' ability to access our network of company-owned stores and agents.
In response to the COVID-19 pandemic driven impacts, we implemented several key measures to offset the impact across the business, including re-negotiating certain third party contracts, reducing travel, decreasing capital expenditures, and increasing the number of seasonal ATM deactivations (placing them in dormancy status, terminating, or re-negotiating) in more sites and more markets.
SEGMENT SUMMARY RESULTS OF OPERATIONS
Revenues and operating income by segment for the three and nine months ended September 30, 20172021 and 20162020 are summarized in the tables below:
| | | | | Revenues for the Three Months Ended September 30, | | Year-over-Year Change | | Revenues for the Nine Months Ended September 30, | | Year-over-Year Change | | Revenues for the Three Months Ended September 30, | | Year-over-Year Change |
| Revenues for the Nine Months Ended September 30,
|
| Year-over-Year Change
|
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase
(Decrease) Amount | | Increase Percent | | 2017 | | 2016 | | Increase
(Decrease) Amount | | Increase Percent | | 2021 | | 2020 | | Increase
(Decrease) Amount | | Increase (Decrease) Percent |
| 2021
|
| 2020
|
| |
| Increase (Decrease) Percent |
|
| EFT Processing | | $ | 226,321 |
| | $ | 152,586 |
| | $ | 73,735 |
| | 48 | % | | $ | 488,030 |
| | $ | 354,282 |
| | $ | 133,748 |
| | 38 | % | | $ | 227,129 | | $ | 144,062 | | $ | 83,067 | | 58 | % |
| $ | 427,687 |
| $ | 368,375 |
| $ | 59,312 | | 16 | % |
| epay | | 184,234 |
| | 167,226 |
| | 17,008 |
| | 10 | % | | 512,531 |
| | 497,945 |
| | 14,586 |
| | 3 | % | | 238,319 | | 198,939 | | 39,380 | | 20 | % |
|
| 724,540 |
| 559,413 |
| 165,127 | | 30 | % |
| Money Transfer | | 228,105 |
| | 204,611 |
| | 23,494 |
| | 11 | % | | 649,205 |
| | 587,664 |
| | 61,541 |
| | 10 | % | | 353,451 | | 323,092 | | 30,359 | | 9 | % |
|
| 1,037,659 |
|
| 852,189 |
|
| 185,470 | | 22 | % |
| Total | | 638,660 |
| | 524,423 |
| | 114,237 |
| | 22 | % | | 1,649,766 |
| | 1,439,891 |
| | 209,875 |
| | 15 | % | | 818,899 | | 666,093 | | 152,806 | | 23 | % |
|
| 2,189,886 |
| 1,779,977 |
| 409,909 | | 23 | %
|
| Corporate services, eliminations and other | | (826 | ) | | (398 | ) | | (428 | ) | | 108 | % | | (1,989 | ) | | (1,105 | ) | | (884 | ) | | 80 | % | |
| Corporate Services, Eliminations and Other | | | (2,339 | ) | (1,742 | ) | (597 | ) | 34 | % |
|
| (5,970 | ) |
| (3,916 | ) |
| (2,054 | ) | 52 | %
|
| Total | | $ | 637,834 |
| | $ | 524,025 |
| | $ | 113,809 |
| | 22 | % | | $ | 1,647,777 |
| | $ | 1,438,786 |
| | $ | 208,991 |
| | 15 | % | | $ | 816,560 | | $ | 664,351 | | $ | 152,209 | | 23 | % |
| $ | 2,183,916 |
| $ | 1,776,061 |
| $ | 407,855 | | 23 | % |
| | | | | Operating Income (Expense) for the Three Months Ended September 30, | | Year-over-Year Change | | Operating Income (Expense) for the Nine Months Ended September 30, | | Year-over-Year Change | | Operating Income (Expense) for the Three Months Ended
September 30, | | Year-over-Year Change |
| Operating (Loss) Income for the Nine Months Ended
September 30,
|
| Year-over-Year Change
|
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase
(Decrease)Amount | | Increase
(Decrease) Percent | | 2017 | | 2016 | | Increase
(Decrease)Amount | | Increase
(Decrease) Percent | | 2021 | | 2020 | | Increase
(Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
|
| |
| Increase (Decrease) Percent |
|
| EFT Processing | | $ | 86,797 |
| | $ | 59,438 |
| | $ | 27,359 |
| | 46 | % | | $ | 137,090 |
| | $ | 100,596 |
| | $ | 36,494 |
| | 36 | % | | $ | 63,202 | | $ | 6,161 | | $ | 57,041 | | 926 | % |
| $ | (2,230 | ) | $ | (45,480 | ) | $ | 43,250 | | (95) | % |
| epay | | 15,650 |
| | 14,795 |
| | 855 |
| | 6 | % | | 44,361 |
| | 46,681 |
| | (2,320 | ) | | (5 | )% | | 25,954 | | 22,249 | | 3,705 | | 17 | % |
|
| 82,346 |
|
| 56,737 |
|
| 25,609 | | 45 | % |
| Money Transfer | | 24,356 |
| | 25,183 |
| | (827 | ) | | (3 | )% | | 75,355 |
| | 72,578 |
| | 2,777 |
| | 4 | % | | 37,505 | | 47,626 | | (10,121 | ) | (21) | % |
|
| 116,990 |
|
| 14,707 | |
| 102,283 | | 695 | % |
| Total | | 126,803 |
| | 99,416 |
| | 27,387 |
| | 28 | % | | 256,806 |
| | 219,855 |
| | 36,951 |
| | 17 | % | | 126,661 | | 76,036 | | 50,625 | | 67 | % |
|
| 197,106 |
|
| 25,964 | |
| 171,142 | | 659 | %
|
| Corporate services, eliminations and other | | (9,902 | ) | | (8,948 | ) | | (954 | ) | | 11 | % | | (31,928 | ) | | (28,188 | ) | | (3,740 | ) | | 13 | % | |
| Corporate Services, Eliminations and Other | | | (12,167 | )
| (9,964 | ) | (2,203 | )
| 22 | % |
|
| (42,042 | )
|
| (29,561 | ) |
| (12,481 | )
| 42 | %
|
| Total | | $ | 116,901 |
| | $ | 90,468 |
| | $ | 26,433 |
| | 29 | % | | $ | 224,878 |
| | $ | 191,667 |
| | $ | 33,211 |
| | 17 | % | | $ | 114,494 | | $ | 66,072 | | $ | 48,422 | | 73 | % |
| $ | 155,064 |
| $ | (3,597 | ) | $ | 158,661 |
| (4,411) | % |
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, | |
|
|
| Average Translation Rate Nine Months Ended September 30, |
|
|
|
| Currency (dollars per foreign currency) | | 2021 | | 2020 | | Increase (Decrease) Percent |
| 2021
|
| 2020 |
| Increase Percent
|
| Australian dollar | | $ | 0.7348 |
| | $ | 0.7149 |
| | 3 | % |
| $ | 0.7589 |
| $ | 0.6768 |
| 12 | % |
| British pounds sterling | | $ | 1.3783 |
| | $ | 1.2916 |
| | 7 | % |
| $ | 1.3848 |
| $ | 1.2709 |
| 9 | % |
| euro | | $ | 1.1787 |
| | $ | 1.1689 |
| | 1 | % |
| $ | 1.1962 |
| $ | 1.1241 |
| 6 | %
|
| Hungarian forint | | $ | 0.0033 |
| | $ | 0.0033 |
| | — | % |
| $ | 0.0034 |
| $ | 0.0032 |
| 6 | %
|
| Indian rupee | | $ | 0.0135 |
| | $ | 0.0135 |
| | — | % |
| $
| 0.0136 |
| $
| 0.0135 |
| 1 | % |
| Malaysian ringgit | | $ | 0.2385 |
| | $ | 0.2382 |
| | 0 | % |
| $ | 0.2423 |
| $ | 0.2364 |
| 2 | %
|
| New Zealand dollar | | $ | 0.7007 |
| | $ | 0.6619 |
| | 6 | % |
| $ | 0.7114 |
| $
| 0.6383 |
| 11 | % |
| Polish zloty | | $ | 0.2585 |
| | $ | 0.2633 |
| | (2) | % |
| $
| 0.2634 |
| $ | 0.2544 |
| 4 | %
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Average Translation Rate Three Months Ended September 30, | | Increase (Decrease) Percent | | Average Translation Rate Nine Months Ended September 30, | | Increase (Decrease) Percent |
| Currency (dollars per foreign currency) | | 2017 | | 2016 | | | 2017 | | 2016 | |
| Australian dollar | | $ | 0.7896 |
| | $ | 0.7577 |
| | 4 | % | | $ | 0.7661 |
| | $ | 0.7418 |
| | 3 | % |
| British pound | | $ | 1.3091 |
| | $ | 1.3125 |
| | — | % | | $ | 1.2756 |
| | $ | 1.3931 |
| | (8 | )% |
| euro | | $ | 1.1754 |
| | $ | 1.1156 |
| | 5 | % | | $ | 1.1136 |
| | $ | 1.1162 |
| | — | % |
| Hungarian forint | | $ | 0.0038 |
| | $ | 0.0036 |
| | 6 | % | | $ | 0.0036 |
| | $ | 0.0036 |
| | — | % |
| Indian rupee | | $ | 0.0156 |
| | $ | 0.0149 |
| | 5 | % | | $ | 0.0153 |
| | $ | 0.0149 |
| | 3 | % |
| Malaysian ringgit | | $ | 0.2347 |
| | $ | 0.2472 |
| | (5 | )% | | $ | 0.2302 |
| | $ | 0.2452 |
| | (6 | )% |
| New Zealand dollar | | $ | 0.7309 |
| | $ | 0.7221 |
| | 1 | % | | $ | 0.7156 |
| | $ | 0.6922 |
| | 3 | % |
| Polish zloty | | $ | 0.2762 |
| | $ | 0.2573 |
| | 7 | % | | $ | 0.2613 |
| | $ | 0.2563 |
| | 2 | % |
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172021 AND 20162020
EFT PROCESSING SEGMENT
The following table presentssummarizes the results of operations for our EFT Processing Segment for the three and ninemonths endedSeptember 30, 20172021and2016 for our EFT Processing Segment: 2020:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Year-over-Year Change | | Nine Months Ended
September 30, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase Amount | | Increase Percent | | 2017 | | 2016 | | Increase Amount | | Increase Percent |
| Total revenues | | $ | 226,321 |
| | $ | 152,586 |
| | $ | 73,735 |
| | 48 | % | | $ | 488,030 |
| | $ | 354,282 |
| | $ | 133,748 |
| | 38 | % |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Direct operating costs | | 99,024 |
