UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended September 30, 2021March 31, 2022 OR☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from |
| to |
Commission File Number: 001-31648
EURONET WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware | 74-2806888 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
11400 Tomahawk Creek Parkway, Suite 300 | |
Leawood, | Kansas | 66211 |
(Address of principal executive offices) | (Zip Code) |
(913) 327-4200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | EEFT | Nasdaq Global Select Market |
1.375% Senior Notes due 2026 | EEFT26 | Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | þ |
| Accelerated filer | ☐o |
Non-accelerated filer | o |
| Smaller reporting company | ☐ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þOn October 27, 2021,May 3, 2022, Euronet Worldwide, Inc. had 52,856,02350,550,498 shares of common stock outstanding.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Table of Contents
| | Page |
| Table of Contents
| Page
|
PART I—FINANCIAL INFORMATION
| 1
|
ITEMItem 1. | Financial Statements (unaudited) | 1 |
| Consolidated Balance Sheets as of September 30, 2021March 31, 2022 and December 31, 20202021 | 1 |
| Consolidated Statements of Operations for the Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020 | 2 |
| Consolidated Statements of Comprehensive IncomeLoss for the Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020 | 3 |
| Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020 | 4 |
| Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2022 and 2021 and 2020 | 6 |
| Notes to the Unaudited Consolidated Financial Statements | 7 |
ITEMItem 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 2223 |
ITEMItem 3. | Quantitative and Qualitative Disclosures About Market Risk | 38 |
ITEMItem 4.
| Controls and Procedures | 4039 |
PART II—OTHER INFORMATION
| 40
|
ITEMItem 1. | Legal Proceedings | 4039 |
ITEMItem 1A. | Risk Factors | 40 |
ITEMItem 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 |
ITEMItem 6. | Exhibits | 41 |
| Signatures | 42 |
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands, except share and per share data)
| As of | As of |
| September 30, 2021 | | December 31, 2020 | March 31, 2022 | | December 31, 2021 |
| (unaudited) | | | (unaudited) | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 1,048,466 |
| | $ | 1,420,255 |
| $ | 986,534 |
| | $ | 1,260,466 |
|
ATM cash | 669,686 |
| | 411,054 |
| 644,436 |
| | 543,422 |
|
Restricted cash | 3,626 |
| | 3,334 |
| 5,884 |
| | 3,693 |
|
Settlement assets | 928,740 |
| | 1,140,875 |
| 1,037,367 |
| | 1,102,389 |
|
Trade accounts receivable, net of credit losses of $4,504 and $5,926 | 152,564 |
| | 117,517 |
| |
Trade accounts receivable, net of credit losses of $4,274 and $4,469 | | 180,070 |
| | 203,010 |
|
Prepaid expenses and other current assets | 235,209 |
| | 272,900 |
| 271,538 |
| | 195,443 |
|
Total current assets | 3,038,291 |
| | 3,365,935 |
| 3,125,829 |
| | 3,308,423 |
|
Operating right of use lease assets | 165,327 |
| | 162,074 |
| 161,407 |
| | 161,494 |
|
Property and equipment, net of accumulated depreciation of $517,319 and $490,429 | 350,727 |
| | 378,441 |
| |
Property and equipment, net of accumulated depreciation of $536,675 and $532,631 | | 344,429 |
| | 345,381 |
|
Goodwill | 646,178 |
| | 665,821 |
| 846,241 |
| | 641,605 |
|
Acquired intangible assets, net of accumulated amortization of $180,100 and $175,210 | 102,238 |
| | 121,883 |
| |
Other assets, net of accumulated amortization of $60,908 and $55,710 | 223,557 |
| | 232,557 |
| |
Acquired intangible assets, net of accumulated amortization of $187,609 and $185,054 | | 214,490 |
| | 97,793 |
|
Other assets, net of accumulated amortization of $63,858 and $62,349 | | 205,917 |
| | 189,580 |
|
Total assets | $ | 4,526,318 |
| | $ | 4,926,711 |
| $ | 4,898,313 |
| | $ | 4,744,276 |
|
LIABILITIES AND EQUITY | | | | | | |
Current liabilities: | | | | | | |
Settlement obligations | $ | 928,740 |
| | $ | 1,140,875 |
| $ | 1,037,367 |
| | $ | 1,102,389 |
|
Trade accounts payable | 168,792 |
| | 147,593 |
| 157,738 |
| | 193,529 |
|
Accrued expenses and other current liabilities | 369,283 |
| | 404,021 |
| 404,096 |
| | 367,692 |
|
Current portion of operating lease liabilities | 54,210 |
| | 52,436 |
| 51,795 |
| | 52,136 |
|
Short-term debt obligations and current maturities of long-term debt obligations | 985 |
| | 797 |
| 298 |
| | 821 |
|
Income taxes payable | 53,147 |
| | 36,359 |
| 48,054 |
| | 59,037 |
|
Deferred revenue | 67,677 |
| | 73,360 |
| 71,606 |
| | 77,037 |
|
Total current liabilities | 1,642,834 |
| | 1,855,441 |
| 1,770,954 |
| | 1,852,641 |
|
Debt obligations, net of current portion | 1,197,495 |
| | 1,437,589 |
| 1,762,278 |
| | 1,420,085 |
|
Operating lease obligations, net of current portion | 115,289 |
| | 106,502 |
| 110,848 |
| | 111,355 |
|
Deferred income taxes | 38,666 |
| | 37,875 |
| 37,136 |
| | 46,505 |
|
Other long-term liabilities | 40,577 |
| | 43,401 |
| 73,503 |
| | 58,166 |
|
Total liabilities | 3,034,861 |
| | 3,480,808 |
| 3,754,719 |
| | 3,488,752 |
|
Equity: | | | | | | |
Euronet Worldwide, Inc. stockholders’ equity: | | | | | | |
Preferred Stock, $0.02 par value. 10,000,000 shares authorized; NaN issued | 0— |
| | 0— |
| 0— |
| | 0— |
|
Common Stock, $0.02 par value. 90,000,000 shares authorized; shares issued 63,483,092 and 63,366,010 | 1,270 |
| | 1,267 |
| |
Common Stock, $0.02 par value. 90,000,000 shares authorized; shares issued 63,818,035 and 63,779,009 | | 1,276 |
| | 1,275 |
|
Additional paid-in-capital | 1,260,283 |
| | 1,228,446 |
| 1,211,830 |
| | 1,274,118 |
|
Treasury stock, at cost, shares issued 10,627,621 and 10,631,961 | (703,136 | ) | | (703,032 | ) | |
Treasury stock, at cost, shares issued 13,269,513 and 12,631,125 | | (1,001,421 | ) | | (931,212 | ) |
Retained earnings | 1,087,007 |
| | 1,013,155 |
| 1,125,569 |
| | 1,083,882 |
|
Accumulated other comprehensive loss | (154,048 | ) | | (94,214 | ) | (193,659 | ) | | (172,582 | ) |
Total Euronet Worldwide, Inc. stockholders’ equity | 1,491,376 |
| | 1,445,622 |
| 1,143,595 |
| | 1,255,481 |
|
Noncontrolling interests | 81 | | | 281 |
| (1 | ) | | 43 |
|
Total equity | 1,491,457 |
| | 1,445,903 |
| 1,143,594 |
| | 1,255,524 |
|
Total liabilities and equity | $ | 4,526,318 |
| | $ | 4,926,711 |
| $ | 4,898,313 |
| | $ | 4,744,276 |
|
See accompanying notes to the unaudited consolidated financial statements.EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands, except share and per share data)
| | |
|
| Three Months Ended September 30,
|
|
| Nine Months Ended
September 30, |
| Three Months Ended March 31, |
|
| 2021 |
| | 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | | 2021 |
|
Revenues | $ | 816,560 |
| | $ | 664,351 |
|
| $ | 2,183,916 |
|
| $ | 1,776,061 |
| $ | 718,467 |
| | $ | 652,670 |
|
|
Operating expenses: | | | |
|
|
|
| | | |
|
Direct operating costs | 484,438 |
| | 407,598 |
|
|
| 1,389,770 |
|
|
| 1,117,065 |
| |
Direct operating costs, exclusive of depreciation | | 458,153 |
| | 434,516 |
|
Salaries and benefits | 119,421 |
| | 101,577 |
|
| 356,160 |
| 293,769 |
| 126,765 |
| | 115,668 |
|
Selling, general and administrative | 64,298 |
| | 55,225 |
|
|
| 182,193 |
|
|
| 169,333 |
| 63,856 |
| | 58,776 |
|
Goodwill and acquired intangible assets impairment | 0— |
|
| 1,467 |
|
| 0— |
| 106,021 |
| |
Depreciation and amortization | 33,909 |
| | 32,412 |
|
|
| 100,729 |
|
|
| 93,470 |
| 32,990 |
| | 33,261 |
|
|
Total operating expenses | 702,066 |
| | 598,279 |
|
|
| 2,028,852 |
|
| 1,779,658 |
| 681,764 |
| | 642,221 |
|
|
Operating income (loss) | 114,494 |
| | 66,072 | |
|
| 155,064 |
|
|
| (3,597 | ) | |
Operating income | | 36,703 |
| | 10,449 |
|
|
Other income (expense): | | | |
|
|
|
| | | |
|
Interest income | 153 |
| | 139 |
|
|
| 539 |
|
|
| 867 |
| 145 |
| | 182 |
|
Interest expense | (10,072 | ) | | (9,477 | ) |
| (28,718 | ) |
|
| (27,594 | ) | (6,134 | ) | | (9,189 | ) |
|
Foreign currency exchange loss, net | (8,135 | ) | | (1,368 | ) |
|
| (12,051 | ) |
|
| (17,679 | ) | (5,462 | ) | | (4,032 | ) |
|
Other gains, net | 0— |
| | 0— | |
|
| 31 |
|
| 728 |
| 192 |
| | 31 | |
|
Other expense, net | (18,054 | ) | | (10,706 | ) |
|
| (40,199 | ) |
|
| (43,678 | ) | (11,259 | ) | | (13,008 | ) |
|
Income (loss) before income taxes | 96,440 | | | 55,366 | |
| 114,865 |
| (47,275 | ) | 25,444 | | | (2,559 | ) |
|
Income tax expense | (22,726 | ) | | (15,051 | ) |
|
| (41,140 | ) |
|
| (26,423 | ) | (17,154 | ) | | (6,062 | ) |
|
Net income (loss) | 73,714 | | | 40,315 | |
| 73,725 |
| (73,698 | ) | 8,290 | | | (8,621 | ) |
|
Net loss (income) attributable to noncontrolling interests | 168 | | | (66 | ) |
|
| 127 | |
|
| 64 |
| 7 | | | (44 | ) |
|
Net income (loss) attributable to Euronet Worldwide, Inc. | $ | 73,882 | | | $ | 40,249 | |
| $ | 73,852 | |
| $ | (73,634 | ) | $ | 8,297 | | | $ | (8,665) |
|
|
| | | |
|
|
|
|
|
|
| | | |
|
Earnings (loss) per share attributable to Euronet Worldwide, Inc. stockholders: | | | |
|
|
|
|
| | | |
|
Basic | $ | 1.40 | | | $ | 0.77 | |
| $ | 1.40 | |
| $ | (1.40 | ) | $ | 0.16 | | | $ | (0.16) |
|
|
Diluted | $ | 1.37 | | | $ | 0.76 | |
| $ | 1.37 | |
| $ | (1.40 | ) | $ | 0.16 | | | $ | (0.16) |
|
|
| | | |
|
|
|
|
|
| | | |
|
Weighted average shares outstanding: | | | |
|
| | | |
|
Basic | 52,829,386 |
| | 52,294,522 |
|
|
| 52,799,199 |
|
|
| 52,712,030 |
| 51,057,951 |
| | 52,762,845 |
|
|
Diluted | 53,853,675 |
| | 53,201,971 |
|
|
| 53,933,226 |
|
| 52,712,030 |
| 51,716,045 |
| | 52,762,845 |
|
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands)
| Three Months Ended
September 30, |
|
| Nine Months Ended September 30,
|
|
| 2021 |
|
|
| 2020 |
|
| 2021 |
| | 2020
|
|
Net income (loss) | $ | 73,714 |
|
| $ | 40,315 |
|
| $ | 73,725 | | | $ | (73,698 | ) |
Translation adjustment | (29,692 | ) |
| 47,006 |
|
| (59,907 | ) | | 19,360 | |
Comprehensive income (loss) | 44,022 |
|
| 87,321 |
|
| 13,818 | | | (54,338 | ) |
Comprehensive loss (income) attributable to noncontrolling interests | 196 | |
| (133 | ) |
| 200 | | | 11 |
|
Comprehensive income (loss) attributable to Euronet Worldwide, Inc. | $ | 44,218 |
|
| $ | 87,188 |
|
| $ | 14,018 | | | $ | (54,327 | ) |
| | | | | | | |
|
| Three Months Ended March 31, |
|
| 2022 | | 2021 |
|
Net income (loss) | $ | 8,290 | | | $ | (8,621 | ) |
|
Translation adjustment | (21,114 | ) | | (42,901 | ) |
|
Comprehensive loss | (12,824 | ) | | (51,522 | ) |
|
Comprehensive loss attributable to noncontrolling interests | 44 | | | 12 |
|
|
Comprehensive loss attributable to Euronet Worldwide, Inc. | $ | (12,780 | ) | | $ | (51,510 | ) |
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands, except share data)
| | Number of Shares Outstanding |
| |
| Common Stock |
| | Additional Paid-in Capital |
| | Treasury Stock |
|
Balance as of December 31, 2019 | | 54,220,854 |
| | $ | 1,256 |
| | $ | 1,190,058 |
| | $ | (463,704 | ) |
Net income (loss) | | |
| |
| |
| | |
|
| | |
|
|
Other comprehensive loss | | |
| |
| |
| | |
|
| | |
|
|
Stock issued under employee stock plans | | 80,519 |
| |
| 1 |
| | | 1,701 |
| |
| (249 | ) |
Share-based compensation | | |
| |
| |
| |
| 6,338 |
| | |
|
|
Repurchase of shares | | (2,095,683 | ) | |
| |
| |
|
|
| | | (239,763 | ) |
Balance as of March 31, 2020 |
| 52,205,690 |
|
|
| 1,257 |
|
|
| 1,198,097 |
|
|
| (703,716 | ) |
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under employee stock plans |
| 82,841 |
|
|
| 2 |
|
|
| 3,763 |
|
|
| 59 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
| 3,125 |
|
|
|
|
|
Balance as of June 30, 2020 | | 52,288,531 |
| | $ | 1,259 |
| | $ | 1,204,985 |
| | $ | (703,657 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under employee stock plans |
| 21,604 |
|
|
|
|
|
|
| 687 |
|
|
| 53 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
| 5,037 |
|
|
|
|
|
Balance as of September 30, 2020 |
| 52,310,135 |
|
| $ | 1,259 |
|
| $
| 1,210,709 |
|
| $ | (703,604 | ) |
| | Number of Shares Outstanding | |
| Common Stock | | Additional Paid-in Capital | | Treasury Stock |
Balance as of December 31, 2020 | | 52,734,049 |
| | $ | 1,267 |
| | $ | 1,228,446 |
| | $ | (703,032 | ) |
Net (loss) income | | |
| |
| |
| | |
|
| | |
|
|
Other comprehensive loss | | |
| |
| |
| | |
|
| | |
|
|
Stock issued under employee stock plans | | 62,436 |
| |
| 1 |
| | | 3,335 |
| |
| (482 | ) |
Share-based compensation | | |
| |
| |
| |
| 8,492 |
| | |
|
|
Balance as of March 31, 2021 | | 52,796,485 |
| |
| 1,268 |
| |
| 1,240,273 |
| |
| (703,514 | ) |
| | Number of Shares Outstanding |
| | Common Stock |
| | Additional Paid-in Capital |
| | Treasury Stock |
| | Number of Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Treasury Stock |
Balance as of December 31, 2020 | | 52,734,049 |
| | $ | 1,267 |
| | $ | 1,228,446 |
| | $ | (703,032 | ) | |
Net (loss) income | | |
| |
| |
| |
| |
Balance as of December 31, 2021 | | | 51,147,884 |
| | $ | 1,275 |
| | $ | 1,274,118 |
| | $ | (931,212 | ) |
Net income (loss) | | | |
| |
| |
| |
|
Other comprehensive loss | | |
| |
| |
| |
| | |
| |
| |
| |
|
Stock issued under employee stock plans | | 62,436 |
| |
| 1 |
| |
| 3,335 |
| |
| (482 | ) | | 40,173 |
| |
| 1 |
| |
| 1,989 |
| |
| 142 | |
Share-based compensation | | |
| | |
|
| |
| 8,492 |
| | |
|
| | |
| |
| |
| 9,803 |
| |
|
Balance as of March 31, 2021 |
| 52,796,485 |
| 1,268 |
|
| 1,240,273 |
|
| (703,514 | ) | |
Net income (loss) |
|
|
|
|
| |
Other comprehensive income |
|
|
|
|
| |
Stock issued under employee stock plans |
| 25,769 |
| 1 |
|
| 1,199 |
|
| 267 |
| |
Share-based compensation |
|
|
|
|
|
| 10,984 |
|
|
|
| |
Balance as of June 30, 2021 | | 52,822,254 |
| | $ | 1,269 |
| | $ | 1,252,456 |
| | $ | (703,247 | ) | |
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock issued under employee stock plans |
| 33,217 |
|
|
| 1
|
|
|
| 1,022 |
|
|
| 111
|
| |
Share-based compensation |
|
|
|
|
|
|
|
|
| 6,805
|
|
|
|
| |
Balance as of September 30, 2021 |
| 52,855,471 |
|
| $ | 1,270 |
|
| $ | 1,260,283
|
|
| $ | (703,136
| ) | |
Repurchase of shares | |
| (639,535) |
|
|
|
| (70,351 | ) |
Adoption of ASU 2020-06 | |
|
|
|
|
|
|
| (74,080) |
|
|
|
|
|
Balance as of March 31, 2022 | | | 50,548,522 |
| |
| 1,276 |
| |
| 1,211,830 |
| |
| (1,001,421 | ) |
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
(Unaudited, in thousands)
| | Retained Earnings
|
| | Accumulated Other Comprehensive Loss |
| | Noncontrolling Interests |
| | Total
|
|
Balance as of December 31, 2019 | | $ | 1,016,554 |
| | $ | (164,890 | ) | | $ | 68 |
| | $ | 1,579,342 |
|
Net income (loss) | |
| 1,921 |
| | |
|
| |
| (201 | ) | |
| 1,720 |
|
Other comprehensive loss | | |
|
| |
| (59,777 | ) | |
| (41 | ) | |
| (59,818 | ) |
Stock issued under employee stock plans | | |
|
| | |
|
| | |
|
| |
| 1,453 |
|
Share-based compensation | | |
|
| | |
