Euronet Worldwide(EEFT) - 2021 Q4 - Annual Report

Part I Business Euronet is a global electronic payments provider operating in three segments: EFT Processing, epay, and Money Transfer Business Overview Euronet operates globally across three core segments: EFT Processing, epay, and Money Transfer - Euronet operates three primary business segments: EFT Processing, epay, and Money Transfer, providing a range of electronic payment solutions globally[13][14] 2021 Revenue Contribution by Segment | Segment | Revenue Contribution | | :--- | :--- | | Money Transfer | ~46% | | epay | ~34% | | EFT Processing | ~20% | - The company has a significant global footprint, with 13 transaction processing centers and 66 business offices across 43 countries as of year-end 2021[18] EFT Processing Segment The EFT Processing segment provides ATM, POS, and card outsourcing services, contributing 20% of 2021 revenues EFT Processing Segment Key Metrics | Metric | 2021 | 2020 | | :--- | :--- | :--- | | ATMs Operated | 42,713 | 37,729 | | Transactions (millions) | 4,366 | 3,275 | - The increase in transactions in 2020 and 2021 was significantly influenced by a rise in lower-value, digitally-initiated payment processing for an Asia Pacific customer's bank wallet and e-commerce site[24] - The segment is progressively transitioning its networks to its innovative, cloud-based REN software, which supports a wide range of payment and digital solutions for both internal and external customers[25][41] - Business is seasonal, with the heaviest demand for cash withdrawals and DCC occurring in the third quarter, coinciding with the tourism season[48] epay Segment The epay segment distributes prepaid mobile airtime and digital content, contributing 34% of 2021 revenues - The segment operates a network of approximately 775,000 POS terminals across about 335,000 retailer locations[52] - In 2021, digital media products (non-mobile airtime) constituted approximately 70% of the epay segment's total revenues and 74% of its gross profit[54] epay Segment Annual Transactions (in millions) | Year | 2017 | 2018 | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Transactions | 1,186 | 1,149 | 1,542 | 2,395 | 3,120 | - The segment's strategy is to decrease reliance on mobile top-up by increasing the distribution of other electronic content, such as gift cards, prepaid debit cards, and digital media (music, software, games), leveraging relationships with global brands like iTunes, Google Play, and Microsoft[72] Money Transfer Segment The Money Transfer segment, contributing 46% of 2021 revenues, offers global money transfer services through over 510,000 locations - The segment operates through a global network of more than 510,000 locations for consumer-to-consumer transfers and processed approximately $63 billion in money transfers in 2021[80][84] Money Transfer Annual Transactions (in millions) | Year | 2017 | 2018 | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Transactions | 92.2 | 107.6 | 114.5 | 116.5 | 135.1 | - A significant agreement with Walmart establishes Ria as the exclusive provider for Walmart-branded U.S. domestic money transfers until at least April 2026, contributing a high volume of lower-margin transactions[88] - The segment's strategy includes expanding its agent and correspondent networks, entering new high-potential money transfer corridors, and cross-selling services through epay and EFT channels[93] Government Regulation Euronet's global operations are subject to extensive regulations, including AML, data privacy, and payment services directives - The company is subject to a wide variety of U.S. and foreign laws, including anti-money laundering, sanctions, consumer protection, and data privacy regulations[100] - In Europe, certain services are regulated under the Second Payment Services Directive (PSD2), requiring licenses in member states; Brexit necessitated a restructuring of services previously passported through its U.K. e-money license[102][103] - The Money Transfer segment must comply with U.S. federal regulations such as the Bank Secrecy Act (BSA), USA PATRIOT Act, and rules enforced by the Consumer Financial Protection Bureau (CFPB) and the Office of Foreign Assets Control (OFAC)[106][108] - Operations are subject to stringent data privacy laws, including the EU's General Data Protection Regulation (GDPR) and the U.S. Gramm-Leach-Bliley Act (GLBA), which govern the collection and processing of personal customer data[110][111] Intellectual Property The company safeguards its intellectual property through trademarks, patents, copyrights, and trade secrets - Brand names like "Ria," "xe," "AFEX," and "IME" are material to the Money Transfer Segment and are registered trademarks in most of its markets[120] - The "Euronet" trademark is registered for ATM machines in Germany, the U.K., and other Western European countries; the company also holds patents for certain software and processing technologies, including DCC services[121] - The "epay" brand and logo are registered trademarks in key markets including the U.S., U.K., E.U., Brazil, and Australia[123] Information about our Executive Officers This section details Euronet's executive officers as of February 