| | 62,401 |
| | 36,623 |
| | 59 | % | | 238,753 |
| | 165,520 |
| | 73,233 |
| | 44 | % |
| Salaries and benefits | | 16,817 |
| | 12,954 |
| | 3,863 |
| | 30 | % | | 46,125 |
| | 37,601 |
| | 8,524 |
| | 23 | % |
| Selling, general and administrative | | 8,878 |
| | 7,642 |
| | 1,236 |
| | 16 | % | | 23,960 |
| | 22,154 |
| | 1,806 |
| | 8 | % |
| 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 | % |
| Total operating expenses | | 139,524 |
| | 93,148 |
| | 46,376 |
| | 50 | % | | 350,940 |
| | 253,686 |
| | 97,254 |
| | 38 | % |
| Operating income | | $ | 86,797 |
| | $ | 59,438 |
| | $ | 27,359 |
| | 46 | % | | $ | 137,090 |
| | $ | 100,596 |
| | $ | 36,494 |
| | 36 | % |
| Transactions processed (millions) | | 615 |
| | 488 |
| | 127 |
| | 26 | % | | 1,726 |
| | 1,370 |
| | 356 |
| | 26 | % |
| ATMs as of September 30, | | 38,105 |
| | 29,276 |
| | 8,829 |
| | 30 | % | | 38,105 |
| | 29,276 |
| | 8,829 |
| | 30 | % |
| Average ATMs | | 38,123 |
| | 27,350 |
| | 10,773 |
| | 39 | % | | 36,524 |
| | 25,802 |
| | 10,722 |
| | 42 | % |
| | | Three Months Ended
September 30, | | Year-over-Year Change |
| Nine Months Ended
September 30, |
| Year-over-Year Change |
| (dollar amounts in thousands) | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
| Increase (Decrease) Amount |
| Increase (Decrease) Percent |
| Total revenues | | $ | 227,129 |
| | $ | 144,062 |
| | $ | 83,067 |
| | 58 | % |
| $ | 427,687 |
| $ | 368,375 |
| $ | 59,312 |
| 16 | % |
| Operating expenses: | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| Direct operating costs | | 106,321 |
| | 82,626 |
| | 23,695 |
| | 29 | % |
|
| 258,614 |
|
| 232,627 |
|
| 25,987 |
| 11 | % |
| Salaries and benefits | | 23,665 |
| | 25,182 |
| | (1,517 | ) | | (6) | % |
|
| 71,334 |
|
| 68,562 |
|
| 2,772 |
| 4 | % |
| Selling, general and administrative | | 11,301 |
| | 8,577 |
| | 2,724 |
| | 32 | % |
|
| 33,062 |
|
| 29,033 |
|
| 4,029 |
| 14 | %
|
| Goodwill impairment |
| — |
|
| — |
|
| — | |
| n/a |
|
|
| — |
|
| 21,861 |
|
| (21,861 | ) | (100) | % |
| Depreciation and amortization | | 22,640 |
| | 21,516 |
| | 1,124 |
| | 5 | % |
|
| 66,907 |
|
| 61,772 |
|
| 5,135 |
| 8 | % |
| Total operating expenses | | 163,927 |
| | 137,901 |
| | 26,026 |
| | 19 | % |
|
| 429,917 |
|
| 413,855 |
|
| 16,062 | | 4 | %
|
| Operating income (loss) | | $ | 63,202 | | | $ | 6,161 | | | $ | 57,041 | | | 926 | % |
| $ | (2,230) | | $ | (45,480 | ) | $ | 43,250 | | (95) | %
|
| Transactions processed (millions) | | 1,173 |
| | 910 |
| | 263 |
| | 29 | % |
|
| 3,086 |
|
| 2,374 |
|
| 712 |
| 30 | % |
| Active ATMs as of September 30, | | 45,520 |
| | 43,956 |
| | 1,564 |
| | 4 | % |
|
| 45,520 |
|
| 43,956 |
|
| 1,564 |
| 4 | % |
| Average active ATMs | | 45,595 |
| | 44,259 |
| | 1,336 |
| | 3 | % |
|
| 40,913 |
|
| 43,143 |
|
| (2,230 | ) | (5) | %
|
Revenues
Revenues
EFT Processing Segment total revenues were $227.1 million for the three months ended September 30, 2021, an increase of $83.1 million or 58% compared to the same period in 2020. EFT Processing Segment total revenues were $427.7 million for the nine months ended September 30, 2021, an increase of $59.3 million or 16% compared to the same period in 2020. Beginning in the late first quarter of 2020, the COVID-19 related government-imposed border and business closures, travel restrictions and other orders significantly reduced tourism throughout Europe, which led to a significant decrease in high-margin cross-border transactions (DCC) and surcharge transactions from March through September of 2020. During 2021, we began increasing our estate of active ATMs as certain countries began easing COVID-19 restrictions; however, remaining cross-border travel patterns prevented our volume of DCC and surcharge transactions from returning to pre-COVID-19 levels. Revenues increased for the three months ended September 30, 2021 compared to the same period in 2020 primarily due to the reactivation of ATMs and increase in high-margin cross-border transaction volumes during 2021. Revenues increased for the nine months ended September 30, 2021 compared to the same period in 2020 as cross-border travel and corresponding DCC and surcharge revenues increased, partially offset by the nine months ended September 30, 2020 including two months of pre-COVID-19 level DCC and surcharge transaction volumes compared to the nine months ended September 30, 2021 which had various levels of restrictions throughout the entire nine month period. Foreign currency movements increased revenues by approximately $1.7 million and $12.0 million for the three and nine months ended September 30, 2017 were $226.3 million and $488.0 million,2021, respectively, an increase of $73.7 million or 48% and $133.7 million or 38% as compared to the same periods in 2016. The increases in total2020.
Average monthly revenues per ATM increased to $1,660 for the three and nine months ended September 30, 2017 were primarily due2021 compared to an increase 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$1,085 for the same period in the prior year as a result of a higher
volume of sales of POS devices in Greece and the acquisition of YourCash, completed during the fourth quarter of 2016. The acquisition of YourCash also contributed2020. Average monthly revenues per ATM increased to the increase in total revenues for the first nine months of 2017. The increase$1,162 for the nine months ended September 30, 2017 was partially offset by2021 compared to $949 for the impact of a cash shortage duesame period in 2020. Revenues per transaction increased to $0.19 for the demonetization initiatedthree months ended September 30, 2021 compared to $0.16 for the same period in 2020. Revenues per transaction decreased to $0.14 for the fourth quarter of 2016nine months ended September 30, 2021 compared to $0.16 for the same period in India. In the third quarter, the India cash supply was returned to near pre-demonetization levels. Foreign currency movements increased total revenues by approximately $10.3 million for2020. For the three months ended September 30, 2017 as compared to2021, the same periodincrease in 2016 and had minimal effect on total revenues for the first nine months of 2017 as compared to the same period in 2016.
Averageaverage monthly revenues per ATM and revenues per transaction were $1,979attributable to the easing of COVID-19 restrictions throughout Europe and $1,485corresponding increase in cross-border DCC and surcharge transactions, partially offset by a shift in the mix of our transaction volume as we experienced a significant increase in the volume of lower revenue transactions (processing bank wallet transactions and payments for the three and nine months ended September 30, 2017, respectively, compared to $1,860 and $1,526 for the three and nine months ended September 30, 2016, respectively. The decrease fore-commerce sites) primarily in our Asia Pacific region. For the nine months ended September 30, 2017 was2021, the average monthly revenues per ATM increased primarily due to the India cash shortagelower average ATM count as we modified our estate of ATMs beginning in the second quarter of 2020, and low-margin ATMs in India. Revenues per transaction were $0.37 for the third quarter and $0.28 for the first nine months of 2017, respectively, compared to $0.31 for the third quarter and $0.26 for the first nine months of 2016, respectively. The increases in revenue per transaction were primarily the result of revenue growth from DCC, which earns higher revenues per transaction than other ATM or card-based services, which were partially offset bydecreased due to the impacteffect of lower DCC and surcharge revenues during January and February of 2021 compared to January and February 2020 prior to COVID-19's initial emergence as well as a shift in the low margin ATM transactions in India.mix of our transaction volume.