|
| | |
|
| |
| 6,338 |
|
Repurchase of shares | | |
|
| | |
|
| | |
|
| |
| (239,763 | ) |
Balance as of March 31, 2020 |
|
| 1,018,475 |
|
|
| (224,667 | ) |
|
| (174 | ) |
|
| 1,289,272 |
|
Net (loss) income |
|
| (115,804 | ) |
|
|
|
|
|
| 71 |
|
|
| (115,733 | ) |
Other comprehensive income |
|
|
|
|
|
| 32,145 |
|
|
| 27 |
|
|
| 32,172 |
|
Stock issued under employee stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,824 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,125 |
|
Balance as of June 30, 2020 | |
| 902,671 |
| |
| (192,522 | ) | |
| (76 | ) | |
| 1,212,660 |
|
Net income |
|
| 40,249 |
|
|
|
|
|
|
| 66 |
|
|
| 40,315 |
|
Other comprehensive income |
|
|
|
|
|
| 46,939 |
|
|
| 67 |
|
|
| 47,006 |
|
Stock issued under employee stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 740 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,037 |
|
Balance as of September 30, 2020 |
| $ | 942,920 |
|
| $ | (145,583 | ) |
| $ | 57 |
|
| $ | 1,305,758 |
|
| | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
Balance as of December 31, 2020 | | $ | 1,013,155 |
| | $ | (94,214 | ) | | $ | 281 |
| | $ | 1,445,903 |
|
Net (loss) income | |
| (8,665) |
| | |
|
| |
| 44 | | |
| (8,621 | ) |
Other comprehensive loss | | |
|
| |
| (42,845 | ) | |
| (56 | ) | |
| (42,901 | ) |
Stock issued under employee stock plans | | |
|
| | |
|
| | |
|
| |
| 2,854 |
|
Share-based compensation | | |
|
| | |
|
| | |
|
| |
| 8,492 |
|
Balance as of March 31, 2021 | |
| 1,004,490 |
| |
| (137,059 | ) | |
| 269 | | |
| 1,405,727 |
|
| | Retained Earnings |
| | Accumulated Other Comprehensive Loss |
| | Noncontrolling Interests |
| | Total
|
| | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
Balance as of December 31, 2020 | | $ | 1,013,155 |
| | $ | (94,214 | ) | | $ | 281 |
| | $ | 1,445,903 |
| |
Net (loss) income | |
| (8,665 | ) | |
| |
| 44 | | | (8,621 | ) | |
Balance as of December 31, 2021 | | | $ | 1,083,882 |
| | $ | (172,582 | ) | | $ | 43 |
| | $ | 1,255,524 |
|
Net income (loss) | | |
| 8,297 | | |
| |
| (7) | | | 8,290 | |
Other comprehensive loss | |
| |
| (42,845 | ) | |
| (56 | ) | | (42,901 | ) | |
| |
| (21,077) | | |
| (37) | | | (21,114) | |
Stock issued under employee stock plans | |
| |
| |
| | 2,854 |
| |
| |
| |
| | 2,132 |
|
Share-based compensation | | |
|
| | |
|
| | |
|
| | 8,492 |
| |
| |
| |
| | 9,803 |
|
Balance as of March 31, 2021 |
| 1,004,490 |
| (137,059 | ) |
| 269 |
| 1,405,727 |
| |
Net income (loss) |
| 8,635 |
|
|
| (3 | ) |
| 8,632 |
| |
Other comprehensive income |
|
|
| 12,675 |
| 11 |
| 12,686 |
| |
Stock issued under employee stock plans |
|
|
|
|
|
|
| 1,467 |
| |
Share-based compensation |
|
|
|
|
|
|
|
|
|
| 10,984 |
| |
Balance as of June 30, 2021 | |
| 1,013,125 |
| |
| (124,384 | ) | |
| 277 | | |
| 1,439,496 |
| |
Net income
|
|
| 73,882 |
|
|
|
|
|
|
| (168 | ) |
|
| 73,714 |
| |
Other comprehensive income |
|
|
|
|
|
| (29,664 | ) |
|
| (28 | ) |
|
| (29,692 | ) | |
Stock issued under employee stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,134 |
| |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,805 |
| |
Balance as of September 30, 2021 |
| $ | 1,087,007 |
|
| $ | (154,048 | ) |
| $ | 81 |
|
| $ | 1,491,457 |
| |
Repurchase of shares | |
|
| (70,351 | ) |
Adoption of ASU 2020-06 | |
|
| 33,390 |
|
|
|
|
|
| (40,690) |
|
Balance as of March 31, 2022 | | |
| 1,125,569 |
| |
| (193,659 | ) | |
| (1) | | |
| 1,143,594 |
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands) | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2021 | | 2020 | 2022 | | 2021 |
Net income (loss) | $ | 73,725 | | | $ | (73,698 | ) | $ | 8,290 | | | $ | (8,621 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 100,729 |
| | 93,470 |
| 32,990 |
| | 33,261 |
|
Share-based compensation | 26,281 |
| | 14,500 |
| 9,803 |
| | 8,492 |
|
Unrealized foreign exchange loss, net | 12,051 |
| | 17,679 | | 5,462 |
| | 4,032 | |
Deferred income taxes | 1,412 | | | (5,011 | ) | 5,391 | | | 2,374 | |
Goodwill and acquired intangible assets impairment | 0—
|
|
| 106,021 |
| |
Accretion of convertible debt discount and amortization of debt issuance costs | 15,099 |
| | 13,996 |
| 1,175 |
| | 4,979 |
|
Changes in working capital, net of amounts acquired: |
| |
|
| |
|
Income taxes payable, net | 17,464 | | | (26,625 | ) | (10,013 | ) | | (5,534 | ) |
Trade accounts receivable | 96,541 |
| | 232,380 | | |
Prepaid expenses and other current assets | 119,698 | | | (25,917 | ) | |
Trade accounts payable | (209,069 | ) | | (127,291 | ) | |
Trade accounts receivable, including amounts in settlement assets | | 120,196 |
| | 148,697 | |
Prepaid expenses and other current assets, including amounts in settlement assets | | (25,448 | ) | | 29,551 | |
Trade accounts payable, including amounts in settlement obligations | | (174,749 | ) | | (220,439 | ) |
Deferred revenue | (2,782 | ) | | (4,540 | ) | (4,508 | ) | | 3,738 |
|
Accrued expenses and other current liabilities | 47,254 |
| | 25,110 |
| |
Accrued expenses and other current liabilities, including amounts in settlement obligations | | 57,565 |
| | 11,234 |
|
Changes in noncurrent assets and liabilities | 5,937 | | | (19,658 | ) | (20,483 | ) | | (14,409 | ) |
Net cash provided by operating activities | 304,340 | | | 220,416 |
| |
Net cash provided by (used in) operating activities | | 5,671 | | | (2,645 | ) |
Cash flows from investing activities: | | |
| | |
|
Acquisitions, net of cash acquired | 0— | | | (451 | ) | (330,960 | ) | | 0— |
|
Purchases of property and equipment | (66,058 | ) | | (71,396 | ) | (23,785 | ) | | (16,393 | ) |
Purchases of other long-term assets | (6,171 | ) | | (5,968 | ) | (1,977 | ) | | (2,212 | ) |
Other, net | 1,277 |
| | 742 |
| (126 | ) | | 380 |
|
Net cash used in investing activities | (70,952 | ) | | (77,073 | ) | (356,848 | ) | | (18,225 | ) |
Cash flows from financing activities: | | | | | | |
Proceeds from issuance of shares | 6,443 |
| | 6,564 |
| 2,316 |
| | 3,670 |
|
Repurchase of shares | (979 | ) | | (240,838 | ) | (70,529 | ) | | (808 | ) |
Borrowings from revolving credit agreements | 3,539,100 |
| | 2,018,600 |
| 1,873,800 |
| | 707,100 |
|
Repayments of revolving credit agreements | (3,756,300 | ) | | (2,018,600 | ) | (1,570,300 | ) | | (977,500 | ) |
Net borrowing (repayments) from short-term debt obligations | 199 | | | (5,032 | ) | |
Net borrowings (repayments) from short-term debt obligations | | 1,308 | | | (32 | ) |
Other, net | (4,754 | ) | | (4,763 | ) | (1,283 | ) | | (1,641 | ) |
Net cash used in financing activities | (216,291 | ) | | (244,069 | ) | |
Net cash provided by (used in) financing activities | | 235,312 | | | (269,211 | ) |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (82,667 | ) | | 32,042 | | (37,542 | ) | | (53,188 | ) |
Decrease in cash and cash equivalents and restricted cash | (65,570 | ) | | (68,684 | ) | (153,407 | ) | | (343,269 | ) |
Cash and cash equivalents and restricted cash at beginning of period | 2,099,508 |
| | 1,817,379 |
| 2,086,102 |
| | 2,099,508 |
|
| | | | | | |
Cash and cash equivalents and restricted cash at end of period | $ | 2,033,938 |
| | $ | 1,748,695 |
| $ | 1,932,695 |
| | $ | 1,756,239 |
|
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Interest paid during the period | $ | 17,226 |
| | $ | 16,653 |
| $ | 3,617 |
| | $ | 2,703 |
|
Income taxes paid during the period | $ | 28,752 |
| | $ | 50,300 |
| $ | 23,827 |
| | $ | 11,160 |
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(1) GENERAL
Organization
Euronet Worldwide, Inc. (the “Company” or “Euronet”"Company", "Euronet", "we" and "us") was established as a Delaware corporation on December 13, 1996 and succeeded Euronet Holding N.V. as the group holding company, which was founded and established in 1994. Euronet is a leading electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Euronet's primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”),ATM, POS, card outsourcing, card issuing and merchant acquiring services, electronic distribution of prepaid mobile airtime and other electronic payment products, and global money transferinternational payment services.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared from the records of the Company, in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the consolidated financial position and the results of operations, comprehensive income, changes in equity and cash flows for the interim periods. The unaudited consolidated financial statements should be read in conjunction with theour audited consolidated financial statements of the Company for the year ended December 31, 20202021, including the notes thereto, set forth in the Company’s 2020our 2021 Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include computing income taxes, estimating the useful lives and potential impairment of long-lived assets and goodwill, as well as allocating the purchase price to assets acquired and liabilities assumed in acquisitions and revenue recognition. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 20212022.
Seasonality
Euronet’s Electronic Funds Transfer ("EFT")EFT Processing Segment normally experiences its heaviest demand for dynamic currency conversion ("DCC")DCC services during the third quarter of the fiscal year, normally coinciding with the tourism season. Additionally, the EFT Processing and epay Segments are normally impacted by seasonality during the fourth quarter and first quarter of each year due to higher transaction levels during the holiday season and lower levels following the holiday season. Seasonality in the Money Transfer Segment varies by region of the world. In most markets, Euronet usually experiences increased demand for money transfer services from the month of May through the fourth quarter of each year, coinciding with the increase in worker migration patterns and various holidays, and its lowest transaction levels during the first quarter of the year.
(2)(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluatingWe adopted this standard on January 1, 2022 using the impactmodified retrospective approach, which resulted in our Convertible Senior Notes Due 2049 being recognized as a single liability. As a result of the adoption of ASU 2020-06this standard we recorded a $99.7 million decrease to additional paid-in capital, a $56.8 million decrease in debt discounts and a $42.9 million increase in retained earnings. The adoption of this standard also impacted our deferred tax liability by decreasing our deferred tax liability by $15.0 million, decreasing retained earnings by $10.6 million, and increasing additional paid-in capital by $25.6 million. Additionally, the elimination of the treasury stock method will have onincrease the consolidated financial statements. number of dilutive shares used in the diluted earnings per share calculation, if dilutive, by 2.8 million shares.
(3) PENDING ACQUISITIONACQUISITIONS
InOn March 2021,15, 2022 we completed the Company entered into an agreement to purchaseacquisition of the Piraeus Bank Merchant Acquiring businessBusiness of Piraeus Bank for €300 million, or approximately $360 million.("PBMA"). The proposed arrangement will include separate commercial agreements foracquisition includes 205,000 POS terminals at 170,000 merchants throughout Greece, as well as Piraeus Bank’s online merchant acquiring business and expands our omnichannel payments strategy where we use our proprietary technology to provide cash, card-based acquiring solutions, alternative payment acquiring, online acquiring, tokenized payment services and other payment products. Additionally, the acquisition includes a long-term strategic partnership withcommercial framework agreement between Piraeus Bank forand Euronet which includes collaborative product distribution, processing and customer referrals.
The acquisition will expandpurchase price was €313.8 million, or approximately $346.2 million, which includes $331.0 million cash paid at closing plus $15.2 million of estimated contingent consideration for a ten-year earnout contingent on performance targets outlined in the Company’s omnichannel payments strategy and positioncommercial framework agreement. The contingent consideration is related to a percentage of the Company in Greece’s growing market for merchant acquiring services. The closing is targeted for late 2021 and is subject to regulatory approvals, finalizationnet fee income received during the ten-year period of the commercial agreements,framework agreement and customary closing conditions. there is no contractual maximum amount of consideration under this agreement.
The Company expects to finance theinitial accounting for this acquisition is not complete as of March 31, 2022. The purchase price usingwas preliminarily allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective provisional fair values at the date of acquisition. Additional time is needed particularly to refine and review the results of the valuation of assets and liabilities. The acquisition has been accounted for as a business combination in accordance with U.S. GAAP and the results of operations have been included from the date of acquisition in the EFT Processing Segment.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date.
| | |
(in thousands) | As of March 15, 2022 |
Other current assets | $ | 1,707 |
Settlement assets |
| 78,718 |
Property and equipment |
| 6,095 |
Acquired intangible assets |
| 122,455 |
Total assets acquired | $ | 208,975 |
|
|
|
Trade accounts payable | $ | 1,499 |
Settlement liabilities |
| 66,925 |
Accrued expenses and other current liabilities |
| 5,929 |
Deferred revenue |
| 500 |
Other long-term liabilities |
| 99 |
Total liabilities assumed | $ | 74,952 |
|
|
|
Goodwill |
| 212,183 |
|
|
Net assets acquired | $ | 346,206 |
Assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value measurements of intangible assets were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets, projections of revenues and cash flows, and customer attrition rates, among others.
We acquired a customer relationship intangible asset with a preliminary fair value of $112.2 million that is being amortized on hand.a straight-line basis over 15 years and a contract related intangible asset of $10.3 million that is being amortized on a straight-line basis over 10 years.
Goodwill, with a preliminary value of $212.2 million, arising from the acquisition was included in the EFT Processing Segment. The factors that make up goodwill include synergies from combining PBMA operations and intangible assets that do not qualify for separate recognition. Goodwill and intangible assets associated with this acquisition are deductible for tax purposes.
Revenues and expenses related to the acquisition and pro forma results of operations have not been presented for the three months ended March 31, 2022 as the results were not material to our overall operations.
