Item 1. Financial Statements
ITEM 1 . FINANCIAL STATEMENTS (UNAUDITED)
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of
March 31,
2021
December 31,
2020
(unaudited)
ASSETS
Current assets:
Cash an d cas h equivalents
$
1,145,406
$
1,420,255
ATM cash
339,883
411,054
Restricted cash
2,897
3,334
Settlement assets
960,313
1,140,875
Trade accounts receivable, net of credit losses of $ 4,717 and $ 5,926
111,384
117,517
Prepaid expenses and other current assets
253,308
272,900
Total current assets
2,813,191
3,365,935
Operating right of use lease assets
171,852
162,074
Property and equipment, net of accumulated depreciation of $ 485,467 and $ 490,429
357,272
378,441
Goodwill
653,128
665,821
Acquired intangible assets, net of accumulated amortization of $ 178,219 and $ 175,210
114,768
121,883
Other assets, net of accumulated amortization of $ 57,118 and $ 55,710
240,623
232,557
Total assets
$
4,350,834
$
4,926,711
LIABILITIES AND EQUITY
Current liabilities:
Settlement obligations
$
960,313
$
1,140,875
Trade accounts payable
125,007
147,593
Accrued expenses and other current liabilities
361,139
404,021
Current portion of operating lease liabilities
51,461
52,436
Short-term debt obligations and current maturities of long-term debt obligations
743
797
Income taxes payable
29,323
36,359
Deferred revenue
74,737
73,360
Total current liabilities
1,602,723
1,855,441
Debt obligations, net of current portion
1,143,026
1,437,589
Operating lease obligations, net of current portion
120,260
106,502
Deferred income taxes
39,708
37,875
Other long-term liabilities
39,390
43,401
Total liabilities
2,945,107
3,480,808
Equity:
Euronet Worldwide, Inc. stockholders’ equity:
Preferred Stock, $ 0.02 par value. 10,000,000 shares authorized; none issued
—
—
Common Stock, $ 0.02 par value. 90,000,000 shares authorized; shares issued 63,429,190 and 63,366,010
1,268
1,267
Additional paid-in-capital
1,240,273
1,228,446
Treasury stock, at cost, shares issued 10,632,705 and 10,631,961
( 703,514
)
( 703,032
)
Retained earnings
1,004,490
1,013,155
Accumulated other comprehensive loss
( 137,059
)
( 94,214
)
Total Euronet Worldwide, Inc. stockholders’ equity
1,405,458
1,445,622
Noncontrolling interests
269
281
Total equity
1,405,727
1,445,903
Total liabilities and equity
$
4,350,834
$
4,926,711
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
Three Months Ended
March 31,
2021
2020
Revenues
$
652,670
$
583,907
Operating expenses:
Direct operating costs
434,516
359,456
Salaries and benefits
115,668
101,240
Selling, general and administrative
58,776
60,793
Depreciation and amortization
33,261
30,816
Total operating expenses
642,221
552,305
Operating income
10,449
31,602
Other income (expense):
Interest income
182
567
Interest expense
( 9,189
)
( 9,233
)
Foreign currency exchange loss, net
( 4,032
)
( 18,806
)
Other gains, net
31
31
Other expense, net
( 13,008
)
( 27,441
)
(Loss) income before income taxes
( 2,559
)
4,161
Income tax expense
( 6,062
)
( 2,441
)
Net (loss) income
( 8,621
)
1,720
Net (income) loss attributable to noncontrolling interests
( 44
)
201
Net (loss) income attributable to Euronet Worldwide, Inc.
$
( 8,665
)
$
1,921
(Loss) earnings per share attributable to Euronet Worldwide, Inc. stockholders:
Basic
$
( 0.16
)
$
0.04
Diluted
$
( 0.16
)
$
0.04
Weighted average shares outstanding:
Basic
52,762,845
53,607,104
Diluted
52,762,845
54,779,321
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
Three Months Ended
March 31,
2021
2020
Net (loss) income
$
( 8,621
)
$
1,720
Translation adjustment
( 42,901
)
( 59,818
)
Comprehensive loss
( 51,522
)
( 58,098
)
Comprehensive loss attributable to noncontrolling interests
12
242
Comprehensive loss attributable to Euronet Worldwide, Inc.
