Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms "Euronet," the "Company," "we" and "us" as used herein refer to Euronet Worldwide, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Generally, the words "believe," "expect," "anticipate," "intend," "estimate," "will" and similar expressions identify forward-looking statements. However, the absence of these words or similar expressions does not mean the statement is not forward-looking. All statements other than statements of historical facts included in this document are forward-looking statements, including, but not limited to, statements regarding the following:
our business plans and financing plans and requirements;
trends affecting our business plans and financing plans and requirements;
trends affecting our business;
the adequacy of capital to meet our capital requirements and expansion plans;
the assumptions underlying our business plans;
our ability to repay indebtedness;
our estimated capital expenditures;
the potential outcome of loss contingencies;
our expectations regarding the closing of any pending acquisitions;
business strategy;
government regulatory action;
the expected effects of changes in laws or accounting standards;
the impact of the COVID-19 pandemic on our results of operations and financial position;
technological advances; and
projected costs and revenues.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct.
Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may materially differ from those in the forward-looking statements as a result of various factors, including, but not limited to, conditions in world financial markets and general economic conditions, including impacts from the COVID-19 pandemic; the speed and effectiveness of rollouts for vaccines and treatments for COVID-19; the effects in Europe of the U.K.'s departure from the E.U. and economic conditions in specific countries and regions; technological developments affecting the market for our products and services; our ability to successfully introduce new products and services; foreign currency exchange rate fluctuations; the effects of any breach of our computer systems or those of our customers or vendors, including our financial processing networks or those of other third parties; interruptions in any of our systems or those of our vendors or other third parties; our ability to renew existing contracts at profitable rates; changes in fees payable for transactions performed for cards bearing international logos or over switching networks such as card transactions on ATMs; our ability to comply with increasingly stringent regulatory requirements, including anti-money laundering, anti-terrorism, anti-bribery, sanctions, consumer and data protection and the European Union's General Data Protection Regulation and Second Revised Payment Service Directive requirements; changes in laws and regulations affecting our business, including tax and immigration laws and any laws regulating payments, including DCC transactions, changes in our relationships with, or in fees charged by, our business partners; competition; the outcome of claims and other loss contingencies affecting Euronet; the cost of borrowing, availability of credit and terms of and compliance with debt covenants; and renewal of sources of funding as they expire and the availability of replacement funding and those factors referred to above and as set forth and more fully described in Part I, Item 1A — Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 . Our Annual Report on Form 10-K is available on the SEC's EDGAR website at www.sec.gov, and copies may also be obtained by contacting the Company. Any forward-looking statements made in this Form 10-Q speak only as of the date of this report. Except as required by law, we do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements.
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OVERVIEW
COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES
Euronet is a leading electronic payments provider. We offer payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Our primary product offerings include comprehensive Automated Teller Machine ("ATM"), point-of-sale ("POS"), card outsourcing, card issuing and merchant acquiring services, software solutions, electronic distribution of prepaid mobile airtime and other electronic payment products, foreign currency exchange services and global money transfer services. We operate in the following three segments:
T he EFT Processing Segment, which processes transactions for a network of 36,777 active ATMs and approximately 349,000 POS terminals across Europe, the Middle East, Asia Pacific, the United States and Africa. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal and deposit services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion ("DCC"), and other value added services. Through this segment, we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
The epay Segment, which provides distribution, processing and collection services for prepaid mobile airtime and other electronic content. We operate a network of approximately 736,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic content in Europe, the Middle East, Asia Pacific, the United States and South America. We also provide vouchers and physical gift fulfillment services in Europe.
The Money Transfer Segment, which provides global consumer-to-consumer money transfer services, primarily under the brand names Ria, AFEX, IME and xe and global account-to-account money transfer services under the brand name xe. We offer services under the brand names Ria, AFEX and IME through a network of sending agents, Company-owned stores (primarily in North America, Europe and Malaysia) and our websites (riamoneytransfer.com and online.imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 475,000 locations. xe is a provider of foreign currency exchange information and offers money transfer services on its currency data websites (xe.com and x-rates.com). In addition to money transfers, we also offer customers bill payment services (primarily in the U.S.), payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services for a wide variety of issued checks, along with competitive foreign currency exchange services and prepaid mobile top-up. Through our xe brand, we offer cash management solutions and foreign currency risk management services to small-to-medium sized businesses.
We have six processing centers in Europe, five in Asia Pacific and two in North America. We have 36 principal offices in Europe, 14 in Asia Pacific, 10 in North America, three in the Middle East, two in South America and one in Africa. Our executive offices are located in Leawood, Kansas, USA. With approximately 72% of our revenues denominated in currencies other than the U.S. dollar, any significant changes in foreign currency exchange rates will likely have a significant impact on our results of operations (for a further discussion, see Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020).
SOURCES OF REVENUES AND CASH FLOW
Euronet earns revenues and income primarily from ATM management fees, transaction fees, commissions and foreign currency exchange margin. Each operating segment’s sources of revenues are described below.
EFT Processing Segment — Revenues in the EFT Processing Segment, which represented approximately 13 % of total consolidated revenues for the first quarter of 2021 , are derived from fees charged for transactions made by cardholders on our proprietary network of ATMs, fixed management fees and transaction fees we charge to customers for operating ATMs and processing debit and credit cards under outsourcing and cross-border acquiring agreements, foreign currency exchange margin on DCC transactions, domestic and international surcharge, foreign currency dispensing and other value added services such as advertising, prepaid telecommunication recharges, bill payment, and money transfers provided over ATMs. Revenues in this segment are also derived from cardless payment, banknote recycling, tax refund services, license fees, professional services and maintenance fees for proprietary application software and sales of related hardware.