EFT Processing Segment direct operating costs were $99.0$106.3 million and $238.8 million for the three and nine months ended September 30, 2017, respectively,2021, an increase of $36.6$23.7 million or 59% and $73.2 million or 44% as29% compared to the same periodsperiod in 2016.2020. EFT Processing Segment direct operating costs were $258.6 million for the nine months ended September 30, 2021, an increase of $26.0 million or 11% compared to the same period in 2020. Direct operating costs in the EFT Processing Segmentprimarily consist primarily of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications, payment scheme 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 increasesFor the three months ended September 30, 2021, the increase 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 generationin Europe and the impactincrease in transaction volumes. For the nine months ended September 30, 2021, the increase in direct operating costs was primarily due to the increase in transaction volumes, costs associated with modifying our estate of our acquisitionATMs, and the weakening of YourCash. The increasethe U.S. dollar. Foreign currency movements increased direct operating costs by approximately $0.6 million and $9.3 million for the three and ninemonths ended September 30, 2017 was also due2021, respectively, compared to the net impact of the U.S. dollar weakening against key foreign currencies.
same periods in 2020.
Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $127.3$120.8 million for the three months ended September 30, 2021, an increase of $59.4 million or 97% compared to $61.4 million for the same period in 2020.Gross profit was $169.1 million for the nine months ended September 30, 2021, an increase of $33.4 million or 25% compared to $135.7 million for the same period in 2020. Gross profit as a percentage of revenues (“gross margin”) increased to 53.2% and 39.5% for the three and nine months ended September 30, 2021, respectively, compared to 42.6% and 36.9% for the same periods in 2020, respectively. For the three and nine months ended September 30, 2021, the increase in gross profit and gross margin was primarily driven by the increase in cross-border transactions and overall increase in transaction volumes.
Salaries and benefits
Salaries and benefits expenses were $23.7 million for the three months ended September 30, 2021, a decrease of $1.5 million or 6% compared to the same period in 2020. Salaries and benefits expenses were $71.3 million for the nine months ended September 30, 2021, an increase of $2.8 million or 4% compared to the same period in 2020. The increase in salaries and benefits for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily driven by a $3.3 million increase from foreign currency movements in the countries where we employ our workforce.As a percentage of revenues, these expenses decreased to 10.4% and 16.7% for the three and nine months ended September 30, 2021, respectively, compared to 17.5% and 18.6% for the same periods in 2020, respectively.
Selling, general and administrative
Selling, general and administrative expenses were $11.3 million for the three months ended September 30, 2021, an increase of $2.7 million or 32% compared to the same period in 2020. Selling, general and administrative expenses were $33.1 million for the nine months ended September 30, 2021, an increase of $4.0 million or 14% compared to the same period in 2020. The increase in these expenses is primarily driven by an increase in professional fees and travel related expenses. As a percentage of revenues, these expenses decreased to 5.0% and 7.7% for the three and nine months ended September 30, 2021, respectively, compared to 6.0% and 7.9% for the same periods in 2020, respectively.
Goodwill impairment
Due to the economic impacts of the COVID-19 pandemic, the Company recorded a $21.9 million non-cash goodwill impairment charge related to two reporting units during the second quarter of 2020. A $14.0 million non-cash goodwill impairment charge was recorded for Innova as a result of the decline in value added tax, or VAT, refund activity directly related to the decline in international tourism within the European Union, and a $7.9 million non-cash goodwill impairment charge was recorded for Pure Commerce related to the decline in international tourism in Asia Pacific.
Depreciation and amortization
Depreciation and amortization expenses were $22.6 million for the three months ended September 30, 2021, an increase of $1.1 million or 5% compared to the same period in 2020.Depreciation and amortization expenses were $66.9 million for the nine months ended September 30, 2021, an increase of $5.1 million or 8% compared to the same period in 2020. Foreign currency movements increased these expenses by $0.1 million and $249.3$2.9 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, with the remainder of the increase driven by the acquisition of additional ATMs and software assets. As a percentage of revenues, these expenses decreased to 10.0% and 15.6% for the three and nine months ended September 30, 2021, respectively, compared to 14.9% and 16.8% for the same periods in 2020, respectively.
Operating income (loss)
EFT Processing Segment had operating income of $63.2 million for the three months ended September 30, 2021, an increase of $57.0 million or 926% compared to the same period in 2020. EFT Processing Segment had an operating loss of ($2.2 million) for the nine months ended September 30, 2021, a decrease of $43.3 million or 95% compared to the operating loss in the same period in 2020. Operating income (loss) as a percentage of revenues (“operating margin”) increased to 27.8% and (0.5%) for the three and nine months ended September 30, 2021, respectively, compared to 4.3% and (12.3%) for the same periods in 2020, respectively. Operating income (loss) per transaction was $0.05 and ($0.00) for the three and nine months ended September 30, 2021, respectively, compared to $0.01 and ($0.02) for the same periods in 2020, respectively. For the three months ended September 30, 2021, the increases in operating income, operating margin and operating income per transaction were primarily driven by the easing of COVID-19 restrictions in limited regions where we operate. For the nine months ended September 30, 2021, the decrease in operating loss and increase in operating margin was primarily driven by the easing of COVID-19 restrictions in limited regions where we operate and the $21.9 million decrease in non-cash goodwill impairment charges, partially offset by the decrease in tourism in the months of January and February 2021 compared to the same periods in the prior period.
EPAY SEGMENT
The following table presents the results of operations for the three and nine months endedSeptember 30, 2021 and 2020 for our epay Segment: | | | Three Months Ended
September 30, | | Year-over-Year Change |
| Nine Months Ended
September 30, |
| Year-over-Year Change |
| (dollar amounts in thousands) | | 2021 | | 2020 | | Increase Amount | | Increase Percent |
| 2021 |
| 2020
|
| Increase Amount |
| |
| Total revenues | | $ | 238,319 | | $ | 198,939 | | $ | 39,380 | | 20 | % |
| $ | 724,540 |
| $ | 559,413 |
| $ | 165,127 |
| 30 | % |
| Operating expenses: | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| Direct operating costs | | 180,206 | | 149,993 | | 30,213 | | 20 | % |
|
| 547,828 |
|
| 424,123 |
|
| 123,705 |
| 29 | % |
| Salaries and benefits | | 20,104 | | 16,108 | | 3,996 | | 25 | % |
|
| 59,248 |
|
| 46,996 |
|
| 12,252 |
| 26 | % |
| Selling, general and administrative | | 9,802 | | 8,455 | | 1,347 | | 16 | % |
|
| 28,594 |
|
| 25,928 |
|
| 2,666 |
| 10 | %
|
| Depreciation and amortization | | 2,253 | | 2,134 | | 119 | | 6 | % |
|
| 6,524 |
|
| 5,629 |
|
| 895 |
| 16 | % |
| Total operating expenses | | 212,365 | | 176,690 | | 35,675 | | 20 | % |
|
| 642,194 |
|
| 502,676 |
|
| 139,518 |
| 28 | %
|
| Operating income | | $ | 25,954 | | $ | 22,249 | | $ | 3,705 | | 17 | % |
| $ | 82,346 |
| $ | 56,737 |
| $ | 25,609 |
| 45 | %
|
| Transactions processed (millions) | | 811 | | 661 | | 150 | | 23 | % |
|
| 2,266 |
|
| 1,692 |
|
| 574 |
| 34 | % |
Revenues
epay Segment total revenues were $238.3 million for the three months ended September 30, 2021, an increase of $39.4 million or 20% compared to the same period in 2020. epay Segment total revenues were $724.5 million for the nine months ended September 30, 2021, an increase of $165.1 million or 30% compared to the same period in 2020. The increase in revenues was primarily due to an increase in the number of transactions processed driven by continued digital media growth and the U.S. dollar weakening against key foreign currencies during 2021. Foreign currency movements increased revenues by approximately $2.1 million and $31.0 million for the three and nine months ended September 30, 2017,2021, respectively, as compared to $90.2 millionthe same periods in 2020. The epay segment was impacted by COVID-19 pandemic-driven government-imposed lockdowns and $188.8 millionbusiness closures, primarily at retail outlets, which were offset by increases in digital media offerings in Asia and revenues derived from businesses that were classified as essential and remained open during the pandemic.
Revenues per transaction decreased to $0.29 and $0.32 for the three and nine months ended September 30, 2016, respectively. The increases in gross profit were primarily due to the growth in revenues from the increase in ATMs under management, DCC transactions processed and the net impact of the U.S. dollar weakening against key foreign currencies. Gross profit as a percentage of revenues (“gross margin”) was 56.2% and 51.1% for the three and nine months ended September 30, 2017, respectively, as compared to 59.1% and 53.3% for the three and nine months ended September 30, 2016, respectively. The decreases in gross profit as a percentage of revenue were primarily due 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. Salaries and benefits
Salaries and benefits expense increased $3.9 million or 30% and $8.5 million or 23% for the three and nine months ended September 30, 2017,2021, respectively, compared to the same periods in 2016. The increases in salaries$0.30 and benefits were primarily attributable to additional headcount to support an increase in the number of ATMs and POS devices under management. As a percentage of revenues, these costs decreased to 7.4% for the third quarter and 9.5% 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 growth in revenues earned from DCC and other value added service transactions on our ATMs under management, which require minimal incremental support costs.