$
( 51,510
)
$
( 57,856
)
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in thousands, except share data)
Number of
Shares Outstanding
Common
Stock
Additional
Paid-in Capital
Treasury
Stock
Balance as of December 31, 2019
54,220,854
$
1,256
$
1,190,058
$
( 463,704
)
Net income (loss)
Other comprehensive loss
Stock issued under employee stock plans
80,519
1
1,701
( 249
)
Share-based compensation
6,338
Repurchase of shares
( 2,095,683
)
( 239,763
)
Balan ce as of March 31, 2020
52,205,690
1,257
1,198,097
( 703,716
)
Number of
Shares Outstanding
Common
Stock
Additional
Paid-in Capital
Treasury
Stock
Balance as of December 31, 2020
52,734,049
$
1,267
$
1,228,446
$
( 703,032
)
Net (loss) income
Other comprehensive loss
Stock issued under employee stock plans
62,436
1
3,335
( 482
)
Share-based compensation
8,492
Balance as of March 31, 2021
52,796,485
1,268
1,240,273
( 703,514
)
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
(Unaudited, in thousands)
Retained Earnings
Accumulated Other
Comprehensive Loss
Noncontrolling
Interests
Total
Balance as of December 31, 2019
$
1,016,554
$
( 164,890
)
$
68
$
1,579,342
Net income (loss)
1,921
( 201
)
1,720
Other comprehensive loss
( 59,777
)
( 41
)
( 59,818
)
Stock issued under employee stock plans
1,453
Share-based compensation
6,338
Repurchase of shares
( 239,763
)
Balance as of March 31, 2020
1,018,475
( 224,667
)
( 174
)
1,289,272
Retained Earnings
Accumulated Other
Comprehensive Loss
Noncontrolling
Interests
Total
Balance as of December 31, 2020
$
1,013,155
$
( 94,214
)
$
281
$
1,445,903
Net (loss) income
( 8,665
)
44
( 8,621
)
Other comprehensive loss
( 42,845
)
( 56
)
( 42,901
)
Stock issued under employee stock plans
2,854
Share-based compensation
8,492
Balance as of March 31, 2021
1,004,490
( 137,059
)
269
1,405,727
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31,
2021
2020
Net (loss) income
$
( 8,621
)
$
1,720
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
33,261
30,816
Share-based compensation
8,492
6,338
Unrealized foreign exchange loss, net
4,032
18,806
Deferred income taxes
2,374
( 2,043
)
Accretion of convertible debt discount and amortization of debt issuance costs
4,979
4,616
Changes in working capital, net of amounts acquired:
Income taxes payable, net
( 5,534
)
( 10,454
)
Trade accounts receivable
148,697
300,063
Prepaid expenses and other current assets
29,551
( 119,648
)
Trade accounts payable
( 220,439
)
( 126,242
)
Deferred revenue
3,738
4,119
Accrued expenses and other current liabilities
11,234
14,811
Changes in noncurrent assets and liabilities
( 14,409 )
( 17,018
)
Net cash (used in) provided by operating activities
( 2,645
)
105,884
Cash flows from investing activities:
Acquisitions, net of cash acquired
—
475
Purchases of property and equipment
( 16,393
)
( 30,392
)
Purchases of other long-term assets
( 2,212
)
( 2,046
)
Other, net
380
357
Net cash used in investing activities
( 18,225
)
( 31,606
)
Cash flows from financing activities:
Proceeds from issuance of shares
3,670
1,700
Repurchase of shares
( 808
)
( 240,530
)
Borrowings from revolving credit agreements
707,100
805,500
Repayments of revolving credit agreements
( 977,500
)
( 805,500
)
Net repayments from short-term debt obligations
( 32
)
( 2,163
)
Other, net
( 1,641
)
( 1,651
)
Net cash used in financing activities
( 269,211
)
( 242,644
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
( 53,188
)
( 59,260
)
Decrease in cash and cash equivalents and restricted cash
( 343,269
)
( 227,626
)
Cash and cash equivalents and restricted cash at beginning of period
2,099,508
1,817,379
Cash and cash equivalents and restricted cash at end of period
$
1,756,239
$
1,589,753
Supplemental disclosure of cash flow information:
Interest paid during the period
$
2,703
$
3,678
Income taxes paid during the period
$
11,160
$
16,064
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
( 1 ) GENERAL
Organization
Euronet Worldwide, Inc. (the “Company” or “Euronet”) was established as a Delaware corporation on December 13, 1997 and succeeded Euronet Holding N.V. as the group holding company, which was founded and established in 1994. Euronet is a leading electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Euronet's primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services, electronic distribution of prepaid mobile airtime and other electronic payment products, and global money transfer services.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared from the records of the Company, in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the consolidated financial position and the results of operations, comprehensive income, changes in equity and cash flows for the interim periods. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2020 , including the notes thereto, set forth in the Company’s 2020 Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include computing income taxes, estimating the useful lives and potential impairment of long-lived assets and goodwill, as well as allocating the purchase price to assets acquired and liabilities assumed in acquisitions and revenue recognition. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2021 .
