Euronet Worldwide, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
Euronet provides electronic payment processing, prepaid-product distribution and money-transfer services in approximately 170 countries. Its three segments are EFT Processing (about 32% of 2019 revenue), epay (28%) and Money Transfer (40%). The company operated 46,070 ATMs, approximately 728,000 epay POS terminals and a money-transfer network of approximately 397,000 locations at year-end.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $2,750.1 million | $2,536.6 million |
| Operating income | $475.2 million | $357.9 million |
| Operating margin | 17.3% | 14.1% |
| Net income attributable to Euronet | $346.7 million | $232.9 million |
| Diluted EPS | $6.31 | $4.26 |
| Cash from operating activities | $504.5 million | $397.2 million |
| Capital expenditures | $131.3 million | $112.5 million |
Revenue grew 8%; operating income rose 33% and attributable net income increased 49%. Segment operating income was $296.6 million for EFT Processing, $89.2 million for epay and $134.8 million for Money Transfer. Growth reflected higher ATM volumes and DCC/surcharge revenue, increased money-transfer transactions, and more epay transactions. Currency movements reduced consolidated operating income by approximately 5% versus 2018.
For Q4 2019, unaudited revenue was $693.7 million versus $649.4 million in Q4 2018; operating income was $107.2 million versus $71.2 million; attributable net income was $106.4 million versus $60.0 million; and diluted EPS was $1.91 versus $1.10.
At year-end, total assets were $4.66 billion and total liabilities were $3.08 billion. Working capital was $1.285 billion, with a current ratio of 1.79. Cash and cash equivalents were $786.1 million; ATM cash was $665.6 million. The cash-flow statement’s $1.817 billion ending cash-and-restricted-cash measure also includes ATM cash and cash held in settlement assets. Gross debt obligations were $1.117 billion ($1.097 billion carrying value); long-term debt, net of current maturities, was $1.091 billion. The $1.0 billion revolving facility had no borrowings and $947 million available after letters of credit; the company reported compliance with its debt covenants.
Material changes versus the prior comparable period
- EFT Processing revenue rose 18% and operating income rose 50%; year-end ATMs increased 14% to 46,070.
- epay revenue rose 3% and operating income rose 13%; processed transactions increased 34%, while revenue per transaction fell from $0.65 to $0.50, largely due to a higher mix of lower-revenue mobile transactions.
- Money Transfer revenue rose 5% and operating income rose 10%; transactions increased 6% to 114.5 million.
- Operating cash flow increased by $107.3 million. Investing outflow increased to $229.0 million, including $94.2 million for acquisitions and higher capital spending.
- Debt increased following the issuance of $525 million of 0.75% convertible notes due 2049 and €600 million of 1.375% senior notes due 2026. The company also retired its prior convertible notes; conversions and redemption produced a $9.8 million loss.
Outlook, commentary, risks and unusual items
- Management estimated 2020 capital expenditures of approximately $145–150 million and said expected operating cash flow, cash on hand and available financing should meet obligations and planned spending. No specific earnings or revenue guidance is provided.
- The 2019 effective tax rate was 20.1%, including a $25.7 million reduction in U.S. Tax Reform expense after the company elected to claim foreign tax credits. Management’s adjusted effective rate was 28.1%.
- Foreign-currency exposure is significant: 74% of revenue was generated outside the U.S. Management estimated a 10% exchange-rate fluctuation could affect reported net income and working capital by approximately $77–82 million, and comprehensive income by approximately $140–145 million.
- Key risks include changes in ATM interchange fees and DCC rules, competition and contract renewals, money-transfer licensing and anti-money-laundering compliance, cybersecurity and service interruptions, agent/correspondent credit exposure, access to ATM cash supply, acquisitions, Brexit-related licensing, and foreign-exchange movements. The company noted that new EU DCC disclosures take effect in April 2020.
- The filing discussed COVID-19 uncertainty as of February 28, 2020; management then did not expect a material adverse effect, while acknowledging the impact could not be predicted. No legal or regulatory proceeding was identified as material by management.
- Cash of $1.504 billion was held outside the U.S. and expected to remain indefinitely reinvested; repatriation could have adverse tax consequences. The company paid no dividends and stated it did not plan to do so in the foreseeable future.
Important facts for investors to verify
- How much of segment growth came from organic transaction growth, acquisitions, pricing and currency effects.
- Whether the 2020 capital-spending plan and expected cash generation remain adequate as ATM cash needs, settlement timing and debt obligations evolve.
- The sensitivity of earnings and liquidity to foreign-exchange movements, DCC regulation, ATM fees and access to third-party ATM cash providers.
- The terms, conversion conditions and potential dilution from the convertible notes, and the use of the additional repurchase authorization announced in February 2020.
- Progress on Brexit-related licensing arrangements, cybersecurity and compliance controls, and any material changes in COVID-19 impacts after the filing date.