Selling, general and administrative
Selling, general and administrative expenses 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% as compared to the same periods in 2016. The increases in selling, general and administrative expenses were primarily due to the impact of our acquisition of YourCash which was partly offset by an increase in additional support cost in 2016 that did not recur in 2017. As a percentage of revenues, selling, general and administrative expenses were 3.9% and 4.9% for the three and nine months ended September 30, 2017, respectively, compared to 5.0% and 6.3% for the three and nine months ended September 30, 2016, respectively. The decreases were primarily due to the growth 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.
Depreciation and amortization
Depreciation and amortization expense increased $4.7 million and $11.4 million for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. The increases were primarily attributable to the deployment of additional ATMs under management, including more expensive cash recycling ATMs, software assets, and the amortization of intangible assets related to the acquisition of YourCash. As a percentage of revenues, depreciation and amortization expense was 6.5% for the third quarter and 8.2% for the first nine months of 2017 as compared to 6.7% and 8.0% for the same periods of 2016.
Operating income
EFT Processing Segment operating income for the three and nine months ended September 30, 2017 was $86.8 million and $137.1 million, respectively, an increase of $27.4 million or 46% and $36.5 million or 36% as compared to the same periods 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.
Operating income as a percentage of revenues (“operating margin”) was 38.4% for the third quarter and 28.1% 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. The slight decreases in operating margins were attributable to additional costs for ATMs added throughout the year and the impact of lower margin ATM transactions for YourCash and in India. Operating income per transaction was $0.14 for the third quarter and $0.08 for the first nine months of 2017 as compared to $0.12 and $0.07 for the same periods of 2016.
EPAY SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 2017 and 2016 for our epay Segment:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
| Total revenues | | $ | 184,234 |
| | $ | 167,226 |
| | $ | 17,008 |
| | 10 | % | | $ | 512,531 |
| | $ | 497,945 |
| | $ | 14,586 |
| | 3 | % |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Direct operating costs | | 143,023 |
| | 128,212 |
| | 14,811 |
| | 12 | % | | 393,269 |
| | 379,423 |
| | 13,846 |
| | 4 | % |
| Salaries and benefits | | 13,955 |
| | 13,352 |
| | 603 |
| | 5 | % | | 39,606 |
| | 38,052 |
| | 1,554 |
| | 4 | % |
| Selling, general and administrative | | 9,145 |
| | 8,133 |
| | 1,012 |
| | 12 | % | | 27,628 |
| | 25,291 |
| | 2,337 |
| | 9 | % |
| Depreciation and amortization | | 2,461 |
| | 2,734 |
| | (273 | ) | | (10 | )% | | 7,667 |
| | 8,498 |
| | (831 | ) | | (10 | )% |
| Total operating expenses | | 168,584 |
| | 152,431 |
| | 16,153 |
| | 11 | % | | 468,170 |
| | 451,264 |
| | 16,906 |
| | 4 | % |
| Operating income | | $ | 15,650 |
| | $ | 14,795 |
| | $ | 855 |
| | 6 | % | | $ | 44,361 |
| | $ | 46,681 |
| | $ | (2,320 | ) | | (5 | )% |
| Transactions processed (millions) | | 293 |
| | 314 |
| | (21 | ) | | (7 | )% | | 901 |
| | 949 |
| | (48 | ) | | (5 | )% |
Revenues
epay Segment total revenues for the three and nine months ended September 30, 2017 were $184.2 million and $512.5 million, respectively, an increase of $17.0 million or 10% and $14.6 million or 3% as compared to the same periods in 2016. The increases in total revenues were primarily due to an increase in the number of non-mobile transactions processed in Germany, an increase in vouchers distributed 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. Foreign currency movements increased total revenues by approximately $7.6 million for the three months ended September 30, 2017 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. 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$0.33 for the same periods in 20162020, respectively. The increasesdecreases in revenues per transaction were primarily driven by the revenue growth from non-mobileincrease in the number of mobile transactions processed for whichin a region where we generally earn higherlower revenues per transaction than mobile transactions and the net impact of the U.S. dollar weakening against key foreign currencies. The increase in revenues per transaction was also favorably impacted by the loss of a high-volume, low-margin customer in the Middle East.
transaction.
Direct operating costs
epay Segment direct operating costs were $143.0 million and $393.3$180.2 million for the three andmonths ended September 30, 2021, an increase of $30.2 million or 20% compared to the same period in 2020. epay Segment direct operating costs were $547.8 million for the nine months ended September 30, 2017, respectively,2021, an increase of $14.8$123.7 million and $13.8 million asor 29% compared to the same periodsperiod in 2016.2020. Direct operating costs in our epay Segment includeprimarily consist of 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 increases in direct operating costs were primarily due to the increase in vouchers distributed by our cadooz subsidiarytransaction volumes of low-value mobile top-up transactions, an increase in retailer commissions and non-mobile transactions processed in Germany. The increase for the three months ended September 30, 2017 was also partly due to the net impact of the U.S. dollar weakening against key foreign currencies.
Gross profit
Gross profit was $41.2currencies during 2021. Foreign currency movements increased direct operating costs by approximately $1.6 million and $119.3$22.9 million for the three and nine months ended September 30, 2017,2021, respectively, as compared to $39.0the same periods in 2020.
Gross profit
Gross profit was $58.1 million for the three months ended September 30, 2021, an increase of $9.2 million or 19% compared to $48.9 million for the same period in 2020.Gross profit was $176.7 million for the nine months ended September 30, 2021, an increase of $41.4 million or 31% compared to $135.3 million for the same period in 2020. Gross margin was 24.4% for both the three and nine months ended September 30, 2021, compared to 24.6% and 24.2% for the same periods in 2020, respectively. The increase in gross profit is primarily driven by the increase in transaction volumes at relatively flat margins.
Salaries and benefits
Salaries and benefits expenses were $20.1 million for the three months ended September 30, 2021, an increase of $4.0 million or 25% compared to the same period in 2020. Salaries and benefits expenses were $59.2 million for the nine months ended September 30, 2021, an increase of $12.3 million or 26% compared to the same period in 2020. The increase in salaries and benefits was primarily driven by an increase in headcount to support the growth of the business and an increase in bonus expense. Foreign currency movements in the countries where we employ our workforce increased these expenses by $0.3 million and $3.0 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. As a percentage of revenues, these expenses were 8.4% and 8.2% for the three and nine months ended September 30, 2021, respectively, compared to 8.1% and 8.4% for the same periods in 2020, respectively.
Selling, general and administrative
Selling, general and administrative expenses were $9.8 million for the three months ended September 30, 2021, an increase of $1.3 million or 16% compared to the same period in 2020. Selling, general and administrative expenses were $28.6 million for the nine months ended September 30, 2021, an increase of $2.7 million or 10% compared to the same period in 2020. Foreign currency movements increased these expenses by $0.1 million and $118.5$1.6 million for the three and nine months ended September 30, 2016, respectively. The increases in gross profit were primarily due to growth in non-mobile transactions processed in Germany partly offset by a decrease in promotional activities 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%, as2021, respectively, compared to 23.3% and 23.8% for the same periods in 2016. The decreases in gross margins for the third quarter were impacted by lower gross margins realized on voucher distributions2020. As a percentage of revenues, these expenses decreased to 4.1% 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.
Salaries and benefits
Salaries and benefits expense increased slightly3.9% for the three and nine months ended September 30, 20172021, respectively, compared to 4.3% and 4.6% for the same periods in 2020, respectively.
Depreciation and amortization
Depreciation and amortization expenses were $2.3 million for the three months ended September 30, 2021, an increase of $0.1 million or 6% compared to the same periodsperiod in 2016. The increases2020.Depreciation and amortization expenses were mainly driven by higher headcount in an effort to grow the segment. As a percentage of revenues, salaries and benefits were 7.6% and 7.7%$6.5 million for the three and nine months ended September 30, 2017, as compared to 8.0% and 7.6% for the same periods in 2016.
Selling, general and administrative
Selling, general and administrative expenses were $9.1 million and $27.6 million for the three and nine months ended September 30, 2017, respectively,2021, an increase of 12% and 9% as$0.9 million or 16% 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. As a percentage of revenues, selling, general and administrative expenses were 5.0% and 5.4% for the three and nine months ended September 30, 2017, respectively, as compared to 4.9% and 5.1% for the same periods in 2016.
Depreciation and amortization
2020. Depreciation and amortization expense primarily represents depreciation of POS terminals we placeinstall in retail stores and the amortization of acquired intangible assets. DepreciationAs a percentage of revenues, these expenses decreased to 0.9% for both the three and amortization expensenine months ended September 30, 2021, compared to 1.1% and 1.0% for the same periods in 2020, respectively.
Operating income
epay Segment operating income was $26.0 million for the three months ended September 30, 2021, an increase of $3.7 million or 17% compared to the same period in 2020. epay Segment operating income was $82.3 million for the nine months ended September 30, 2021, an increase of $25.6 million or 45% compared to the same period in 2020. Operating margin decreased slightlyto 10.9% and increased to 11.4% for the three and nine months ended September 30, 2021, respectively, compared to 11.2% and 10.1% for the same periods in 2020, respectively. Operating income per transaction was $0.03 and $0.04 for the three and nine months ended September 30, 2017 as2021, respectively, compared to $0.03 for both of the same periods in 2020. The increase in operating income and relatively flat operating margin for the three months ended September 30, 2021 compared to the same periodsperiod in 2016. As a percentage2020 was primarily due to an increase in the number of revenues, depreciation and amortization expense was 1.3% and 1.5% for the three and nine months ended September 30, 2017, respectively, and 1.6% and 1.7% for the three and nine months ended September 30, 2016, respectively. Operating income
epay Segmentoverall transactions. The increases in operating income for the three and nine months ended September 30, 2017 was $15.7 million and $44.4 million, respectively, an increase of $0.9 million and a decrease of $2.3 million as compared to the same periods in 2016. Operating incomeoperating margin for the nine months ended September 30, 2017 decreased as2021 compared to the result of additional costsame period in 2020 was primarily due to support the transaction growth of our non-mobile products in Germany and a decrease in promotion driven revenues from non-mobile transactions, partly offset by an increase in gross profit from non-mobile products in Germany. Operating income for the three months ended September 30, 2017 improved as a resultnumber of increased gross profit from non-mobile products in Germany, along with the net impact of the U.S. dollar weakening against key foreign currencies, partly offset by the decrease in promotion driven revenues from non-mobilehigher-margin digital media transactions processed in a particular market.