Seasonality
Euronet’s Electronic Funds Transfer ("EFT") Processing Segment normally experiences its heaviest demand for dynamic currency conversion ("DCC") services during the third quarter of the fiscal year, normally coinciding with the tourism season. Additionally, the EFT Processing and epay Segments are normally impacted by seasonality during the fourth quarter and first quarter of each year due to higher transaction levels during the holiday season and lower levels following the holiday season. Seasonality in the Money Transfer Segment varies by region of the world. In most markets, Euronet usually experiences increased demand for money transfer services from the month of May through the fourth quarter of each year, coinciding with the increase in worker migration patterns and various holidays, and its lowest transaction levels during the first quarter of the year.
7
(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform due to the anticipated cessation of LIBOR on or before December 31, 2021. This guidance is effective from March 12, 2020 through December 31, 2022 and could impact the accounting for LIBOR provisions in the Company’s unsecured credit agreement. The Company does not expect that the adoption of this guidance will have a significant impact on its consolidated financial statements.
( 3 ) PENDING ACQUISITION
In March 2021, the Company entered into an agreement to purchase the Piraeus Bank Merchant Acquiring business of Piraeus Bank for € 300 million, or approximately $ 360 millio n. The proposed arrangement will include separate commercial agreements for a long-term strategic partnership with Piraeus Bank for collaborative product distribution, processing and customer referrals. The acquisition will expand the Company’s omnichannel payments strategy and position the Company in Greece’s growing market for merchant acquiring services. The closing is targeted for late 2021 and is subject to regulatory approvals, finalization of the commercial agreements, and customary closing conditions. The Company expects to finance the purchase price using cash on hand.
(4) SETTLEMENT ASSETS AND OBLIGATIONS
Settlement assets represent funds received or to be received from agents for unsettled money transfers and from merchants for unsettled prepaid transactions. The Company records corresponding settlement obligations relating to amounts payable. Settlement assets consist of cash and cash equivalents, restricted cash, accounts receivable and prepaid expenses and other current assets. Cash received by Euronet agents and merchants generally becomes available to the Company within two weeks after initial receipt by the business partner. Receivables from business partners represent funds collected by such business partners that are in transit to the Company.
Settlement obligations consist of money transfers and accounts payable to agents and content providers. Money transfer accounts payable represent amounts to be paid to transferees when they request funds. Most agents typically settle with transferees first then obtain reimbursement from the Company. Money order accounts payable represent amounts not yet presented for payment. Due to the agent funding and settlement process, accounts payable to agents represent amounts due to agents for money transfers that have not been settled with transferees.
As of
(in thousands)
March 31,
2021
December 31,
2020
Settlement assets:
Settlement cash and cash equivalents
$
209,853
$
188,191
Settlement restricted cash
58,200
76,674
Accounts receivable, net of credit allowance of $ 33,980 and $ 35,800
478,209
641,955
Prepaid expenses and other current assets
214,051
234,055
Total settlement assets
$
960,313
$
1,140,875
Settlement obligations:
Trade account payables
$
356,612
$
571,175
Accrued expenses and other current liabilities
603,701
569,700
Total settlement obligations
$
960,313
$
1,140,875
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The table below reconciles cash and cash equivalents, restricted cash, ATM cash, settlement cash and cash equivalents, and settlement restricted cash as presented within "Cash and cash equivalents and restricted cash" in the Consolidated Statement of Cash Flows.
As of
(in thousands)
March 31,
2021
December 31,
2020
March 31,
2020
December 31,
2019
Cash and cash equivalents
$
1,145,406
$
1,420,255
$
709,521
$
786,081
Restricted cash
2,897
3,334
28,953
34,301
ATM cash
339,883
411,054
558,580
665,641
Settlement cash and cash equivalents
209,853
188,191
256,456
282,188
Settlement restricted cash
58,200
76,674
36,243
49,168
Cash and cash equivalents and restricted cash at end of period
$
1,756,239
$
2,099,508
$
1,589,753
$
1,817,379
(5) STOCKHOLDERS' EQUITY
(Loss) Earnings Per Share
Basic (loss) earnings per share has been computed by dividing (loss) earnings available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted (loss) earnings per share has been computed by dividing (loss) earnings available to common stockholders by the weighted average shares outstanding during the respective period, after adjusting for the potential dilution of options to purchase the Company's common stock, assumed vesting of restricted stock and the assumed conversion of the Company's convertible debt, if such conversion would be dilutive.
The following table provides the computation of diluted weighted average number of common shares outstanding:
Three Months Ended
March 31,
2021
2020
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding
52,762,845
53,607,104
Incremental shares from assumed exercise of stock options and vesting of restricted stock
—
1,172,217
Diluted weighted average shares outstanding
52,762,845
54,779,321
The table includes all stock options and restricted stock that are dilutive to the Company's weighted average common shares outstanding during the period. The calculation of diluted (loss) earnings per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding of approximately 2,437,000 and 886,000 for the three months ended March 31, 2021 and 2020 , respectively.