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epay Segment — Revenues in the epay Segment, which represented approximately 37 % of total consolidated revenues for the first quarter of 2021 , are primarily derived from commissions or processing fees received from mobile phone operators for the processing and distribution of prepaid mobile airtime and commissions earned from the distribution of other electronic content, vouchers, and physical gifts. The proportion of epay Segment revenues earned from the distribution of prepaid mobile phone time compared with other electronic products has decreased over time, and digital media content now produces approximately 69% of epay Segment revenues. Other electronic content offered by this segment includes digital content such as music, games and software, as well as other products, including mobile wallets, prepaid long distance calling card plans, prepaid Internet plans, prepaid debit cards, gift cards, vouchers, transport payments, lottery payments, bill payment and money transfer.
Money Transfer Segment — Revenues in the Money Transfer Segment, which represented approximately 50% of total consolidated revenues for the first quarter of 2021 , a re primarily derived from transaction fees, as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to customers at retail exchange rates. We have a sending agent network in place comprised of agents, customer service representatives, Company-owned stores, primarily in North America, Europe and Malaysia, and Ria, IME and xe branded websites, along with a worldwide network of correspondent agents, consisting primarily of financial institutions in the transfer destination countries. Sending and correspondent agents each earn fees for cash collection and distribution services, which are recognized as direct operating costs at the time of sale.
The Company offers a money transfer product called Walmart-2-Walmart Money Transfer Service which allows customers to transfer money to and from Walmart stores in the U.S. Our Ria business executes the transfers with Walmart serving as both the sending agent and payout correspondent. Ria earns a lower margin from these transactions than its traditional money transfers; however, the arrangement has added a significant number of transactions to Ria's business. The agreement with Walmart establishes Ria as the only party through which Walmart will sell U.S. domestic money transfers branded with Walmart marks. The agreement is effective until April 2023. Thereafter, it will automatically renew for subsequent one year terms unless either party provides notice to the contrary. The agreement imposes certain obligations on each party, the most significant being service level requirements by Ria and money transfer compliance requirements by Walmart. Any violation of these requirements by Ria could result in an obligation to indemnify Walmart or termination of the contract by Walmart. However, the agreement allows the parties to resolve disputes by mutual agreement without termination of the agreement.
Corporate Services, Eliminations and Other — In addition to operating in our principal operating segments described above, our “Corporate Services, Eliminations and Other” category includes non-operating activity, certain inter-segment eliminations and the cost of providing corporate and other administrative services to the operating segments, including most share-based compensation expense. These services are not directly identifiable with our reportable operating segments.
Opportunities and Challenges
Our expansion plans and opportunities are focused on eight primary areas:
increasing the number of ATMs and cash deposit terminals in our independent ATM networks;
increasing transactions processed on our network of owned and operated ATMs and POS devices;
signing new outsourced ATM and POS terminal management contracts;
expanding value added services and other products offered by our EFT Processing Segment, including the sale of DCC, acquiring and other prepaid card services to banks and retailers;
expanding our epay processing network and portfolio of digital content;
expanding our money transfer services, cross-currency payments products and bill payment network;
expanding our cash management solutions and foreign currency risk management services; and
developing our credit and debit card outsourcing business.
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EFT Processing Segment — The continued expansion and development of our EFT Processing Segment business will depend on various factors including, but not necessarily limited to, the following:
the impact of competition by banks and other ATM operators and service providers in our current target markets;
the demand for our ATM outsourcing services in our current target markets;
our ability to develop products or services, including value added services, to drive increases in transactions and revenues;
the expansion of our various business lines in markets where we operate and in new markets;
our entry into additional card acceptance and ATM management agreements with financial institutions;
our ability to obtain required licenses in markets we intend to enter or expand services;
our ability to enter into sponsorship agreements where our licenses are not applicable;
our ability to enter into and renew ATM network cash supply agreements with financial institutions;
the availability of financing for expansion;
our ability to efficiently install ATMs contracted under newly awarded outsourcing agreements;
our ability to renew existing contracts at profitable rates;
our ability to maintain pricing at current levels or mitigate price reductions in certain markets;
the impact of changes in rules imposed by international card organizations such as Visa ® and Mastercard ® on card transactions on ATMs, including reductions in ATM interchange fees, restrictions on the ability to apply direct access fees, the ability to offer DCC transactions on ATMs, and increases in fees charged on DCC transactions;
the impact of changes in laws and regulations affecting the profitability of our services, including regulation of DCC transactions by the E.U.;
the impact of overall market trends on ATM transactions in our current target markets;
our ability to expand and sign additional customers for the cross-border merchant processing and acquiring business;
the continued development and implementation of our software products and their ability to interact with other leading products; and
the impact of government imposed restrictions on travel into countries where we operate ATMs.
We consistently evaluate and add prospects to our list of potential ATM outsource customers. However, we cannot predict the increase or decrease in the number of ATMs we manage under outsourcing agreements because this depends largely on the willingness of banks to enter into outsourcing contracts with us. Due to the thorough internal reviews and extensive negotiations conducted by existing and prospective banking customers in choosing outsource vendors, the process of entering into or renewing outsourcing agreements can take several months. The process is further complicated by the legal and regulatory considerations of local countries. These agreements tend to cover large numbers of ATMs, so significant increases and decreases in our pool of managed ATMs could result from the acquisition or termination of one or more of these management contracts. Therefore, the timing of both current and new contract revenues is uncertain and unpredictable.
Software products are an integral part of our product lines, and our investment in research, development, delivery and customer support reflects our ongoing commitment to an expanded customer base.