Operating margin decreased to 8.5% and 8.7% for the three and nine months ended September 30, 2017, respectively, from 8.8% and 9.4% for the same periods in 2016. Operating income per transaction was $0.05 for the three and nine months ended September 30, 2017 and 2016, respectively.
.
MONEY TRANSFER SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 20172021 and 20162020 for the Money Transfer Segment:
| | | | | Three Months Ended
September 30, | | Year-over-Year Change | | Nine Months Ended
September 30, | | Year-over-Year Change | | Three Months Ended
September 30, | | Year-over-Year Change |
| Nine Months Ended
September 30, |
| Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase
Amount | | Increase Percent | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
| Increase (Decrease) Amount |
| Increase (Decrease) Percent |
| Total revenues | | $ | 228,105 |
| | $ | 204,611 |
| | $ | 23,494 |
| | 11 | % | | $ | 649,205 |
| | $ | 587,664 |
| | $ | 61,541 |
| | 10 | % | | $ | 353,451 | | $ | 323,092 | | $ | 30,359 | | 9 | % |
| $ | 1,037,659 |
| $ | 852,189 |
| $ | 185,470 |
| 22 | % |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| Direct operating costs | | 123,588 |
| | 109,944 |
| | 13,644 |
| | 12 | % | | 348,724 |
| | 309,706 |
| | 39,018 |
| | 13 | % | | 200,231 | | 176,718 | | 23,513 | | 13 | % |
|
| 589,273 |
| 464,216 |
| 125,057 |
| 27 | % |
| Salaries and benefits | | 44,110 |
| | 38,365 |
| | 5,745 |
| | 15 | % | | 125,273 |
| | 114,582 |
| | 10,691 |
| | 9 | % | | 65,285 | | 52,035 | | 13,250 | | 25 | % |
|
| 188,535 |
| 154,958 |
| 33,577 |
| 22 | % |
| Selling, general and administrative | | 28,648 |
| | 23,924 |
| | 4,724 |
| | 20 | % | | 77,912 |
| | 68,930 |
| | 8,982 |
| | 13 | % | | 41,533 | | 36,601 | | 4,932 | | 13 | % |
|
| 115,975 |
| 108,355 |
| 7,620 |
| 7 | %
|
| Goodwill and acquired intangible assets impairment | |
| — |
| 1,467 |
| (1,467 | ) | (100) | % |
|
| — |
| 84,160 |
| (84,160 | ) | (100) | % |
| Depreciation and amortization | | 7,403 |
| | 7,195 |
| | 208 |
| | 3 | % | | 21,941 |
| | 21,868 |
| | 73 |
| | — | % | | 8,897 | | 8,645 | | 252 | | 3 | % |
|
| 26,886 |
|
| 25,793 |
|
| 1,093 |
| 4 | % |
| Total operating expenses | | 203,749 |
| | 179,428 |
| | 24,321 |
| | 14 | % | | 573,850 |
| | 515,086 |
| | 58,764 |
| | 11 | % | | 315,946 | | 275,466 | | 40,480 | | 15 | % |
|
| 920,669 |
|
| 837,482 |
|
| 83,187 |
| 10 | %
|
| Operating income | | $ | 24,356 |
| | $ | 25,183 |
| | $ | (827 | ) | | (3 | )% | | $ | 75,355 |
| | $ | 72,578 |
| | $ | 2,777 |
| | 4 | % | | $ | 37,505 | | $ | 47,626 | | $ | (10,121 | ) | (21) | % |
| $ | 116,990 |
| $ | 14,707 | | $ | 102,283 |
| 695 | %
|
| Transactions processed (millions) | | 23.9 |
| | 21.3 |
| | 2.6 |
| | 12 | % | | 67.4 |
| | 60.5 |
| | 6.9 |
| | 11 | % | | 34.1 | | 30.9 | | 3.2 | | 10 | % |
|
| 99.4 |
| 84.1 |
| 15.3 |
| 18 | % |
Revenues
Money Transfer Segment total revenues were $353.5 million for the three months ended September 30, 2021, an increase of $30.4 million or 9% compared to the same period in 2020. Money Transfer Segment total revenues were $1,037.7 million for the nine months ended September 30, 2021, an increase of $185.5 million or 22% compared to the same period in 2020. The increase in revenues was primarily due to increases in U.S. outbound and international-originated money transfers, partially offset by decreases in the U.S. domestic business and transactions in the Middle East region. Revenues per transaction decreased to $10.37 and increased to $10.44 for the three and nine months ended September 30, 2017 were $228.12021, respectively, compared to $10.46 and $10.13 for the same periods in 2020, respectively. Foreign currency movements increased revenues by approximately $3.2 million and $649.2$35.4 millionfor the three and nine months ended September 30, 2021, respectively, an increase of $23.5 million or 11% and $61.5 million or 10% as compared to the same periods in 2016. The increases in total revenues for the three and nine months ended September 30, 2017 were primarily due to increases in the number of money transfers processed, driven by growth in the U.S. and foreign agent and correspondent payout networks, and an increase in transactions in our domestic Walmart-2-Walmart money transfer service. These increases were partly offset 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 of currency volatility from the Brexit vote during the prior year which did not recur in the current period.
Revenues per transaction decreased to $9.54 for the third quarter and $9.63 for the first nine months of 2017 from $9.61 for the third quarter and $9.71 for the first nine months of 2016. The decreases were primarily due to the impact of the increase in volume from our Walmart money transfer product, which earns lower revenues per transaction than other money transfer services and reduced rates charged for the Walmart-2-Walmart product beginning in the second quarter of 2017. In the fourth quarter of 2016, the Company took over the processing of xe money transfers from a third party and began recording the full customer fees as revenues, which partly offset the decreases in revenues per transaction.
2020.
Direct operating costs
Money Transfer Segment direct operating costs were $123.6$200.2 million and $348.7 million for the three andmonths ended September 30, 2021, an increase of $23.5 million or 13% compared to the same period in 2020. Money Transfer Segment direct operating costs were $589.3 million for the nine months ended September 30, 2017, respectively,2021, an increase of $13.6$125.1 million or 12% and $39.0 million or 13% as27% compared to the same periodsperiod in 2016. 2020.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 growththe increase in the number of U.S. outbound and international-originated money transfer transactions processedand corresponding increase in both the U.S. and foreign markets.
Gross profit
Gross profit was $104.5agent commissions. Foreign currency movements increased direct operating costs by approximately $1.6 million and $300.5$17.9 million for the three and nine months ended September 30, 2017,2021, respectively, as compared to $94.7the same periods in 2020.
During the third quarter of 2021, the Company evaluated $40.8 million of deferred contract acquisition costs related to a large retail contract due to lower than expected cash flows. An undiscounted cash flow analysis was performed comparing the carrying amount of the deferred contract acquisition costs to the projected undiscounted cash flows. The undiscounted cash flows exceeded the carrying amount indicating no impairment at September 30, 2021.
Gross profit
Gross profit was $153.2 million for the three months ended September 30, 2021, an increase of $6.8 million or 5% compared to $146.4 million for the same period in 2020.Gross profit was $448.4 million for the nine months ended September 30, 2021, an increase of $60.4 million or 16% compared to $388.0 million for the same period in 2020. Gross margin decreased to 43.3% and 43.2% for the three and nine months ended September 30, 2021, respectively, compared to 45.3% and 45.5% for the same periods in 2020, respectively. The increase in gross profit is primarily attributable to the increase in transactions and the decrease in gross margin is primarily attributable to the increase in direct operating costs driven by increased agent commissions for the three and nine months ended September 30, 2021 compared to the same periods in 2020.
Salaries and benefits
Salaries and benefits expenses were $65.3 million for the three months ended September 30, 2021, an increase of $13.3 million or 25% compared to the same period in 2020. Salaries and benefits expenses were $188.5 million for the nine months ended September 30, 2021, an increase of $33.6 million or 22% compared to the same period in 2020. The increase in salaries and benefits was primarily driven by an increase in headcount to support the growth of the business and an increase in bonus expense. Foreign currency movements in the countries where we employ our workforce increased these expenses by $0.9 million and $6.7 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. As a percentage of revenues, these expenses increased to 18.5% and were flat at 18.2% for the three and nine months ended September 30, 2021, respectively, compared to 16.1% and 18.2% for the same periods in 2020, respectively.