The Company issued Convertible Senior Notes ("Convertible Notes") due March 2049 on March 18, 2019. The Company's Convertible Notes currently have a settlement feature requiring the Company upon conversion to settle the principal amount of the debt and any conversion value in excess of the principal value ("conversion premium"), for cash or shares of the Company's common stock or a combination thereof, at the Company's option. The Company has stated its intent to settle any conversion of these notes by paying cash for the principal value and issuing common stock for any conversion premium. Accordingly, the Convertible Notes were included in the calculation of diluted (loss) earnings per share if their inclusion was dilutive. The dilutive effect increases the more the market price exceeds the conversion price. The Convertible Notes would only have a dilutive effect if the market price per share of common stock exceeds the conversion price of $ 188.73 per share. The market price per share of common stock was $ 138.30 on March 31, 2021 and $ 85.72 on March 31, 2020 , t herefore, according to ASC Topic 260, Earnings per Share (“ASC 260”) , there was no dilutive effect of the assumed conversion of the debentures for the three months ended March 31, 2021 and 2020. See Note 9, Debt Obligations, to the consolidated financial statements for more information about the Convertible Notes.
9
Share repurchases
On March 11, 2019, in connection with the issuance of the Convertible Notes, the Board of Directors authorized a repurchase program of $ 120 million in value of the Company's common stock through March 11, 2021. On February 26, 2020, the Company put a repurchase program in place to repurchase up to $ 250 million in value, but not more than 5.0 million shares of common stock through February 28, 2022. For the three months ended March 31, 2021, there were no repurchases of stock under the repurchase programs . Repurchases under the current program may take place in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists entirely of foreign currency translation adjustments. The Company recorded foreign currency translation losses of $ 42.9 million and $ 59.8 million for the three months ended March 31, 2021 and 2020, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three months ended March 31, 2021 and 2020 .
( 6 ) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the three months ended March 31, 2021 is presented below:
(in thousands)
Acquired
Intangible
Assets
Goodwill
Total
Intangible
Assets
Balance as of December 31, 2020
$
121,883
$
665,821
$
787,704
Decreases:
Acquisition
—
—
—
Amortization
( 5,789
)
—
( 5,789
)
Foreign currency exchange rate changes
( 1,326
)
( 12,693
)
( 14,019
)
Balance as of March 31, 2021
$
114,768
$
653,128
$
767,896
Of the total goodwill balance of $ 653.1 million as of March 31, 2021 , $ 398.0 million relates to the Money Transfer Segment, $ 132.3 million relates to the epay Segment and the remaining $ 122.8 million relates to the EFT Processing Segment. Estimated amortization expense on acquired intangible assets with finite lives as of March 31, 2021, is expected to total $ 17.0 million for the remainder of 2021, $ 21.5 million for 2022, $ 16.6 million for 2023, $ 9.8 million for 2024, $ 6.4 million for 2025 and $ 6.2 million for 2026.
( 7 ) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
As of
(in thousands)
March 31, 2021
December 31, 2020
Accrued expenses
$
314,103
$
331,713
Derivative liabilities
41,219
65,905
Current portion of finance lease obligations
5,817
6,403
Total
$
361,139
$
404,021
(8) UNEARNED REVENUES
The Company records deferred revenues when cash payments are received or due in advance of its performance. The increase in the deferred revenue balance for the three months ended March 31, 2021 is primarily driven by $ 22.9 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations, offset by $ 21.6 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2020.
10
(9) DEBT OBLIGATIONS
Debt obligations consist of the following:
As of
(in thousands)
March 31, 2021
December 31, 2020
Credit Facility:
Revolving credit agreement
$
—
$
270,400
Convertible Debt:
0.75% convertible notes, unsecured, due 2049
456,159
452,228
1.375% Senior Notes, due 2026
703,680
732,840
Other obligations
813
850
Total debt obligations
1,160,652
1,456,318
Unamortized debt issuance costs
( 16,883
)
( 17,932
)
Carrying value of debt
1,143,769
1,438,386
Short-term debt obligations and current maturities of long-term debt obligations
( 743
)
( 797
)
Long-term debt obligations
$
1,143,026
$
1,437,589
Credit Facility
On October 17, 2018, the Company entered into an unsecured revolving credit agreement (the "Credit Facility") for $ 1.0 billion that expires on October 17, 2023 . Fees and interest on borrowings are based upon the Company's corporate credit rating and are based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over London Inter-Bank Offered Rate (“LIBOR”) or a margin over the base rate, as selected by the Company, with the applicable margin ranging from 1.125 % to 2.0 % (or 0.175 % to 1.0 % for base rate loans). The Credit Facility allows for borrowings in Australian dollars, British pounds sterling, Canadian dollars, Czech koruna, Danish krone, euro, Hungarian forints, Japanese yen, New Zealand dollars, Norwegian krone, Polish zlotys, Swedish krona, Swiss francs and U.S. dollars. The Credit Facility contains a $ 200 million sublimit for the issuance of letters of credit, a $ 50 million sublimit for U.S. dollar swingline loans, and a $ 90 million sublimit for certain foreign currencies swingline loans. The Credit Facility contains customary affirmative and negative covenants, events of default and financial covenants. The Company was in compliance with all debt covenants as of March 31, 2021 .