(4) SETTLEMENT ASSETS AND OBLIGATIONS
Settlement assets represent funds received or to be received from agents for unsettled money transfers and from merchants for unsettled prepaid transactions. The Company recordsWe record corresponding settlement obligations relating to accounts payable. Settlement assets consist of cash and cash equivalents, restricted cash, accounts receivable and prepaid expenses and other current assets. The settlement cash held at the Company is primarily generated from the monies remitted by consumers through Company agents and financial institutions in payment of the face value of the payment service or foreign currency purchased and the related fees charged to purchase the currency. We use our cash and cash equivalents to pay the face value of the payment service product upon presentation by the recipient. Cash received by EuronetCompany agents and merchants generally becomes available to the Companyus within two weeks after initial receipt by the business partner. Receivables from business partners represent funds collected by such business partners that are in transit to the Company.
us.Settlement obligations consist of accrued expenses for money transfers, content providers, and EFT customer deposits and accounts payable to agents and content providers. Money transfer accrued expenses represent amounts to be paid to transferees when they request funds. Most agents typically settle with transferees first then obtain reimbursement from the Company.us. Money order accrued expenses represent amounts not yet presented for payment. Due to the agent funding and settlement process, accrued expenses to agents represent amounts due to agents for money transfers that have not been settled with transferees.
|
| As of
|
|
(in thousands) |
| September 30, 2021
|
|
| December 31, 2020 |
|
Settlement assets: |
| |
| |
Settlement cash and cash equivalents |
| $ | 259,727 |
|
| $ | 188,191 |
|
Settlement restricted cash |
| 52,433 |
|
| 76,674 |
|
Accounts receivable, net of credit losses of $31,220 and $35,800 |
| 478,760 |
|
| 641,955 |
|
Prepaid expenses and other current assets |
| 137,820 |
|
| 234,055 |
|
Total settlement assets |
| $ | 928,740 |
|
| $ | 1,140,875 |
|
Settlement obligations: |
| |
| |
Trade account payables |
| $ | 319,193 |
|
| $ | 571,175 |
|
Accrued expenses and other current liabilities |
| 609,547 |
|
| 569,700 |
|
Total settlement obligations |
| $ | 928,740 |
|
| $ | 1,140,875 |
|
|
| As of |
|
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
|
Settlement assets: |
| |
|
| |
|
Settlement cash and cash equivalents |
| $ | 245,415 |
|
| $ | 203,624 |
|
Settlement restricted cash |
| 50,426 |
|
| 74,897 |
|
Accounts receivable, net of credit losses of $29,015 and $27,341 |
| 588,984 |
|
| 619,738 |
|
Prepaid expenses and other current assets |
| 152,542 |
|
| 204,130 |
|
Total settlement assets |
| $ | 1,037,367 |
|
| $ | 1,102,389 |
|
Settlement obligations: |
| |
|
| |
|
Trade account payables |
| $ | 384,119 |
|
| $ | 461,135 |
|
Accrued expenses and other current liabilities |
| 653,248 |
|
| 641,254 |
|
Total settlement obligations |
| $ | 1,037,367 |
|
| $ | 1,102,389 |
|
The table below reconciles cash and cash equivalents, restricted cash, ATM cash, settlement cash and cash equivalents, and settlement restricted cash as presented within "Cash and cash equivalents and restricted cash" in the Consolidated Statement of Cash Flows.
| | As of |
| | As of |
(in thousands) | | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | | December 31, 2019
|
| | March 31, 2022 | | December 31, 2021 | | March 31, 2021 | | December 31, 2020 |
Cash and cash equivalents | | $ | 1,048,466 |
| | $ | 1,420,255 |
| | $ | 1,008,183 |
| | $ | 786,081 |
| | $ | 986,534 |
| | $ | 1,260,466 |
| | $ | 1,145,406 |
| | $ | 1,420,255 |
|
Restricted cash | | 3,626 |
| | 3,334 |
| | 14,204 |
| | 34,301 |
| | 5,884 |
| | 3,693 |
| | 2,897 |
| | 3,334 |
|
ATM cash | | 669,686 |
| | 411,054 |
| | 409,683 |
| | 665,641 |
| | 644,436 |
| | 543,422 |
| | 339,883 |
| | 411,054 |
|
Settlement cash and cash equivalents | | 259,727 |
| | 188,191 |
| | 272,467 |
| | 282,188 |
| | 245,415 |
| | 203,624 |
| | 209,853 |
| | 188,191 |
|
Settlement restricted cash | | 52,433 |
| | 76,674 |
| | 44,158 |
| | 49,168 |
| | 50,426 |
| | 74,897 |
| | 58,200 |
| | 76,674 |
|
Cash and cash equivalents and restricted cash at end of period | | $ | 2,033,938 |
| | $ | 2,099,508 |
| | $ | 1,748,695 |
| | $ | 1,817,379 |
| | $ | 1,932,695 |
| | $ | 2,086,102 |
| | $ | 1,756,239 |
| | $ | 2,099,508 |
|
(5) STOCKHOLDERS' EQUITY
Earnings (Loss) Per Share
Basic earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average shares outstanding during the respective period, after adjusting for the potential dilution of options to purchase the Company'sour common stock, assumed vesting of restricted stock and the assumed conversion of the Company'sour convertible debt, if such conversion would be dilutive.
The following table provides the computation of diluted earnings and diluted weighted average number of common shares outstanding:
| Three Months Ended September 30,
|
| Nine Months Ended September 30,
|
|
| Three Months Ended March 31,
|
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
|
| 2022 |
|
| 2021 |
|
Computation of diluted weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding | 52,829,386 |
| 52,294,522
|
| 52,799,199 |
| 52,712,030 |
|
| 51,057,951 |
|
| 52,762,845 |
|
Incremental shares from assumed exercise of stock options and vesting of restricted stock | 1,024,289 |
| 907,449 |
| 1,134,027 |
| 0— |
|
| 658,094 |
|
| 0— |
|
Diluted weighted average shares outstanding | 53,853,675 |
| 53,201,971 |
| 53,933,226 |
| 52,712,030 |
|
| 51,716,045 |
|
| 52,762,845 |
|
The table includes all stock options and restricted stock that are dilutive to the Company'sour weighted average common shares outstanding during the period. The calculation of diluted earnings (loss) per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’sour weighted average common shares outstanding of approximately 770,0002,237,000 and 751,0002,437,000 for the three and nine months ended September 30,March 31, 2022 and 2021 respectively, and approximately 1,122,000 and 1,887,000 for the three and nine months ended September 30, 2020, respectively., respectively.
The CompanyWe issued Convertible Senior Notes ("Convertible Notes") due March 2049 on March 18, 2019. The Company'sOur Convertible Notes currently have a settlement feature requiring the Companyus upon conversion to settle the principal amount of the debt and any conversion value in excess of the principal value ("conversion premium"), for cash or shares of the Company'sour common stock or a combination thereof, at the Company'sour option. The Company hasWe have stated itsour intent to settle any conversion of these notes by paying cash for the principal value and issuing common stock for any conversion premium. Accordingly,premium; however, after adopting ASU 2020-06, 2.8 million incremental shares assumed for conversion of convertible notes shall be included in the dilutive earnings per share calculation, if dilutive, regardless of whether the market price trigger has been met. For the three months ended March 31, 2022, the assumed conversion resulted in an anti-dilutive impact, therefore our Convertible Notes were not included in the calculation of diluted earnings (loss) per share if their inclusion was dilutive.share. The dilutive effect increases the more the market price exceeds the conversion price. The Convertible Notes would only have a dilutive effect if the market price per share of common stock exceeds the conversion price of $188.73 per share. The market price per share of common stock was $127.28 on September 30, 2021 and $91.10 on September 30, 2020, therefore, according to ASC Topic 260, Earnings per Share (“ASC 260”), there was no dilutive effect of the assumed conversion of the debentures for the three and nine months ended September 30, 2021 and 2020. See Note 9, Debt Obligations, to the consolidated financial statements for more information about the Convertible Notes.
Share Repurchasesrepurchases
On March 11, 2019, in connection with the issuance of the Convertible Notes, the Board of Directors authorized a repurchase program of $120 million in value of the Company's common stock through March 11, 2021. On February 26, 2020, the Companywe 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. On December 8, 2021, we put a repurchase program in place to repurchase up to $300 million in value, but not more than 5.0 million shares of common stock through December 8, 2023. For the three and nine months ended September 30, 2021, there were no repurchasesMarch 31, 2022, we repurchased $70.4 million of stock under the repurchase programs. Repurchases under the current program may take place in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan.
Accumulated Other Comprehensive Income (Loss)Loss
Accumulated other comprehensive income (loss)loss consists entirely of foreign currency translation adjustments. The CompanyWe recorded a foreign currency translation losslosses of $29.7$21.1 million and$59.9 $42.9 million for the three and nine months ended SeptemberMarch 31, 2022 30,and 2021, respectively, and a gain of $47.0 million and $19.4 million for the three and nine months ended September 30, 2020, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of operationsincome for the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021. (6) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the ninethree months ended September 30, 2021March 31, 2022 is presented below:
| | |
| |
| |
|
(in thousands) |
|
| Acquired Intangible Assets |
|
| Goodwill |
| | Total Intangible Assets
|
| | Acquired Intangible Assets |
| | Goodwill |
| | Total Intangible Assets |
|
Balance as of December 31, 2020 | | $ | 121,883 |
| | $ | 665,821 |
| | $ | 787,704 |
| |
Decreases: | | | | | | | |
Balance as of December 31, 2021 | | | $ | 97,793 |
| | $ | 641,605 |
| | $ | 739,398 |
|
Increases (decreases): | | | |
| | |
| | |
|
Acquisition | | 0— |
| | 0— | | | 0— |
| | 122,455 |
| | 212,183 |
| | 334,638 |
|
Amortization | | (17,388 | ) | | 0— |
| | (17,388 | ) | | (5,617 | ) | | 0— |
| | (5,617 | ) |
Foreign currency exchange rate changes | | (2,257 | ) | | (19,643 | ) | | (21,900 | ) | | (141) |
| | (7,547 | ) | | (7,688 | ) |
Balance as of September 30, 2021 | | $ | 102,238 |
| | $ | 646,178 |
| | $ | 748,416 |
| |
Balance as of March 31, 2022 | | | $ | 214,490 |
| | $ | 846,241 |
| | $ | 1,060,731 |
|
Of the total goodwill balance of $646.2$846.2 million as of September 30, 2021March 31, 2022, $393.9$388.1 million relates to the Money Transfer Segment,$331.5 millionrelates to the EFT Processing Segment and the remaining $131.0126.6 million relates to the epay Segment and the remaining $121.3 million relates to the EFT Processing Segment.. Estimated amortization expense on acquired intangible assets with finite lives as of September 30, 2021,March 31, 2022, is expected to total $5.6$22.3 million for the remainder of 2021, $21.2 million for 2022, $16.3$25.1 million for 2023, $9.6$18.4 million for 2024, $6.3$15.0 million for 2025, and $6.2$14.7 million for 2026. and $13.4 million for 2027.
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
| | |
| |
|
| | As of |
| | As of |
|
(in thousands) | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 |
| | December 31, 2021 |
|
Accrued expenses | | $ | 339,023 |
| | $ | 331,713 |
| | $ | 327,596 |
| | $ | 285,098 |
|
Derivative liabilities | | 25,498 |
| | 65,905 |
| | 28,741 |
| | 23,285 |
|
Accrued payroll expenses | |
| 44,223 |
|
| 55,162 |
|
Current portion of finance lease obligations | | 4,762 |
| | 6,403 |
| | 3,536 |
| | 4,147 |
|
Total | | $ | 369,283 |
| | $ | 404,021 |
| | $ | 404,096 |
| | $ | 367,692 |
|
(8) UNEARNED REVENUES
The Company recordsWe record deferred revenues when cash payments are received or due in advance of itsour performance. The decrease in the deferred revenue balance for the ninethree months ended September 30, 2021March 31, 2022 is driven by $39.7the result of $16.3 million of cash payments received in the current year for which the Company haswe have not yet satisfied the performance obligations, offset by $45.4$21.7 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2020.2021.
(9) DEBT OBLIGATIONS
Debt obligations consist of the following:
| | As of | | As of |
(in thousands) | | September 30, 2021 |
| | December 31, 2020
|
| | March 31, 2022 | | December 31, 2021 |
Credit Facility: | | | | | | | | |
Revolving credit agreement | | $ | 53,200 |
| | $ | 270,400 |
| | $ | 586,900 |
| | $ | 283,400 |
|
Convertible Debt: | | | | | | | | |
0.75% convertible notes, unsecured, due 2049 | | 464,161 |
| | 452,228 |
| | 525,000 |
| | 468,235 |
|
|
|
|
|
| | | | |
1.375% Senior Notes, due 2026 | | 694,860 |
| | 732,840 |
| | 663,900 |
| | 682,080 |
|
|
|
|
|
| | | | |
Other obligations | | 1,054 |
| | 850 |
| | 386 |
| | 920 |
|
|
| | | | |
Total debt obligations | | 1,213,275 |
| | 1,456,318 |
| | 1,776,186 |
| | 1,434,635 |
|
Unamortized debt issuance costs | | (14,795 | ) | | (17,932 | ) | | (13,610 | ) | | (13,729 | ) |
Carrying value of debt | | 1,198,480 |
| | 1,438,386 |
| | 1,762,576 |
| | 1,420,906 |
|
Short-term debt obligations and current maturities of long-term debt obligations | | (985 | ) | | (797 | ) | | (298 | ) | | (821 | ) |
Long-term debt obligations | | $ | 1,197,495 |
| | $ | 1,437,589 |
| | $ | 1,762,278 |
| | $ | 1,420,085 |
|
Credit Facility
On October 17, 2018, the Company entered into an unsecured revolving credit agreement (the "Credit Facility") for $1.0 billion that expires on October 17, 2023. In May 2021, an additional lender joined the Credit Facility which increased the revolving commitment by $30 million. Fees and interest on borrowings are based upon the Company's corporate credit rating and are based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over London Inter-Bank Offered Rate (“LIBOR”) or a margin over the base rate, as selected by the Company, with the applicable margin ranging from 1.125% to 2.0% (or 0.175% to 1.0% for base rate loans). The Credit Facility allows for borrowings in Australian dollars, British pounds sterling, Canadian dollars, Czech 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, a $50 million sublimit for U.S. dollar swingline loans, and a $90 million sublimit for certain foreign currencies swingline loans. The Credit Facility contains customary affirmative and negative covenants, events of default and financial covenants. The Company was in compliance with all debt covenants as of September 30, 2021March 31, 2022.
Convertible Debt
On March 18, 2019, the Company completed the sale of $525.0 million of Convertible Senior Notes ("Convertible Notes"). The Convertible Notes mature in March 2049 unless redeemed or converted prior to such date, and are convertible into shares of Euronet common stock at a conversion price of approximately $188.73 per share if certain conditions are met (relating to the closing price of Euronet common stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require the Company to purchase their notes on each of March 15, 2025, March 15, 2029, March 15, 2034, March 15, 2039 and March 15, 2044 at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.
InPrior to the adoption of ASU 2020-06 as of January 1, 2022, in accordance with ASC 470-20-30-27, proceeds from the issuance of convertible debt iswas allocated between debt and equity components so that debt iswas discounted to reflect the Company'sour nonconvertible debt borrowing rate. ASC 470-20-35-13 requires470-20-35-13 required the debt discount to be amortized over the period the convertible debt iswas expected to be outstanding as additional non-cash interest expense. The allocation resulted in an increase to additional paid-in capital of $99.7 million for the Convertible Notes.
Contractual interest expense for the Convertible Notes was $1.0 million and $3.0$1.0 million for the three and nine months ended September 30,March 31, 2021 respectively, and $1.0 million and $3.0 million for the three and nine months ended September 30, 2020, respectively. Accretion expense for the Convertible Notes was $4.0 million and $11.9$3.9 million for the three and nine months ended September 30, 2021March 31, 2021. See Footnote 2, , respectively,Recently Issued and $3.8 million and $11.4 million Adopted Accounting Pronouncements, for the three and nine months ended September 30, 2020, respectively. The effective interest rate was more information regarding this adoption.4.4% for the three and nine months ended September 30, 2021. As of September 30, 2021, the unamortized discount was $60.8 million
and will be amortized through March 2025.
1.375% Senior Notes due 2026
On May 22, 2019, the Company completed the sale of €600 million ($669.9 million) aggregate principal amount of Senior Notes that expire in May 2026 (the “Senior Notes”). The Senior Notes accrue interest at a rate of 1.375% per year, payable annually in arrears commencing May 22, 2020, until maturity or earlier redemption. As of September 30, 2021,March 31, 2022, the Company has outstanding €600 million ($694.9663.9 million) principal amount of the Senior Notes. In addition, the Company may redeem some or all of these notes on or after February 22, 2026 at their principal amount plus any accrued and unpaid interest.
Other Obligationsobligations
Certain of the Company's subsidiaries have available lines of credit and overdraft credit facilities that generally provide for short-term borrowings that are used from time to time for working capital purposes. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, borrowings under these arrangements were $1.1$0.4 million and $0.9 million, respectively.