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epay Segment — The continued expansion and development of the epay Segment business will depend on various factors, including, but not necessarily limited to, the following:
our ability to maintain and renew existing agreements, and to negotiate new agreements in additional markets with mobile operators, digital content providers, agent financial institutions and retailers;
our ability to use existing expertise and relationships with mobile operators, digital content providers and retailers to our advantage;
the continued use of third-party providers such as ourselves to supply electronic processing solutions for existing and additional digital content;
the overall pace of growth in the prepaid mobile phone and digital content market, including consumer shifts between prepaid and postpaid services;
our market share of the retail distribution capacity;
the development of new technologies that may compete with POS distribution of prepaid mobile airtime and other products;
the level of commission that is paid to the various intermediaries in the electronic payment distribution chain;
our ability to fully recover monies collected by retailers;
our ability to add new and differentiated products in addition to those offered by mobile operators;
our ability to develop and effectively market additional value added services;
our ability to take advantage of cross-selling opportunities with our EFT Processing and Money Transfer Segments, including providing money transfer services through our distribution network;
the availability of financing for further expansion; and
the impact of government imposed restrictions on retailers with whom we partner.
In all of the markets in which we operate, we are experiencing significant competition which will impact the rate at which we may be able to grow organically. Competition among prepaid mobile airtime and electronic content distributors results in the increase of commissions paid to retailers and increases in retailer attrition rates. To grow, we must capture market share from other prepaid mobile airtime and electronic content distributors, offer a superior product offering and demonstrate the value of a global network. In certain markets in which we operate, many of the factors that may contribute to rapid growth (growth in electronic content, expansion of our network of retailers and access to products of mobile operators and other content providers) remain present.
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Money Transfer Segment — The continued expansion and development of our Money Transfer Segment business will depend on various factors, including, but not necessarily limited to, the following:
the continued growth in worker migration and employment opportunities;
the mitigation of economic and political factors that have had an adverse impact on money transfer volumes, such as changes in the economic sectors in which immigrants work and the developments in immigration policies in the countries in which we operate;
the continuation of the trend of increased use of electronic money transfer and bill payment services among high-income individuals, immigrant workers and the unbanked population in our markets;
our ability to maintain our agent and correspondent networks;
our ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions;
the development of new technologies that may compete with our money transfer network, and our ability to acquire, develop and implement new technologies;
the expansion of our services in markets where we operate and in new markets;
our ability to strengthen our brands;
our ability to fund working capital requirements;
our ability to recover from agents funds collected from customers and our ability to recover advances made to correspondents;
our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;
our ability to take advantage of cross-selling opportunities with our epay Segment, including providing prepaid services through our stores and agents worldwide;
our ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to Europe, Asia and Africa, including high growth corridors to Central and Eastern European countries;
the availability of financing for further expansion;
the ability to maintain banking relationships necessary for us to service our customers;
our ability to successfully expand our agent network in Europe using our payment institution licenses under the Second Payment Services Directive ("PSD 2 ") and using our various licenses in the United States;
our ability to provide additional value-added products under the xe brand; and
the impact of government imposed restrictions on our network of agents and correspondents.
For all segments, our continued expansion may involve additional acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services. Our ability to effectively manage our growth has required us to expand our operating systems and employee base, particularly at the management level, which has added incremental operating costs. An inability to continue to effectively manage expansion could have a material adverse effect on our business, growth, financial condition or results of operations. Inadequate technology and resources would impair our ability to maintain current processing technology and efficiencies, as well as deliver new and innovative services to compete in the marketplace.
COVID-19
The outbreak of the COVID-19 (coronavirus) pandemic has resulted in varying degrees of border and business closures, travel restrictions and other social distancing orders in most of the countries where we operate during the first quarter of 2021. These types of orders were first put into effect in late February 2020 or early March 2020. As the number and rate of new cases has fluctuated in various locations around the global, the closures, restrictions and other social distancing orders have been modified, rescinded and/or re-imposed. Some version of these orders remains in almost every location in which we operate. Although vaccines for COVID-19 are becoming widely available in the U.S. and parts of Europe, their availability is still limited in many parts of the world where we operate. In addition, the rate of acceptance and long term effectiveness of the vaccines, especially against new variants, are still unknown. The EFT Segment has experienced declines in certain transaction volumes due to these restrictions, especially high-margin cross-border transactions. The epay Segment has experienced the impacts of consumer movement restrictions in certain markets, while other markets have been positively impacted where we have a higher mix of digital distribution or a higher concentration of retailers that are deemed essential and have remained open during the pandemic. The Money Transf er Segment continues to be impacted by the pandemic related restrictions in certain markets hat limit customers' ability to access our network of company owned stores and agents.
In response to the COVID-19 pandemic driven impacts, we implemented several key measures to offset the impact across the business, including renegotiating certain third party contracts, reducing travel, decreasing capital expenditures, and expanding ATM seasonal deactivations (placing them in dormancy status, terminating, or re-negotiating) in more sites and more markets.
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SEGMENT SUMMARY RESULTS OF OPERATIONS
Revenues and operating income by segment for the three months ended March 31, 2021 and 2020 are summarized in the tables below:
Revenues for the Three Months Ended March 31,
Year-over-Year Change
(dollar amounts in thousands)
2021
2020
Increase
(Decrease)
Amount
Increase
(Decrease)
Percent
EFT Processing
$
87,076
$
145,825
$
(58,749
)
(40)
%
epay
242,303
172,911
69,392
40
%
Money Transfer
324,900
266,234
58,666
22
%
Total
654,279
584,970
69,309
12
%
Corporate services, eliminations and other
(1,609
)
( 1,063
)
(546
)
51
%
Total
$
652,670
$
583,907
$
68,763
12
%
Operating Income (Loss) for the Three Months Ended March 31,
Year-over-Year Change
(dollar amounts in thousands)
2021
2020
Increase
(Decrease)
Amount
Increase
(Decrease)
Percent
EFT Processing
$
(40,096
)
$
4,935
$
(45,031
)
(912)
%
epay
29,157
16,458
12,699
77
%
Money Transfer
35,403
22,308
13,095
59
%
Total
24,464
43,701
(19,237
)
(44)
%
Corporate services, eliminations and other
(14,015
)
( 12,099
)
(1,916
)
16
%
Total
$
10,449
$
31,602
$
(21,153
)
(67)
%
Impact of changes in foreign currency exchange rates
Our revenues and local expenses are recorded in the functional currencies of our operating entities, and then are translated into U.S. dollars for reporting purposes; therefore, amounts we earn outside the U.S. are negatively impacted by a stronger U.S. dollar and positively impacted by a weaker U.S. dollar. If significant, in our discussion we will refer to the impact of fluctuations in foreign currency exchange rates in our comparison of operating segment results.