Convertible Debt
On March 18, 2019, the Company completed the sale of $ 525.0 million of Convertible Senior Notes ("Convertible Notes"). The Convertible Notes mature in March 2049 unless redeemed or converted prior to such date, and are convertible into shares of Euronet common stock at a conversion price of approximately $ 188.73 per share if certain conditions are met (relating to the closing price of Euronet common stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require the Company to purchase their notes on each of March 15, 2025, March 15, 2029, March 15, 2034, March 15, 2039 and March 15, 2044 at a repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.
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In accordance with ASC 470-20-30-27, proceeds from the issuance of convertible debt is allocated between debt and equity components so that debt is discounted to reflect the Company's nonconvertible debt borrowing rate. ASC 470-20-35-13 requires the debt discount to be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The allocation resulted in an increase to additional paid-in capital of $ 99.7 million for the Convertible Notes.
Contractual interest expense for the Convertible Notes was $ 1.0 million for the three months ended March 31, 2021 and 2020 . Accretion expense for the Convertible Notes was $ 3.9 million and $ 3.7 million for the three months ended March 31, 2021 and 2020, respectively . The effective interest rate was 4.4 % for the three months ended March 31, 2021 . As of March 31, 2021 , the unamortized discount was $ 68.8 million and will be amortized through March 2025.
1.375% Senior Notes due 2026
On May 22, 2019, the Company completed the sale of € 600 million ( $ 669.9 million ) aggregate principal amount of Senior Notes that expire in May 2026 (the “Senior Notes”). The Senior Notes accrue interest at a rate of 1.375 % per year, payable annually in arrears commencing May 22, 2020, until maturity or earlier redemption. As of March 31, 2021 , the Company has outstanding € 600 million ( $ 703.7 million ) principal amount of the Senior Notes. In addition, the Company may redeem some or all of these notes on or after February 22, 2026 at their principal amount plus any accrued and unpaid interest.
Other obligations
Certain of the Company's subsidiaries have available lines of credit and overdraft credit facilities that generally provide for short-term borrowings that are used from time to time for working capital purposes. As of March 31, 2021 and December 31, 2020 , borrowings under these arrangements were $ 0.8 million and $ 0.9 million , respectively.
(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to foreign currency exchange risk resulting from (i) the collection of funds or the settlement of money transfer transactions in currencies other than the U.S. Dollar, (ii) derivative contracts written to its customers in connection with providing cross-currency money transfer services and (iii) certain foreign currency denominated other asset and liability positions. The Company enters into foreign currency derivative contracts, primarily foreign currency forwards and cross-currency swaps, to minimize its exposure related to fluctuations in foreign currency exchange rates. As a matter of Company policy, the derivative instruments used in these activities are economic hedges and are not designated as hedges under ASC 815 , primarily due to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates are reflected concurrently in earnings for both the derivative instrument and the transaction and have an offsetting effect.
Foreign currency exchange contracts - Ria Operations and Corporate
In the United States, the Company uses short-duration foreign currency forward contracts, generally with maturities up to 14 days , to offset the fluctuation in foreign currency exchange rates on the collection of money transfer funds between initiation of a transaction and its settlement. Due to the short duration of these contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to these foreign currency forward contracts. Most derivative contracts executed with counterparties in the U.S. are governed by an International Swaps and Derivatives Association agreement that includes standard netting arrangements; therefore, asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity. T he Company had foreign currency forward contracts outstanding in the U.S. with a notional value of $ 120 million and $ 246 million as of March 31, 2021 and December 31, 2020, respectively . The foreign currency forward contracts consist primarily in Australian dollars, Canadian dollars, British pounds sterling, euro and Mexican pesos.
12
In addition, the Company uses forward contracts, typically with maturities from a few days to less than one year, to offset foreign exchange rate fluctuations on certain short-term borrowings that are payable in currencies other than the U.S dollar. T he Company had foreign currency forward contracts outstanding with a notional value of $ 593 million and $ 454 million as of March 31, 2021 and December 31, 2020, respectively , primarily in euro.