22, 2022, including key leadership roles - Michael J. Brown, a co-founder of the company in 1994, serves as Chairman, Chief Executive Officer, and President[127] - The executive team includes leaders for each of the main business segments: Kevin J. Caponecchi for epay and EFT Asia Pacific, Juan C. Bianchi for Money Transfer, and Nikos Fountas for EFT in Europe, Middle East, and Africa[127] Risk Factors Euronet faces diverse risks including regulatory compliance, political instability, economic downturns, and cybersecurity threats - The company is subject to a broad array of local legal and regulatory requirements worldwide, including anti-money laundering, data protection (GDPR), and payment services (DCC regulations), which could adversely affect operations[141][146][148] - Business operations depend on maintaining short-term contracts with content providers and retailers in the epay segment, and card acceptance/ATM management agreements in the EFT segment[163][167] - The COVID-19 pandemic has negatively impacted the business through travel restrictions (affecting the EFT segment's high-margin DCC transactions), reduced consumer traffic, and potential disruptions to agent and retailer networks[195][196][197] - The company has substantial debt ($1.42 billion long-term debt as of Dec 31, 2021) with covenants that could restrict operations; a significant portion of revenue is in foreign currencies, exposing the company to exchange rate volatility[205][206][211] - Security breaches of computer systems pose a major risk, potentially leading to financial losses, liability, and reputational harm; the company faces intense competition from large, well-financed companies like Western Union in the Money Transfer segment[220][227][230] Properties Euronet maintains executive offices in Kansas, 66 global principal offices, and 13 leased processing centers - As of December 31, 2021, Euronet has 66 principal offices worldwide, with the largest concentration (36) in Europe[249] - The company operates 13 leased processing centers for its three segments, located across multiple countries, and all centers have off-site backup facilities[250][251] Legal Proceedings Management believes no current legal or regulatory proceedings will materially impact the company's consolidated financial statements - Management does not believe any current legal or regulatory proceedings will have a material adverse effect on the company's financial statements[253] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Euronet's common stock trades on Nasdaq (EEFT); the company does not pay dividends but repurchased 2.0 million shares - The company's common stock is listed on the Nasdaq Global Select Market under the ticker symbol EEFT[256] - No dividends have been paid on common stock, and the company does not plan to distribute dividends in the foreseeable future[257] Stock Repurchases (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Nov 2021 | 1,000,000 | $110.56 | | Dec 2021 | 1,000,000 | $117.20 | | Total | 2,000,000 | $113.88 | Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenues grew 21% to $3.0 billion in 2021, with operating income up 295% to $184.0 million, driven by segment growth Results of Operations In 2021, consolidated revenues reached $3.0 billion, operating income was $184.0 million, and net income was $70.7 million Consolidated Financial Summary (2021 vs. 2020) | Metric (in thousands) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $2,995,443 | $2,482,700 | 21% | | Operating Income | $184,016 | $46,622 | 295% | | Net Income | $70,727 | ($3,399) | N/A | Segment Operating Income (Loss) (in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | EFT Processing | ($501) | ($66,711) | | epay | $123,037 | $96,678 | | Money Transfer | $119,595 | $59,709 | - The increase in operating income was primarily due to revenue growth across all segments and a $106.6 million decrease in non-cash impairment charges compared to 2020[289] - The effective tax rate for 2021 was 48.0%, significantly influenced by valuation allowances and foreign tax rates; the adjusted effective tax rate, excluding certain items, was 36.1%[336] Liquidity and Capital Resources As of December 31, 2021, Euronet maintained strong liquidity with $1.26 billion in unrestricted cash and $1.42 billion in total debt Key Liquidity and Capital Metrics (as of Dec 31, 2021) | Metric | Amount (in millions) | | :--- | :--- | | Working Capital | $1,455.8 | | Unrestricted Cash | $1,260.5 | | ATM Cash | $543.4 | | Total Debt Obligations | $1,420.1 | | Available Credit Facility | $689.3 | Cash Flow Summary (Year Ended Dec 31, 2021) | Cash Flow Activity | Amount (in millions) | | :--- | :--- | | Operating | $406.6 | | Investing | ($98.1) | | Financing | ($212.2) | - The company repurchased 2.0 million shares for $227.8 million during 2021 under its share repurchase programs[367] - In March 2021, the company agreed to acquire the Piraeus Bank Merchant Acquiring business for €300 million, with closing expected in the first half of 2022, to be financed with cash on hand[350] Critical Accounting Policies and Estimates Key accounting policies and estimates involve income taxes, business combinations, and goodwill