Debt Issuance Costs
As of March 31, 2022, we had unamortized debt issuance costs of $2.1 million for the Credit Facility, $6.4 million for the Convertible Notes and $5.1 million for the Senior Notes that will be amortized through October 2023, March 2025 and May 2026, respectively.
(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to foreign currency exchange risk resulting from (i) the collection of funds or the settlement of money transfer transactions in currencies other than the U.S. Dollar, (ii) derivative contracts written to its customers in connection with providing cross-currency money transfer services and (iii) certain foreign currency denominated other asset and liability positions. The Company enters into foreign currency derivative contracts, primarily foreign currency forwards and cross-currency swaps, to minimize its exposure related to fluctuations in foreign currency exchange rates. As a matter of Company policy, the derivative instruments used in these activities are economic hedges and are not designated as hedges under ASC Topic 815Derivatives and Hedging ("ASC 815"), primarily due to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates are reflected concurrently in earnings for both the derivative instrument and the transaction and have an offsetting effect.
Foreign Currency Exchange Contractscurrency exchange contracts - Ria Operations and Corporate
In the United States, the Company uses short-duration foreign currency forward contracts, generally with maturities up to 14 days, to offset the fluctuation in foreign currency exchange rates on the collection of money transfer funds between initiation of a transaction and its settlement. Due to the short duration of these contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to these foreign currency forward contracts. Most derivative contracts executed with counterparties in the U.S. are governed by an International Swaps and Derivatives Association agreement that includes standard netting arrangements; therefore, asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity. The Company had foreign currency forward contracts outstanding in the U.S. with a notional value of $275231.1 million and $246$222.1 million as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The foreign currency forward contracts consist primarily in Australian dollars, Canadian dollars, British pounds sterling, euro and Mexican pesos.
In addition, the Company uses forward contracts, typically with maturities from a few days to less than one year, to offset foreign exchange rate fluctuations on certain short-term borrowings that are payable in currencies other than the U.S dollar. The Company had foreign currency forward contracts outstanding with a notional value of $4616.2 million and $454$216.1 million as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, primarily in euro.
Foreign Currency Exchange Contractscurrency exchange contracts - xe Operations
xe writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. xe aggregates its foreign currency exposures arising from customer contracts and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from xe's total portfolio of positions were $20.1$22.5 million and $58.518.5 million for the three and nine months ended September 30,March 31, 2022 and 2021, respectively, and $14.4 million and $45.7 million for the three and nine months ended September 30, 2020, respectively. All of the derivative contracts used in the Company'sCompany' s xe operations are economic hedges and are not designated as hedges under ASC 815. The duration of these derivative contracts is generally less than one year.
The fair value of xe's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. xe manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering into contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. xe does not expect any significant losses from counterparty defaults.
The aggregate equivalent U.S. dollar notional amount of foreign currency derivative customer contracts held by the Company in its xe operations as of September 30, 2021March 31, 2022 and December 31, 20202021 was approximately $1.1 billion and $1.3$1.0 billion, respectively. The significant majority of customer contracts are written in major currencies such as the euro, U.S. dollar, British pounds sterling, Australian dollar and New Zealand dollar.
Balance Sheet Presentation
The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below:
| | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value | | | | Fair Value | | | | Fair Value | | | | Fair Value |
(in thousands) | | Balance Sheet Location | | September 30, 2021 | | December 31, 2020 | | Balance Sheet Location | | September 30, 2021 | | December 31, 2020 | | Balance Sheet Location | | March 31, 2022 | | December 31, 2021 | | Balance Sheet Location | | March 31, 2022 | | December 31, 2021 |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current assets | | $ | 31,160 |
| | $ | 80,879 |
| | Other current liabilities | | $ | (25,498 | ) | | $ | (65,905 | ) | | Other current assets | | $ | 36,997 |
| | $ | 27,582 |
| | Other current liabilities | | $ | (28,741 | ) | | $ | (23,285 | ) |
The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2021March 31, 2022 and December 31, 20202021 (in thousands):
Offsetting of Derivative Assets
| | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | |
As of September 30, 2021 | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Received | | Net Amounts | |
As of March 31, 2022 | | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Received | | Net Amounts |
Derivatives subject to a master netting arrangement or similar agreement | | $ | 31,160 |
| | $ | 0— |
| | $ | 31,160 |
| | $ | (12,780 | ) | | $ | (2,616 | ) | | $ | 15,764 |
| | $ | 36,997 |
| | $ | 0— |
| | $ | 36,997 |
| | $ | (17,631 | ) | | $ | (3,052 | ) | | $ | 16,314 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2020 | | | | | | | | | | | | | |
As of December 31, 2021 | | | | | | | | | | | | | |
Derivatives subject to a master netting arrangement or similar agreement | | $ | 80,879 |
| | $ | 0— |
| | $ | 80,879 |
| | $ | (44,893 | ) | | $ | (2,778 | ) | | $ | 33,208 |
| | $ | 27,582 |
| | $ | 0— |
| | $ | 27,582 |
| | $ | (14,875 | ) | | $ | (2,284 | ) | | $ | 10,423 |
|
Offsetting of Derivative Liabilities
| | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheet | | |
As of September 30, 2021 | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Paid | | Net Amounts | |
As of March 31, 2022 | | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts Presented in the Consolidated Balance Sheet | | Financial Instruments | | Cash Collateral Paid | | Net Amounts |
Derivatives subject to a master netting arrangement or similar agreement | | $ | (25,498 | ) | | $ | 0— |
| | $ | (25,498 | ) | | $ | 12,780 |
| | $ | 825 |
| | $ | (11,893 | ) | | $ | (28,741) | | | $ | 0— |
| | $ | (28,741) | | | $ | 17,631 |
| | $ | 1,834 |
| | $ | (9,276) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2020 | | | | | | | | | | | | | |
As of December 31, 2021 | | | | | | | | | | | | | |
Derivatives subject to a master netting arrangement or similar agreement | | $ | (65,905 | ) | | $ | 0— |
| | $ | (65,905 | ) | | $ | 44,893 |
| | $ | 12,272 |
| | $ | (8,740 | ) | | $ | (23,285 | ) | | $ | 0— |
| | $ | (23,285 | ) | | $ | 14,875 |
| | $ | 640 |
| | $ | (7,770 | ) |
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.
Income Statement Presentation
The following table summarizes the location and amount of gains and losses on derivatives in the Consolidated Statements of OperationsIncome for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020:
| | |
| Amount of Gain (Loss) Recognized in Income on Derivative Contracts (a) | | | | Amount of Loss Recognized in Income on Derivative Contracts (a) |
| | Location of Gain (Loss) Recognized in Income on Derivative Contracts |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, | | Location of Loss Recognized in Income on Derivative Contracts | | Three Months Ended March 31, |
(in thousands) | | 2021 |
|
| 2020
|
|
| 2021 | | 2020 | | 2022 | | 2021 |
Foreign currency exchange contracts - Ria Operations | | Foreign currency exchange gain (loss), net |
| $ | 388 |
|
| $ | (4,060) | |
| $ | 1,835 | | | $ | (4,283) | | | Foreign currency exchange loss, net | | $ | (110 | ) | | $ | (2,468) | |
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its xe operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above.
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.
(11) FAIR VALUE MEASUREMENTS
Fair value measurements used in the unaudited consolidated financial statements are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
- Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
- Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
- Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the inputs that market participants would use in pricing.
|
The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:
| | As of September 30, 2021 | | | | As of March 31, 2022 |
(in thousands) | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current assets | | $ | 0— |
| | $ | 31,160 |
| | $ | 0— |
| | $ | 31,160 |
| | Other current assets | | $ | 0— |
| | $ | 36,997 |
| | $ | 0— |
| | $ | 36,997 |
|
Liabilities | | | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current liabilities | | $ | 0— |
| | $ | (25,498 | ) | | $ | 0— |
| | $ | (25,498 | ) | | Other current liabilities | | $ | 0— |
| | $ | 28,741 | | | $ | 0— |
| | $ | 28,741 | |
| | As of December 31, 2020 | | As of December 31, 2021 |
(in thousands) | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current assets | | $ | 0— |
| | $ | 80,879 |
| | $ | 0— |
| | $ | 80,879 |
| | Other current assets | | $ | 0— |
| | $ | 27,582 |
| | $ | 0— |
| | $ | 27,582 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | |
Foreign currency exchange contracts | | Other current liabilities | | $ | 0— |
| | $ | (65,905 | ) | | $ | 0— |
| | $ | (65,905 | ) | | Other current liabilities | | $ | 0— |
| | $ | (23,285 | ) | | $ | 0— |
| | $ | (23,285 | ) |
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt obligations approximate fair values due to their short maturities. The carrying values of the Company’s revolving credit agreements approximate fair values because interest is based on LIBOR that resets at various intervals of less than one year. The Company estimates the fair value of the Convertible Notes and Senior Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of September 30, 2021,March 31, 2022, the fair values of the Convertible Notes and Senior Notes were $603.1$563.4 million and $710.3$628.6 million, respectively, with carrying values of $464.2$525.0 million and $694.9$663.9 million, respectively.
(12) SEGMENT INFORMATION
Euronet’sOur reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting (“"ASC 280”280"). The CompanyWe currently operatesoperate in the following 3 reportable operating segments:
- 1) Through the EFT Processing Segment,
the Company processeswe process transactions for a network of ATMs and POS terminals across Europe, the Middle East, Africa, Asia Pacific and the United States and Africa. The Company providesStates. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit, debit and debitprepaid card outsourcing, dynamic currency conversion, domestic and international surcharges and other value added services. Through this segment, the Companywe also offersoffer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
2) Through the
epay
Through the epay Segment, the Company provideswe provide distribution, processing and collection services for prepaid mobile airtime and other electronic payment products in Europe, the Middle East, Asia Pacific, the U.S. and South America.
- 3) Through the Money Transfer Segment,
the Company provideswe provide global money transfer services under the brand names Ria, AFEX, IME, and xe. Ria, AFEX, and IME provide global consumer-to-consumer money transfer services through a network of sending agents, Company-owned stores and Company-owned websites, disbursing money transfers through a worldwide correspondent network. xe offers account-to-account international payment services to high-income individuals and small-to-medium sized businesses. xe is also a provider of foreign currency exchange information. The CompanyWe also offersoffer customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services, foreign currency exchange services and mobile top-up. Furthermore, xe provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses.
In addition, the Company accountswe account for non-operating activity, share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in itsour administrative division, “Corporate"Corporate Services, Eliminations and Other.”" These services are not directly identifiable with the Company’sour reportable operating segments.
The following tables present the Company’sour reportable segment results for the three and nine months ended September 30, 2021March 31, 2022 and 2020:2021: | | For the Three Months Ended September 30, 2021 |
(in thousands) | | EFT Processing |
| epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 227,129 |
|
| $ | 238,319 |
| | $ | 353,451 |
| | $ | (2,339 | ) | | $ | 816,560 |
|
Operating expenses: | | |
| | | | | | | |
Direct operating costs | | 106,321 |
|
| 180,206 |
| | 200,231 |
| | (2,320 | ) | | 484,438 |
|
Salaries and benefits | | 23,665 |
|
| 20,104 |
| | 65,285 |
| | 10,367 |
| | 119,421 |
|
Selling, general and administrative | | 11,301 |
|
| 9,802 |
| | 41,533 |
| | 1,662 |
| | 64,298 |
|
Depreciation and amortization | | 22,640 |
|
| 2,253 |
| | 8,897 |
| | 119 |
| | 33,909 |
|
Total operating expenses | | 163,927 |
|
| 212,365 |
| | 315,946 |
| | 9,828 |
| | 702,066 |
|
Operating income (expense) | | $ | 63,202 | |
| $ | 25,954 |
| | $ | 37,505 |
| | $ | (12,167 | ) | | $ | 114,494 |
|
| | For the Three Months Ended March 31, 2022 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 145,571 |
| | $ | 235,838 |
| | $ | 338,966 |
| | $ | (1,908 | ) | | $ | 718,467 |
|
Operating expenses: | | | | | | | | | | |
Direct operating costs, exclusive of depreciation | | 93,337 |
| | 178,320 |
| | 188,397 |
| | (1,901 | ) | | 458,153 |
|
Salaries and benefits | | 25,244 |
| | 20,177 |
| | 67,225 |
| | 14,119 |
| | 126,765 |
|
Selling, general and administrative | | 11,114 |
| | 9,440 |
| | 41,037 |
| | 2,265 |
| | 63,856 |
|
Depreciation and amortization | | 22,343 |
| | 1,696 |
| | 8,842 |
| | 109 |
| | 32,990 |
|
Total operating expenses | | 152,038 |
| | 209,633 |
| | 305,501 |
| | 14,592 |
| | 681,764 |
|
Operating (loss) income | | $ | (6,467 | ) | | $ | 26,205 |
| | $ | 33,465 |
| | $ | (16,500 | ) | | $ | 36,703 |
|
| | For the Three Months Ended September 30, 2020 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 144,062 |
| | $ | 198,939 |
| | $ | 323,092 |
| | $ | (1,742 | ) | | $ | 664,351 |
|
Operating expenses: | | | | | | | | | | |
Direct operating costs | | 82,626 |
| | 149,993 |
| | 176,718 |
| | (1,739 | ) | | 407,598 |
|
Salaries and benefits | | 25,182 |
| | 16,108 |
| | 52,035 |
| | 8,252 |
| | 101,577 |
|
Selling, general and administrative | | 8,577 |
| | 8,455 |
| | 36,601 |
| | 1,592 |
| | 55,225 |
|
Goodwill and acquired intangible assets impairment |
| 0— |
|
| 0— |
|
| 1,467 |
|
| 0— |
|
| 1,467 |
|
Depreciation and amortization | | 21,516 |
| | 2,134 |
| | 8,645 |
| | 117 |
| | 32,412 |
|
Total operating expenses | | 137,901 |
| | 176,690 |
| | 275,466 |
| | 8,222 |
| | 598,279 |
|
Operating income (expense) | | $ | 6,161 | | | $ | 22,249 |
| | $ | 47,626 | | | $ | (9,964 | ) | | $ | 66,072 | |
| | For the Nine Months Ended September 30, 2021 | | For the Three Months Ended March 31, 2021 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 427,687 |
| | $ | 724,540 |
| | $ | 1,037,659 |
| | $ | (5,970 | ) | | $ | 2,183,916 |
| | $ | 87,076 |
| | $ | 242,303 |
| | $ | 324,900 |
| | $ | (1,609 | ) | | $ | 652,670 |
|
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Direct operating costs | | 258,614 |
| | 547,828 |
| | 589,273 |
| | (5,945 | ) | | 1,389,770 |
| |
Direct operating costs, exclusive of depreciation | | | 69,612 |
| | 182,633 |
| | 183,878 |
| | (1,607 | ) | | 434,516 |
|
Salaries and benefits | | 71,334 |
| | 59,248 |
| | 188,535 |
| | 37,043 |
| | 356,160 |
| | 23,571 |
| | 19,369 |
| | 60,540 |
| | 12,188 |
| | 115,668 |
|
Selling, general and administrative | | 33,062 |
| | 28,594 |
| | 115,975 |
| | 4,562 |
| | 182,193 |
| | 11,962 |
| | 9,020 |
| | 36,116 |
| | 1,678 |
| | 58,776 |
|
Depreciation and amortization | | 66,907 |
| | 6,524 |
| | 26,886 |
| | 412 |
| | 100,729 |
| | 22,027 |
| | 2,124 |
| | 8,963 |
| | 147 |
| | 33,261 |
|
Total operating expenses | | 429,917 |
| | 642,194 |
| | 920,669 |
| | 36,072 |
| | 2,028,852 |
| | 127,172 |
| | 213,146 |
| | 289,497 |
| | 12,406 |
| | 642,221 |
|
Operating (loss) income | | $ | (2,230 | ) | | $ | 82,346 |
| | $ | 116,990 |
| | $ | (42,042 | ) | | $ | 155,064 |
| | $ | (40,096) |
| | $ | 29,157 |
| | $ | 35,403 |
| | $ | (14,015 | ) | | $ | 10,449 |
|
| | For the Nine Months Ended September 30, 2020 |
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Corporate Services, Eliminations and Other | | Consolidated |
Total revenues | | $ | 368,375 |
| | $ | 559,413 |
| | $ | 852,189 |
| | $ | (3,916 | ) | | $ | 1,776,061 |
|
Operating expenses: | | | | | | | | | | |
Direct operating costs | | 232,627 |
| | 424,123 |
| | 464,216 |
| | (3,901 | ) | | 1,117,065 |
|
Salaries and benefits | | 68,562 |
| | 46,996 |
| | 154,958 |
| | 23,253 |
| | 293,769 |
|
Selling, general and administrative | | 29,033 |
| | 25,928 |
| | 108,355 |
| | 6,017 |
| | 169,333 |
|
Goodwill and acquired intangible assets impairment |
| 21,861 |
|
| 0— |
|
| 84,160 |
|
| 0— |
|
| 106,021 |
|
Depreciation and amortization | | 61,772 |
| | 5,629 |
| | 25,793 |
| | 276 |
| | 93,470 |
|
Total operating expenses | | 413,855 |
| | 502,676 |
| | 837,482 |
| | 25,645 |
| | 1,779,658 |
|
Operating (loss) income | | $ | (45,480 | ) | | $ | 56,737 |
| | $ | 14,707 | | | $ | (29,561 | ) | | $ | (3,597 | ) |
The following table presents the Company’sour total assets by reportable segment:
| | | | | | | |
| Total Assets as of |
(in thousands) | March 31, 2022 | | December 31, 2021 |
EFT Processing | $ | 2,167,634 |
| | $ | 1,682,680 |
|
epay | 773,056 |
| | 1,234,074 |
|
Money Transfer | 1,670,666 |
| | 1,621,726 |
|
Corporate Services, Eliminations and Other | 286,957 |
| | 205,796 |
|
Total | $ | 4,898,313 |
| | $ | 4,744,276 |
|
| Total Assets as of |
(in thousands) | September 30, 2021 | | December 31, 2020 |
EFT Processing | $ | 1,834,405 |
| | $ | 1,541,610 |
|
epay | 912,934 |
| | 1,135,204 |
|
Money Transfer | 1,625,178 |
| | 1,755,651 |
|
Corporate Services, Eliminations and Other | 153,801 |
| | 494,246 |
|
Total | $ | 4,526,318 |
| | $ | 4,926,711 |
|
The following table presents the Company'sour revenues disaggregated by segment and region. Sales and usage-based taxes are excluded from revenues. The Company believesWe believe disaggregation by segment and region best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The disaggregation of revenues by segment and region is based on management's assessment of segment performance together with allocation of financial resources, both capital and operating support costs, on a segment and regional level. Both segments and regions benefit from synergies achieved through concentration of operations and are influenced by macro-economic, regulatory and political factors in the respective segment and region.