Foreign currency exchange contracts - xe Operations
xe writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. xe aggregates its foreign currency exposures arising from customer contracts and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from xe's total portfolio of positions were $ 18.5 million and $ 18.1 million for the three months ended March 31, 2021 and 2020 , respectively. All of the derivative contracts used in the Company' s xe operations are economic hedges and are not designated as hedges under ASC 815 . The duration of these derivative contracts is generally less than one year.
The fair value of xe's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. xe manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering into contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. xe does not expect any significant losses from counterparty defaults.
The aggregate equivalent U.S. dollar notional amount of foreign currency derivative customer contracts held by the Company in its xe operations as of March 31, 2021 and December 31, 2020 was approximately $ 1.4 billion and $ 1.3 billion , respectively. The significant majority of customer contracts are written in major currencies such as the euro, U.S. dollar, British pounds sterling, Australian dollar and New Zealand dollar.
Balance Sheet Presentation
The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below:
Asset Derivatives
Liability Derivatives
Fair Value
Fair Value
(in thousands)
Balance Sheet Location
March 31, 2021
December 31, 2020
Balance Sheet Location
March 31, 2021
December 31, 2020
Derivatives not designated as hedging instruments
Foreign currency exchange contracts
Other current assets
$
49,390
$
80,879
Other current liabilities
$
( 41,219
)
$
( 65,905
)
The following tables summarize the gross and net fair value of derivative assets and liabilities as of March 31, 2021 and December 31, 2020 (in thousands):
Offsetting of Derivative Assets
Gross Amounts Not Offset in the Consolidated Balance Sheet
As of March 31, 2021
Gross Amounts of Recognized Assets
Gross Amounts Offset in the Consolidated Balance Sheet
Net Amounts Presented in the Consolidated Balance Sheet
Financial Instruments
Cash Collateral Received
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
$
49,390
$
—
$
49,390
$
( 26,069
)
$
( 4,243
)
$
19,078
As of December 31, 2020
Derivatives subject to a master netting arrangement or similar agreement
$
80,879
$
—
$
80,879
$
( 44,893
)
$
( 2,778
)
$
33,208
13
Offsetting of Derivative Liabilities
Gross Amounts Not Offset in the Consolidated Balance Sheet
As of March 31, 2021
Gross Amounts of Recognized Liabilities
Gross Amounts Offset in the Consolidated Balance Sheet
Net Amounts Presented in the Consolidated Balance Sheet
Financial Instruments
Cash Collateral Paid
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
$
( 41,219
)
$
—
$
( 41,219
)
$
26,069
$
2,307
$
( 12,843
)
As of December 31, 2020
Derivatives subject to a master netting arrangement or similar agreement
$
( 65,905
)
$
—
$
( 65,905
)
$
44,893
$
12,272
$
( 8,740
)
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.
Income Statement Presentation
The following table summarizes the location and amount of gains and losses on derivatives in the Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 :
Amount of (Loss) Gain Recognized in Income on Derivative Contracts (a)
Location of (Loss) Gain Recognized in Income on Derivative Contracts
Three Months Ended
March 31,
(in thousands)
2021
2020
Foreign currency exchange contracts - Ria Operations
Foreign currency exchange (loss) gain, net
$
( 2,468
)
$
1,019
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its xe operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above.
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.
( 11 ) FAIR VALUE MEASUREMENTS
Fair value measurements used in the unaudited consolidated financial statements are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the inputs that market participants would use in pricing.
14
The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:
As of March 31, 2021
(in thousands)
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Assets
Foreign currency exchange contracts
Other current assets
$
—
$
49,390
$
—
$
49,390
Liabilities
Foreign currency exchange contracts
Other current liabilities
$
—
$
( 41,219
)
$
—
$
( 41,219
)
As of December 31, 2020
(in thousands)
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Assets
Foreign currency exchange contracts
Other current assets
$
—
$
80,879
$
—
$
80,879
Liabilities
Foreign currency exchange contracts
Other current liabilities
$
—
$
( 65,905
)
$
—
$
( 65,905
)
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt obligations approximate fair values due to their short maturities. The carrying values of the Company’s revolving credit agreements approximate fair values because interest is based on LIBOR that resets at various intervals of less than one year. The Company estimates the fair value of the Convertible Notes and Senior Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of March 31, 2021 , the fair values of the Convertible Notes and Senior Notes were $ 631.4 million and $ 712.0 million , respectively, with carrying values of $ 456.2 million and $ 703.7 million , respectively.