To provide further perspective on the impact of foreign currency exchange rates, the following table shows the changes in values relative to the U.S. dollar of the currencies of the countries in which we have our most significant operations:
Average Translation Rate
Three Months Ended March 31,
Currency (dollars per foreign currency)
2021
2020
Increase
Percent
Australian dollar
$
0.7725
$
0.6144
26
%
British pounds sterling
$
1.3790
$
1.2405
11
%
euro
$
1.2052
$
1.1026
9
%
Hungarian forint
$
0.0033
$
0.0031
6
%
Indian rupee
$
0.0137
$
0.0133
3
%
Malaysian ringgit
$
0.2461
$
0.2319
6
%
New Zealand dollar
$
0.7188
$
0.5966
20
%
Polish zloty
$
0.2655
$
0.2418
10
%
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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
EFT PROCESSING SEGMENT
The following table summarizes the results of operations for our EFT Processing Segment for the three months ended March 31, 2021 and 2020 :
Three Months Ended
March 31,
Year-over-Year Change
(dollar amounts in thousands)
2021
2020
Increase (Decrease) Amount
Increase
(Decrease) Percent
Total revenues
$
87,076
$
145,825
$
(58,749
)
(40)
%
Operating expenses:
Direct operating costs
69,612
87,536
(17,924
)
(20)
%
Salaries and benefits
23,571
22,091
1,480
7
%
Selling, general and administrative
11,962
10,941
1,021
9
%
Depreciation and amortization
22,027
20,322
1,705
8
%
Total operating expenses
127,172
140,890
(13,718
)
(10)
%
Operating (loss) income
$
(40,096
)
$
4,935
$
(45,031
)
(912)
%
Transactions processed (millions)
925
785
140
18
%
ATMs as of March 31,
36,777
42,176
(5,399
)
(13)
%
Average Active ATMs
36,624
44,813
(8,189
)
(18)
%
Revenues
EFT Processing Segment total revenues were $87.1 million for the three months ended March 31, 2021 , a decrease of $58.7 million or 40 % compared to the same period in 2020 . The decrease in revenues was primarily due to the impact of fewer active ATMs and fewer high-margin cross-border transactions (DCC), related to COVID-19 pandemic-driven government imposed border and business closures, travel restrictions and lockdowns. The government imposed border and business closures, travel restrictions and lockdowns were in effect to varying degrees for all of the first quarter of 2021 compared to similar restrictions that were primarily limited to the month of March in 2020. These closures, restrictions and other orders resulted in a significant decline in tourism throughout Europe which led to a decrease in DCC and surcharge revenues for the three months ended March 31, 2021 compared to the same period in 2020. Foreign currency movements increased revenues by approximately $3.2 million for the three months ended March 31, 2021 compared to the same period in 2020 .
Average monthly revenues per ATM decreased to $793 for the three months ended March 31, 2021 compared to $1,085 for the same period in 2020 . Revenues per transaction decreased to $0.09 for the three m onths ended March 31, 2021 compared to $0.19 for the same period in 2020 . The decreases in average monthly revenues per ATM and revenues per transaction were attributable to a shift in the mix in our transaction volume as COVID-19 restrictions significantly reduced the volume of higher revenue transactions (DCC and surcharge) throughout Europe while we experienced a significant increase in the volume of lower revenue transactions (processing bank wallet transactions and payments for e-commerce sites) primarily in our Asia Pacific region .
Direct operating costs
EFT Processing Segment direct operating costs were $69.6 million for the three months ended March 31, 2021 , a decrease of $17.9 million or 20 % compared to the same period in 2020 . Direct operating costs primarily consist of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications, payment scheme processing fees, data center operations-related personnel, as well as the processing centers’ facility-related costs and other processing center-related expenses and commissions paid to retail merchants, banks and card processors involved with POS DCC transactions.
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The decrease in direct operating costs was primarily due to the decrease in the number of ATMs under management, renegotiated and reduced site rental fees, and reduced operating costs for ATM's seasonally deactivated during COVID-19 pandemic imposed restrictions. Foreign currency movements increased direct operating costs by approximately $3.2 million for the three months ended March 31, 2021 compared to the same period in 2020 .
Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $17.5 million for the three months ended March 31, 2021 , a decrease of $40.8 million or 70% compared to $58.3 million for the same period in 2020 . Gross profit as a percentage of revenues (“gross margin”) decreased to 20.1 % for the three months ended March 31, 2021 , compared to 40.0% for the same period in 2020 . The decrease in gross profit and gross margin was attributable to the decrease in DCC transactions and domestic and international surcharges.
Salaries and benefits
Salaries and benefits expenses were $23.6 million for the three months ended March 31, 2021, an increase of $1.5 million or 7% c ompared to the same period in 2020 . Foreign currency movements in the countries we employ our workforce increased these expenses by $1.3 million for the three months ended March 31, 2021 compared to the same period in 2020. As a percentage of revenues, these expenses increased to 27.1 % for the three months ended March 31, 2021, compared to 15.1% for the same period in 2020 . We made a decision to retain our employees during the pandemic.
