Euronet Worldwide, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results. Euronet provides electronic payment processing and distribution through EFT Processing, epay, and Money Transfer segments.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $931.3 million (+14%) | $816.6 million | $2,493.0 million (+14%) | $2,183.9 million |
| Operating income | $168.5 million (+47%) | $114.5 million | $306.2 million (+97%) | $155.1 million |
| Net income attributable to Euronet | $97.7 million (+32%) | $73.9 million | $163.2 million (+121%) | $73.9 million |
| Diluted EPS | $1.87 | $1.37 | $3.10 | $1.37 |
Approximate operating margin was 18.1% in Q3 (14.0% prior year) and 12.3% year to date (7.1%). Approximate net margin attributable to Euronet was 10.5% in Q3 (9.0%) and 6.6% year to date (3.4%). Foreign-currency losses and higher income taxes partly offset operating improvement. The nine-month effective tax rate was 33.5%, versus 35.8%.
- Segment trends: Q3 EFT Processing revenue rose 41% to $319.5 million and operating income rose 84% to $116.4 million, reflecting increased travel-related and other transaction volumes; nine-month operating income recovered to $164.8 million from a prior-year loss. epay Q3 revenue increased 4% to $248.9 million and operating income increased 12% to $29.1 million; nine-month revenue declined 2% and operating income declined 3%. Money Transfer Q3 revenue increased 3% to $364.8 million and operating income increased 8% to $40.5 million; nine-month operating income declined 2% to $114.5 million.
- Cash flow (nine months): Operating activities provided $448.6 million, versus $304.3 million. Investing activities used $416.0 million, including $331.4 million for acquisitions and $79.4 million of property and equipment purchases. Financing activities provided $173.5 million, including net revolving-credit borrowings of $342.9 million and $175.3 million of share repurchases.
- Cash and liquidity: September 30 cash and cash equivalents were $967.1 million; ATM cash was $646.1 million. The company reported $1.613 billion in available cash including ATM cash, plus $652.8 million available under its credit facility. Working capital was $1.075 billion, down from $1.456 billion at December 31, 2021; the current ratio was 1.50, versus 1.79.
- Debt: Total debt obligations before issuance costs were $1.743 billion, including $525 million of 0.75% convertible notes due 2049, €600 million of 1.375% senior notes due 2026, $326.3 million drawn under the revolving facility, and $300 million of short-term uncommitted ATM-cash financing. The company reported compliance with debt covenants. On October 24, after quarter-end, it increased its revolving facility from $1.0 billion to $1.25 billion and extended maturity to October 2027.
Material changes and notable items
- Revenue and earnings gains were led by EFT Processing, as travel restrictions eased and tourism-related, cross-border, and other transaction activity increased. The company noted Q3 is normally a peak tourism period for EFT Processing.
- The March 2022 Piraeus Bank merchant-acquiring acquisition contributed $32.6 million of Q3 revenue and $63.8 million for the nine-month period. Preliminary purchase accounting included $212.2 million of goodwill; the acquisition valuation was not complete at quarter-end.
- The stronger U.S. dollar reduced reported segment revenues by approximately $109.2 million in Q3 and $214.3 million year to date, based on disclosed segment impacts. The company recorded a $209.9 million nine-month foreign-currency translation loss in comprehensive income, contributing to a $46.4 million comprehensive loss attributable to Euronet despite positive net income.
- Unrestricted cash declined from $1.260 billion at year-end, primarily reflecting the acquisition, cash allocated to ATMs, and share repurchases. The company repurchased $175.0 million of shares during the first nine months; none were repurchased in Q3.
- Adoption of ASU 2020-06 on January 1, 2022 changed convertible-debt accounting and increased diluted shares by approximately 2.8 million when dilutive.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance was provided. Management estimated 2022 capital expenditures of approximately $110–$120 million and said operating cash flow, cash on hand, and available financing were expected to cover debt, lease, and capital expenditure obligations.
- Management warned that inflation may increase expenses and has pressured discretionary epay spending and money-transfer send amounts. Key disclosed risks include foreign-exchange volatility, the war in Ukraine and related sanctions, economic conditions, interest rates and refinancing availability, cybersecurity and service interruptions, regulation, competition, and integration of the Piraeus acquisition.
- Approximately 74.1% of nine-month revenue was generated outside the U.S. Management estimated a 10% currency movement could affect annualized reported net income and working capital by approximately $185–$190 million, and total comprehensive income by approximately $50–$55 million through translation of certain non-current balances.
- Management reported no legal or regulatory proceedings expected to have a material adverse effect and no significant claims under guarantees or indemnities known at the reporting date. It reported effective disclosure controls; the acquired Piraeus business was excluded from the internal-control assessment while integration proceeds.
Important facts for investors to verify
- Whether EFT Processing’s travel-driven transaction recovery and margins are sustainable beyond the seasonal Q3 peak.
- The continuing effect of dollar strength on reported results, cash balances, and translated equity.
- Integration progress and final purchase-price allocation for the Piraeus merchant-acquiring acquisition, including the contingent earnout.
- Liquidity and refinancing needs, including the $300 million short-term ATM-cash borrowing and debt maturities or holder put dates.
- Whether inflation, rising interest rates, regulatory changes, and transaction-mix shifts affect costs and segment profitability.