Selling, general and administrative
Selling, general and administrative expenses were $41.5 million for the three months ended September 30, 2021, an increase of $4.9 million or 13% compared to the same period in 2020. Selling, general and administrative expenses were $116.0 million for the nine months ended September 30, 2021, an increase of $7.6 million or 7% compared to the same period in 2020. The increase in these expenses is primarily driven by an increase in professional fees and travel related expenses. Foreign currency movements decreased these expenses by $0.1 million and $278.0increased these expenses by $4.9 million for the three and nine months ended September 30, 2016, respectively. The increases2021, respectively, compared to the same periods in gross profit were primarily due2020. As a percentage of revenues, these expenses increased to growth in the number of money transfer transactions processed in both the U.S.11.8% and foreign markets.
During the three and nine months ended September 30, 2017, gross margin decreased to 45.8% and 46.3%11.2% for the three and nine months ended September 30, 2017,2021, respectively, as compared to 46.3%11.3% and 47.3%12.7% for the same periods in 2020, respectively.
Goodwill and acquired intangible assets impairment
Due to the economic impacts of the COVID-19 pandemic, the Company recorded an $82.7 million non-cash goodwill impairment charge related to the xe reporting unit during the second quarter of 2020. The non-cash goodwill impairment charge was recorded for xe as a result of declines in the international payments business stemming from economic uncertainty. During the third quarter of 2020, a $1.5 million non-cash acquired intangible asset impairment charge was recorded for xe on previously acquired customer relationship intangible assets due to the discontinuation of trading with certain customers during the quarter.
Depreciation and amortization
Depreciation and amortization expenses were $8.9 million for the three months ended September 30, 2021, an increase of $0.3 million or 3% compared to the same period in 2020.Depreciation and amortization expenses were $26.9 million for the nine months ended September 30, 2016, respectively. The decreases are primarily due to the growth2021, an increase of our Walmart money transfer product in the U.S., which earns a lower gross profit per transaction than other money transfer services and reduced rates charged for the Walmart-2-Walmart product beginning in the second quarter of 2017.
Salaries and benefits
Salaries and benefits expense increased $5.7$1.1 million or 15% and $10.7 million or 9% for the three and nine months ended September 30, 2017, respectively, as4% compared to the same periodsperiod in 2016. The increases in salaries and benefits were primarily due to the expansion of our operations in foreign markets. As a percentage of revenues, salaries and benefits were 19.3% for the three and nine months ended September 30, 2017, as compared to 18.8% and 19.5% for the three and nine months ended September 30, 2016, respectively.
Selling, general, and administrative
Selling, general and administrative expenses for the three and nine months ended September 30, 2017 were $28.6 million and $77.9 million, an increase of $4.7 million or 20% and $9.0 million or 13% as compared to the same periods in 2016. The increases were 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.
As a percentage of revenues, selling, general and administrative expenses increased to 12.6% and 12.0% for the three and nine months ended September 30, 2017, respectively, as compared to 11.7% for both of the same periods 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.
Depreciation and amortization
2020. Depreciation and amortization primarily represents amortization of acquired intangible assets and depreciation of money transfer terminals, computers and software, leasehold improvements and office equipment. DepreciationAs a percentage of revenues, these expenses decreased to 2.5% and amortization expense was essentially flat2.6% for the three and nine months ended September 30, 2017 as2021, respectively, compared to 2.7% and 3.0% for the same periods in 2020, respectively.
Operating income Money Transfer Segment operating income was $37.5 million for the three months ended September 30, 2021, a decrease of $10.1 million or 21% compared to the same periodsperiod in 2016.
As a percentage of revenues, depreciation and amortization expense was 3.2% for the third quarter 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.
Operating income
2020. Money Transfer Segment operating income was $117.0 million for the nine months ended September 30, 2021, an increase of $102.3 million or 695% compared to the same period in 2020. Operating margin decreased to 10.6% and increased to 11.3% for the three and nine months ended September 30, 2017 was $24.4 million2021, respectively, compared to 14.7% and $75.4 million, a decrease of $0.8 million or 3% and an increase of $2.8 million or 4% as compared to1.7% for the same periods of 2016. in 2020, respectively.Operating income for the three months ended September 30, 2017per transaction decreased primarily as a result of the the reduced rates for our Walmart-2-Walmart product, the effects of the hurricanes in Texas, Floridato $1.10 and Puerto Rico and additional salaries and benefits and other costs incurredincreased to support the current 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 salaries and benefits and other costs incurred, reduced rates for Walmart-2-Walmart transfer services as well as increased transactions processed by HiFX as a result of the Brexit vote in the prior period, which did not recur in the current period.
As a percentage of revenues, operating margin was 10.7% and 11.6%$1.18 for the three and nine months ended September 30, 2017 as2021, respectively, compared to 12.3%$1.54 and 12.4%$0.17 for the same periods in 2016. Operating2020, respectively. The decrease in operating income, per transaction decreased to $1.02 for the third quarter and $1.12 for the first nine months of 2017 from $1.18 and $1.20 for the same periods in 2016. Operatingoperating margin and operating income per transaction decreased primarily duefor the three months ended September 30, 2021 compared to the decreasesame period in margin realized with2020 was primarily driven by the renewal of the Walmart-2-Walmart agreementincrease in agent commissions and the additional salaries and benefits and other costs incurredincrease in headcount to support the growth inof the business.
The increase in operating income, operating margin and operating income per transaction for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily driven by the decrease in non-cash goodwill impairment charges, and an increase in transaction volume, specifically the higher margin transactions for U.S. outbound and international-originated money transfers, partially offset by the increase in agent commissions and increase in headcount to support the growth of the business.
CORPORATE SERVICES
The following table presents the operating expenses for the three and nine months ended September 30, 20172021 and 20162020 for Corporate Services:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
| Salaries and benefits | | $ | 7,252 |
| | $ | 7,228 |
| | $ | 24 |
| | — | % | | $ | 21,613 |
| | $ | 22,739 |
| | $ | (1,126 | ) | | (5 | )% |
| Selling, general and administrative | | 2,614 |
| | 1,680 |
| | 934 |
| | 56 | % | | 10,219 |
| | 5,303 |
| | 4,916 |
| | 93 | % |
| Depreciation and amortization | | 36 |
| | 40 |
| | (4 | ) | | (10 | )% | | 96 |
| | 146 |
| | (50 | ) | | (34 | )% |
| Total operating expenses | | $ | 9,902 |
| | $ | 8,948 |
| | $ | 954 |
| | 11 | % | | $ | 31,928 |
| | $ | 28,188 |
| | $ | 3,740 |
| | 13 | % |
| | | Three Months Ended
September 30, | | Year-over-Year Change |
| Nine Months Ended
September 30, |
| Year-over-Year Change |
| (dollar amounts in thousands) | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
| Increase (Decrease) Amount |
| Increase (Decrease) Percent |
| Salaries and benefits | | $ | 10,367 | | $ | 8,252 | | $ | 2,115 | | 26 | % |
| $ | 37,043 |
| $ | 23,253 |
| $ | 13,790 |
| 59 | % |
| Selling, general and administrative | |
| 1,681 | |
| 1,595 | |
| 86 | | 5 | % |
|
| 4,587 |
|
| 6,032 |
|
| (1,445 | ) | (24) | %
|
| Depreciation and amortization | |
| 119
| |
| 117 | |
| 2 | | 2 | % |
|
| 412 |
|
| 276 |
|
| 136 |
| 49 | % |
| Total operating expenses | | $ | 12,167
| | $ | 9,964 | | $ | 2,203 | | 22 | % |
| $ | 42,042 |
| $ | 29,561 |
| $ | 12,481 |
| 42 | %
|
Corporate operating expenses
Overall,Total Corporate operating expenses for Corporate Services were $9.9$12.2 million and $31.9$42.0 million for the three and nine months ended September 30, 2017,2021, respectively, an increase of 11%$2.2 million or 22% and 13% as$12.5 million or 42%, respectively, compared to the same periods in 2016.2020. The decrease in salaries and benefits for the first nine months of 2017 wasincreases are primarily due to a decrease in bonus expense related to the Company's performance relative to its targets. The$1.8 million and $11.8 million 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.
OTHER INCOME (EXPENSE), NET
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Year-over-Year Change | | Nine Months Ended
September 30, | | Year-over-Year Change |
| (dollar amounts in thousands) | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent | | 2017 | | 2016 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| Interest income | | $ | 380 |
| | $ | 349 |
| | $ | 31 |
| | 9 | % | | 2,009 |
| | 1,244 |
| | 765 |
| | 61 | % |
| Interest expense | | (9,534 | ) | | (7,724 | ) | | (1,810 | ) | | 23 | % | | (25,058 | ) | | (20,968 | ) | | (4,090 | ) | | 20 | % |
| Foreign currency exchange gain (loss), net | | 8,179 |
| | (1,527 | ) | | 9,706 |
| | n/m |
| | 21,035 |
| | (1,299 | ) | | 22,334 |
| | n/m |
|
| Other gains | | — |
| | — |
| | — |
| | n/m |
| | 35 |
| | 19,903 |
| | (19,868 | ) | | n/m |
|
| Other expense, net | | $ | (975 | ) | | $ | (8,902 | ) | | $ | 7,927 |
| | (89 | )% | | $ | (1,979 | ) | | $ | (1,120 | ) | | $ | (859 | ) | | 77 | % |
________________n/m — Not meaningful
Interest income
The increases in interest incomeshare based compensation for the three and nine months ended September 30, 20172021, respectively, compared to the same periods in 2016 were primarily due to interest earned on a tax refund received in India in the first quarter2020.
