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
September 30,
2022
December 31,
2021
(unaudited)
ASSETS
Current assets:
Cash an d cas h equivalents
$
967,100
$
1,260,466
ATM cash
646,121
543,422
Restricted cash
8,396
3,693
Settlement assets
1,034,898
1,102,389
Trade accounts receivable, net of credit losses of $ 4,059 and $ 4,469
225,166
203,010
Prepaid expenses and other current assets
364,209
195,443
Total current assets
3,245,890
3,308,423
Operating right of use lease assets
137,993
161,494
Property and equipment, net of accumulated depreciation of $ 516,239 and $ 532,631
317,602
345,381
Goodwill
764,780
641,605
Acquired intangible assets, net of accumulated amortization of $ 180,280 and $ 185,054
180,257
97,793
Other assets, net of accumulated amortization of $ 64,542 and $ 62,349
181,305
189,580
Total assets
$
4,827,827
$
4,744,276
LIABILITIES AND EQUITY
Current liabilities:
Settlement obligations
$
1,034,898
$
1,102,389
Trade accounts payable
169,835
193,529
Accrued expenses and other current liabilities
494,745
367,692
Current portion of operating lease liabilities
45,562
52,136
Short-term debt obligations and current maturities of long-term debt obligations
303,549
821
Income taxes payable
62,783
59,037
Deferred revenue
59,071
77,037
Total current liabilities
2,170,443
1,852,641
Debt obligations, net of current portion
1,428,471
1,420,085
Operating lease obligations, net of current portion
95,057
111,355
Deferred income taxes
37,810
46,505
Other long-term liabilities
68,803
58,166
Total liabilities
3,800,584
3,488,752
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 63,863,162 and 63,779,009
1,277
1,275
Additional paid-in-capital
1,234,090
1,274,118
Treasury stock, at cost, shares issued 14,270,009 and 12,631,125
( 1,105,883
)
( 931,212
)
Retained earnings
1,280,509
1,083,882
Accumulated other comprehensive loss
( 382,224
)
( 172,582
)
Total Euronet Worldwide, Inc. stockholders’ equity
1,027,769
1,255,481
Noncontrolling interests
( 526
)
43
Total equity
1,027,243
1,255,524
Total liabilities and equity
$
4,827,827
$
4,744,276
See accompanying notes to the unaudited consolidated financial statements.
1
Table of Contents
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenues
$
931,266
$
816,560
$
2,493,042
$
2,183,916
Operating expenses:
Direct operating costs, exclusive of depreciation
526,048
484,438
1,484,863
1,389,770
Salaries and benefits
134,471
119,421
392,544
356,160
Selling, general and administrative
69,508
64,298
207,613
182,193
Depreciation and amortization
32,781
33,909
101,784
100,729
Total operating expenses
762,808
702,066
2,186,804
2,028,852
Operating income
168,458
114,494
306,238
155,064
Other income (expense):
Interest income
600
153
990
539
Interest expense
( 11,716
)
( 10,072
)
( 26,712
)
( 28,718
)
Foreign currency exchange gain (loss), net
( 15,798
)
( 8,135
)
( 35,958
)
( 12,051
)
Other gains, net
10
—
202
31
Other expense, net
( 26,904
)
( 18,054
)
( 61,478
)
( 40,199
)
Income before income taxes
141,554
96,440
244,760
114,865
Income tax expense
( 44,002
)
( 22,726
)
( 81,884
)
( 41,140
)
Net income
97,552
73,714
162,876
73,725
Net income attributable to noncontrolling interests
170
168
361
127
Net income attributable to Euronet Worldwide, Inc.
$
97,722
$
73,882
$
163,237
$
73,852
Earnings per share attributable to Euronet Worldwide, Inc. stockholders:
Basic
$
1.97
$
1.40
$
3.24
$
1.40
Diluted
$
1.87
$
1.37
$
3.10
$
1.37
Weighted average shares outstanding:
Basic
49,583,317
52,829,386
50,345,293
52,799,199
Diluted
52,751,304
53,853,675
53,688,800
53,933,226
See accompanying notes to the unaudited consolidated financial statements.
2
Table of Contents
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Net income
$
97,552
$
73,714
$
162,876
$
73,725
Translation adjustment
( 100,458
)
( 29,692
)
( 209,850
)
( 59,907
)
Comprehensive income (loss)
( 2,906
)
44,022
( 46,974
)
13,818
Comprehensive income attributable to noncontrolling interests
262
196
569
200
Comprehensive income (loss) attributable to Euronet Worldwide, Inc.
$
( 2,644
)
$
44,218
$
( 46,405
)
$
14,018
See accompanying notes to the unaudited consolidated financial statements.
