Euronet Worldwide, Inc. — Q2 2021 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods. Euronet operates EFT Processing, epay and Money Transfer businesses. The company reported that COVID-19 restrictions continued to affect travel-related transactions and access to some retail and money-transfer channels.
Financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $714.7 million | $527.8 million | $1,367.4 million | $1,111.7 million |
| Operating income (loss) | $30.1 million | $(101.3) million | $40.6 million | $(69.7) million |
| Net income (loss) attributable to Euronet | $8.6 million | $(115.8) million | $(30,000) | $(113.9) million |
| Diluted EPS | $0.16 | $(2.22) | $(0.00) | $(2.15) |
| Cash from operating activities | — | $173.3 million | $178.6 million |
Q2 2021 operating margin was approximately 4.2% and net margin approximately 1.2%; first-half operating margin was approximately 3.0%, while attributable net income was close to break-even. First-half cash used in investing activities was $48.3 million, including $45.1 million of property and equipment purchases. Cash used in financing activities was $248.6 million.
At June 30, 2021, cash and cash equivalents were $994.5 million, ATM cash was $565.1 million, and working capital was $1.28 billion. Current assets/current liabilities were 1.79. Debt carrying value was $1.18 billion, including $20.8 million drawn on the revolving facility; $949.7 million remained available under the facility after outstanding letters of credit. The company reported compliance with debt covenants.
Material changes versus prior periods
- Consolidated Q2 revenue rose 35% year over year; first-half revenue rose 23%. Management attributed much of the Q2 improvement to recovery from pandemic-affected 2020 comparisons, higher transaction volumes and favorable currency translation.
- Q2 returned to operating and net income from substantial losses a year earlier. The comparison reflects $104.6 million of goodwill impairment recorded in Q2 2020, with no comparable charge in 2021. The impairment comprised $82.7 million in Money Transfer and $21.9 million in EFT Processing.
- For the first half, EFT Processing revenue declined 11% to $200.6 million and the segment recorded a $65.4 million operating loss. epay revenue increased 35% to $486.2 million, with operating income of $56.4 million. Money Transfer revenue increased 29% to $684.2 million, with operating income of $79.5 million.
- Cash and cash equivalents fell $425.8 million from year-end, while ATM cash increased $154.0 million. The company repaid $249.6 million net under its revolving credit facility. Operating cash flow was $5.3 million lower than in the first half of 2020.
Outlook, risks and unusual items
- Management estimated 2021 capital expenditures of approximately $100–$105 million. It said operating cash flow, cash on hand and available credit were expected to fund debt, lease and capital-expenditure needs; no earnings guidance was provided in the supplied filing text.
- A proposed €300 million (approximately $360 million) acquisition of Piraeus Bank’s merchant-acquiring business in Greece was targeted to close in late 2021, subject to regulatory approvals, commercial agreements and customary conditions. The company expected to use cash on hand.
- COVID-19 restrictions continued to suppress higher-margin EFT cross-border DCC and surcharge activity and affected access to some money-transfer locations. Management noted uncertainty around restrictions, vaccine availability and effectiveness, and recovery in travel and transactions.
- Approximately 72% of revenue was generated in non-U.S.-dollar currencies. The company estimated a 10% exchange-rate fluctuation could affect reported net income and working capital by approximately $100–$105 million on an annualized basis, and total comprehensive income by approximately $125–$130 million through translation effects.
- The six-month effective tax rate was 99.9%, which management attributed to foreign tax rates, unrecognized tax benefits on losses in certain jurisdictions, and valuation-allowance changes. The quarter’s effective tax rate was 58.9%.
- Potential exposures include payment-processing and cybersecurity disruptions, regulatory and licensing requirements, counterparty and agent risks, and guarantees and indemnifications. The company disclosed $89.6 million of standby letters of credit/bank guarantees and stated it was unaware of significant claims under guarantees or indemnifications. Management said no known legal or regulatory proceedings were expected to have a material adverse effect.
Investor verification priorities
- Verify the reported first-half attributable net loss of $30,000 and EPS of $(0.00), given the very small amounts and presentation in the filing.
- Assess how much revenue and segment recovery reflects underlying transaction growth versus favorable foreign-exchange translation and unusually weak 2020 comparisons.
- Track the recovery of high-margin EFT DCC and surcharge activity, especially as travel restrictions and tourism patterns change.
- Monitor liquidity after the planned Piraeus acquisition, capital spending, ATM cash requirements and revolving-facility maturities.
- Review the acquisition’s approval and closing conditions, and the company’s substantial foreign-currency exposure and tax-rate variability.