OTHER EXPENSE, NET
| | | Three Months Ended
September 30, | | Year-over-Year Change |
| Nine Months Ended
September 30, |
| Year-over-Year Change |
| (dollar amounts in thousands) | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
| Increase (Decrease) Amount |
| Increase (Decrease) Percent |
| Interest income | | $ | 153 | | $ | 139
| | $ | 14 | | 10 | % |
| $ | 539 |
| $ | 867 |
| $
| (328 | ) | (38) | % |
| Interest expense | | (10,072 | ) | (9,477 | ) | (595) | | 6 | % |
|
| (28,718 | ) |
| (27,594 | ) |
| (1,124 | ) | 4 | % |
| Foreign currency exchange loss, net | | (8,135 | ) | (1,368 | ) | (6,767 | ) | 495 | % |
|
| (12,051 | ) |
| (17,679 | ) |
| 5,628 |
| (32) | %
|
| Other gains | | — | | — | | — | | n/a |
|
|
| 31 |
|
| 728 |
|
| (697 | ) | (96) | % |
| Other expense, net | | $ | (18,054 | ) | $ | (10,706 | ) | $ | (7,348 | ) | 69 | % |
| $ | (40,199 | ) | $ | (43,678 | ) | $ | 3,479 |
| (8) | %
|
Interest expense
The increases in interest expense for the three and nine months ended September 30, 2017 compared to the same periods in 2016 were primarily related to higher interest rates and additional borrowings under the Credit Facility throughout the third quarter and first nine months of 2017 to fund the operating cash for our Independent ATM Deployed (“IAD”) networks.
Foreign currency exchange gain (loss),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 a net foreign currency exchange gainsloss of $8.2$8.1 million and $21.0$12.1 million for the three and nine months ended September 30, 2017, 2021, respectively, as compared to a net foreign currency exchange loss of $1.5$1.4 million and gain of $1.3$17.7 million for the same periods in 2016.2020, respectively. These realized and unrealized net foreign currency exchange gains and losses reflect the fluctuation in the value of the U.S. dollar against the currencies of the countries in which we operated during the respective periods.
Other gains
The results for the first nine months of 2016 included an investment gain of $19.4 million related to the sale of the sale of our membership in Visa Europe Limited ("Visa Europe") to Visa, Inc. ("Visa") on June 21, 2016.
INCOME TAX EXPENSE
The Company's
Our effective income tax rate was 13.4%23.6% and 19.3% for the three and nine months ended September 30, 2017, respectively, as compared to 25.5% and 23.7% for the same periods in 2016. The Company's effective income tax rate 35.8% for the three and nine months ended September 30, 20172021, respectively, compared to 27.2% and 2016(55.9)% for the same periods in 2020, respectively. Our effective income tax rate for the three and nine months ended September 30, 2021 was lowerhigher than the applicable statutory income tax rate of 21%as a result of certain foreign earnings being subject to higher local statutory tax rates, the non-recognition of tax benefits from losses in certain foreign countries where we have a limited history of profitable earnings and as a result of an increase in the valuation allowance in certain jurisdictions relating to the reversal of tax benefits recognized in the first quarter of 2021 for continuing net operating losses. Our effective income tax rate for the three and nine months ended September 30, 2020 was different than the applicable statutory income tax rate of 35%21% primarily attributable to the release in 2017 of a $16.3 million valuation allowance against certain foreign net deferred tax assets and, to a lesser extent, the Company's continued U.S. 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. The decrease in the effective tax rates for 2017 compared to 2016 is largely due to the non-deductible goodwill impairment charge during the releasesecond quarter of 2020 and as a result of an increase in the valuation allowance againstin certain foreignjurisdictions relating to the reversal of tax benefits recognized in the first quarter of 2020 for net deferred tax assets.
operating losses in those jurisdictions which have a limited history of profitable earnings.
NET (INCOME) LOSSINCOME (LOSS) 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 duringNET INCOME (LOSS) ATTRIBUTABLE TO EURONET
Net income attributable to Euronet was $73.9 million for the three months ended September 30, 2017.2021, an increase of $33.6 million or 84% compared to the same period in 2020. For the three months ended September 30, 2021, the increase in net income was primarily attributable to the $75.4 million increase in gross profit driven by an increase in transaction volumes, partially offset by a $17.8 million increase in salaries and benefits, a $9.1 million increase in selling, general and administrative expenses, a $7.7 million increase in income tax expense, a $6.8 million increase in net foreign currency exchange losses and an increase in other expenses aggregating $0.4 million.
NET INCOME ATTRIBUTABLE TO EURONET
Net income attributable to Euronet was $100.3 million and $179.8$73.9 million for the three and nine months ended September 30, 2017, respectively,2021, an increase of $39.6$147.5 million and $34.3 million asor 200% compared to the net loss in the same periodsperiod in 2016. The2020. For the nine months ended September 30, 2021, the increase in net income for the first nine months of 2017 was primarily dueattributable to the $135.2 million increase in gross profit driven by an increase in operating income of $33.2transaction volumes, a $106.0 million an increase of $22.3decrease in non-cash goodwill and intangible assets impairment charges and a $5.6 million decrease in net foreign currency exchange gains, anlosses, partially offset by a $62.4 million increase in interest income of $0.8salaries and benefits, a $14.7 million and a decreaseincrease in income tax expense, ofa $12.9 million increase in selling, general and administrative expenses, a $7.3 million increase in depreciation and amortization expenses and an increase in other expenses aggregating $2.0 million. The increase was partly offset by a $19.4 million gain from the sale
LIQUIDITY AND CAPITAL RESOURCES
Working capital
As of September 30, 2017 and December 31, 2016,2021, we had working capital of $1,395.5 million, which is calculated as the difference between total current assets and total current liabilities, compared to working capital of $626.1$1,510.5 million as of December 31, 2020. The decrease in working capital was primarily due to the $217.2 million decrease in the outstanding balance on the Credit Facility during the nine months ended September 30, 2021, partially offset by a $35.0 million increase in trade accounts receivable and $405.9a $34.7 million respectively.decrease in accrued expenses and other current liabilities. Our ratio of current assets to current liabilities was 1.85 and 1.81 at September 30, 20172021 and December 31, 2016 was 1.48 and 1.34,2020, 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 muchsome of itwhich 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, 2017,2021, we had approximately $626$669.7 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. ATM cash increased $258.6 million from $411.1 million as of December 31, 2020 to $669.7 million as of September 30, 2021 as a result of the increase in the number of active ATMs as of September 30, 2021 compared to December 31, 2020.
We hadThe Company has $1,048.5 million of unrestricted cash as of September 30, 2021 compared to $1,420.3 million as of December 31, 2020. The decrease in unrestricted cash was primarily due to the $217.2 million net repayment of the outstanding balance on the Credit Facility during the nine months ended September 30, 2021 and the $258.6 million increase in ATM cash equivalentsas unrestricted cash was utilized to fill the additional active ATMs. Including the $669.7 million of $1,062.2 millioncash in ATMs at September 30, 2017, of which $939.12021, the Company has access to $1,718.2 million was held outside ofin available cash, and $918.9 million available under the United States and is expected to be indefinitely reinvested for continued use in foreign operations. Repatriation of these assets to the U.S. could have negative tax consequences.Credit Facility with no significant long-term debt principal payments until March 2025.
The following table identifies cash and cash equivalents provided by/(used in) our operating, investing and financing activities for the nine month periodsmonths ended September 30, 20172021 and 20162020 (in thousands):
| | | | Nine Months Ended
September 30, | Nine Months Ended
September 30, |
| Liquidity | 2017 | | 2016 | 2021 | | 2020 |
| 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 |
| $ | 304,340 | | | $ | 220,416 |
|
| Investing activities | (74,023 | ) | | (55,581 | ) | (70,952 | ) | | (77,073 | ) |
| Financing activities | 126,615 |
| | 31,234 |
| (216,291 | ) | | (244,069 | ) |
| 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 | | (82,667 | ) | | 32,042 | |
| Decrease in cash and cash equivalents and restricted cash | | $ | (65,570 | ) | | $ | (68,684 | ) |
Operating activity cash flow
Cash flows provided by operating activities were $230.5$304.3 million for the first nine months of 2017ended September 30, 2021 compared to $217.5$220.4 million for the first nine months of 2016.same period in 2020. The increase isin operating cash flows was primarily due to improved operating results, partly offset bythe increase in net income and 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$71.0 million for the first nine months of 2017ended September 30, 2021 compared to $55.6$77.1 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 $11.9same period in 2020. We used $66.1 million received for the sale of our ownership interest in Visa Europe in 2016. During the first nine months of 2017, we used $70.9 million for purchases of property and equipment for the nine months ended September 30, 2021 compared to $61.6$71.4 million duringfor the first nine months of 2016.same period in 2020. Cash used for software development and other investing activities totaled $3.2$4.9 million and $3.7$5.7 million for the nine months ended September 30, 2021 and 2020, respectively.
Financing activity cash flow
Cash flows used in financing activities were $216.3 million for the nine months ended September 30, 2021 compared to $244.1 million for the firstsame period in 2020. Our borrowing activities for the nine months of 2017 and 2016, respectively.