3
Table of Contents
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, 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
)
Net (loss) income
Other comprehensive loss
Stock issued under employee stock plans
25,769
1
1,199
267
Share-based compensation
10,984
Balan ce as of June 30, 2021
52,822,254
1,269
1,252,456
( 703,247
)
Net income
Other comprehensive income
Stock issued under employee stock plans
33,217
1
1,022
111
Share-based compensation
6,805
Balance as of September 30, 2021
52,855,471
1,270
1,260,283
( 703,136
)
Number of
Shares Outstanding
Common
Stock
Additional
Paid-in Capital
Treasury
Stock
Balance as of December 31, 2021
51,147,884
$
1,275
$
1,274,118
$
( 931,212
)
Net income (loss)
Other comprehensive loss
Stock issued under employee stock plans
40,173
1
1,989
142
Share-based compensation
9,803
Repurchase of shares
( 639,535
)
( 70,351
)
Adoption of ASU 2020-06
( 74,080
)
Balance as of March 31, 2022
50,548,522
1,276
1,211,830
( 1,001,421
)
Net income (loss)
Other comprehensive loss
Stock issued under employee stock plans
31,233
1
1,322
( 73
)
Share-based compensation
10,142
Repurchase of shares
( 1,000,000
)
( 104,600
)
Balance as of June 30, 2022
49,579,755
1,277
1,223,294
( 1,106,094
)
Net income
Other comprehensive income
Stock issued under employee stock plans
13,398
—
460
211
Share-based compensation
10,336
Repurchase of shares
—
—
Balance as of September 30, 2022
49,593,153
1,277
1,234,090
( 1,105,883
)
See accompanying notes to the unaudited consolidated financial statements.
4
Table of Contents
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, 2020
$
1,013,155
$
( 94,214
)
$
281
$
1,445,903
Net income (loss)
( 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
Net income (loss)
8,635
( 3
)
8,632
Other comprehensive loss
12,675
11
12,686
Stock issued under employee stock plans
1,467
Share-based compensation
10,984
Balance as of June 30, 2021
1,013,125
( 124,384
)
277
1,439,496
Net income
73,882
( 168
)
73,714
Other comprehensive income
( 29,664
)
( 28
)
( 29,692
)
Stock issued under employee stock plans
1,134
Share-based compensation
6,805
Balance as of September 30, 2021
1,087,007
( 154,048
)
81
1,491,457
Retained Earnings
Accumulated Other
Comprehensive Loss
Noncontrolling
Interests
Total
Balance as of December 31, 2021
$
1,083,882
$
( 172,582
)
$
43
$
1,255,524
Net income (loss)
8,297
( 7
)
8,290
Other comprehensive loss
( 21,077
)
( 37
)
( 21,114
)
Stock issued under employee stock plans
2,132
Share-based compensation
9,803
Repurchase of shares
( 70,351
)
Adoption of ASU 2020-06
33,390
( 40,690
)
Balance as of March 31, 2022
1,125,569
( 193,659
)
( 1
)
1,143,594
Net income (loss)
57,218
( 184
)
57,034
Other comprehensive loss
( 88,199
)
( 79
)
( 88,278
)
Stock issued under employee stock plans
1,250
Share-based compensation
10,142
Repurchase of shares
( 104,600
)
Balance as of June 30, 2022
1,182,787
( 281,858
)
( 264
)
1,019,142
Net income (loss)
97,722
( 170
)
97,552
Other comprehensive loss
( 100,366
)
( 92
)
( 100,458
)
Stock issued under employee stock plans
671
Share-based compensation
10,336
Repurchase of shares
—
—
Balance as of September 30, 2022
1,280,509
( 382,224
)
( 526
)
1,027,243
See accompanying notes to the unaudited consolidated financial statements.
5
Table of Contents
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended September 30,
2022
2021
Net income
$
162,876
$
73,725
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
101,784
100,729
Share-based compensation
30,281
26,281
Unrealized foreign exchange loss, net
35,958
12,051
Deferred income taxes
12,210
1,412
Accretion of convertible debt discount and amortization of debt issuance costs
2,351
15,099
Changes in working capital, net of amounts acquired:
Income taxes payable, net
9,153
17,464
Trade accounts receivable, including amounts in settlement assets
6,087
96,541
Prepaid expenses and other current assets, including amounts in settlement assets
( 205,363
)
119,698
Trade accounts payable, including amounts in settlement obligations
( 107,139
)
( 209,069
)
Deferred revenue
( 10,988
)
( 2,782
)
Accrued expenses and other current liabilities, including amounts in settlement obligations
400,955
47,254
Changes in noncurrent assets and liabilities
10,471
5,937
Net cash provided by operating activities
448,636
304,340
Cash flows from investing activities:
Acquisitions, net of cash acquired
( 331,372
)
-
Purchases of property and equipment
( 79,351
)
( 66,058
)
Purchases of other long-term assets
( 5,844
)
( 6,171
)
Other, net
528
1,277
Net cash used in investing activities
( 416,039
)
( 70,952
)
Cash flows from financing activities:
Proceeds from issuance of shares
4,421
6,443
Repurchase of shares
( 175,296
)
( 979
)
Borrowings from revolving credit agreements
5,924,100
3,539,100
Repayments of revolving credit agreements
( 5,581,200
)
( 3,756,300
)
Net borrowings (repayments) from short-term debt obligations
4,631
199
Other, net
( 3,119
)
( 4,754
)
Net cash provided by (used in) financing activities
173,537
( 216,291
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
( 413,669
)
( 82,667
)
Increase (decrease) in cash and cash equivalents and restricted cash
( 207,535
)
( 65,570
)
Cash and cash equivalents and restricted cash at beginning of period
2,086,102
2,099,508
Cash and cash equivalents and restricted cash at end of period
$
1,878,567
$
2,033,938
Supplemental disclosure of cash flow information:
Interest paid during the period
$
21,668
$
17,226
Income taxes paid during the period
$
65,658
$
28,752
See accompanying notes to the unaudited consolidated financial statements.