Selling, general and administrative
Selling, general and administrative expenses were $12.0 million for the three months ended March 31, 2021 , an increase of $1.0 million or 9% compared to the same period in 2020 . Foreign currency movements increased these expenses by $1.2 million for the three months ended March 31, 2021 compared to the same period in 2020, which were partially offset by decreases in travel re lated expenses and bad debt expense. As a percentage of revenues, these expenses increased to 13.7% for the three months ended March 31, 2021 , compared to 7.5% for the same period in 2020 .
Depreciation and amortization
Depreciation and amortization expenses were $22.0 million for the three months ended March 31, 2021, an increase of $1.7 million or 8% compared to the same period in 2020 . Foreign currency movements increased these expenses by $1.2 million for the three months ended March 31, 2021 compared to the same period in 2020, with the remainder of the increase driven by the acquisition of additional ATMs and software assets. As a percentage of revenues, these expenses increased to 25.3 % for three months ended March 31, 2021 , compared to 13.9% for the same period in 2020 .
Operating (loss) income
EFT Processing Segment had an operating loss of ( $40.1 million) for the three months ended March 31, 2021, a decrease of $45.0 million or (912%) compared to the operating income for the same period in 2020 . O perating (loss) income as a percentage of revenues (“operating margin”) decreased to (46.0 %) for the three months ended March 31, 2021, compared to 3.4 % for the same period in 2020 . Operating (loss) income per transaction was ( $0.04) for the three months ended March 31, 2021, compared to $0.01 for the same period in 2020 . The decreases in operating income, operating margin and operating income per transaction were primarily driven by the decrease in travel throughout Europe that led to the significant decrease in DCC and surcharge revenues compared to the same period in 2020.
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EPAY SEGMENT
The following table presents the results of operations for the three months ended March 31, 2021 and 2020 for our epay Segment:
Three Months Ended
March 31,
Year-over-Year Change
(dollar amounts in thousands)
2021
2020
Increase (Decrease) Amount
Increase
(Decrease) Percent
Total revenues
$
242,303
$
172,911
$
69,392
40
%
Operating expenses:
Direct operating costs
182,633
130,074
52,559
40
%
Salaries and benefits
19,369
15,697
3,672
23
%
Selling, general and administrative
9,020
8,838
182
2
%
Depreciation and amortization
2,124
1,844
280
15
%
Total operating expenses
213,146
156,453
56,693
36
%
Operating income
$
29,157
$
16,458
$
12,699
77
%
Transactions processed (millions)
667
447
220
49
%
Revenues
epay Segment total revenues were $242.3 million for the three months ended March 31, 2021 , an increase of $69.4 million or 40% compared to the same period in 2020 . The increase in revenues was primarily due to an increase in the number of transactions processed driven by continued digital media growth and the U.S. dollar weakening against key foreign currencies during the first quarter of 2021. Foreign currency movements in creased revenues by approximately $12.9 million for the three months ended March 31, 2021 compared to the same period in 2020 . The epay segment was impacted by COVID-19 pandemic-driven government imposed lockdowns and business closures, primarily at retail outlets, which were offset by increases in digital media offerings in Asia and revenues derived from businesses that were classified as essential and remained open during the pandemic .
Revenues per transaction decreased to $0.36 for the three months ended March 31, 2021, compared to $0.39 for the same period in 2020 . The decrease in revenues per transaction was primarily driven by the increase in the number of mobile transactions processed in a region where we generally earn lower revenues per transaction.
Direct operating costs
epay Segment direct operating costs were $182.6 million for the three months ended March 31, 2021 , an increase of $52.6 million or 40% compared to the same period in 2020 . Direct operating costs primarily consist of the commissions paid to retail merchants for the distribution and sale of prepaid mobile airtime and other prepaid products, expenses incurred to operate POS terminals and the cost of vouchers sold and physical gifts fulfilled. The increase in direct operating costs was primarily due to the increase in transaction volumes of low-value mobile top-up transactions and by the U.S. dollar weakening against key foreign currencies in the first quarter of 2021. Foreign currency movements increased direct operating costs by approximately $9.4 million for the three months ended March 31, 2021 compared to the same period in 2020 .
Gross profit
Gross profit was $59.7 million for the three months ended March 31, 2021 , an increase of $16.9 million or 39% compared to $42.8 million for the same period in 2020 . Gross margin decreased to 24.6 % for the three months ended March 31, 2021, compared to 24.8% for the same period in 2020 . The increase in gross profit and decrease in gross margin is driven by the increase in transaction volumes processed in regions where we generally earn lower revenues per transaction.
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Salaries and benefits
Salaries and benefits expenses were $19.4 million for the three months ended March 31, 2021 , an increase of $3.7 million or 23% compared to the same period in 2020 . The increase in salaries and benefits was driven by an increase in headcount to support the growth of the business as well as a $1.2 million increase from foreign currency movements for the three months ended March 31, 2021 compared to the same period in 2020. As a percentage of revenues, these expenses decreased to 8.0 % for the three months ended March 31, 2021, compared to 9.1% for the same period in 2020.
Selling, general and administrative
Selling, general and administrative expenses were $9.0 million for the three months ended March 31, 2021 , an increase of $0.2 million or 2 % compared to the same period in 2020 . As a percentage of revenues, these expenses decreased to 3.7 % for the three months ended March 31, 2021 , compared to 5.1 % for the same period in 2020 .
Depreciation and amortization
Depreciation and amortization expenses were $2.1 million for the three months ended March 31, 2021 , an increase of $0.3 million or 15 % compared to the same period in 2020 . Depreciation and amortization expense primarily represents depreciation of POS terminals we install in retail stores and amortization of acquired intangible assets. As a percentage of revenues, these expenses decreased to 0.9 % for the three months ended March 31, 2021 , compared to 1.1 % for same period in 2020.
