Euronet Worldwide, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results; comparisons are with the corresponding 2019 periods. Euronet provides electronic payment processing, prepaid-content distribution and money-transfer services through its EFT Processing, epay and Money Transfer segments.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $664.4 million | $787.0 million | $1,776.1 million | $2,056.4 million |
| Operating income (loss) | $66.1 million | $194.0 million | ($3.6 million) | $368.0 million |
| Net income (loss) attributable to Euronet | $40.2 million | $137.6 million | ($73.6 million) | $240.3 million |
| Diluted EPS | $0.76 | $2.46 | ($1.40) | $4.40 |
| Cash provided by operating activities | Not separately presented for Q3 | $220.4 million | $364.4 million |
- Q3 revenue fell 16% year over year; operating margin was approximately 9.9%, versus 24.7%. Nine-month revenue declined 14%; the company reported an operating loss and net loss.
- Cash and cash equivalents were $1.008 billion, including $409.7 million of ATM cash; working capital was $1.217 billion. The company reported $1.418 billion of available cash including ATM cash, plus $953.1 million available under its revolving facility.
- Debt carrying value was $1.133 billion (about $1.152 billion before unamortized issuance costs). Debt primarily comprises 0.75% convertible notes due 2049 and 1.375% senior notes due 2026. No revolving-credit borrowings were outstanding; the company reported covenant compliance.
- Capital expenditures were $71.4 million for the nine-month period. The filing estimates 2020 capital expenditures of approximately $100–$105 million.
Material changes and segment results
- EFT Processing: Q3 revenue fell 54% to $144.1 million and operating income fell to $6.2 million from $150.9 million. Nine-month revenue dropped 47% to $368.4 million and the segment recorded a $45.5 million operating loss. Lower tourism, cross-border transactions and dynamic currency conversion (DCC) activity were key factors.
- epay: Q3 revenue rose 4% to $198.9 million and operating income rose 11% to $22.2 million. Nine-month revenue increased 1% to $559.4 million and operating income increased 2% to $56.7 million. Digital-media growth and transaction volume supported results, while lower-revenue-per-transaction mobile activity weighed on yield.
- Money Transfer: Q3 revenue increased 15% to $323.1 million and operating income increased 34% to $47.6 million. Nine-month revenue rose 5% to $852.2 million, but operating income declined to $14.7 million from $101.8 million, primarily reflecting impairment charges and higher expenses.
- Nine-month results included $106.0 million of non-cash impairment charges: $104.6 million of goodwill and $1.5 million of acquired intangibles. The second-quarter goodwill charge reflected revised forecasts amid COVID-19 disruption; the Q3 intangible charge related to xe customer lists.
- Share repurchases totaled $239.8 million under repurchase programs during the first nine months; there were no repurchases in Q3.
Outlook, risks and unusual items
- Management cited COVID-19 restrictions and renewed outbreaks as continuing uncertainties. They particularly affected travel-related, high-margin EFT transactions; epay experienced mixed effects across retail and digital channels. Money Transfer results faced risks from closures, employment and migration conditions, and potential agent receivable defaults.
- Management reduced planned 2020 capital spending and described cost actions including renegotiating third-party and ATM-site contracts, reducing travel, and placing more ATMs into dormancy or terminating or renegotiating sites. Management expected operating cash, cash on hand and available credit to fund obligations, while noting refinancing or equity issuance could be needed if resources proved insufficient.
- The company reassessed ATM lease terms in Q2 and removed $211.9 million of right-of-use assets and corresponding lease liabilities from the balance sheet under the short-term lease exemption.
- Foreign-currency exposure is material: approximately 70% of revenue is generated outside the U.S. The filing estimates a 10% currency-rate fluctuation could affect annualized reported net income and working capital by approximately $95–$100 million, and total comprehensive income by approximately $105–$110 million.
- Management reported no legal or regulatory proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors. The company disclosed guarantees, letters of credit and indemnification obligations; no related significant claims or liabilities were recorded.
Important facts for investors to verify
- Whether travel recovery and renewed COVID-19 restrictions materially change EFT revenue, margins and goodwill or intangible-asset valuations.
- Whether Money Transfer growth continues and whether agent credit losses, expenses and margins remain manageable.
- Actual operating cash generation, working-capital movements, capital spending and use of the available credit facility.
- Progress under the stated $100–$105 million 2020 capital expenditure estimate and remaining share-repurchase authorizations.
- Foreign-exchange sensitivity, debt terms and covenant compliance, and the assumptions underlying management’s liquidity expectations.