6
Table of Contents
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
( 1 ) GENERAL
Organization
Euronet Worldwide, Inc. (the "Company", "Euronet", "we" and "us") was established as a Delaware corporation on December 13, 1996 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 ATM, POS, card outsourcing, card issuing and merchant acquiring services, electronic distribution of prepaid mobile airtime and other electronic payment products, and international payment 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 our audited consolidated financial statements for the year ended December 31, 2021 , including the notes thereto, set forth in our 2021 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, 2022 .
Seasonality
Euronet’s EFT Processing Segment normally experiences its heaviest demand for DCC services during the third quarter of the fiscal year, normally coinciding with the tourism season. Epay Segment is 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. Also, epay sells large loyalty rewards campaigns to retailers, which could be deployed in any given quarter and will impact the activity in that quarter accordingly. 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. We adopted this standard on January 1, 2022 using the modified retrospective approach, which resulted in our Convertible Senior Notes Due 2049 being recognized as a single liability. As a result of the adoption of this standard, we recorded a $ 99.7 million decrease to additional paid-in capital, a $ 56.8 million decrease in debt discounts and a $ 42.9 million increase in retained earnings. The adoption of this standard also impacted our deferred tax liability by decreasing our deferred tax liability by $ 15.0 million, decreasing retained earnings by $ 10.6 million, and increasing additional paid-in capital by $ 25.6 million. Additionally, the elimination of the treasury stock method will increase the number of dilutive shares used in the diluted earnings per share calculation, if dilutive, by 2.8 million shares.
( 3 ) ACQUISITIONS
On March 15, 2022 we completed the acquisition of the Merchant Acquiring Business of Piraeus Bank ("PBMA"). The acquisition includes 205,000 POS terminals at 170,000 merchants throughout Greece, as well as Piraeus Bank’s online merchant acquiring business and expands our omnichannel payments strategy where we use our proprietary technology to provide cash, card-based acquiring solutions, alternative payment acquiring, online acquiring, tokenized payment services and other payment products. Additionally, the acquisition includes a long-term commercial framework agreement between Piraeus Bank and Euronet which includes collaborative product distribution, processing and customer referrals.
The purchase price was € 313.8 million, or approximately $ 346.2 million, which includes $ 331 million cash paid at closing plus $ 15.2 million of estimated contingent consideration for a ten -year earnout contingent on performance targets outlined in the commercial framework agreement. The contingent consideration is related to a percentage of the net fee income received during the ten -year period of the commercial framework agreement and there is no contractual maximum amount of consideration under this agreement.
The initial accounting for this acquisition is not complete as of September 30, 2022. The purchase price was preliminarily allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective provisional fair values at the date of acquisition. Additional time is needed to refine and review the results of the valuation of assets and liabilities. The acquisition has been accounted for as a business combination in accordance with U.S. GAAP and the results of operations have been included from the date of acquisition in the EFT Processing Segment.
8
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date.
(in thousands)
As of March 15, 2022
Other current assets
$
1,707
Settlement assets
78,718
Property and equipment
6,095
Acquired intangible assets
122,455
Total assets acquired
$
208,975
Trade accounts payable
$
1,499
Settlement liabilities
66,925
Accrued expenses and other current liabilities
5,929
Deferred revenue
500
Other long-term liabilities
99
Total liabilities assumed
$
74,952
Goodwill
212,183
Net assets acquired
$
346,206
Assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value measurements of intangible assets were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets, projections of revenues and cash flows, and customer attrition rates, among others.
We acquired a customer relationship intangible asset with a preliminary fair value of $ 112.2 million that is being amortized on a straight-line basis over 15 years and a contract related intangible asset of $ 10.3 million that is being amortized on a straight-line basis over 10 years.
Goodwill, with a preliminary value of $ 212.2 million, arising from the acquisition was included in the EFT Processing Segment. The factors that make up goodwill include synergies from combining PBMA operations and intangible assets that do not qualify for separate recognition. Goodwill and intangible assets associated with this acquisition are deductible for tax purposes.
