Euronet Worldwide, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Comparisons are with Q1 2021 unless otherwise stated. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and results
Euronet provides electronic payment processing and distribution, prepaid content services, and money transfers through EFT Processing, epay, and Money Transfer segments. Consolidated revenue increased 10% to $718.5 million. Recovery in travel and transaction volumes supported growth, especially in EFT Processing; currency translation reduced reported revenue in all three segments discussed by management.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue | $718.5 million | $652.7 million |
| Operating income | $36.7 million | $10.4 million |
| Operating margin | 5.1% | 1.6% |
| Net income (loss) attributable to Euronet | $8.3 million; diluted EPS $0.16 | $(8.7) million; diluted EPS $(0.16) |
| Cash from operating activities | $5.7 million | $(2.6) million |
| Cash used in investing activities | $(356.8) million | $(18.2) million |
| Cash from financing activities | $235.3 million | $(269.2) million |
| Cash and cash equivalents | $986.5 million | $1,260.5 million at Dec. 31, 2021 |
| Working capital | $1,354.9 million | $1,455.8 million at Dec. 31, 2021 |
| Debt carrying value | $1,762.6 million | $1,420.9 million at Dec. 31, 2021 |
Cash and cash equivalents, restricted cash, ATM cash, and settlement cash totaled $1,932.7 million at quarter-end; this includes funds dedicated to ATM and settlement activity and is not equivalent to unrestricted cash. The company reported $386.8 million available under its $1.0 billion revolving credit facility and stated it had access to $1,630.9 million including ATM cash. Its current ratio was 1.77. Management said operating cash, cash on hand, and available credit should be sufficient for anticipated debt, lease, and capital expenditure needs.
The effective tax rate was 67.4%, reflecting U.S. deferred tax activity on foreign exchange positions and higher local tax rates on certain foreign earnings. Foreign currency translation reduced comprehensive results by $21.1 million.
Segments and changes versus the prior period
- EFT Processing: Revenue rose 67% to $145.6 million; operating loss narrowed to $6.5 million from $40.1 million. Transaction volume rose 44%, with travel recovery and higher-margin DCC transactions supporting gross margin improvement. Foreign exchange movements reduced revenue by about $8.5 million.
- epay: Revenue declined 3% to $235.8 million and operating income fell 10% to $26.2 million. Higher transaction volumes were offset by lower revenue per transaction, a weaker mix, lower branded payments in India, and currency effects.
- Money Transfer: Revenue increased 4% to $339.0 million, while operating income decreased 5% to $33.5 million. International-originated, U.S. outbound, and digital transfers grew, but higher payroll and SG&A expenses and transaction mix pressured operating margin. Currency movements reduced revenue by about $11.9 million.
Acquisition, capital allocation, and outlook
- On March 15, Euronet acquired Piraeus Bank’s merchant acquiring business in Greece for approximately $346.2 million, including $331.0 million cash at closing and $15.2 million estimated contingent consideration. The ten-year earnout has no contractual maximum. Preliminary allocation included $212.2 million of goodwill and $122.5 million of acquired intangible assets; purchase accounting was incomplete at quarter-end. The acquired business’s results were included from the closing date and were not material to reported results.
- The acquisition was the primary driver of investing cash outflow. Euronet also repurchased 639,535 shares for $70.5 million, at an average price of $110 per share.
- Management estimated 2022 capital expenditures of approximately $95 million to $100 million. The filing provides no specific earnings or revenue guidance.
- Effective January 1, 2022, adoption of ASU 2020-06 changed convertible-note accounting and diluted-share treatment. The company reported a $42.9 million increase to retained earnings from the adoption’s accounting adjustments and lower noncash accretion expense versus the prior year.
Risks, contingencies, and controls
Key risks include foreign exchange movements (about 73% of revenue was generated outside the U.S.), interest rates and credit availability, COVID-19-related restrictions, and the war in Ukraine and related sanctions. Management estimated that a 10% move in relevant foreign exchange rates could affect annualized reported net income and working capital by approximately $130 million to $135 million, and total comprehensive income by approximately $160 million to $165 million. Other exposures include cybersecurity and service interruptions, regulation and licensing, competition, and successful integration of the Piraeus acquisition.
The company was in compliance with debt covenants. It reported no legal or regulatory proceedings expected to have a material adverse effect and no significant claims under its guarantees or indemnities. Commitments include $85.2 million of standby letters of credit and guarantees, $11.4 million of ATM-network cash guarantees, and approximately $37.5 million of customer performance guarantees. Euronet is responsible for ATM-network cash of approximately $485.7 million, with insurance maintained to mitigate exposure. Disclosure controls were assessed as effective; the acquired Piraeus business was excluded from the internal-control assessment during integration.
Important facts for investors to verify
- Whether the Piraeus acquisition’s final purchase-price allocation, performance, and contingent earnout obligations differ materially from preliminary estimates.
- Whether transaction growth and EFT Processing margin recovery continue as travel patterns normalize, and whether epay and Money Transfer margins stabilize.
- How foreign exchange movements, including euro and other currency weakness, affect revenue, earnings, debt capacity, and comprehensive income.
- Whether operating cash flow can support acquisition integration, capital expenditures, share repurchases, and debt service without materially increasing borrowings.
- Whether the $386.8 million of reported facility availability and covenant compliance are maintained, particularly given the facility’s October 2023 maturity.