| | For the Three Months Ended September 30, 2021 |
| For the Nine Months Ended September 30, 2021 |
|
(in thousands) | | EFT Processing | | epay | | Money Transfer | | Total |
| EFT
|
|
| epay |
|
| Money
|
|
| Total |
|
Europe | | $ | 183,163 |
| | $ | 150,465 |
| | $ | 145,813 |
| | $ | 479,441 |
|
| $ | 303,134 |
|
| $ | 475,933 |
|
| $ | 428,258 |
|
| $ | 1,207,325 |
|
North America | | 16,341 |
| | 35,876 |
| | 169,473 |
| | 221,690 |
|
|
| 46,010 |
|
|
| 104,318 |
|
|
| 492,099 |
|
|
| 642,427 |
|
Asia Pacific | | 27,381 |
| | 39,303 |
| | 24,588 |
| | 91,272 |
|
|
| 78,110 |
|
|
| 111,998 |
|
|
| 79,581 |
|
|
| 269,689 |
|
Other | | 244 |
| | 12,675 |
| | 13,577 |
| | 26,496 |
|
|
| 433 |
|
|
| 32,291 |
|
|
| 37,721 |
|
|
| 70,445 |
|
Eliminations | | 0— |
| | 0— |
| | 0— |
| | (2,339 | ) |
|
| 0— |
|
|
| 0— |
|
|
| 0— |
|
|
| (5,970 | ) |
Total | | $ | 227,129 |
| | $ | 238,319 |
| | $ | 353,451 |
| | $ | 816,560 |
|
| $ | 427,687 |
|
| $ | 724,540 |
|
| $ | 1,037,659 |
|
| $ | 2,183,916 |
|
| | | | | | | | | | |
|
|
|
|
|
|
|
|
|
| | For the Three Months Ended September 30, 2020 |
| For the Nine Months Ended September 30, 2020
|
| | For the Three Months Ended March 31, 2022 |
| For the Three Months Ended March 31, 2021 |
(in thousands) | | EFT Processing |
| | epay |
| | Money Transfer |
| | Total |
|
| | |
| epay
|
| Money
|
| Total
|
| | EFT Processing | | epay | | Money Transfer | | Total |
|
| |
|
|
| epay |
|
|
| |
|
|
| Total |
|
Europe | | $ | 107,182 |
|
| $ | 131,330 |
| | $ | 127,399 |
| | $ | 365,911 |
|
| $ | 251,583 |
|
| $ | 368,101 |
|
| $ | 317,187 |
|
| $ | 936,871 |
| | $ | 97,199 |
| | $ | 150,393 |
| | $ | 140,110 |
| | $ | 387,702 |
|
| $ | 46,862 |
|
| $ | 164,908 |
|
| $ | 132,839 |
|
| $ | 344,609 |
|
North America | | 14,318 |
|
| 32,645 |
| | 152,195 |
| | 199,158 |
|
| 42,461 |
|
| 102,603 |
|
| 422,980 |
|
| 568,044 |
| | 17,168 |
| | 32,644 |
| | 158,732 |
| | 208,544 |
| 14,466 |
| 33,841 |
| 152,302 |
| 200,609 |
|
Asia Pacific | | 22,562 |
|
| 26,679 |
| | 34,036 |
| | 83,277 |
|
| 74,327 |
|
| 69,916 |
|
| 91,116 |
|
| 235,359 |
| | 30,435 |
| | 40,799 |
| | 26,618 |
| | 97,852 |
| 25,694 |
| 34,318 |
| 28,469 |
| 88,481 |
|
Other | | 0— |
|
| 8,285 |
| | 9,462 |
| | 17,747 |
|
| 4 |
|
| 18,793 |
|
| 20,906 |
|
| 39,703 |
| | 769 |
| | 12,002 |
| | 13,506 |
| | 26,277 |
| 54 |
| 9,236 |
| 11,290 |
| 20,580 |
|
Eliminations | | 0— |
|
| 0— |
| | 0— |
| | (1,742 | ) |
|
| 0— |
|
|
| 0— |
|
|
| 0— |
|
|
| (3,916 | ) | | 0— |
| | 0— |
| | 0— |
| | (1,908 | ) |
|
| 0— |
|
|
| 0— |
|
|
| 0— |
|
|
| (1,609 | ) |
Total | | $ | 144,062 |
|
| $ | 198,939 |
| | $ | 323,092 |
| | $ | 664,351 |
|
| $ | 368,375 |
|
| $ | 559,413 |
|
| $ | 852,189 |
|
| $ | 1,776,061 |
| | $ | 145,571 |
| | $ | 235,838 |
| | $ | 338,966 |
| | $ | 718,467 |
|
| $ | 87,076 |
|
| $ | 242,303 |
|
| $ | 324,900 |
|
| $ | 652,670 |
|
(13) INCOME TAXES
Our effective income tax rate was 23.6%67.4% and 35.8%(236.9%) for the three and nine months ended September 30,March 31, 2022 and 2021, respectively respectively, compared to 27.2% and (55.9)% for the three and nine months ended September 30, 2020, respectively.. Our effective income tax rate for the three and nine months ended September 30, 2021March 31, 2022 was higher than the applicable statutory income tax rate of 21% aass a result of our U.S. deferred tax activity on foreign exchange positions and certain of our foreign earnings being subject to higher local statutory tax rates,rates. Our effective income tax rate for the three months ended March 31, 2021 was lower than the applicable statutory income tax rate of 21%as a result of the non-recognition of tax benefits from losses in certain foreign countries where we have a limited history of profitable earnings, certain of our foreign earnings of being subject to higher local statutory tax rates, and as a result of an increase in the valuation allowance in certain jurisdictions relating to the reversal ofour U.S. deferred tax benefits recognized in the first quarter of 2021 for continuing net operating losses.activity on foreign exchange positions.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 21% primarily due to the non-deductible goodwill impairment charge during the second quarter of 2020 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 and second quarters of 2020 for net operating losses in those jurisdictions which have a limited history of profitable earnings.
(14) COMMITMENTS
As of September 30, 2021, the CompanyMarch 31, 2022, we had $85.3$85.2 million of stand-by letters of credit/bank guarantees issued on itsour behalf, of which $57.9$56.3 million are outstanding under the Credit Facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $3.7$3.6 million of cash deposits held by the respective issuing banks.
Under certain circumstances, Euronet grantswe grant guarantees in support of obligations of subsidiaries. As of September 30, 2021, the CompanyMarch 31, 2022, we had granted off balance sheet guarantees for cash in various ATM networks amounting to $11.4 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $39.4$37.5 million over the terms of agreements with theour customers.
From time to time, the Company enterswe enter into agreements with commercial counterparties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Euronet'sOur liability under such indemnification provisions may be mitigated by relevant insurance coverage and may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnification obligations include the following:
|
- In connection with contracts with financial institutions in the EFT Processing Segment,
the Company iswe are responsible for damage to ATMs and theft of ATM network cash. As of September 30, 2021,March 31, 2022, the balance of such cash used in the Company'sour ATM networks for which the Company waswe were responsible was approximately $719$485.7 million. The Company maintainsWe maintain insurance policies to mitigate this exposure;
- In connection with contracts with financial institutions in the EFT Processing Segment,
the Company iswe are responsible for losses suffered by itsour customers and other parties as a result of the breach of itsour computer systems, including in particular, losses arising from fraudulent transactions made using information stolen through itsour processing systems. The Company maintainsWe maintain insurance policies to mitigate this exposure;
- In connection with the license of proprietary systems to customers,
the Company provideswe provide certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
Euronet hasWe have entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which the Company haswe have agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from the Company’sour use of the vendor’s product or the services of the vendor or consultant;
- In connection with acquisitions and dispositions of subsidiaries, operating units and business assets,
the Company haswe have entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions of operating units or assets made by Euronet, the Company hasus, we have agreed to indemnify the seller against third party claims made against the seller relating to the operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet hasus, we have agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made; and
Euronet hasWe have entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronetus or to the Company’sour benefit plans. Under such agreements, the Company haswe have agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
|
The Company isWe are also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company haswe have money transfer operations. The Company hasWe have obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, the Company iswe are not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Companyus and, accordingly, no liabilities were recorded as of September 30, 2021March 31, 2022 or December 31, 2020.2021.
(15) LITIGATION AND CONTINGENCIES
From time to time, the Company iswe are a party to legal or regulatory proceedings arising in the ordinary course of itsour business. Currently, there are no legal proceedings or regulatory findings that management believes, either individually or in the aggregate, would have a material adverse effect on the Company'sour consolidated financial condition or results of operations. In accordance with U.S. GAAP, the Company recordswe 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 provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
(16) (16) LEASES
The Company entersWe enter into operating leases for ATM sites, office spaces, retail stores and equipment. The Company'sOur finance leases are immaterial. Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease terms.
The present value of lease payments is determined using the incremental borrowing rate based on information available at the lease commencement date. The Company recognizesWe recognize lease expense for these leases on a straight-line basis over the lease term.
Most leases include an option to renew, with renewal terms that can extend the lease terms. The exercise of lease renewal options is at the Company’sour sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease terms. The CompanyWe also hashave a unilateral termination right for most of the ATM site leases. Since the Company iswe are not reasonably certain not to exercise termination options, payments for ATM site leases with termination options subject to the short-term lease exemption are expensed in the period incurred and corresponding leases are excluded from the right of use lease asset and lease liability balances. Certain of the Company'sour lease agreements include variable rental payments based on revenues generated from the use of the leased location and certain leases include rental payments adjusted periodically for inflation. Variable lease payments are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs and are excluded from the right of use assets and lease liabilities balances. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Future Minimum Lease Paymentsminimum lease payments
Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) as of September 30, 2021March 31, 2022 are:
| As of September 30, 2021
|
| As of March 31, 2022 |
Maturity of Lease Liabilities (in thousands) | Operating Leases (1) |
| Operating Leases (1) |
Remainder of 2021 | $ | 12,459
|
| |
2022 | 45,386 |
| |
Remainder of 2022 | | $ | 36,760 |
|
2023
| 35,053 |
| 40,223 |
|
2024 | 25,704 |
| 30,573 |
|
2025 | 18,363 |
| 21,766 |
|
2026 | | 15,077 |
|
Thereafter | 34,972 |
| 23,207 |
|
Total lease payments | $ | 171,937 |
| $ | 167,606 |
|
Less: imputed interest | (2,438 | ) | (4,963 | ) |
Present value of lease liabilities | $ | 169,499 |
| $ | 162,643 |
|
(1) Operating lease payments reflect the Company'sour current fixed obligations under the operating lease agreements. Certain ATM site leases contain termination options that grant the Company the option to terminate the lease prior to the stated term of the agreement. The Company includes the future minimum lease payments for these ATM site leases only to the extent that the termination option is not reasonably certain to be exercised.
Lease expense recognized in the Consolidated Statements of OperationsIncome is summarized as follows:
Lease Expense (in thousands) | Income Statement Classification |
| Three Months Ended September 30, 2021 |
| Three Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2021 |
| Nine Months Ended September 30, 2020 | |
Operating lease expense | Selling, general and administrative and Direct operating costs |
| $ | 13,880 |
| $ | 14,694 |
| $ | 41,884 |
| $ | 68,927 |
|
Short-term and variable lease expense | Selling, general and administrative and Direct operating costs |
|
| 34,808 |
|
| 26,429 |
| | 84,279 |
|
| 47,390 |
|
Total lease expense | |
| $ | 48,688 |
| $ | 41,123 |
| $ | 126,163 |
| $ | 116,317 |
|
Lease Expense (in thousands) | Income Statement Classification |
| Three Months Ended March 31, 2022 |
| Three Months Ended March 31, 2021 |
Operating lease expense | Selling, general and administrative and Direct operating costs |
| $ | 13,517 |
| $ | 13,858 |
Short-term and variable lease expense | Selling, general and administrative and Direct operating costs |
| | 29,723 |
|
| 22,549 |
Total lease expense | |
| $ | 43,240 |
| $ | 36,407 |
Other information about lease amounts recognized in the consolidated financial statements is summarized as follows:
| | | |
Lease Term and Discount Rate of Operating Leases | | As of September 30, 2021March 31, 2022 |
Weighted- average remaining lease term (years) | | 5.04.8 |
|
Weighted- average discount rate | | 2.262.3 | % |
The following table presents supplemental cash flow and non-cash information related to leases.
| |
|
| | | | |
|
|
|
Other Information (in thousands) | | Nine Months Ended September 30, 2021 |
| Nine Months Ended September 30, 2020 | | | Three Months Ended March 31, 2022 |
| Three Months Ended March 31, 2021 |
Cash paid for amounts included in the measurement of lease liabilities (a) | | $ | 38,763 |
|
| $ | 66,402 |
| | $ | 13,521 |
|
| $ | 13,669 |
Supplemental non-cash information on lease liabilities arising from obtaining ROU assets: | | |
|
| | |
|
|
|
ROU assets obtained in exchange for new operating lease liabilities | | $ | 57,580 |
|
| $ | 64,149 |
| | $ | 15,207 |
|
| $ | 28,188 |
(a) Included in Net cash provided by operating activities on the Company'sour Consolidated Statements of Cash Flows.
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;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 effectswar in Europethe Ukraine and related economic sanctions; our ability to successfully integrate the operations of the U.K.'s departure from the E.U.Piraeus Merchant Services; and economic conditions in specific countries and regions; 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, sanctions, consumer and data protection and privacy 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 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 (including fluctuations in interest rates), 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, 20202021. Our Annual Report on Form 10-K is available on the SEC's EDGAR website at www.sec.gov, and copies may also be obtained by contacting the Company. Any forward-looking statements made in this Form 10-Q speak only as of the date of this report. Except as required by law, we do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements.
OVERVIEW
COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES
Euronet is a leading electronic payments provider. We offer payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Our primary product offerings include comprehensive Automated Teller Machine ("ATM"), point-of-sale ("POS"),ATM, POS, card outsourcing, card issuing and merchant acquiring services, software solutions, electronic distribution of prepaid mobile airtime, managed services and other electronic payment products, foreign currency exchange services and global money transfer services. We operate in the following three segments:
- 1)
TheThe EFT Processing Segment, which processes transactions for a network of 45,520 active 44,353ATMsand approximately 400,000 491,000POS terminals across Europe, the Middle East, Africa, Asia Pacific, and the United States and Africa.States. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal and deposit services, ATM network participation, outsourced ATM and POS management solutions, credit, debit and debitprepaid card outsourcing, dynamic currency conversion ("DCC"),DCC, and other value added services. Through this segment, we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
- 2) TheepaySegment, which provides distribution, processing and collection services for prepaid mobile airtime and other electronic content. We operate a network of approximately
739,000 760,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic content in Europe, the Middle East, Asia Pacific, the United States and South America. We also provide vouchers and physical gift fulfillment services in Europe.
- 3) The Money Transfer Segment, which provides global consumer-to-consumer money transfer services, primarily under the brand names Ria, IME, AFEX,
IME and xe and global account-to-account money transfer services under the brand name 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 our websites (riamoneytransfer.com and online.imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 507,000 495,000 locations. xe is a provider of foreign currency exchange information and offersoffers money transfer services on its currency data websiteswebsites (xe.com and x-rates.com). 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 xe brand, we offer cash management solutions and foreign currency risk management services to small-to-medium sizedsmall-to-medium-sized businesses.