The results of PBMA operations are included in our consolidated results of operation, as part of our EFT Processing business segment, beginning on March 16, 2022. For the three and nine months ended September 30, 2022, PBMA had $ 32.6 million and $ 63.8 million in revenue. The PBMA business is impacted by higher transaction volumes during the tourism season in the second and third quarters.
(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. We record corresponding settlement obligations relating to accounts payable. Settlement assets consist of cash and cash equivalents, restricted cash, accounts receivable and prepaid expenses and other current assets. The settlement cash held at the Company is primarily generated from the monies remitted by consumers through Company agents and financial institutions in payment of the face value of the payment service or foreign currency purchased and the related fees charged to purchase the currency. We use our cash and cash equivalents to pay the face value of the payment service product upon presentation by the recipient. Cash received by Company agents and merchants generally becomes available to us 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 us.
9
Settlement obligations consist of accrued expenses for money transfers, content providers, and EFT customer deposits and accounts payable to agents and content providers. Money transfer accrued expenses represent amounts to be paid to transferees when they request funds. Most agents typically settle with transferees first then obtain reimbursement from us. Money order accrued expenses represent amounts not yet presented for payment. Due to the agent funding and settlement process, accrued expenses to agents represent amounts due to agents for money transfers that have not been settled with transferees.
As of
(in thousands)
September 30,
2022
December 31,
2021
Settlement assets:
Settlement cash and cash equivalents
$
210,802
$
203,624
Settlement restricted cash
46,148
74,897
Accounts receivable, net of credit losses of $ 30,622 and $ 27,341
569,517
619,738
Prepaid expenses and other current assets
208,431
204,130
Total settlement assets
$
1,034,898
$
1,102,389
Settlement obligations:
Trade account payables
$
378,452
$
461,135
Accrued expenses and other current liabilities
656,446
641,254
Total settlement obligations
$
1,034,898
$
1,102,389
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 C ash Flows.
As of
(in thousands)
September 30,
2022
December 31,
2021
September 30,
2021
December 31,
2020
Cash and cash equivalents
$
967,100
$
1,260,466
$
1,048,466
$
1,420,255
Restricted cash
8,396
3,693
3,626
3,334
ATM cash
646,121
543,422
669,686
411,054
Settlement cash and cash equivalents
210,802
203,624
259,727
188,191
Settlement restricted cash
46,148
74,897
52,433
76,674
Cash and cash equivalents and restricted cash at end of period
$
1,878,567
$
2,086,102
$
2,033,938
$
2,099,508
(5) STOCKHOLDERS' EQUITY
Earnings (Loss) Per Share
Basic earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average shares outstanding during the respective period, after adjusting for the potential dilution of options to purchase our common stock, assumed vesting of restricted stock and the assumed conversion of our convertible debt, if such conversion would be dilutive.
10
The following table provides the computation of diluted earnings and diluted weighted average number of common shares outstanding:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Computation of diluted earnings:
Net income (loss)
$
97,722
$
73,882
$
163,237
$
73,852
Add: Interest expense from assumed conversion of convertible notes, net of tax
1,148
—
3,253
—
Net income (loss) for diluted earnings per share calculation
$
98,870
$
73,882
$
166,490
$
73,852
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding
49,583,317
52,829,386
50,345,293
52,799,199
Incremental shares from assumed exercise of stock options and vesting of restricted stock
386,169
1,024,289
561,689
1,134,027
Incremental shares from assumed conversion of convertible debt
2,781,818
—
2,781,818
—
Diluted weighted average shares outstanding
52,751,304
53,853,675
53,688,800
53,933,226
The table includes all stock options and restricted stock that are dilutive to our weighted average common shares outstanding during the period. The calculation of diluted earnings (loss) per share excludes stock options or shares of restricted stock that are anti-dilutive to our weighted average common shares outstanding of approximately 3,308,000 and 2,849,000 for the three and nine months ended September 30, 2022 and 770,000 and 751,000 for the three and nine months ended September 30, 2021 , respectively.
We issued Convertible Senior Notes ("Convertible Notes") due March 2049 on March 18, 2019. Our Convertible Notes currently have a settlement feature requiring us 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 our common stock or a combination thereof, at our option. We have stated our intent to settle any conversion of these notes by paying cash for the principal value and issuing common stock for any conversion premium; however, after adopting ASU 2020-06, 2.8 million incremental shares assumed for conversion of convertible notes shall be included in the dilutive earnings per share calculation, if dilutive, regardless of whether the market price trigger has been met. Therefore, our Convertible Notes were included in the calculation of diluted earnings (loss) per share if their inclusion was dilutive. The dilutive effect increases the more the market price exceeds the conversion price of $ 188.73 per share. See Note 9, Debt Obligations, to the consolidated financial statements for more information about the Convertible Notes.