Operating income
epay Segment operating income was $29.2 million for the three months ended March 31, 2021 , an increase of $12.7 million or 77% c ompared to the same period in 2020 . Operating margin increased to 12.0 % for the three months ended March 31, 2021 , compared to 9.5 % for the same period in 2020 . Operating income per transaction was $0.04 for both the three m onths ended March 31, 2021 and 2020 . The increases in operating income and operating margin for the three months ended March 31, 2021 compared to the same period in 2020 were primarily due to an increase in the number of higher-margin digital media transactions.
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MONEY TRANSFER SEGMENT
The following table presents the results of operations for the three months ended March 31, 2021 and 2020 for the Money Transfer Segment:
Three Months Ended
March 31,
Year-over-Year Change
(dollar amounts in thousands)
2021
2020
Increase (Decrease) Amount
Increase
(Decrease) Percent
Total revenues
$
324,900
$
266,234
$
58,666
22
%
Operating expenses:
Direct operating costs
183,878
142,909
40,969
29
%
Salaries and benefits
60,540
53,864
6,676
12
%
Selling, general and administrative
36,116
38,582
(2,466
)
(6)
%
Depreciation and amortization
8,963
8,571
392
5
%
Total operating expenses
289,497
243,926
45,571
19
%
Operating income
$
35,403
$
22,308
$
13,095
59
%
Transactions processed (millions)
31.2
27.4
3.8
14
%
Revenues
Money Transfer Segment total revenues were $324.9 million for the three months ended March 31, 2021 , an increase of $58.7 million or 22 % compared to the same period in 2020 . The increase in revenues was primarily due to increases in U.S. outbound and international-originated money transfers, partially offset by decreases in the U.S. domestic business. Revenues per transaction increased to $10.41 for the three months ended March 31, 2021 , compared to $9.72 for the same period in 2020 . Foreign currency movements increased revenues by approximately $14.3 million for the three months ended March 31, 2021 compared to the same period in 2020 .
Direct operating costs
Money Transfer Segment direct operating costs were $183.9 million for the three months ended March 31, 2021 , an increase of $41.0 million or 29 % compared to the same period in 2020 . Direct operating costs primarily consist of commissions paid to agents who originate money transfers on our behalf and correspondent agents who disburse funds to the customers’ destination beneficiaries, together with less significant costs, such as bank depository fees. The increase in direct operating costs was primarily due to the increase in the number of U.S. outbound and international-originated money transfer transactions and the impact of the U.S. dollar weakening against key foreign currencies. Foreign currency movements increased direct operating costs by approximately $7.1 million for the three months ended March 31, 2021 compared to the same period in 2020 .
Gross profit
Gross profit was $141.0 million for the three months ended March 31, 2021 , an increase of $17.7 million or 14% compared to $123.3 million for the same period in 2020 . The increase in gross profit was primarily due t o increases in U.S. outbound and international-originated money transfers . Gross margin decreased to 43.4% for the three months ended March 31, 2021, compared to 46.3% for the same period in 2020. The decrease in gross margin is primarily attributable to the increase in direct operating costs driven by increased agent commissions in the first quarter of 2021 compared to the same period in 2020.
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Salaries and benefits
Salaries and benefits expenses were $60.5 million for the three months ended March 31, 2021, an increase of $6.7 million or 12% compared to the same period in 2020 . The increase in salaries and benefits was primarily driven by an increase in headcount to support the growth of the business, an increase in bonus expense and an increase of $2.6 million from foreign currency movements for the three months ended March 31, 2021 compared to the same period in 2020 . As a percentage of revenues, these expenses decreased to 18.6 % for the three months ended March 31, 2021 , compared to 20.2% for the same period in 2020 .
Selling, general and administrative
Selling, general and administrative expenses were $36.1 million for the three months ended March 31, 2021 , a decrease of $2.5 million or 6 % compared to the same period in 2020 . The decrease was primarily due to a $3.7 million decrease in bad debt expense and a $1.6 million decrease in travel related expenses, partially offset by a $2.6 million increase from foreign currency movements for the three months ended March 31, 2021 compared to the same period in 2020. As a percentage of revenues, these expenses decreased to 11.1% for the three months ended March 31, 2021 , compared to 14.5% for the same period in 2020 .
Depreciation and amortization
Depreciation and amortization expenses were $9.0 million for the three months ended March 31, 2021, an increase of $0.4 million or 5 % compared to the same period in 2020 . Depreciation and amortization primarily represents amortization of acquired intangible assets and depreciation of money transfer terminals, computers and software, leasehold improvements and office equipment. As a percentage of revenues, these expenses decreased to 2.8 % for the three months ended March 31, 2021, compared to 3.2 % for the same period in 2020 .
Operating income
Money Transfer Segment operating income was $35.4 million for the three months ended March 31, 2021 , an increase of $13.1 million or 59 % compared to the same period in 2020 . Operating margin increased to 10.9% for the three months ended March 31, 2021, compared to 8.4 % for the same period in 2020 . The increases in operating income and operating margin were primarily driven by the increase in transaction volume, specifically the higher margin transactions for U.S. outbound and international-originated money transfers. Operating income per transaction increased to $1.13 for the three months ended March 31, 2021 , compared to $0.81 for the same period in 2020 .
CORPORATE SERVICES
The following table presents the operating expenses for the three months ended March 31, 2021 and 2020 for Corporate Services:
Three Months Ended
March 31,
Year-over-Year Change
(dollar amounts in thousands)
2021
2020
Increase (Decrease) Amount
Increase
(Decrease) Percent
Salaries and benefits
$
12,188
$
9,588
$
2,600
27
%
Selling, general and administrative
1,680
2,432
(752
)
(31)
%
Depreciation and amortization
147
79
68
86
%
Total operating expenses
$
14,015
$
12,099
$
1,916
16
%
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Corporate operating expenses
Total Corporate operating expenses were $14.0 million for the three months ended March 31, 2021, an increase of $1.9 million or 16% compared to the same period in 2020 . The increase is primarily due to a $2.2 million increase in share based compensation.
