Euronet Worldwide, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report, not a standalone fourth-quarter filing; it also provides unaudited Q4 results. Euronet operates EFT Processing, epay, and Money Transfer businesses across approximately 165 countries.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $1.772 billion | $1.664 billion |
| Operating income | $204.8 million | $158.7 million |
| Net income attributable to Euronet | $98.8 million | $101.6 million |
| Diluted EPS | $1.83 | $1.89 |
| Operating cash flow | $215.1 million | $235.0 million |
| Cash and cash equivalents at year-end | $457.5 million | $468.0 million |
- Revenue grew approximately 6%; operating income rose 29%. Operating margin increased to about 11.6% from 9.5%. Net income attributable to Euronet fell about 3%, mainly reflecting materially higher foreign-exchange losses, interest expense, and taxes.
- Gross profit, calculated as revenue less direct operating costs, was approximately $690.4 million, or 39.0% of revenue, versus approximately $630.7 million, or 37.9%, in 2014.
- Cash provided by operations declined about 9%. Investing used $194.0 million, including $114.0 million for acquisitions and $74.6 million for property and equipment. Financing used $1.2 million.
- Year-end working capital was $227.1 million, down from $257.0 million; the current ratio was 1.25 versus 1.30. Of reported cash, $357.0 million was held outside the U.S. and management expected it to remain invested in foreign operations.
- Debt obligations were $428.3 million before unamortized issuance costs ($417.5 million carrying value); long-term debt on the balance sheet was $405.5 million. The company had $550.3 million available under its revolving facility at year-end, after borrowings and letters of credit.
- FY 2015 included a net foreign-currency exchange loss of $41.4 million and a $67.8 million translation loss in other comprehensive income. Management estimated currency movements reduced reported 2015 operating income by 14% versus 2014.
Material changes and Q4 results
- Money Transfer revenue rose 31% to $685.6 million and operating income rose 84% to $78.7 million, supported by transaction growth, Walmart-2-Walmart, and the HiFX, IME, and XE acquisitions. Transactions increased 42% to 68.7 million; segment margin rose to 11.5% from 8.2%.
- EFT Processing revenue increased 6% to $379.5 million and operating income increased 3% to $94.4 million. ATM count rose 5% to 21,360, but segment operating margin eased to 24.9% from 25.5%, including pressure from lower rates on certain card outsourcing services.
- epay revenue declined 10% to $708.4 million, while operating income increased 9% to $66.4 million. Lower revenue reflected currency translation and weaker prepaid activity in Brazil and the U.K.; higher transaction volumes and controlled support costs lifted operating margin to 9.4% from 7.8%. Some unusually high promotional transactions may not recur.
- Q4 2015 revenue was $470.6 million, operating income $55.2 million, net income attributable to Euronet $33.5 million, and diluted EPS $0.61. Q4 2014 comparatives were $462.0 million, $49.5 million, $30.1 million, and $0.55, respectively.
- The company acquired Malaysian money-transfer provider IME in June and XE Corporation in July 2015. The acquired businesses contributed from their acquisition dates; purchase-price valuations were still preliminary for certain acquired assets.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management estimated 2016 capital expenditures of approximately $75–$85 million and stated that operating cash flow, cash on hand, and available financing were expected to cover debt, lease, acquisition-related, and capital expenditure needs.
- Management highlighted growth opportunities in ATM and POS outsourcing, value-added services, electronic payment products, and international money transfers, while noting reliance on acquisitions, contract renewals, transaction growth, and successful integration.
- Key risks include foreign-exchange exposure (about 70% of 2015 revenue was generated outside the U.S.), money-transfer and payment regulation, anti-money-laundering compliance, cybersecurity and service interruptions, agent/correspondent and retailer credit exposure, ATM cash-supply availability, competitive pricing, and acquisition integration.
- Greece’s 2015 sovereign-debt crisis and capital controls constrained access to ATM cash and reduced tourist activity and related transactions. Alternative cash sources largely mitigated supply problems; currency-conversion and broader country risks remained uncertain.
- Management reported no legal or regulatory proceedings it believed would materially adversely affect the consolidated financial statements. The Delaware unclaimed-property matter was settled with a payment described as not material. The auditor and management concluded internal control over financial reporting was effective; the audit assessment excluded acquired IME and XE controls.
Important facts for investors to verify
- Whether Money Transfer growth and margins persist after the acquisitions and Walmart-2-Walmart expansion, including the impact of that product’s lower per-transaction margin.
- Whether epay can stabilize revenue amid currency effects, declining prepaid activity in certain markets, and potentially non-recurring promotional volume.
- How foreign-exchange movements affect earnings, cash flows, and translation of foreign assets, and whether hedging offsets exposures as expected.
- Liquidity and debt-covenant headroom, including the 2020 holder put option on the convertible notes and the company’s ability to fund ATM cash and acquisition needs.
- Progress integrating IME and XE, final acquisition valuations, and any changes to goodwill or impairment risk.
- Whether 2016 capex expectations and management’s liquidity assessment remain consistent with actual operating cash flow and investment requirements.