Share repurchases
On February 26, 2020, we 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. On December 8, 2021, we put a repurchase program in place to repurchase up to $ 300 million in value, but not more than 5.0 million shares of common stock through December 8, 2023. U nder the repurchase programs w e repurchased $ 0 million and $ 175.0 million of stock, f or the three and nine months ended September 30, 2022 , respectively . Re purchases 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. We recorded foreign currency translation losses of $ 100.5 million and $ 209.9 million for the three and nine months ended September 30, 2022 , respectively, and losses of $ 29.7 million and $ 59.9 million for the three and nine months ended September 30, 2021 . There were no reclassifications of foreign currency translation into the consolidated statements of income for the three and nine months ended September 30, 2022 and 2021 .
11
( 6 ) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the nine months ended September 30, 2022 is presented below:
(in thousands)
Acquired
Intangible
Assets
Goodwill
Total
Intangible
Assets
Balance as of December 31, 2021
$
97,793
$
641,605
$
739,398
Increases (decreases):
Acquisition
122,455
212,183
334,638
Amortization
( 20,164
)
—
( 20,164
)
Foreign currency exchange rate changes
( 19,827
)
( 89,008
)
( 108,835
)
Balance as of September 30, 2022
$
180,257
$
764,780
$
945,037
Of the total goodwill balance of $ 764.8 million as of September 30, 2022 , $ 351.3 million relates to the Money Transfer Segment, $ 298.6 million relates to the EFT Processing Segment and the remaining $ 114.9 million relates to the epay Segment . Estimated amortization expense on acquired intangible assets with finite lives as of September 30, 2022, is expected to total $ 6.6 million for the remainder of 2022, $ 22.3 million for 2023, $ 16.6 million for 2024, $ 13.6 million for 2025, $ 13.3 million for 2026 and $ 12.1 million for 2027.
( 7 ) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
As of
(in thousands)
September 30,
2022
December 31, 2021
Accrued expenses
$
348,219
$
285,098
Derivative liabilities
85,799
23,285
Accrued payroll expenses
57,827
55,162
Current portion of finance lease obligations
2,900
4,147
Total
$
494,745
$
367,692
(8) DEFERRED REVENUES
We record deferred revenues when cash payments are received or due in advance of our performance. The decrease in the deferred revenue balance for the nine months ended September 30, 2022 is the result of $ 26.0 million of cash payments received in the current year for which we have not yet satisfied the performance obligations, offset by $ 43.9 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2021.
12
(9) DEBT OBLIGATIONS
Debt obligations consist of the following:
As of
(in thousands)
September 30,
2022
December 31, 2021
Credit Facility:
Revolving credit agreement
$
326,300
$
283,400
Uncommitted credit agreement
300,000
—
Convertible Debt:
0.75 % convertible notes, unsecured, due 2049
525,000
468,235
1.375 % Senior Notes, due 2026
588,360
682,080
Other obligations
3,616
920
Total debt obligations
1,743,276
1,434,635
Unamortized debt issuance costs
( 11,256
)
( 13,729
)
Carrying value of debt
1,732,020
1,420,906
Short-term debt obligations and current maturities of long-term debt obligations
( 303,549
)
( 821
)
Long-term debt obligations
$
1,428,471
$
1,420,085
Credit Facility
On October 24, 2022, the Company amended its revolving credit agreement (the “Credit Facility”) to increase the facility from $ 1.0 billion to $ 1.25 billion and to extend the expiration to October 24, 2027 .
The revolving credit facility contains a sublimit of up to $ 250 million , with $ 150 million committed, for the issuance of letters of credit and a $ 75 million sublimit for U.S. dollar swingline loans and a $ 75 million sublimit for swingline loans in euros or British pounds sterling. The Credit Facility allows for borrowings in British pounds sterling, euro and U.S. dollars. Subject to certain conditions, the Company has the option to increase the credit facility by up to an additional $ 500 million by requesting additional commitments from existing or new lenders. Fees and interest on borrowings vary based upon the Company's corporate credit rating and will be based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over a secured overnight financing rate, as defined in the agreement, with a margin, including the facility fee, ranging from 1.00 % to 1.625 % or the base rate, as selected by the Company. The applicable margin for borrowings under the credit facility, based on the Company's current credit rating is initially 1.25 % including the facility fee.
The Agreement contains customary affirmative and negative covenants, events of default and financial covenants, including (all as defined in the Credit Facility): (i) a Consolidated Total Leverage Ratio, depending on certain circumstances defined in the Credit Facility, not to exceed a range between 3.5 to 1.0 and 4.5 to 1.0; and (ii) a Consolidated Interest Coverage Ratio of not less than 3.0 to 1.0. Subject to meeting certain customary covenants (as defined in the Credit Facility), the Company is permitted to repurchase common stock and debt. The Company was in compliance with all debt covenants as of September 30, 2022.
Uncommitted Credit Agreements
On May 25, 2022, the Company entered into an Uncommitted Credit Agreement for $ 300 million, fully drawn and outstanding at September 30, 2022, for the sole purpose of providing vault cash for ATMs, that expires no later than November 30, 2022 . Each loan bears interest at the rate per annum equal to the secured overnight financing rate (“SOFR”) plus 1.00 %. The weighted-average interest rate from the loan inception date to September 30, 2022 was 2.70 %.