(12) SEGMENT INFORMATION
Euronet’s reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting (“ASC 280”) . The Company currently operates in the following three reportable operating segments:
Through the EFT Processing Segment, the Company processes transactions for a network of ATMs and POS terminals across Europe, the Middle East, Asia Pacific, the United States and Africa. The Company provides comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion, domestic and international surcharges and other value added services. Through this segment, the Company also offers a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
Through the epay Segment, the Company provides distribution, processing and collection services for prepaid mobile airtime and other electronic payment products in Europe, the Middle East, Asia Pacific, the U.S. and South America.
Through the Money Transfer Segment, the Company provides global money transfer services under the brand names Ria, AFEX, IME, and xe. Ria, AFEX and IME provide global consumer-to-consumer money transfer services through a network of sending agents, Company-owned stores and Company-owned websites, disbursing money transfers through a worldwide correspondent network. xe offers account-to-account international payment services to high-income individuals and small-to-medium sized businesses. xe is also a provider of foreign currency exchange information. The Company also offers customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services, foreign currency exchange services and mobile top-up. Furthermore, xe provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses.
15
In addition, the Company accounts for non-operating activity, share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in its administrative division, “Corporate Services, Eliminations and Other.” These services are not directly identifiable with the Company’s reportable operating segments.
The following tables present the Company’s reportable segment results for the three months ended March 31, 2021 and 2020 :
For the Three Months Ended March 31, 2021
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
87,076
$
242,303
$
324,900
$
( 1,609
)
$
652,670
Operating expenses:
Direct operating costs
69,612
182,633
183,878
( 1,607
)
434,516
Salaries and benefits
23,571
19,369
60,540
12,188
115,668
Selling, general and administrative
11,962
9,020
36,116
1,678
58,776
Depreciation and amortization
22,027
2,124
8,963
147
33,261
Total operating expenses
127,172
213,146
289,497
12,406
642,221
Operating (loss) income
$
( 40,096
)
$
29,157
$
35,403
$
( 14,015
)
$
10,449
For the Three Months Ended March 31, 2020
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
145,825
$
172,911
$
266,234
$
( 1,063
)
$
583,907
Operating expenses:
Direct operating costs
87,536
130,074
142,909
( 1,063
)
359,456
Salaries and benefits
22,091
15,697
53,864
9,588
101,240
Selling, general and administrative
10,941
8,838
38,582
2,432
60,793
Depreciation and amortization
20,322
1,844
8,571
79
30,816
Total operating expenses
140,890
156,453
243,926
11,036
552,305
Operating income (expense)
$
4,935
$
16,458
$
22,308
$
( 12,099
)
$
31,602
16
The following table presents the Company’s total assets by reportable segment:
Total Assets as of
(in thousands)
March 31, 2021
December 31, 2020
EFT Processing
$
1,400,396
$
1,541,610
epay
915,875
1,135,204
Money Transfer
1,764,127
1,755,651
Corporate Services, Eliminations and Other
270,436
494,246
Total
$
4,350,834
$
4,926,711
The following table presents the Company's revenues disaggregated by segment and region. Sales and usage-based taxes are excluded from revenues. The Company believes disaggregation by segment and region best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The disaggregation of revenues by segment and region is based on management's assessment of segment performance together with allocation of financial resources, both capital and operating support costs, on a segment and regional level. Both segments and regions benefit from synergies achieved through concentration of operations and are influenced by macro-economic, regulatory and political factors in the respective segment and region.
For the Three Months Ended March 31, 2021
For the Three Months Ended March 31, 2020
(in thousands)
EFT
Processing
epay
Money
Transfer
Total
EFT
Processing
epay
Money
Transfer
Total
Europe
$
46,862
$
164,908
$
132,839
$
344,609
$
99,474
$
115,277
$
91,058
$
305,809
North America
14,466
33,841
152,302
200,609
15,019
33,852
137,895
186,766
Asia Pacific
25,694
34,318
28,469
88,481
31,328
19,274
30,848
81,450
Other
54
9,236
11,290
20,580
4
4,508
6,433
10,945
Eliminations
—
—
—
( 1,609
)
—
—
—
( 1,063 )
Total
$
87,076
$
242,303
$
324,900
$
652,670
$
145,825
$
172,911
$
266,234
$
583,907
( 13 ) INCOME TAXES
The Company's effective income tax rate was ( 236.9 %) and 58.7 % for the three months ended March 31, 2021 and 2020, respectively . The Company's effective income tax rate for the three months ended March 31, 2021 was lower than the applicable statutory income tax rate of 21 % as a result of the non-recognition of tax benefits from losses in certain foreign countries where we have a limited history of profitable earnings, certain foreign earnings of the Company being subject to higher local statutory tax rates, and the Company’s U.S. deferred tax activity on foreign exchange positions. The Company's effe ctive income tax rate for the three months ended March 31, 2020 was higher than the applicable statutory income tax rate of 21 % primarily as a result of certain foreign earnings of the Company being subject to higher local statutory income tax rates.