We have six processing centers in Europe, five in Asia Pacific and two in North America. We have 36 principal offices in Europe, 14 in Asia Pacific, 10 in North America, three in the Middle East, two in South America and one onein Africa. Our executive offices are located in Leawood, Kansas, USA. With approximately 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 (for(for a further discussion, see Item 1A1A - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020)2021).
SOURCES OF REVENUES AND CASH FLOW
EuronetEuronet 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 28% and 20% of total consolidated revenues for the three and nine months ended September 30, 2021, respectively, March 31, 2022, are 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 2933%% and 33% of total consolidated revenues for the three and nine months ended September 30, 2021, respectively,March 31, 2022, are primarily derived from commissions earned from the distribution of electronic content, vouchers, and physical gifts and commissions or processing fees received from mobile phone operators for the processing and distribution of prepaid mobile airtime and commissions earned fromairtime. Branded payments, which includes the distribution of other electronicdigital media content, vouchers, and physical gifts. The proportionwere 66% of epay Segment revenues earned fromfor the distribution of prepaid mobile phone time compared with other electronic products has decreased over time, and digital media content now produces approximately 67% of epay Segment revenues. Other electronic content offered by this segment includesthree months ended March 31, 2022. Branded payments include 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.
Money Transfer Segment — Revenues in the Money Transfer Segment, which represented approximately 43% and 47% of total consolidated revenues for the three and nine months ended SeptemberMarch 31, 2022 30, 2021, respectively, a, reare 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, IME and xe 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.
We 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'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 is effective until April 2023.2026. 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
The globalproduct markets in which we operate are large and fragmented, which poses both opportunities and challenges for our technology to disrupt new and existing competition. As an organization, our focus is on 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 transactions on our networks. Each of these opportunities also presents us with challenges, including differentiating our portfolio of products and services in highly competitive markets, the successful development and implementation of our software products and access to financing for expansion.
- 1) 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 customers and financial institutions. Operational challenges in the EFT 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
thatin which 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, which is dependent on contracts that cover large numbers of ATMs, which are complicated by legal and regulatory considerations of local countries, as well as our customers' decisions whether to outsource ATMs.
2) The epay Segment opportunities include renewing existing and negotiating new agreements in target markets in which we operate, primarily with mobile operators, digital content providers, mobile operators, financial institutions and retailers. The overall growth rate in the digital media content andprepaid mobile phone and digital media content markets, shifts between prepaid and postpaid 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 epay Segment is dependent on our ability to adapt to new technologies that may compete with POS distribution of digital content and prepaid mobile airtime, as well as our ability to leverage cross-selling opportunities with our EFT and Money Transfer Segments. The epay Segment opportunities may be impacted by government-imposed restrictions on retailers and/or content providers with whom we partner in countries in which we have a presence, and corresponding licensure requirements mandated upon such parties to legally operate in such countries.
3) The Money Transfer Segment opportunities include expanding our portfolio of products and services to new and existing customers around the globe, which in turn may lead to an increase in transaction volumes. The opportunities to expand are contingent on our ability to effectively leverage our network of bank accounts for digital money transfer delivery, maintaining our physical agent network, cross selling opportunities with our EFT and 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 required licenses, 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 patterns and the money transfer markets can significantly impact our ability to grow the number of transactions on our 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, 2021March 31, 2022 and 20202021. 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 partsa significant portion of the world where we operate. In addition, the rate of acceptancepopulation remains unvaccinated and long term effectiveness of the vaccines, especially against new variants, areis 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.
agents as well as certain restrictions that may impact immigrant laborers.
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, 2021March 31, 2022 and 20202021 are summarized in the tables below:
| | Revenues for the Three Months Ended March 31, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2022 | | 2021 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
EFT Processing | | $ | 145,571 |
| | $ | 87,076 |
| | $ | 58,495 | | | 67 | % |
epay | | 235,838 |
| | 242,303 |
| | (6,465 | ) | | (3) | % |
Money Transfer | | 338,966 |
| | 324,900 |
| | 14,066 |
| | 4 | % |
Total | | 720,375 |
| | 654,279 |
| | 66,096 |
| | 10 | % |
Corporate services, eliminations and other | | (1,908 | ) | | (1,609 | ) | | (299 | ) | | 19 | % |
Total | | $ | 718,467 |
| | $ | 652,670 |
| | $ | 65,797 |
| | 10 | % |
| | 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) | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021
|
| 2020
|
|
| |
| Increase (Decrease) Percent |
|
EFT Processing | | $ | 227,129 | | $ | 144,062 | | $ | 83,067 | | 58 | % |
| $ | 427,687 |
| $ | 368,375 |
| $ | 59,312 | | 16 | % |
epay | | 238,319 | | 198,939 | | 39,380 | | 20 | % |
|
| 724,540 |
|
| 559,413 |
|
| 165,127 | | 30 | % |
Money Transfer | | 353,451 | | 323,092 | | 30,359 | | 9 | % |
|
| 1,037,659 |
|
| 852,189 |
|
| 185,470 | | 22 | % |
Total | | 818,899 | | 666,093 | | 152,806 | | 23 | % |
|
| 2,189,886 |
|
| 1,779,977 |
|
| 409,909 | | 23 | %
|
Corporate Services, Eliminations and Other | | (2,339 | ) | (1,742 | ) | (597 | ) | 34 | % |
|
| (5,970 | ) |
| (3,916 | ) |
| (2,054 | ) | 52 | %
|
Total | | $ | 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 (Loss) Income for the Nine Months Ended September 30,
|
| Year-over-Year Change
| | Operating Income (Loss) for the Three Months Ended March 31, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
|
| |
| Increase (Decrease) Percent |
| | 2022 | | 2021 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
EFT Processing | | $ | 63,202 | | $ | 6,161 | | $ | 57,041 | | 926 | % |
| $ | (2,230 | ) | $ | (45,480 | ) | $ | 43,250 | | (95) | % | | $ | (6,467 | ) | | $ | (40,096 | ) | | $ | 33,629 | | | (84) | % |
epay | | 25,954 | | 22,249 | | 3,705 | | 17 | % |
|
| 82,346 |
|
| 56,737 |
|
| 25,609 | | 45 | % | | 26,205 |
| | 29,157 |
| | (2,952 | ) | | (10) | % |
Money Transfer | | 37,505 | | 47,626 | | (10,121 | ) | (21) | % |
|
| 116,990 |
|
| 14,707 | |
| 102,283 | | 695 | % | | 33,465 |
| | 35,403 |
| | (1,938) |
| | (5) | % |
Total | | 126,661 | | 76,036 | | 50,625 | | 67 | % |
|
| 197,106 |
|
| 25,964 | |
| 171,142 | | 659 | %
| | 53,203 |
| | 24,464 |
| | 28,739 | | | 117 | % |
Corporate Services, Eliminations and Other | | (12,167 | )
| (9,964 | ) | (2,203 | )
| 22 | % |
|
| (42,042 | )
|
| (29,561 | ) |
| (12,481 | )
| 42 | %
| |
Corporate services, eliminations and other | | | (16,500 | ) | | (14,015 | ) | | (2,485 | ) | | 18 | % |
Total | | $ | 114,494 | | $ | 66,072 | | $ | 48,422 | | 73 | % |
| $ | 155,064 |
| $ | (3,597 | ) | $ | 158,661 |
| (4,411) | % | | $ | 36,703 |
| | $ | 10,449 |
| | $ | 26,254 | | | 251 | % |
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 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. If significant, in our discussion we will refer to the impact of fluctuations in foreign currency exchange rates in our comparison of 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 March 31, | |
|
|
Currency (dollars per foreign currency) | | 2022 | | 2021 | | Decrease Percent |
Australian dollar | | $ | 0.7238 |
| | $ | 0.7725 |
| | (6) | % |
British pounds sterling | | $ | 1.3415 |
| | $ | 1.3790 |
| | (3) | % |
Canadian dollar |
| $ | 0.7895 |
|
| $ | 0.7899 |
|
| (0) | % |
euro | | $ | 1.1221 |
| | $ | 1.2052 |
| | (7) | % |
Hungarian forint | | $ | 0.0031 |
| | $ | 0.0033 |
| | (6) | % |
Indian rupee | | $ | 0.0133 |
| | $ | 0.0137 |
| | (3) | % |
Malaysian ringgit | | $ | 0.2387 |
| | $ | 0.2461 |
| | (3) | % |
New Zealand dollar | | $ | 0.6761 |
| | $ | 0.7188 |
| | (6) | % |
Polish zloty | | $ | 0.2433 |
| | $ | 0.2655 |
| | (8) | % |
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 MARCH 31, 2022 AND 2020 2021
EFT PROCESSING SEGMENT
The following table summarizes the results of operations for our EFT Processing Segment for the three months ended March 31, 2022 and ninemonths endedSeptember 30, 2021and 2020:
| | Three Months Ended September 30, | | Year-over-Year Change |
| Nine Months Ended September 30, |
| Year-over-Year Change | | Three Months Ended March 31, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
| Increase (Decrease) Amount |
| Increase (Decrease) Percent | | 2022 | | 2021 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Total revenues | | $ | 227,129 |
| | $ | 144,062 |
| | $ | 83,067 |
| | 58 | % |
| $ | 427,687 |
| $ | 368,375 |
| $ | 59,312 |
| 16 | % | | $ | 145,571 |
| | $ | 87,076 |
| | $ | 58,495 | | | 67 | % |
Operating expenses: | | | | | | | | |
|
|
|
|
| | | | | | | | |
Direct operating costs | | 106,321 |
| | 82,626 |
| | 23,695 |
| | 29 | % |
|
| 258,614 |
| 232,627 |
| 25,987 |
| 11 | % | |
Direct operating costs, exclusive of depreciation | | | 93,337 |
| | 69,612 |
| | 23,725 | | | 34 | % |
Salaries and benefits | | 23,665 |
| | 25,182 |
| | (1,517 | ) | | (6) | % |
|
| 71,334 |
| 68,562 |
| 2,772 |
| 4 | % | | 25,244 |
| | 23,571 |
| | 1,673 |
| | 7 | % |
Selling, general and administrative | | 11,301 |
| | 8,577 |
| | 2,724 |
| | 32 | % |
|
| 33,062 |
| 29,033 |
| 4,029 |
| 14 | %
| | 11,114 |
| | 11,962 |
| | (848 | ) | | (7) | % |
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 | % | | 22,343 |
| | 22,027 |
| | 316 |
| | 1 | % |
Total operating expenses | | 163,927 |
| | 137,901 |
| | 26,026 |
| | 19 | % |
|
| 429,917 |
|
| 413,855 |
|
| 16,062 | | 4 | %
| | 152,038 |
| | 127,172 |
| | 24,866 | | | 20 | % |
Operating income (loss) | | $ | 63,202 | | | $ | 6,161 | | | $ | 57,041 | | | 926 | % |
| $ | (2,230) | | $ | (45,480 | ) | $ | 43,250 | | (95) | %
| |
Operating loss | | | $ | (6,467 | ) | | $ | (40,096 | ) | | $ | 33,629 | | | (84) | % |
Transactions processed (millions) | | 1,173 |
| | 910 |
| | 263 |
| | 29 | % |
|
| 3,086 |
| 2,374 |
| 712 |
| 30 | % | | 1,328 |
| | 925 |
| | 403 |
| | 44 | % |
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) | %
| |
Active ATMs as of March 31, | | | 44,353 |
| | 36,777 |
| | 7,576 | | | 21 | % |
Average Active ATMs | | | 43,394 |
| | 36,624 |
| | 6,770 | | | 18 | % |
Revenues
EFT Processing Segment total revenues were $227.1$145.6 million for the three months ended March 31, 2022September 30, 2021,, an increase of $83.1$58.5 million or 58%67% compared to the same period in 2020. EFT Processing Segment total2021. The increase in revenues were $427.7was primarily due to the increase in domestic and international withdrawal transactions resulting from continued lifting of travel restrictions across Europe and the increase in volume of transactions for low-value point-of-sale transactions in Europe and low-value payment processing transactions in Asia Pacific. Foreign currency movements decreased revenues by approximately $8.5 million for the ninethree months ended March 31, 2022September 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, 2021, respectively, compared to the same periods in 2020.
Average monthly revenues per ATM increased to $1,118 for the three months ended March 31, 2022 compared to $1,660793 for the same period in 2021. Revenues per transaction increased to $0.11 for the three months ended September 30, 2021March 31, 2022 compared to $1,085 for the same period in 2020. Average monthly revenues per ATM increased to $1,162 for the nine months ended $0.09September 30, 2021 compared to $949 for the same period in 2020. Revenues per transaction increased to $0.19 for the three months ended September 30, 2021 compared to $0.16 for the same period in 2020.2021. Revenues per transaction decreased to $0.14 for the nine months ended September 30, 2021 compared to $0.16 for the same period in 2020. For the three months ended September 30, 2021, the increaseThe increases in average monthly revenues per ATM and revenues per transaction were attributable to the easing of COVID-19 restrictions throughout Europe and corresponding 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 e-commerce sites) primarily in our Asia Pacific region. For the nine months ended September 30, 2021, the average monthly revenues per ATM increased primarily due to the lower average ATM count as we modified our estateincrease in domestic and international withdrawal transactions resulting from continued lifting of ATMs beginningtravel restrictions across Europe, partially offset by the increase in the second quartervolume of 2020,low-value point-of-sale transactions in Europe and revenues per transaction decreased due to the effect 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 shiftlow-value payment processing transactions in the mix of our transaction volume.Asia Pacific.
Direct operating costs, exclusive of depreciation
EFT Processing Segment direct operating costs were $106.3$93.3 millionfor the three months ended September 30, 2021March 31, 2022, an increase of $23.7$23.7 million or 29%34% compared to the same period in 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 2020.2021. Direct operating costs primarily consist 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. processors.For the three months ended September 30, 2021, theThe increase in direct operating costs was primarily due to the increase in the number of ATMs under management as there were fewer deactivated ATMs during the three months ended March 31, 2022 compared to the same period in Europe and the2021 resulting in an increase 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 ATMs,ATM site rental fees and the weakening of the U.S. dollar.cash delivery costs. Foreign currency movements increaseddecreased direct operating costs by approximately $0.6 million and $9.3$5.6 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to the same periodsperiod in 20202021.
Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $120.8$52.2 million for the three months ended September 30, 2021,March 31, 2022, an increase of $59.4$34.7 million or 97%198% compared to $61.4$17.5 million for the same period in 2020.2021Gross 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%35.9% for the three and ninemonths ended September 30, 2021, respectivelyMarch 31, 2022, compared to 42.6% and 36.9%20.1% for the same periodsperiod in 2020, respectively. For the three and nine months ended 2021September 30, 2021, the. The increase in gross profit and gross margin was primarily driven bydue to the increase in cross-borderincremental volume of transactions that were processed on our network relative to the fixed costs incurred, and overall increase in transaction volumes.
the higher proportion of high value and high margin DCC transactions due to the lifting of travel restrictions.
Salaries and benefits
Salaries and benefits expenses were $23.7$25.2 million for the three months ended March 31, 2022, an September 30, 2021, a decreaseincrease of $1.5$1.7 million or 6%7% compared to the same period in 20202021. Salaries and benefitsThe increase is primarily due to an increase in headcount to support the growth of the business. Foreign currency movements in the countries in which we employ our workforce decreased these expenses were $71.3by $1.6 million for the ninethree months ended September 30, 2021, an increase of $2.8 million or 4%March 31, 2022 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.2021. As a percentage of revenues, these expenses decreased to 10.4% and 16.7% 17.3% for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to 17.5% and 18.6%27.1% for the same periodsperiod in 2020, respectively2021.
Selling, general and administrative
Selling, general and administrative expenses were $11.3$11.1 million for the three months ended March 31, 2022September, a decrease of ( 30, 2021,$0.8 million) an increase of $2.7 million or 32%(7%) compared to the same period in 20202021. 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 7.77.6%% for the three and nine monthsmonths ended March 31, 2022September 30, 2021, respectively,, compared to 6.0% and 7.9%13.7% for the same periodsperiod in 2020, respectively2021.
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$22.3 million for the three months ended September 30, 2021,March 31, 2022, an increase of $1.1$0.3 million or 5% 1% compared to the same period in 2020.2021. 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 $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% 15.3for 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% March 31, 2022, compared to 25.3% for the same period in 20202021.