On June 24, 2022, the Company entered into an Uncommitted Loan Agreement for $ 150 million, for the sole purpose of providing vault cash for ATMs, that expires no later than June 23, 2023. The loan had no balance at September 30, 2022 . Each loan was either a Prime rate loan, a Bloomberg Short-term Bank Yield ("BSBY") rate loan or bears interest at the rate agreed to by the bank and the Company at the time such loan is made. The weighted-average interest rate from the loan inception date to September 30, 2022 was 2.76 %.
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.
13
Prior to the adoption of ASU 2020-06 as of January 1, 2022, in accordance with ASC 470-20-30-27, proceeds from the issuance of convertible debt was allocated between debt and equity components so that debt was discounted to reflect our nonconvertible debt borrowing rate. ASC 470-20-35-13 required the debt discount to be amortized over the period the convertible debt was 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 $ 4.0 million and $ 9.0 million for the three and nine months ended September 30, 2022 , respectively. Accretion expense for the Convertible Notes was $ 4.0 million and $ 11.9 million for the three and nine months ended September 30, 2021. See Footnote 2, Recently Issued and Adopted Accounting Pronouncements, for more information regarding this adoption.
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 are due 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 September 30, 2022 , the Company has outstanding € 600 million ( $ 588.4 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 September 30, 2022 and December 31, 2021 , borrowings under these arrangements were $ 3.6 million and $ 0.9 million , respectively.
Debt Issuance Costs
As of September 30, 2022, we had unamortized debt issuance costs of $ 1.5 million for the Credit Facility, $ 5.3 million for the Convertible Notes and $ 4.4 million for the Senior Notes that will be amortized through October 2023, March 2025 and May 2026, 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 $ 415.8 million and $ 222.1 million as of September 30, 2022 and December 31, 2021, respectively . The foreign currency forward contracts consist primarily in Australian dollars, Canadian dollars, British pounds sterling, euro and Mexican pesos.
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 $ 7.4 million and $ 216.1 million as of September 30, 2022 and December 31, 2021, respectively , primarily in euro.
14
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 $ 22.3 million and $ 66.5 million for the three and nine months ended September 30, 2022 , respectively, compared to $ 20.1 million and $ 58.5 million for the same periods in 2021, 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 was approximately $1.0 billion as of September 30, 2022 and December 31, 2021 . 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
September 30, 2022
December 31, 2021
Balance Sheet Location
September 30,
2022
December 31, 2021
Derivatives not designated as hedging instruments
Foreign currency exchange contracts
Other current assets
$
92,079
$
27,582
Other current liabilities
$
( 85,799
)
$
( 23,285
)
The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2022 and December 31, 2021 (in thousands):
Offsetting of Derivative Assets
Gross Amounts Not Offset in the Consolidated Balance Sheet
As of September 30, 2022
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
$
92,079
$
—
$
92,079
$
( 57,129
)
$
( 6,938
)
$
28,012
As of December 31, 2021
Derivatives subject to a master netting arrangement or similar agreement
$
27,582
$
—
$
27,582
$
( 14,875
)
$
( 2,284
)
$
10,423
15
Offsetting of Derivative Liabilities
Gross Amounts Not Offset in the Consolidated Balance Sheet
As of September 30, 2022
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
$
( 85,799 )
$
—
$
( 85,799
)
$
57,129
$
4,495
$
( 24,175
)
As of December 31, 2021
Derivatives subject to a master netting arrangement or similar agreement
$
( 23,285
)
$
—
$
( 23,285
)
$
14,875
$
640
$
( 7,770
)
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 losses on derivatives in the Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 :
Amount of Gain (Loss) Recognized in Income on Derivative Contracts (a)
Location of Gain (Loss) Recognized in Income on Derivative Contracts
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)
2022
2021
2022
2021
Foreign currency exchange contracts - Ria Operations
Foreign currency exchange gain (loss), net
$
( 7,402 )
$
3,915
$
( 689 )
$
1,447
(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.
16
The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:
As of September 30, 2022
(in thousands)
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Assets
Foreign currency exchange contracts
Other current assets
$
—
$
92,079
$
—
$
92,079
Liabilities
Foreign currency exchange contracts
Other current liabilities
$
—
$
( 85,799
)
$
—
$
( 85,799
)
As of December 31, 2021
(in thousands)
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Assets
Foreign currency exchange contracts
Other current assets
$
—
$
27,582
$
—
$
27,582
Liabilities
Foreign currency exchange contracts
Other current liabilities
$
—
$
( 23,285
)
$
—
$
( 23,285
)
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 as of September 30, 2022 was based on LIBOR that reset 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 September 30, 2022 , the fair values of the Convertible Notes and Senior Notes were $ 503.9 million and $503.7 million , respectively, with carrying values of $ 525.0 million and $ 588.4 million , respectively.