(14) COMMITMENTS
As of March 31, 2021 , the Company had $ 87.4 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $ 58.9 million are outstanding under the Credit Facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $ 3.8 million of cash deposits held by the respective issuing banks.
Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of March 31, 2021 , the Company had granted off balance sheet guarantees for cash in various ATM networks amounting to $ 11.2 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $ 45.4 million over the terms of agreements with the customers.
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From time to time, the Company enters into agreements with commercial counterparties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Euronet's liability under such indemnification provisions may be mitigated by relevant insurance coverage and may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnification obligations include the following:
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for damage to ATMs and theft of ATM network cash. As of March 31, 2021 , the balance of such cash used in the Company's ATM networks for which the Company was responsible was approximately $ 486 million . The Company maintains insurance policies to mitigate this exposure;
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for losses suffered by its customers and other parties as a result of the breach of its computer systems, including in particular, losses arising from fraudulent transactions made using information stolen through its processing systems. The Company maintains insurance policies to mitigate this exposure;
In connection with the license of proprietary systems to customers, the Company provides certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
Euronet has entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which the Company has agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from the Company’s use of the vendor’s product or the services of the vendor or consultant;
In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, the Company has entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions of operating units or assets made by Euronet, the Company has agreed to indemnify the seller against third party claims made against the seller relating to the operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet has agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made; and
Euronet has entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to the Company’s benefit plans. Under such agreements, the Company has agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
The Company is also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company has money transfer operations. The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, the Company is not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of March 31, 2021 or December 31, 2020 .
( 15 ) LITIGATION AND CONTINGENCIES
From time to time, the Company is a party to legal or regulatory proceedings arising in the ordinary course of its business. Currently, there are no legal proceedings or regulatory findings that management believes, either individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition or results of operations. In accordance with U.S. GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
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(16) LEASES
The Company enters into operating leases for ATM sites, office spaces, retail stores and equipment. The Company's finance leases are immaterial. Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease terms.
The present value of lease payments is determined using the incremental borrowing rate based on information available at the lease commencement date. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Most leases include an option to renew, with renewal terms that can extend the lease terms. The exercise of lease renewal options is at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease terms. The Company also has a unilateral termination right for most of the ATM site leases. Since the Company is not reasonably certain not to exercise termination options, p ayments for ATM site leases with termination options subject to the short-term lease exemption are expensed in the period incurred and corresponding leases are excluded from the right of use lease asset and lease liability balances. Certain of the Company's lease agreements include variable rental payments based on revenues generated from the use of the leased location and certain leases include rental payments adjusted periodically for inflation. Variable lease payments are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs and are excluded from the right of use assets and lease liabilities balances. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Future minimum lease payments
Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) as of March 31, 2021 are:
As of March 31, 2021
Maturity of Lease Liabilities (in thousands)
Operating Leases (1)
Remainder of 2021
$
35,443
2022
40,777
2023
30,483
2024
21,829
2025
15,220
Thereafter
33,594
Total lease payments
$
177,346
Less: imputed interest
( 5,625
)
Present value of lease liabilities
$
171,721
(1) Operating lease payments reflect the Company's current fixed obligations under the operating lease agreements. Certain ATM site leases contain termination options that grant the Company the option to terminate the lease prior to the stated term of the agreement. The Company includes the future minimum lease payments for these ATM site leases only to the extent that the termination option is not reasonably certain to be exercised.
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Table of Contents
Lease expense recognized in the Consolidated Statements of Income is summarized as follows:
Lease Expense
(in thousands)
Income Statement Classification
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
Operating lease expense
Selling, general and administrative and Direct operating costs
$
13,858
$
33,188
Short-term and variable lease expense
Selling, general and administrative and Direct operating costs
22,549
8,680
Total lease expense
$
36,407
$
41,868
Other information about lease amounts recognized in the consolidated financial statements is summarized as follows:
Lease Term and Discount Rate of Operating Leases
As of March 31, 2021
Weighted- average remaining lease term (years)
5.3
W eighted- average discount rate
2.2
%
The following table presents supplemental cash flow and non-cash information related to leases.
Other Information (in thousands)
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities (a)
$
13,669
$
32,792
Supplemental non-cash information on lease liabilities arising from obtaining ROU assets:
ROU assets obtained in exchange for new operating lease liabilities
$
28,188
$
50,525
(a) Included in Net cash provided by operating activities on the Company's Consolidated Statements of Cash Flows.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.