OTHER EXPENSE, NET
Three Months Ended
March 31,
Year-over-Year Change
(dollar amounts in thousands)
2021
2020
Increase (Decrease) Amount
Increase
(Decrease) Percent
Interest income
$
182
$
567
$
(385
)
(68)
%
Interest expense
(9,189
)
(9,233
)
44
(0)
%
Foreign currency exchange loss, net
(4,032
)
(18,806
)
14,774
(79)
%
Other gains, net
31
31
—
0
%
Other expense, net
$
(13,008
)
$
(27,441
)
$
14,433
(53)
%
Foreign currency exchange loss, net
Foreign currency exchange activity includes gains and losses on certain foreign currency exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies. Assets and liabilities denominated in currencies other than the local currency of each of our subsidiaries give rise to foreign currency exchange gains and losses. Foreign currency exchange gains and losses that result from remeasurement of these assets and liabilities are recorded in net income. The majority of our foreign currency exchange gains or losses are due to the remeasurement of intercompany loans which are not considered a long-term investment in nature and are in a currency other than the functional currency of one of the parties to the loan. For example, we make intercompany loans based in euros from our corporate division, which is composed of U.S. dollar functional currency entities, to certain European entities that use the euro as the functional currency. As the U.S. dollar strengthens against the euro, foreign currency exchange losses are recognized by our corporate entities because the number of euros to be received in settlement of the loans decreases in U.S. dollar terms. Conversely, in this example, in periods where the U.S. dollar weakens, our corporate entities will record foreign currency exchange gains.
We recorded net foreign currency exchange losses of $4.0 million and $18.8 million for the three months ended March 31, 2021 and 2020, respectively. These realized and unrealized foreign currency exchange losses reflect the fluctuation in the value of the U.S. dollar against the currencies of the countries in which we operated during the respective periods.
INCOME TAX EXPENSE
Our effective income tax rate was (236.9 %) and 58.7% for the three months ended March 31, 2021 and 2020 , respectively. Our 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 being subject to higher local statutory tax rates, and our U.S. deferred tax activity on foreign exchange positions. Our effective 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 being subject to higher local statutory income tax rates.
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NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests represent the elimination of net income or loss attributable to the minority shareholders’ portion of the following consolidated subsidiaries that are not wholly owned:
Subsidiary
Percent Owned
Segment - Country
Movilcarga
95%
epay - Spain
Euronet China
85%
EFT - China
Euronet Pakistan
70%
EFT - Pakistan
Euronet Infinitium Solutions
65%
EFT - India
NET INCOME (LOSS) ATTRIBUTABLE TO EURONET
Net loss attributable to Euronet was ( $8.7 million) for the three months ended March 31, 2021, a decrease of $10.6 million or 551% compared to t he net income in the same period in 2020 . The decrease in net income was primarily attributable to the $6.3 million decrease in gross profit that was largely driven by the decrease in revenues in the EFT Segment, a $14.4 million increase in salaries and benefits expense and a $3.6 million increase in income tax expense, partially offset by a decrease in net foreign currency exchange losses of $14.8 million.
LIQUIDITY AND CAPITAL RESOURCES
Working capital
As of March 31, 2021 , we had working capital of $1,210.5 million , which is calculated as the difference between total current assets and total current liabilities, compared to working capital of $1,510.5 million as of December 31, 2020 . The decrease in working capital was primarily due to the $270.4 million repayment of the outstanding balance on the Credit Facility during the first quarter of 2021 . Our ratio of current assets to current liabilities was 1.76 and 1.81 at March 31, 2021 and December 31, 2020 , respectively.
We require substantial working capital to finance operations. The Money Transfer Segment funds the payout of the majority of our consumer-to-consumer money transfer services before receiving the benefit of amounts collected from customers by agents. Working capital needs increase due to weekends and banking holidays. As a result, we may report more or less working capital for the Money Transfer Segment based solely upon the day on which the reporting period ends. The epay Segment produces positive working capital, some of which is restricted in connection with the administration of its customer collection and vendor remittance activities. In our EFT Processing Segment, we obtain a significant portion of the cash required to operate our ATMs through various cash supply arrangements, the amount of which is not recorded on Euronet's Consolidated Balance Sheets. However, in certain countries, we fund the cash required to operate our ATM network from borrowings under the revolving credit facilities and cash flows from operations. As of March 31, 2021 , we had $339.9 million of our own cash in use or designated for use in our ATM network, which is recorded in ATM cash on Euronet's Consolidated Balance Sheet. ATM cash decreased $71.2 million from $411.1 million as of December 31, 2020 to $339.9 million as of March 31, 2021 as a result of the reduction in number of active ATMs as of March 31, 2021 compared to December 31, 2020.
The Company has $1,145.4 million of unrestricted cash as of March 31, 2021 compared to $1,420.3 million as of December 31, 2020 . The decrease in unrestricted cash was primarily due to the $270.4 million repayment of the outstanding balance on the Credit Facility during the first quarter of 2021. Including the $339.9 million of cash in ATMs at March 31, 2021, the Company has access to $1,485.3 million in available cash, and $941.1 million available under the Credit Facility with no significant long-term debt principal payments until March 2025.
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The following table identifies cash and cash equivalents provided by/(used in) our operating, investing and financing activities for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended
March 31,
Liquidity
2021
2020
Cash and cash equivalents and restricted cash provided by (used in):
Operating activities
$
(2,645
)
$
105,884
Investing activities
(18,225
)
(31,606
)
Financing activities
(269,211
)
(242,644
)
Effect of foreign currency 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
)
Operating activity cash flow
Cash flows (used in) provided by operating activities were ($2.6 million) f or the three months ended March 31, 2021 compared to $105.9 million for the same period in 2020 . The decrease in operating cash flows was primarily due to fluctuations in working capital mainly associated with the timing of the settlement processes with content providers in the epay Segment, with correspondents in the Money Transfer Segment, and with card organizations and banks in the EFT Processing Segment, and the decrease in net income.