(12) SEGMENT INFORMATION
Our reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting ("ASC 280") . We currently operate in the following three reportable operating segments:
1) Through the EFT Processing Segment, we process transactions for a network of ATMs and POS terminals across Europe, the Middle East, Africa, Asia Pacific and the United States. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit, debit and prepaid card outsourcing, dynamic currency conversion, domestic and international surcharges 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.
17
2) T hrough the epay Segment, we provide distribution, processing and collection services for electronic payment products, and prepaid mobile airtime in Europe, the Middle East, Asia Pacific, the U.S., South America and North America.
3) Through the Money Transfer Segment, we provide 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. We also offer 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.
In addition, we account for non-operating activity, share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in our administrative division, "Corporate Services, Eliminations and Other." These services are not directly identifiable with our reportable operating segments.
The following tables present our reportable segment results for the three and nine months ended September 30, 2022 and 2021 :
For the Three Months Ended September 30, 2022
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
319,466
$
248,923
$
364,841
$
( 1,964
)
$
931,266
Operating expenses:
Direct operating costs, exclusive of depreciation
137,812
190,091
200,171
( 2,026
)
526,048
Salaries and benefits
30,020
19,756
69,703
14,992
134,471
Selling, general and administrative
12,167
8,506
46,256
2,579
69,508
Depreciation and amortization
23,071
1,436
8,169
105
32,781
Total operating expenses
203,070
219,789
324,299
15,650
762,808
Operating income (loss)
$
116,396
$
29,134
$
40,542
$
( 17,614
)
$
168,458
For the Three Months Ended September 30, 2021
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
227,129
$
238,319
$
353,451
$
( 2,339
)
$
816,560
Operating expenses:
Direct operating costs, exclusive of depreciation
106,321
180,206
200,231
( 2,320
)
484,438
Salaries and benefits
23,665
20,104
65,285
10,367
119,421
Selling, general and administrative
11,301
9,802
41,533
1,662
64,298
Depreciation and amortization
22,640
2,253
8,897
119
33,909
Total operating expenses
163,927
212,365
315,946
9,828
702,066
Operating income (loss)
$
63,202
$
25,954
$
37,505
$
( 12,167
)
$
114,494
18
For the Nine Months Ended September 30, 2022
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
714,067
$
712,467
$
1,072,266
$
( 5,758
)
$
2,493,042
Operating expenses:
Direct operating costs, exclusive of depreciation
354,907
542,066
593,631
( 5,741
)
1,484,863
Salaries and benefits
82,957
59,705
204,905
44,977
392,544
Selling, general and administrative
40,285
26,223
133,654
7,451
207,613
Depreciation and amortization
71,159
4,748
25,557
320
101,784
Total operating expenses
549,308
632,742
957,747
47,007
2,186,804
Operating income (loss)
$
164,759
$
79,725
$
114,519
$
( 52,765
)
$
306,238
For the Nine Months Ended September 30, 2021
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
427,687
$
724,540
$
1,037,659
$
( 5,970
)
$
2,183,916
Operating expenses:
Direct operating costs
258,614
547,828
589,273
( 5,945
)
1,389,770
Salaries and benefits
71,334
59,248
188,535
37,043
356,160
Selling, general and administrative
33,062
28,594
115,975
4,562
182,193
Depreciation and amortization
66,907
6,524
26,886
412
100,729
Total operating expenses
429,917
642,194
920,669
36,072
2,028,852
Operating income (loss)
$
( 2,230 )
$
82,346
$
116,990
$
( 42,042
)
$
155,064
The following table presents our total assets by reportable segment:
Total Assets as of
(in thousands)
September 30, 2022
December 31, 2021
EFT Processing
$
2,101,595
$
1,682,680
epay
760,088
1,234,074
Money Transfer
1,660,050
1,621,726
Corporate Services, Eliminations and Other
306,094
205,796
Total
$
4,827,827
$
4,744,276
19
The following table presents our revenues disaggregated by segment and region. Sales and usage-based taxes are excluded from revenues. We believe 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 September 30, 2022
For the Nine Months Ended September 30, 2022
(in thousands)
EFT
Processing
epay
Money
Transfer
Total
EFT
Processing
epay
Money
Transfer
Total
Europe
$
267,017
$
166,965
$
144,008
$
577,990
$
563,491
$
457,651
$
432,678
$
1,453,820
North America
17,241
32,934
180,796
230,971
51,044
98,538
519,185
668,767
Asia Pacific
34,070
36,853
26,960
97,883
96,821
118,636
80,669
296,126
Other
1,138
12,171
13,077
26,386
2,711
37,642
39,734
80,087
Eliminations
—
—
—
( 1,964
)
—
—
—
( 5,758
)
Total
$
319,466
$
248,923
$
364,841
$
931,266
$
714,067
$
712,467
$
1,072,266
$
2,493,042
For the Three Months Ended September 30, 2021
For the Nine Months Ended September 30, 2021
(in thousands)
EFT
Processing
epay
Money
Transfer
Total
EFT
Processing
epay
Money
Transfer
Total
Europe
$
183,163
$
150,465
$
145,813
$
479,441
$
303,134
$
475,933
$
428,258
$
1,207,325
North America
16,341
35,876
169,473
221,690
46,010
104,318
492,099
642,427
Asia Pacific
27,381
39,303
24,588
91,272
78,110
111,998
79,581
269,689
Other
244
12,675
13,577
26,496
433
32,291
37,721
70,445
Eliminations
—
—
—
( 2,339
)
—
—
—
( 5,970
)
Total
$
227,129
$
238,319
$
353,451
$
816,560
$
427,687
$
724,540
$
1,037,659
$
2,183,916
( 13 ) INCOME TAXES
The Company's effective income tax rate was 31.1 % and 33.5 % for the three and nine months ended September 30, 2022 , respectively, compared to 23.6 % and 35.8 % for t he three and nine months ended September 30, 2021, respectively . The Company's effective income tax rate for the three and nine months ended September 30, 2022 was higher than the applicable statutory income tax rate of 21 % a s a result of certain foreign earnings being subject to higher local statutory tax rates and the Company's U.S. deferred tax activity on foreign exchange positions.