impairment, requiring significant judgment - Key critical accounting estimates involve income taxes, purchase price allocation for acquisitions, and potential impairment of goodwill and intangible assets[371] - The company assesses the realizability of deferred tax assets, which totaled $270.9 million (gross) as of December 31, 2021, considering future taxable income projections[374] - Goodwill impairment testing is performed at the reporting unit level, using a qualitative assessment followed by a quantitative test if necessary; the quantitative test compares the fair value (determined by DCF and market approaches) to the carrying amount[378] - Due to the COVID-19 pandemic, an interim goodwill impairment test was performed as of June 1, 2020, resulting in a non-cash impairment charge of $104.6 million for the xe, Innova, and Pure Commerce reporting units[379][381] Quantitative and Qualitative Disclosures about Market Risk Euronet faces interest rate and significant foreign currency exchange rate risks, with 73% of 2021 revenues in non-USD currencies - The company's primary market risks are interest rate risk and foreign currency exchange rate risk[391][393] - As of year-end 2021, 20% of the company's total debt was subject to variable interest rates, while the remaining 80% (Convertible and Senior Notes) had fixed rates[391] - In 2021, 73% of revenues were generated in non-U.S. dollar currencies, creating significant exposure to foreign exchange rate fluctuations; a 10% change in key rates could impact annualized net income by approximately $40-$45 million[393][394] - The company uses foreign currency derivative contracts with notional values totaling over $1.4 billion as of December 31, 2021, to manage currency risk, primarily for its money transfer operations[399][400][401] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2021, including balance sheets, statements of operations, and cash flows Consolidated Balance Sheets As of December 31, 2021, total assets were $4.74 billion, total liabilities $3.49 billion, and total stockholders' equity $1.26 billion Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $3,308,423 | $3,365,935 | | Total Assets | $4,744,276 | $4,926,711 | | Total Current Liabilities | $1,852,641 | $1,855,441 | | Total Liabilities | $3,488,752 | $3,480,808 | | Total Equity | $1,255,524 | $1,445,903 | Consolidated Statements of Operations For 2021, revenues reached $3.0 billion, operating income was $184.0 million, and net income was $70.7 million Consolidated Statement of Operations Summary (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $2,995,443 | $2,482,700 | $2,750,109 | | Operating Income | $184,016 | $46,622 | $475,194 | | Net Income (Loss) Attributable to Euronet | $70,727 | ($3,399) | $346,749 | | Diluted EPS | $1.32 | ($0.06) | $6.31 | Consolidated Statements of Cash Flows In 2021, operating activities provided $406.6 million in cash, while investing and financing activities used $98.1 million and $212.2 million Consolidated Statement of Cash Flows Summary (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $406,576 | $253,505 | | Net cash used in investing activities | ($98,109) | ($105,531) | | Net cash (used in) provided by financing activities | ($212,236) | $35,398 | | (Decrease) increase in cash and cash equivalents | ($13,406) | $282,129 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue disaggregation, acquisitions, goodwill, debt, and tax positions - In March 2021, the company agreed to purchase the Piraeus Bank Merchant Acquiring business for €300 million, expecting to close in the first half of 2022[505] - As of December 31, 2021, goodwill totaled $641.6 million, with $392.3 million allocated to Money Transfer, $129.1 million to epay, and $120.2 million to EFT Processing[523] - Total debt obligations of $1.42 billion include a $283.4 million revolving credit facility, $468.2 million in convertible notes, and $682.1 million in senior notes[526] - The company had a total liability for uncertain tax positions of $41.0 million as of December 31, 2021[341] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[624] - Based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), management determined that the company's internal control over financial reporting was effective as of December 31, 2021[627] Part III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information for these items is incorporated by reference from the company's 2022 Proxy Statement, covering governance, executive compensation, and security ownership - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accounting Fees and Services (Item 14) is incorporated by reference from the company's 2022 Proxy Statement[632][634][635][636][637] Part IV Exhibits and Financial Statement Schedules This section provides a comprehensive list of all financial statements, schedules, and exhibits filed with the Form 10-K - This section provides a comprehensive list of all financial statements, schedules, and exhibits filed with the Form 10-K[639] - Key exhibits include the company's certificate of incorporation, bylaws, indentures for its senior and convertible notes, and various employment and compensation plan agreements[643][644]