Operating loss
EFT Processing Segment had an operating loss of ($2.2($6.5 million) for the ninethree months ended September 30, 2021,March 31, 2022, a decreasereduction of $43.3 million or 95% 84% compared to the operating loss in the same period in 20202021. Operating income (loss)Operating loss as a percentage of revenues (“operating margin”) increaseddecreased to 27.8%(4.4 and (0.5%%) for the three and nine months ended September 30, 2021, respectively, March 31, 2022, compared to 4.3% and (12.3%(46.0%) for the same periodsperiod in 2020, respectively2021. Operating income (loss)loss per transaction was $0.05less than ($0.01) 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 March 31, 2022, compared to ($0.04)September 30, 2021, for the increasessame period in 2021. The decrease in operating income,loss, improved operating margin and decrease in operating incomeloss 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 lossdue to increased volumes processed on our network, 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 2021associated revenues, compared to the same periodsperiod in the prior period.2021. The following table presents the results of operations for the three and nine months endedSeptember 30, 2021March 31, 2022 and 20202021 for our epay Segment:
| | | Three Months Ended September 30, | | Year-over-Year Change |
| Nine Months Ended September 30, |
| Year-over-Year Change | | Three Months Ended March 31, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2021 | | 2020 | | Increase Amount | | Increase Percent |
| 2021 |
| 2020
|
| Increase Amount |
| | | 2022 | | 2021 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Total revenues | | $ | 238,319 | | $ | 198,939 | | $ | 39,380 | | 20 | % |
| $ | 724,540 |
| $ | 559,413 |
| $ | 165,127 |
| 30 | % | | $ | 235,838 |
| | $ | 242,303 |
| | $ | (6,465 | ) | | (3) | % |
Operating expenses: | | | | | | | | |
|
|
|
| | | | | | | | |
Direct operating costs | | 180,206 | | 149,993 | | 30,213 | | 20 | % |
|
| 547,828 |
| 424,123 |
| 123,705 |
| 29 | % | |
Direct operating costs, exclusive of depreciation | | | 178,320 |
| | 182,633 |
| | (4,313 | ) | | (2) | % |
Salaries and benefits | | 20,104 | | 16,108 | | 3,996 | | 25 | % |
|
| 59,248 |
| 46,996 |
| 12,252 |
| 26 | % | | 20,177 |
| | 19,369 |
| | 808 |
| | 4 | % |
Selling, general and administrative | | 9,802 | | 8,455 | | 1,347 | | 16 | % |
|
| 28,594 |
| 25,928 |
| 2,666 |
| 10 | %
| | 9,440 |
| | 9,020 |
| | 420 |
| | 5 | % |
Depreciation and amortization | | 2,253 | | 2,134 | | 119 | | 6 | % |
|
| 6,524 |
|
| 5,629 |
|
| 895 |
| 16 | % | | 1,696 |
| | 2,124 |
| | (428) |
| | (20) | % |
Total operating expenses | | 212,365 | | 176,690 | | 35,675 | | 20 | % |
|
| 642,194 |
|
| 502,676 |
|
| 139,518 |
| 28 | %
| | 209,633 |
| | 213,146 |
| | (3,513 | ) | | (2) | % |
Operating income | | $ | 25,954 | | $ | 22,249 | | $ | 3,705 | | 17 | % |
| $ | 82,346 |
| $ | 56,737 |
| $ | 25,609 |
| 45 | %
| | $ | 26,205 |
| | $ | 29,157 |
| | $ | (2,952 | ) | | (10) | % |
Transactions processed (millions) | | 811 | | 661 | | 150 | | 23 | % |
|
| 2,266 |
| 1,692 |
| 574 |
| 34 | % | | 852 |
| | 667 |
| | 185 |
| | 28 | % |
Revenues
epay Segment total revenues were $238.3$235.8 million for the three months ended September 30, 2021, an increaseMarch 31, 2022, a decrease of $39.4 million($6.5 million) or 20%(3%) compared to the same period in 2020. epay Segment total2021. The decrease in revenues were $724.5was primarily due to the $13.2 million decrease caused by foreign currency movements for the ninethree months ended September 30, 2021, an increase of $165.1 million or 30%March 31, 2022 compared to the same period in 2020. The2021 as well as a decrease in branded payments in India, partially offset by 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, 2021, respectively, compared to the same periods in 2020. The epay segment was impacted by COVID-19 pandemic-driven government-imposed lockdowns and business 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.processed.
Revenues per transaction decreased to $0.29 and $0.32$0.28 for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to $0.30 and $0.33$0.36 for the same periodsperiod in 2020, respectively2021. The decreasesdecrease in revenues per transaction werewas primarily driven bydue to the increase in the number of mobile transactions processed in a region where we generally earn lower revenues per transaction.
Direct operating costs, exclusive of depreciation
epay Segment direct operating costs were $180.2$178.3 million for the three months ended September 30, 2021, an increaseMarch 31, 2022, a decrease of $30.2 million($4.3 million) or 20%(2%) compared to the same period in 2020.2021 epay Segment direct operating costs were $547.8 million for the nine months ended September 30, 2021, an increase of $123.7 million or 29% compared to the same period in 2020.. Direct operating costs primarily consist of the commissions paid to retail merchants for the distribution and sale of prepaid mobile airtime and other prepaid products, expenses incurred to operate POS terminals and the cost of vouchers sold and physical gifts fulfilled. The increasesdecrease in direct operating costs werewas primarily due to the increase in transaction volumes of low-value mobile top-up transactions, an increase in retailer commissions and the U.S. dollar weakening against key$9.5 million decrease caused by foreign currencies during 2021. Foreign currency movements increased direct operating costs by approximately $1.6 million and $22.9 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.
Gross profit
Gross profit was $58.1 million for the three months ended September 30, 2021, an increase of $9.2March 31, 2022 million or 19% compared to $48.9the same period in 2021.
Gross profit
Gross profit was $57.5 million for the three months ended March 31, 2022, a decrease of ($2.2 million) or (4%) compared to $59.7 million for the same period in 2020.2021. Gross profit was $176.7 millionmargin decreased to 24.4% for the ninethree months ended September 30, 2021, an increase of $41.4 million or 31%March 31, 2022, compared to $135.3 million24.6% 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 increasedecrease in gross profit and gross margin is primarily driven bydue to decrease in revenues associated with the increaseshift in transaction volumes at relatively flat margins.
mix of transactions processed.
Salaries and benefits
Salaries and benefits expenses were $20.1$20.2 million for the three months ended September 30, 2021,March 31, 2022, an increase of $4.0$0.8 million or 25%4% 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. Foreignpartially offset by a $1.1 million decrease from 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,March 31, 2022 compared to the same periodsperiod in 2020. 2021. As a percentage of revenues, these expenses were 8.4% and 8.2%increased to 8.6% for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to 8.1% and 8.4%8.0% for the same periodsperiod in 2020, respectively.2021.
Selling, general and administrative
Selling, general and administrative expenses were $9.8$9.4 million for the three months ended September 30, 2021,March 31, 2022, an increase of $1.3$0.4 million or 16%5% compared to the same period in 20202021. 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 $1.6 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 decreasedincreased to 4.1% and 3.9%4.0% for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to 4.3% and 4.6%3.7% for the same periodsperiod in 2020, respectively.2021.
Depreciation and amortization
Depreciation and amortization expenses were $2.3$1.7 million for the three months ended September 30, 2021, an increaseMarch 31, 2022, a decrease of $0.1 million($0.4 million) or 6%(20%) compared to the same period in 2020.Depreciation and amortization expenses were $6.5 million for the nine months ended September 30, 2021 an increase of $0.9 million or 16% compared to the same period in 2020. Depreciation and amortization expense primarily represents depreciation of POS terminals we install in retail stores and amortization of acquired intangible assets. As a percentage of revenues, these expenses decreased to 0.7% for the three months ended March 31, 2022, compared to 0.9% for bothsame period in 2021.
Operating income
epay Segment operating income was $26.2 million for the three and nine months ended September 30, 2021,March 31, 2022, a decrease of ($3.0 million) or (10%) compared to 1.1% and 1.0%the same period in 2021. Operating margin decreased to 11.1% for the three months ended March 31, 2022, compared to 12.0% for the same periodsperiod in 2020, respectively.2021. Operating income per transaction decreased to $0.03 for the three months ended March 31, 2022 compared to $0.04 for same period in 2021. The decreases in operating income, operating margin and operating income per transaction for the three months ended March 31, 2022 compared to the same period in 2021 were primarily due to the shift in mix of transactions processed.
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 to 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, 2021, 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 period in 2020 was primarily due to an increase in the number of overall transactions. The increases in operating income and operating margin for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to an increase in the number of higher-margin digital media transactions.
MONEY TRANSFER SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 2021March 31, 2022 and 20202021 for the Money Transfer Segment:
| | Three Months Ended September 30, | | Year-over-Year Change |
| Nine Months Ended September 30, |
| Year-over-Year Change | | Three Months Ended March 31, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2021 | | 2020 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
| 2021 |
| 2020 |
| Increase (Decrease) Amount |
| Increase (Decrease) Percent | | 2022 | | 2021 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Total revenues | | $ | 353,451 | | $ | 323,092 | | $ | 30,359 | | 9 | % |
| $ | 1,037,659 |
| $ | 852,189 |
| $ | 185,470 |
| 22 | % | | $ | 338,966 |
| | $ | 324,900 |
| | $ | 14,066 |
| | 4 | % |
Operating expenses: | | | | | | | | |
|
|
|
| | | | | | | | |
Direct operating costs | | 200,231 | | 176,718 | | 23,513 | | 13 | % |
|
| 589,273 |
| 464,216 |
| 125,057 |
| 27 | % | |
Direct operating costs, exclusive of depreciation | | | 188,397 |
| | 183,878 |
| | 4,519 |
| | 2 | % |
Salaries and benefits | | 65,285 | | 52,035 | | 13,250 | | 25 | % |
|
| 188,535 |
| 154,958 |
| 33,577 |
| 22 | % | | 67,225 |
| | 60,540 |
| | 6,685 |
| | 11 | % |
Selling, general and administrative | | 41,533 | | 36,601 | | 4,932 | | 13 | % |
|
| 115,975 |
| 108,355 |
| 7,620 |
| 7 | %
| | 41,037 |
| | 36,116 |
| | 4,921 | | | 14 | % |
Goodwill and acquired intangible assets impairment |
| — |
| 1,467 |
| (1,467 | ) | (100) | % |
|
| — |
| 84,160 |
| (84,160 | ) | (100) | % | |
Depreciation and amortization | | 8,897 | | 8,645 | | 252 | | 3 | % |
|
| 26,886 |
|
| 25,793 |
|
| 1,093 |
| 4 | % | | 8,842 |
| | 8,963 |
| | (121 | ) | | (1) | % |
Total operating expenses | | 315,946 | | 275,466 | | 40,480 | | 15 | % |
|
| 920,669 |
|
| 837,482 |
|
| 83,187 |
| 10 | %
| | 305,501 |
| | 289,497 |
| | 16,004 |
| | 6 | % |
Operating income | | $ | 37,505 | | $ | 47,626 | | $ | (10,121 | ) | (21) | % |
| $ | 116,990 |
| $ | 14,707 | | $ | 102,283 |
| 695 | %
| | $ | 33,465 |
| | $ | 35,403 |
| | $ | (1,938 | ) | | (5) | % |
Transactions processed (millions) | | 34.1 | | 30.9 | | 3.2 | | 10 | % |
|
| 99.4 |
| 84.1 |
| 15.3 |
| 18 | % | | 33.5 |
| | 31.2 |
| | 2.3 |
| | 7 | % |
Revenues
Money Transfer Segment total revenues were $353.5$339.0 million for the three months ended September 30, 2021,March 31, 2022, an increase of $30.4$14.1 million or 9%4% 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 increasesthe increase in U.S. outbound and international-originated money transfers, U.S. outbound transactions, and direct-to-consumer digital transactions, partially offset by decreasesa decrease in the U.S. domestic business and transactions in the Middle East region.transactions. Revenues per transaction decreased to $10.37 and increased to $10.44$10.12 for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to $10.46 and $10.13$10.41 for the same periodsperiod in 2020, respectively.2021 due to a shift in the mix of transactions processed. Foreign currency movements increaseddecreased revenues by approximately $3.2$11.9 million
and $35.4 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to the same periodsperiod in 20202021.
Direct operating costs, exclusive of depreciation
Money Transfer Segment direct operating costs were $188.4 million$200.2 million for the three months ended September 30, 2021,March 31, 2022, an increase of $4.5 million$23.5 million or 13%2% compared to the same period in 2020. Money Transfer Segment direct operating costs were 2021$589.3 million for the nine months ended September 30, 2021, an increase of $125.1 million or 27% compared to the same period in 2020.. Direct operating costs 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 increase in direct operating costs was primarily due to the increase in the number of
international-originated and U.S. outbound and international-originated money transfer transactions, and corresponding increase in agent commissions. Foreignpartially offset by foreign currency movements
increasedthat decreased direct operating costs
by approximately $1.6 million and $17.9$5.9 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022 compared to the same periodsperiod 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$150.6 million for the three months ended March 31, 2022, an increase of $9.6 million or 7% compared to $141.0 million for the same period in 2021. Gross margin increased to 44.4% for the three months ended March 31, 2022, compared to 43.4% for the same period in 2021. The increase in gross profit and gross margin was primarily due to increases in international-originated money transfers, U.S. outbound money transfers and direct-to-consumer digital transactions. Salaries and benefits
Salaries and benefits expenses were $67.2 million for the three months ended September 30, 2021,March 31, 2022, an increase of $6.8$6.7 million or 5%11% compared to $146.4 million for the same period in 2020.2021Gross 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. business. As a percentage of revenues, these expenses increased to 18.5% and were flat at 18.2%19.8% for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to 16.1% and 18.2% 18.6% for the same periodsperiod in 2020, respectively2021.
Selling, general and administrative
Selling, general and administrative expenses were $41.5$41.0 million for the three months ended September 30, 2021,March 31, 2022, an increase of $4.9$4.9 million or 13%14% compared to the same period in 2020. 2021.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 iswas primarily driven bydue to an increase in professional feesmarketing expenses and travel related expenses. Foreign currency movements decreased these expenses by $0.1 million and increased these expenses by $4.9 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 11.8% and decreased to 11.2%12.1% for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to 11.3% and 12.7%11.1% for the same periodsperiod in 2020, respectively.2021.
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$8.8 million for the three months ended September 30, 2021, an increaseMarch 31, 2022, a decrease of $0.3 million($0.1 million) or 3%(1%) compared to the same period in 2020.2021Depreciation and amortization expenses were $26.9 million for the nine months ended September 30, 2021, an increase of $1.1 million or 4% compared to the same period in 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. As a percentage of revenues, these expenses decreased to 2.5% and 2.6% for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to 2.7% and 3.0%2.8% for the same periodsperiod in 2020, respectively2021.
Operating income
Money Transfer Segment operating income was $37.5$33.5 million for the three months ended September 30, 2021,March 31, 2022, a decrease of $10.1($1.9 million) million or 21%(5%) compared to the same period in 2020. Money Transfer Segment operating income was $117.0 million2021. Operating margin decreased to 9.9% for the ninethree months ended September 30, 2021, an increase of $102.3 million or 695%March 31, 2022, compared to 10.9% for the same period in 2020. 2021.Operating The decreases in operating income and operating margin decreased to 10.6%were primarily driven by the increase in salaries and increased to 11.3% for the threeselling, general and nine months ended September 30, 2021, respectively, compared to 14.7% and 1.7% for the same periods in 2020, respectively.administrative expenses incurred. Operating income per transaction decreased to $1.10 and increased to $1.18 for the three and nine months ended September 30, 2021, respectively, compared to $1.54 and $0.17$1.00 for the same periods in 2020, respectively. The decrease in operating income, operating margin and operating income per transaction for the three months ended September 30, 2021March 31, 2022, compared to $1.13 for the same period in 2020 was primarily driven by2021 due to a shift in the increase in agent commissions and increase in headcount to support the growthmix of 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 transactions processed.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, 2021March 31, 2022 and 20202021 for Corporate Services: | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2022 | | 2021 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Salaries and benefits | | $ | 14,126 |
| | $ | 12,188 |
| | $ | 1,938 |
| | 16 | % |
Selling, general and administrative | |
| 2,265 |
| |
| 1,680 |
| |
| 585 | | | 35 | % |
Depreciation and amortization | |
| 109
|
| |
| 147 |
| |
| (38 | ) | | (26) | % |
Total operating expenses | | $ | 16,500
|
| | $ | 14,015 |
| �� | $ | 2,485 |
| | 18 | % |
| | 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
Total Corporate operating expenses were $12.2 million and $42.0$16.5 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022, an increase of $2.2$2.5 million or 22% and $12.5 million or 42%, respectively, 18% compared to the same periodsperiod in 2020.2021. The increases areincrease is primarily due to $1.8a $1.3 million and $11.8 million increasesincrease in share based compensationcompensation.
| | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Year-over-Year Change |
(dollar amounts in thousands) | | 2022 | | 2021 | | Increase (Decrease) Amount | | Increase (Decrease) Percent |
Interest income | | $ | 145 |
| | $ | 182
|
| | $ | (37 | ) | | (20) | % |
Interest expense | | (6,134 | ) | | (9,189 | ) | | 3,055 |
| | (33) | % |
Foreign currency exchange loss, net | | (5,462 | ) | | (4,032 | ) | | (1,430 | ) | | 35 | % |
Other gains, net | | 192 |
| | 31 |
| | 161 |
| | 519 | % |
Other expense, net | | $ | (11,259 | ) | | $ | (13,008 | ) | | $ | 1,749 | | | (13) | % |
Interest expense
Interest expense was $6.1 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022, a decrease of ($3.1 million) or (33%) compared to the same periodsperiod in 2020.
