Euronet Worldwide, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated financial statements. Euronet provides ATM and payment processing, prepaid electronic content distribution, and money transfer services through its EFT Processing, epay, and Money Transfer segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $843.3 million | $714.7 million | $1,561.8 million | $1,367.4 million |
| Operating income | $101.1 million | $30.1 million | $137.8 million | $40.6 million |
| Net income attributable to Euronet | $57.2 million | $8.6 million | $65.5 million | Loss of $0.03 million |
| Diluted EPS | $1.08 | $0.16 | $1.25 | $0.00 |
| Cash provided by operating activities | Not reported quarterly in the cash flow statement | $180.7 million | $173.3 million |
Consolidated operating margin was approximately 12.0% in Q2 and 8.8% for the first half, versus 4.2% and 3.0%, respectively, a year earlier. Gross margin, calculated as revenue less direct operating costs, was approximately 40.6% in Q2 and 38.6% for the first half, compared with 34.1% and 33.8%.
- Segment performance: EFT Processing revenue rose 119% in Q2 and 97% in the first half; segment operating income was $54.8 million and $48.4 million, respectively, compared with losses in both 2021 periods. epay revenue declined 7% in Q2 and 5% in the first half, while operating income fell 10% in each period. Money Transfer revenue increased 3% in both periods, but operating income declined 8% in Q2 and 7% in the first half.
- Cash and liquidity: At June 30, cash and cash equivalents were $1.015 billion, ATM cash was $890.8 million, and restricted cash was $6.6 million. Working capital was $1.180 billion, down from $1.456 billion at year-end 2021; the current ratio was 1.51 versus 1.79.
- Debt: Debt carrying value was $2.089 billion, including $450 million of short-term uncommitted ATM vault-cash loans, $497.1 million drawn under the revolving facility, $525 million of convertible notes, and $628.9 million of euro-denominated senior notes. The company reported compliance with debt covenants. It had $449.1 million available under its $1.0 billion revolving facility, after outstanding borrowings and letters of credit.
- Cash flows and capital allocation: Investing activities used $387.0 million, including the PBMA acquisition; financing activities provided $491.2 million, including net revolving-credit borrowings. The company repurchased $175.3 million of shares in the first half. Cash, cash equivalents, and restricted cash increased $89.7 million, including a negative $195.2 million effect from exchange-rate movements.
Material changes and notable items
- The March 2022 acquisition of Piraeus Bank’s merchant-acquiring business (PBMA) added 205,000 POS terminals and approximately 170,000 merchants in Greece. Preliminary consideration was approximately $346.2 million, including estimated contingent consideration. PBMA contributed $27.5 million of Q2 revenue and $31.2 million from acquisition through June 30; purchase accounting remained preliminary.
- Management attributed EFT improvement chiefly to increased cash-withdrawal activity as travel restrictions eased, higher transaction volumes, and a greater mix of high-margin dynamic currency conversion transactions. The six-month EFT revenue comparison was also affected by PBMA. Currency translation reduced reported revenue across segments.
- Foreign-currency exchange losses were $14.7 million in Q2 and $20.2 million in the first half, versus a small gain in Q2 2021 and a $3.9 million loss in the first half of 2021. Separately, currency translation losses of $88.3 million in Q2 and $109.4 million in the first half contributed to comprehensive losses attributable to Euronet of $31.5 million and $44.4 million, respectively.
- Adoption of ASU 2020-06 on January 1, 2022 changed convertible-debt accounting and diluted-EPS treatment, including 2.8 million incremental assumed conversion shares when dilutive. It also reduced reported interest expense versus the prior-year period by eliminating debt-discount accretion.
Outlook, risks, and contingencies
- Management estimated 2022 capital expenditures of approximately $115 million to $120 million; $53.1 million had been spent in the first half. It expected operating cash flow, cash on hand, and available financing to meet debt, lease, and capital expenditure needs, while noting refinancing or new equity could be needed if resources prove insufficient.
- Management warned that inflation may increase expenses and pressure discretionary spending and money-transfer send amounts. Seasonality matters: EFT dynamic-currency-conversion demand typically peaks in Q3, while segment transaction patterns also vary around holidays and migration periods.
- Risks highlighted include foreign-exchange and interest-rate movements, inflation, the Russia-Ukraine conflict and related sanctions, cybersecurity and service interruptions, regulation and licensing, competition, contract renewals, funding availability, and integration of PBMA. Euronet suspended operations and product offerings in Russia and said this had not materially affected results to date.
- The company disclosed ordinary-course legal and regulatory matters but said none was expected to have a material adverse effect. It also described guarantees, indemnities, ATM cash exposure, and regulatory capital requirements; no significant claims were known and no related liabilities were recorded. Disclosure controls were assessed as effective, but PBMA was excluded from the internal-control assessment during integration.
Key facts for investors to verify
- How much of reported EFT growth reflects recovery in travel and transaction activity versus PBMA, and how sustainable are the resulting margins?
- Whether PBMA’s final purchase-price allocation, integration costs, and contingent earnout obligations differ materially from preliminary estimates.
- How currency movements, inflation, and changes in transaction mix affect reported revenue, earnings, and comprehensive income.
- How the company will manage short-term vault-cash borrowings and the October 2023 revolving-facility expiry, while funding ATM cash needs, share repurchases, and planned capital spending.
- Whether operating cash conversion remains resilient given working-capital fluctuations and the large settlement balances inherent in the business.