Financing activity cash flow
Cash flows provided by financing activities were $126.6 million for the first nine months of 2017 compared to $31.2 million for the first nine months of 2016. Our financing activities for the first nine months of 2017ended September 30, 2021 consisted of net borrowingscash outflows of $123.8$217.0 million compared to net debt borrowingscash outflows of $103.9$5.0 million for the first nine months of 2016.same period in 2020. The increase in net borrowings cash outflows for the first nine months of 2017ended September 30, 2021 compared to the same period of 2016in 2020 was the result of additional borrowings under the credit facilities to fundnet repayment of $217.2 million of the operating cash of our IAD networks. Additionally, we used $3.5 million and $2.0 million duringoutstanding balance on the first nine months of 2017 and 2016, respectively, for capital lease repayments.Credit Facility. We repurchased $2.3 million and $76.5$1.0 million of ourcommon 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 exercisesended September 30, 2021 compared to $0.9 repurchases of $240.8 million for the same period in 2020. The $1.0 million of 2016. share repurchases during the nine months ended September 30, 2021 were in connection with the settlement of Restricted Stock Unit awards and the exercise of option awards in certain countries in which we operate. We received proceeds from stock option exercises of $8.3$6.4 million and $5.1$6.6 million during the nine months ended September 30, 2021 and 2020, respectively, for the first nine monthsissuance of 2017 and 2016, respectively.
stock in connection with our 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 millionthat expires on October 17, 2023. In May 2021, an additional lender joined the Credit Facility which increased the 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.commitment by $30 million. The revolving credit facilityCredit Facility allows for borrowings in U.S.Australian dollars, euros, British pounds Australiansterling, Canadian dollars, and/or Indian rupeesCzech koruna, Danish krone, euro, Hungarian forints, Japanese yen, New Zealand dollars, Norwegian krone, Polish zlotys, Swedish krona, Swiss francs, and U.S. dollars. 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, 2017,2021, fees and interest on borrowings variedare based upon the Company's consolidated total leverage ratioour corporate 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, 2017,2021, we had borrowings of $53.4 million outstanding under the term loan. We had $191.6$53.2 million of borrowings and $45.1$57.9 million of stand-by letters of credit outstanding under the revolving credit facility as of September 30, 2017.Credit Facility. The remaining $363.3$918.9 million under the revolving credit facilityCredit Facility was available for borrowing. As
Convertible debt - On March 18, 2019, we completed the sale of September 30, 2017, the weighted average interest rates under the revolving credit facility and Term Loan A were 3.04% and 2.86%, respectively, excluding amortization of deferred financing costs. Convertible debt - We have $402.5$525.0 million in principal amount of Convertible Senior Notes due 20442049 (“Convertible Notes”). The Convertible Notes were issued pursuant to an indenture, dated as of March 18, 2019 (the “Indenture”), by and between us and U.S. Bank National Association, as trustee. The Convertible Notes have an interest rate of 1.5%0.75% per annum payable semi-annually in AprilMarch and October,September, and are convertible into shares of Euronet Common Stock common stock at a conversion price of approximately $72.18$188.73 per share if certain conditions are met (relating to the closing prices of Euronet Common Stock common 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 us to purchaserepurchase for cash all or part of their notesConvertible Notes on each of March 15, 2025, 2029, 2034, 2039 and 2044 at par on October 1, 2020, and have additional optionsa repurchase price equal to require us to purchase their notes at par on October 1, 2024, 2029, 2034, and 2039, or upon a change in control100% 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.
ATM Facility2025.
Senior Notes - On June, 27, 2017,May 22, 2019, we entered into a short-term credit facility incompleted 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 on NovemberMay 22 of each year, until maturity or earlier redemption. As of September 30, 2017.
2021, we have outstanding €600 million ($694.9 million) principal amount of the Senior Notes. In addition, we 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 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 $1.1 million and $0.9 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 arrangements2021 and $12.2 million of payments due in the next twelve months under the Term Loan A.
December 31, 2020, respectively.
Other uses of capital
Capital expenditures and needs - Total capital expenditures including capital lease expenditures, for the first nine months of 2017ended September 30, 2021 were $76.8$66.1 million. These capital expenditures were made primarily for the purchase of ATMs to expand our independent ATM 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 20172021 are currently estimated to range from approximately $105$100 million to $115 million.$105 million.
At current and projected cash flow levels, we anticipate that cash generated from operations, together with cash on hand and amounts available under our revolving credit facilityCredit Facility and other existing and potential future financing sources, will be sufficient to meet our debt, leasing, and capital expenditure obligations. If our capital resources are not sufficient to meet these obligations, we will seek to refinance our debt and/or issue additional equity under terms acceptable to us. However, we can offer no assurances that we will be able to obtain favorable terms for the refinancing of any of our debt or other obligations or for the issuance of additional equity.Inflation and functional currencies
Generally, the countries in which we operate have experienced low and stable inflation in recent years. Therefore, the local currency in each of these markets is the functional currency. Currently, we do not believe that inflation will have a significant effect on our results of operations or financial position. We continually review inflation and the functional currency in each of the countries where we operate.
OFF BALANCE SHEET ARRANGEMENTS
On occasion, we grant guarantees of the obligations of our subsidiaries and we sometimes enter into agreements with unaffiliated third parties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. Our liability under such indemnification provisions may be subject to time and materiality limitations, monetary caps and other conditions and defenses. As of September 30, 20172021, there were no material changes from the disclosure in our Annual Report on Form 10-K for the year ended December 31, 20162020. 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, 20172021. See also Note 11,14, Commitments, to the unaudited consolidated financial statements included elsewhere in this report.
CONTRACTUAL OBLIGATIONS
As of September 30, 2017,2021, 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 other than those resulting from changes infor the amount of outstanding debt discussed in the Liquidity and Capital Resources section.year ended December 31, 2020.
Interest rate risk
As ofSeptember 30, 20172021, our total debt outstanding, excluding unamortized debt issuance costs, was $736.3$1,213.3 million. Of this amount, $366.5$464.2 million, net of debt discounts, or 50%38% of our total debt obligations, relates to our contingent Convertible Notes that have a fixed coupon rate. Our $402.5$525.0 million outstanding principal amount of Convertible Notes issued in October 2014, 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, 2017,2021, the fair value of our fixed rate Convertible Notes was $550.5$603.1 million, compared to a carrying value of $366.5$464.2 million. Interest expense for these notes,the Convertible Notes, including accretion and amortization of deferred debt issuance costs, has a weighted average interest rate of 4.7%4.4% annually. Further, as of September 30, 2021 we had $53.2 million of borrowings, or 4% of our total debt obligations, under our Credit Facility. Additionally, $345.0$694.9 million, or 47%57% 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 amount per annum. Based on quoted market prices, as of September 30, 2021, the fair value of our Credit Facility and ATM Facility. If we werefixed rate Senior Notes was $710.3 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$694.9 million.
The remaining $24.8$1.1 million, or 3%,less than 1% 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 months of 2017,ended September 30, 2021, approximately 74%73% 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, 20172021, 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$155 million to $145 million.$160 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. Weand our Senior Notes. As of September 30, 2021, we estimate that a 10% fluctuation in foreign currency exchange rates would have a non-cash impact on total comprehensive income of approximately $100$115 million to $105$120 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, a significant portion of our debt obligations are primarily in U.S. dollars; therefore, as foreign currency exchange rates fluctuate, the amount available for repayment of debt will also increase or decrease.
We use derivatives to minimize our exposures related to changes in foreign currency exchange rates and to facilitate foreign currency risk management services by writing derivatives to customers. Derivatives are used to manage the overall market risk associated with foreign currency exchange rates; however, we do not perform the extensive record-keeping required to account for the derivative transactions as hedges. Due to the relatively short duration of the derivative contracts, we use the derivatives primarily as economic hedges. Since we do not designate foreign currency derivatives as hedging instruments pursuant to the accounting standards, we record gains and losses on foreign exchange derivatives in earnings in the period of change.
A majority of our consumer-to-consumer money transfer operations involvesinvolve receiving and disbursing different currencies, in which we earnearn 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.Operations. As of September 30, 2017,2021, we had foreign currency derivative contracts outstanding with a notional value of $244$275 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.Operations. As of September 30, 2017,2021, we held foreign currency derivative contracts outstanding with a notional value of $1.3$1.1 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, 2017,2021, the Company had foreign currency forward contracts outstanding with a notional value of $282$46 million, primarily in British pounds, euros and Polish zloty.
euros.
See Note 7,10, Derivative Instruments and Hedging Activities, to our Consolidated Financial Statementsunaudited 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, 20172021. 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, 2017third quarter of 2021 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 12,15, 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.
There
Except 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, 2020, as filed with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to shares of the Company's common stock that were purchased by the Company during the three months ended September 30, 2021. There were no repurchases of common stock during the three months ended September 30, 2021.
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (in thousands) (1) |
| July 1 - July 31, 2021 | | — |
| | $ | — |
| | — |
| | $ | 250,000 |
|
August 1 - August 31, 2021 | | — |
| | — |
| | — |
| |
| 250,000 |
|
| September 1 - September 30, 2021 | | — |
| | — |
| | — |
| | $ | 250,000 |
|
| Total | | — |
| | $ | — |
| | — |
| | |
(1) 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 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.
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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, 2017,2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 20172021 (unaudited) and December 31, 2016,2020, (ii) Consolidated Statements of IncomeOperations (unaudited) for the three and nine months ended September 30 2017, 2021 and 2016,2020, (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 20172021 and 2016,2020, (iv) Consolidated Statements of Changes in Equity (unaudited) for the three and nine months ended September 30, 2021 and 2020 (v) Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 20172021 and 2016,2020, 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'sour 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 Companyus or itsour business or operations on the date hereof.
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, 201728, 2021
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 | |
| | Rick L. WellerChief Financial Officer | |
| Chief Financial Officer | |