Investing activity cash flow
Cash flows used in investing activities were $18.2 million for the three months ended March 31, 2021 compared to $31.6 million for the same period in 2020 . We used $16.4 million for purchases of property and equipment for the three months ended March 31, 2021 compared to $30.4 million for the same period in 2020 . The decrease in purchases of property and equipment is primarily driven by the COVID-19 related impacts to the EFT segment. Cash used for software development and other investing activities totaled $1.8 million and $1.7 million for the three months ended March 31, 2021 and 2020 , respectively.
Financing activity cash flow
Cash flows used in financing activities were $269.2 million for the three months ended March 31, 2021 compared to $242.6 million for the same period in 2020 . Our borrowing activities for the three months ended March 31, 2021 consisted of cash outflows of $270.4 million compared to no net borrowings for the same period in 2020 . The decrease in net borrowings for the three months ended March 31, 2021 compared to the same period in 2020 was the result of the repayment of the outstanding balance on the Credit Facility. We repurchased $0.8 million of common stock during the first quarter of 2021 compared to repurchases of $240.5 million during the first quarter of 2020 . We received proceeds of $3.7 million and $1.7 million during the three months ended March 31, 2021 and 2020 , respectively, for the issuance of stock in connection with our Stock Incentive Plan.
Other sources of capital
Credit Facility - On October 17, 2018, the Company entered into a $1.0 billion unsecured credit agreement (the "Credit Facility") that expires on October 17, 2023. 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.
As of March 31, 2021 , fees and interest on borrowings are based upon our corporate credit rating (as defined in the credit agreement) and are based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over the London InterBank Offered Rate ("LIBOR") or a margin over the base rate, as selected by us, with the applicable margin ranging from 1.125% to 2.0% (or 0.175% to 1.0% for base rate loans).
As of March 31, 2021 , we had no borrowings and $58.9 million of stand-by letters of credit outstanding under the Credit Facility. The remaining $941.1 million under the Credit Facility was available for borrowing.
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Convertible debt - On March 18, 2019, we completed the sale of $ 525.0 million in principal amount of Convertible Senior Notes due 2049 (“Convertible Notes”). The Convertible Notes were issued pursuant to an indenture, dated as of March 18, 2019 (the “Indenture”), by and between us and U.S. Bank National Association, as trustee. The Convertible Notes have an interest rate of 0.75 % per annum payable semi-annually in March and September, 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 prices of Euronet common stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require us to repurchase for cash all or part of their Convertible Notes on each of March 15, 2025, 2029 , 2034 , 2039 and 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. In connection with the issuance of the Convertible Notes, we recorded $ 12.8 million in debt issuance costs, which are being amortized through March 1, 2025.
Senior Notes - On May 22, 2019, we completed the sale of €600 million ($669.9 million) aggregate principal amount of Senior Notes that expire on May 2026 (the “Senior Notes”). The Senior Notes accrue interest at a rate of 1.375% per year, payable annually in arrears on May 22 of each year, until maturity or earlier redemption. As of March 31, 2021 , we have outstanding €600 million ( $703.7 million ) principal amount of the Senior Notes. In addition, we 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 debt obligations — Certain of our subsidiaries have available credit lines and overdraft facilities to generally supplement short-term working capital requirements, when necessary. There were $0.8 million and $0.9 million outstanding under these other obligation arrangements as of March 31, 2021 and December 31, 2020, respectively.
Other uses of capital
Capital expenditures and needs - Total capital expenditures for the three months ended March 31, 2021 were $ 16.4 million . These capital expenditures were primarily for the purchase and installation of ATMs in key under-penetrated markets, the purchase of POS terminals for the epay and Money Transfer Segments, and office, data center and company store computer equipment and software. Total capital expenditures for 2021 are currently estimated to range from approximately $105 million to $110 million .
At current and projected cash flow levels, we anticipate that cash generated from operations, together with cash on hand and amounts available under our Credit Facility and other existing and potential future financing will be sufficient to meet our debt, leasing, and capital expenditure obligations. If our capital resources are not sufficient to meet these obligations, we will seek to refinance our debt and/or issue additional equity under terms acceptable to us. However, we can offer no assurances that we will be able to obtain favorable terms for the refinancing of any of our debt or other obligations or for the issuance of additional equity.
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Inflation and functional currencies
Generally, the countries in which we operate have experienced low and stable inflation in recent years. Therefore, the local currency in each of these markets is the functional currency. Currently, we do not believe that inflation will have a significant effect on our results of operations or financial position. We continually review inflation and the functional currency in each of the countries where we operate.
OFF BALANCE SHEET ARRANGEMENTS
On occasion, we grant guarantees of the obligations of our subsidiaries and we sometimes enter into agreements with unaffiliated third parties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. Our liability under such indemnification provisions may be subject to time and materiality limitations, monetary caps and other conditions and defenses. As of March 31, 2021 , there were no material changes from the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2020 . To date, we are not aware of any significant claims made by the indemnified parties or parties to whom we have provided guarantees on behalf of our subsidiaries and, accordingly, no liabilities have been recorded as of March 31, 2021 . See also Note 14, Commitments, to the unaudited consolidated financial statements included elsewhere in this report.
CONTRACTUAL OBLIGATIONS
As of March 31, 2021 , there have been no material changes outside the ordinary course of business in our future contractual obligations from the amounts reported within our Annual Report on Form 10-K for the year ended December 31, 2020 .
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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.