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) | %
|
the adoption of ASU 2020-06, partially offset by increased borrowings on the revolving Credit Facility for the three months ended March 31, 2022 compared to the same period in 2021. See Footnote 2, Recently Issued and Adopted Accounting Pronouncements, for more information on the impact of this adoption.
Foreign currency exchange 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 losslosses of $8.1$5.5 million
and $12.1$4.0 million for the three and nine months ended September 30,March 31, 2022 and 2021,respectively, compared to a net foreign currency exchange loss of $1.4 million and $17.7 million for the same periods in 2020, respectively. These realized and unrealized foreign currency exchange 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.
INCOME TAX EXPENSE
Our effective income tax rate was 23.6%67.4% and 35.8%(236.9%) for the three and nine months ended September 30, 2021, respectively, compared to 27.2%March 31, 2022 and (55.9)% for the same periods in 2020,2021, respectively. Our effective income tax rate for the three and nine months ended September 30, 2021March 31, 2022 was higher than the applicable statutory income tax rate of 21% a%ass a result of the Company’s U.S. deferred tax activity on foreign exchange positions and certain foreign earnings of the Company being subject to higher local statutory tax rates,rates. Our effective income tax rate for the three months ended March 31, 2021 was lower than the applicable statutory income tax rate of 21% as a result of the non-recognition of tax benefits from losses in certain foreign countries where we have a limited history of profitable earnings, certain foreign earnings of the Company being subject to higher local statutory tax rates, and as a result of an increase in the valuation allowance in certain jurisdictions relating to the reversal ofCompany’s U.S. deferred tax benefits recognized in the first quarter of 2021 for continuing net operating losses. activity on foreign exchange positions.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 21% primarily due to the non-deductible goodwill impairment charge during the second quarter of 2020 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 2020 for net operating losses in those jurisdictions which have a limited history of profitable earnings.
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests represent 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 |
Euronet Infinitium Solutions | | 65% | | EFT - India |
NET INCOME (LOSS) ATTRIBUTABLE TO EURONET
Net income attributable to Euronet was $8.3 million$73.9 million for the three months ended September 30, 2021,March 31, 2022, an increase of $33.6$17.0 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 was $73.9 million for the nine months ended September 30, 2021, an increase of $147.5 million or 200%196% compared to the net loss in the same period in 20202021. For the nine months ended September 30, 2021, theThe increase in net income was primarily attributable to the $135.2$65.8 million increase in revenues, largely driven by the increases within the EFT Segment as tourism and cross-border travel increased during the first quarter of 2022 compared to the first quarter of 2021. The increased revenues led to a $42.2 million increase in gross profit, driven by anwith $34.7 million of this increase within the EFT Segment. The increase in transaction volumes, a $106.0 million decrease in non-cash goodwill and intangible assets impairment charges and a $5.6 million decrease in foreign currency exchange losses,gross profit was partially offset by a $62.4an $11.1 million increase in salaries and benefits a $14.7expense, an $11.1 million increase in income tax expense and a $12.9$5.1 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.expense.
LIQUIDITY AND CAPITAL RESOURCES
Working capital
As of September 30, 2021,March 31, 2022, we had working capital of $1,395.5$1,354.9 million, which is calculated as the difference between total current assets and total current liabilities, compared to working capital of $1,510.5$1,455.8 million as of December 31, 2020.2021. The decrease in working capital was primarily due to the $217.2$346.2 million decreaseacquisition of PBMA and the $70.4 million of share repurchases, partially offset by a $303.5 million increase in the outstanding balanceborrowing on the Credit Facility during the nine months ended September 30,as of March 31, 2022 compared to December 31, 2021 partially offset by a $35.0 million increase in trade accounts receivable and a $34.7 million decrease in accrued expenses and other current liabilities.. Our ratio of current assets to current liabilities was 1.851.77 and 1.81 1.79 at September 30, 2021March 31, 2022 and December 31, 20202021, respectively.
We require substantial working capital to finance operations. The Money Transfer Segment funds 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 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, some of which 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 the revolving credit facilities and cash flows from operations. As of September 30, 2021March 31, 2022, we had $669.7$644.4 million of our own cash in use or designated for use in our ATM network, which is recorded in ATM cash on Euronet's Consolidated Balance Sheet. ATM cash increased $258.6$101.0 million from $411.1$543.4 million as of December 31, 20202021 to $669.7$644.4 million as of September 30, 2021 March 31, 2022as a result of the increase in the number of active ATMs as of September 30, 2021March 31, 2022 compared to December 31, 2020.
The2021.The Company has $1,048.5$986.5 million of unrestricted cash as of September 30, 2021March 31, 2022 compared to $1,420.3$1,260.5 million as of December 31, 2020. 2021. The decrease in unrestricted cash was primarily due to the $217.2$346.2 million net repaymentacquisition of PBMA, the outstanding balance$101.0 million allocated from unrestricted cash to ATM cash and the $70.4 million of share repurchases during the first quarter of 2022, partially offset by the $303.5 million increase in borrowings on the Credit Facility during the nine months ended September 30, 2021 and the $258.6 million increase in ATM cash as unrestricted cash was utilized to fill the additional active ATMs.Facility. Including the $669.7$644.4 million of cash in ATMs at September 30, 2021,March 31, 2022, the Company has access to $1,718.2$1,630.9 million in available cash, and $918.9$386.8 million available under the Credit Facility with no significant long-term debt principal payments until March 2025.October 2023.
The following table identifies cash and cash equivalents provided by/(used in) our operating, investing and financing activities for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 (in thousands):
| | Nine Months Ended September 30, | Three Months Ended March 31, |
Liquidity | 2021 | | 2020 | 2022 | | 2021 |
Cash and cash equivalents and restricted cash provided by (used in): | | | | | | |
Operating activities | $ | 304,340 | | | $ | 220,416 |
| $ | 5,671 | | | $ | (2,645 | ) |
Investing activities | (70,952 | ) | | (77,073 | ) | (356,848 | ) | | (18,225 | ) |
Financing activities | (216,291 | ) | | (244,069 | ) | 235,312 | | | (269,211 | ) |
Effect of foreign currency exchange rate changes on cash and cash equivalents and restricted cash | (82,667 | ) | | 32,042 | | (37,542 | ) | | (53,188 | ) |
Decrease in cash and cash equivalents and restricted cash | $ | (65,570 | ) | | $ | (68,684 | ) | $ | (153,407 | ) | | $ | (343,269 | ) |
Operating activity cash flow
Cash flows provided by operating activities were $304.3$5.7 million forfor the ninethree months ended September 30, 2021March 31, 2022 compared to $220.4cash flows used in operating activities of $2.6 million for the same period in 2020.2021. The increase in operating cash flows was primarily due to the $17.0 million increase in net income, andpartially offset by fluctuations in working capital mainly associated with the timing of the settlement processes with content providers in the epay Segment, 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 $71.0$356.8 million for the ninethree months ended September 30, 2021March 31, 2022 compared to $77.1$18.2 million for the same period in 20202021. WeThe increase in cash used $66.1in investing activities is primarily due to the $331.0 million of cash paid at the closing of PBMA during the quarter. Additionally, we used $23.8 million for purchases of property and equipment for the ninethree months ended September 30, 2021March 31, 2022 compared to $71.4$16.4 million for the same period in 2020.2021. The increase in purchases of property and equipment is primarily due to the prior quarter expenditures being reduced by the COVID-19 related impacts to the EFT segment. Cash used for software development and other investing activities totaled $4.9$2.1 million and $5.7$1.8 million for the ninethree months ended September 30, 2021March 31, 2022 and 20202021, respectively.
Financing activity cash flow
Cash flows used inprovided by financing activities were $216.3$235.3 million for the ninethree months ended September 30, 2021March 31, 2022 compared to $244.1cash flows used in financing activities of $269.2 million for the same period in 2020.2021. Our borrowing activities on the Credit Facility for the ninethree months ended September 30, 2021March 31, 2022 consisted of net cash outflowsborrowings of $217.0$303.5 million compared to net cash outflowsrepayments of $5.0$270.4 million for the same period in 2020.2021. The increase in net cash outflows forborrowings on the nine months ended September 30, 2021 compared to the same period in 2020 wasCredit Facility is primarily the result of treasury management relating to settlement requirements across currencies as well as increased funding requirements for acquisitions and share repurchases during the net repaymentfirst quarter of $217.2 million of the outstanding balance on the Credit Facility. 2022.We repurchased $1.0$70.5 million of common stock during the nine months ended September 30, 2021first quarter of 2022 compared to repurchases of $240.8$0.8 million for the same period in 2020. The $1.0 million of share repurchases during the nine months ended September 30, 2021 were in connection with the settlementfirst quarter of Restricted Stock Unit awards and the exercise of option awards in certain countries in which we operate.2021. We received proceeds of $6.4$2.3 million and $6.6$3.7 million during the ninethree months ended September 30, 2021March 31, 2022 and 2020,2021, respectively, for the issuance of stock in connection with our Stock Incentive Plan.
Other sources of capital
Credit Facility - On October 17, 2018, the Company entered into a $1.0 billion unsecured credit agreement (the "Credit Facility") that expires on October 17, 2023.In May 2021, an additional lender joined the Credit Facility which increased the revolving commitment by $30 million. The Credit Facility allows for borrowings in Australian dollars, British pounds sterling, Canadian dollars, Czech 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, a $50 million sublimit for U.S. Dollar swingline loans, and a $90 million sublimit for certain foreign currencies swingline loans.
As of September 30, 2021March 31, 2022, fees and interest on borrowings are based upon our corporate credit rating (as defined in the 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 the London InterBank Offered Rate ("LIBOR") or a margin over the base rate, as selected by us, with the applicable margin ranging from 1.125% to 2.0% (or 0.175% to 1.0%1.0% for base rate loans).As of September 30, 2021,March 31, 2022, we had $53.2$586.9 million of borrowings and $57.9$56.3 million of stand-by letters of credit outstanding under the Credit Facility. The remaining $918.9$386.8 millionunder the Credit Facility was available for borrowing.
Convertible debt - On March 18, 2019, we completed the sale of $525.0 million in principal amount of Convertible Senior Notes due 2049 (“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 0.75% per annum payable semi-annually in March and September, and are convertible into shares of Euronet common stock at a conversion price of approximately $188.73 per share if certain conditions are met (relating to the closing prices of Euronet common stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require us to repurchase for cash all or part of their Convertible Notes on each of March 15, 2025, 2029, 2034, 2039 and 2044 at a repurchase price equal to 100% of the 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 $12.8 million in debt issuance costs, which are being amortized through March 1, 2025.
Senior Notes - On May 22, 2019, we completed the sale of €600 million ($669.9 million) aggregate principal amount of Senior Notes that expire on May 2026 (the “Senior Notes”). The Senior Notes accrue interest at a rate of 1.375% per year, payable annually in arrears on May 22 of each year, until maturity or earlier redemption. As of September 30, 2021March 31, 2022, we have outstanding €600 million ($694.9($663.9 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 have available credit lines and overdraft facilities to generally supplement short-term working capital requirements, when necessary. There were $1.1$0.4 million and $0.9 million outstanding under these other obligation arrangements as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Other uses of capital
Capital expenditures and needs - Total capital expenditures for the ninethree months ended September 30, 2021March 31, 2022 were $66.1$23.8 million. These capital expenditures were primarily for 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 20212022 are currently estimated to range from approximately $100$95 million to $105 million$100 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 Credit Facility and other existing and potential future financing 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, 2021March 31, 2022, there were no material changes from the disclosure in our Annual Report on Form 10-K for the year ended December 31, 20202021. 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, 2021March 31, 2022. See also Note 14, Commitments, to the unaudited consolidated financial statements included elsewhere in this report.
CONTRACTUAL OBLIGATIONS
As of September 30, 2021,March 31, 2022, there have been no material changes outside the ordinary course of business in our future contractual obligations from the amounts reported within our Annual Report on Form 10-K for the year ended December 31, 2020.
2021.
Interest rate risk
As ofSeptember 30, 2021March 31, 2022, our total debt outstanding, excluding unamortized debt issuance costs, was $1,213.3 million.$1,776.2 million. Of this amount, $464.2$525.0 million
, net of debt discounts, or 38%30% of our total debt obligations, relates to our contingent Convertible Notes that have a fixed coupon rate. Our $525.0 million outstanding principal amount of Convertible Notes accrue cash interest at a rate of 0.75% of the principal amount per annum. Based on quoted market prices, as of
September 30, 2021,March 31, 2022, the fair value of our fixed rate Convertible Notes was $603.1$563.4 million
, compared to a carrying value of $464.2 million. Interest expense for the Convertible Notes, including accretion and amortization of deferred debt issuance costs, has a weighted average interest rate of 4.4%$525.0 million annually.. Further, as of September 30, 2021March 31, 2022 we had $53.2$586.9 million of borrowings under our Credit Facility, or 4%33% of our total debt obligations, under ourobligations. The carrying values of the Credit Facility.Facility approximates fair value because interest is based on LIBOR that resets at various intervals of less than one year. Additionally, $694.9$663.9 million
, or 57%37% of our total debt obligations, relates to Senior 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,March 31, 2022, the fair value of our fixed rate Senior Notes was $710.3$628.6 million
, compared to a carrying value of $694.9 million.$663.9 million. The remaining $1.1$0.4 million
, or less than 1%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. Based on the outstanding borrowings accruing interest at variable rates, a 1% increase in the interest rate would result in a $5.9 million increase or decrease, as applicable, in our annual interest expense.
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 ninethree months ended September 30, 2021,March 31, 2022, approximately 73%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, 2021March 31, 2022, 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
$130 million$155 million to $160$135 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 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. and our Senior Notes. As of September 30, 2021, weWe estimate that a 10% fluctuation in foreign currency exchange rates would have a non-cash impact on total comprehensive income of approximately $160 million$115 million to $120$165 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 are 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 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 involve 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 Operations.Income. As of September 30, 2021,March 31, 2022, we had foreign currency derivative contracts outstanding with a notional value of $275$231.1 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 xe operations write to 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 Operations.Income. As of September 30, 2021,March 31, 2022, we held foreign currency derivative contracts outstanding with a notional value of $1.1$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, 2021,March 31, 2022, the Company had foreign currency forward contracts outstanding with a notional value of $46$16.2 million, primarily in euros.
See Note 10, Derivative Instruments and Hedging Activities, to our unaudited consolidated financial statements for additional information.
ITEM 4. CONTROLS AND PROCEDURESOur 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, 2021March 31, 2022. 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. On March 15, 2022, we completed the acquisition of the Merchant Acquiring Business of Piraeus Bank ("PBMA"). We are currently integrating PBMA into our operations and internal control processes and, pursuant to the Securities and Exchange Commission staff interpretive guidance, the assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition. The scope of our assessment of our internal controls over financial reporting as of March 31, 2022 does not include PBMA.
Change in Internal Controls
ThereExcept for internal controls related to integration activities associated with our acquisition of PBMA, there has been no change in our internal control over financial reporting during the thirdfirst quarter of 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 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.
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, 2020,2021, as filed with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSThe 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.March 31, 2022. | | | | | | | | | | | | | | |
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 | | — |
| | $ | — |
| | — |
| | |
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (in thousands) (1) |
January 1 - January 31, 2022 | | — |
| | $ | — |
| | — |
| | $ | 322,236 |
|
February 1 - February 28, 2022 | | — |
| | — |
| | — |
| |
| 300,000 |
|
March 1 - March 31, 2022 | | 639,535 |
| | 110.00 |
| | 639,535 |
| | $ | 229,649 |
|
Total | | 639,535 |
| | $ | 110.00 |
| | 639,535 |
| | |
(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. On December 8, 2021, the Company put a repurchase program in place to repurchase up to $300 million in value, but not more than 5.0 million shares of common stock through December 8, 2023. 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.
| | |
Exhibit | | Description |
| |
|
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, 2021,March 31, 2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2021March 31, 2022 (unaudited) and December 31, 20202021, (ii) Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2021March 31, 2022 and 2020,2021, (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2021March 31, 2022 and 2020,2021, (iv) Consolidated Statements of Changes in Equity (unaudited) for the three and nine months ended September 30, 2021March 31, 2022 and 20202021 (v) Consolidated Statements of Cash Flows (unaudited) for the ninethree months ended September 30, 2021March 31, 2022 and 2020,2021, and (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 SEC, we have filed or incorporated by reference the agreements referenced above as exhibits to this Annual Report on Form 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 our 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 us or our 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 28, 2021May 4, 2022
Euronet Worldwide, Inc.
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By: | /s/ MICHAEL J. BROWN | |
| Michael J. Brown | |
| Chief Executive Officer | |
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By: | /s/ RICK L. WELLER | |
| Rick L. Weller | |
| Chief Financial Officer | |