(14) COMMITMENTS
As of September 30, 2022 , we had $ 78.6 million of stand-by letters of credit/bank guarantees issued on our behalf, of which $ 50.9 million are outstanding under the Credit Facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $ 3.0 million of cash deposits held by the respective issuing banks.
Under certain circumstances, we grant guarantees in support of obligations of subsidiaries. As of September 30, 2022 , we had granted off balance sheet guarantees for cash in various ATM networks amounting to $ 9.9 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $ 41.6 million over the terms of agreements with our customers.
20
From time to time, we enter 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. Our 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, we are responsible for damage to ATMs and theft of ATM network cash. As of September 30, 2022 , the balance of such cash used in our ATM networks for which we were responsible was approximately $ 367.0 million . We maintain insurance policies to mitigate this exposure;
In connection with contracts with financial institutions in the EFT Processing Segment, we are responsible for losses suffered by our customers and other parties as a result of the breach of our computer systems, including in particular, losses arising from fraudulent transactions made using information stolen through our processing systems. We maintain insurance policies to mitigate this exposure;
In connection with the license of proprietary systems to customers, we provide 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;
We have entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which we have agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from our 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, we have 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 us, we have 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 us, we have 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
We have entered into agreements with certain third parties, including banks that provide fiduciary and other services to us or our benefit plans. Under such agreements, we have agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
We are also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which we have operations. We have obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, we are not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with us and, accordingly, no liabilities were recorded as of September 30, 2022 or December 31, 2021 .
( 15 ) LITIGATION AND CONTINGENCIES
From time to time, we are a party to legal or regulatory proceedings arising in the ordinary course of our 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 our consolidated financial condition or results of operations. In accordance with U.S. GAAP, we record 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.
21
(16) LEASES
We enter into operating leases for ATM sites, office spaces, retail stores and equipment. Our 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. We recognize 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 our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease terms. We also have a unilateral termination right for most of the ATM site leases. Since we are 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 our 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 September 30, 2022 are:
As of September 30, 2022
Maturity of Lease Liabilities (in thousands)
Operating Leases (1)
Remainder of 2022
$
11,323
2023
39,786
2024
30,591
2025
22,111
2026
15,611
Thereafter
24,865
Total lease payments
$
144,287
Less: imputed interest
( 3,668
)
Present value of lease liabilities
$
140,619
(1) Operating lease payments reflect our current fixed obligations under the operating lease agreements.
22
Lease expense recognized in the Consolidated Statements of Income is summarized as follows:
Lease Expense
(in thousands)
Income Statement Classification
Three Months Ended
September 30, 2022
Three Months Ended
September 30, 2021
Nine Months Ended
September 30, 2022
Nine Months Ended
September 30, 2021
Operating lease expense
Selling, general and administrative and Direct operating costs
$
12,222
$
13,880
$
38,766
$
41,884
Short-term and variable lease expense
Selling, general and administrative and Direct operating costs
40,304
34,808
107,333
84,279
Total lease expense
$
52,526
$
48,688
$
146,099
$
126,163
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 September 30, 2022
Weighted- average remaining lease term (years)
4.8
W eighted- average discount rate
2.3
%
The following table presents supplemental cash flow and non-cash information related to leases.
Other Information (in thousands)
Nine Months Ended
September 30, 2022
Nine months ended
September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities (a)
$
37,908
$
38,763
Supplemental non-cash information on lease liabilities arising from obtaining ROU assets:
ROU assets obtained in exchange for new operating lease liabilities
$
26,487
$
57,580
(a) Included in Net cash provided by operating activities on our Consolidated Statements of Cash Flows .
23
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.