Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
to
Commission File Number: 001-31648
EURONET WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware
74-2806888
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
 
 
3500 College Boulevard
 
Leawood, Kansas
66211
(Address of principal executive offices)
(Zip Code)
(913) 327-4200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

On October 31, 2018, Euronet Worldwide, Inc. had 51,560,331 shares of Common Stock outstanding.
 
 
 
 
 



EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Table of Contents
 
 
Page
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 6.
 
 
 
 


Table of Contents

PART I—FINANCIAL INFORMATION

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,
2018
 
December 31,
2017
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,129,272

 
$
819,144

Restricted cash
73,453

 
81,374

Trade accounts receivable, net of allowances for doubtful accounts of $23,426 at September 30, 2018 and $20,958 at December 31, 2017
813,759

 
744,879

Prepaid expenses and other current assets
200,004

 
244,789

Total current assets
2,216,488

 
1,890,186

Property and equipment, net of accumulated depreciation of $365,708 at September 30, 2018 and $340,128 at December 31, 2017
283,167

 
268,303

Goodwill
715,745

 
717,386

Acquired intangible assets, net of accumulated amortization of $191,256 at September 30, 2018 and $179,142 at December 31, 2017
128,586

 
150,543

Other assets, net of accumulated amortization of $49,010 at September 30, 2018 and $44,469 at December 31, 2017
116,800

 
113,611

Total assets
$
3,460,786

 
$
3,140,029

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
405,683

 
$
494,841

Accrued expenses and other current liabilities
752,295

 
759,789

Current portion of capital lease obligations
5,396

 
5,369

Short-term debt obligations and current maturities of long-term debt obligations
233,074

 
41,288

Income taxes payable
64,200

 
54,437

Deferred revenue
53,059

 
51,996

Total current liabilities
1,513,707

 
1,407,720

Debt obligations, net of current portion
641,388

 
404,012

Capital lease obligations, net of current portion
8,750

 
9,753

Deferred income taxes
52,707

 
54,969

Other long-term liabilities
65,113

 
64,097

Total liabilities
2,281,665

 
1,940,551

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; 59,554,968 issued at September 30, 2018 and 58,892,744 issued at December 31, 2017
1,191

 
1,178

Additional paid-in-capital
1,094,531

 
1,072,005

Treasury stock, at cost, 8,096,314 shares at September 30, 2018 and 6,084,586 shares at December 31, 2017
(392,095
)
 
(217,161
)
Retained earnings
609,813

 
436,954

Accumulated other comprehensive loss
(134,605
)
 
(94,458
)
Total Euronet Worldwide, Inc. stockholders’ equity
1,178,835

 
1,198,518

Noncontrolling interests
286

 
960

Total equity
1,179,121

 
1,199,478

Total liabilities and equity
$
3,460,786

 
$
3,140,029

See accompanying notes to the unaudited consolidated financial statements.

3

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
$
714,505

 
$
637,834

 
$
1,887,244

 
$
1,647,777

Operating expenses:
 
 
 
 
 
 
 
Direct operating costs
388,236

 
364,815

 
1,093,072

 
978,768

Salaries and benefits
93,108

 
82,134

 
270,537

 
232,617

Selling, general and administrative
55,787

 
49,279

 
158,156

 
139,708

Acquired intangible assets impairment

 

 

 
2,286

Depreciation and amortization
26,461

 
24,705

 
78,726

 
69,520

Total operating expenses
563,592

 
520,933

 
1,600,491

 
1,422,899

Operating income
150,913

 
116,901

 
286,753

 
224,878

Other income (expense):
 
 
 
 
 
 
 
Interest income
288

 
380

 
1,000

 
2,009

Interest expense
(11,269
)
 
(9,534
)
 
(28,936
)
 
(25,058
)
Loss from unconsolidated affiliates

 

 
(117
)
 

Foreign currency exchange (loss) gain, net
(2,704
)
 
8,179

 
(21,459
)
 
21,035

Other (loss) gains
(34
)
 

 
26

 
35

Other expense, net
(13,719
)
 
(975
)
 
(49,486
)
 
(1,979
)
Income before income taxes
137,194

 
115,926

 
237,267

 
222,899

Income tax expense
(34,937
)
 
(15,573
)
 
(65,031
)
 
(43,130
)
Net income
102,257

 
100,353

 
172,236

 
179,769

Net loss (income) attributable to noncontrolling interests
466

 
(63
)
 
623

 
9

Net income attributable to Euronet Worldwide, Inc.
$
102,723

 
$
100,290

 
$
172,859

 
$
179,778

 
 
 
 
 
 
 
 
Earnings per share attributable to Euronet Worldwide, Inc. stockholders:
 
 
 
 
 
 
 
Basic
$
2.01

 
$
1.91

 
$
3.36

 
$
3.43

Diluted
$
1.89

 
$
1.80

 
$
3.17

 
$
3.23

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
51,182,502

 
52,590,837

 
51,436,228

 
52,463,511

Diluted
54,263,892

 
55,784,485

 
54,521,262

 
55,582,583

See accompanying notes to the unaudited consolidated financial statements.

4

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
102,257

 
$
100,353

 
$
172,236

 
$
179,769

Translation adjustment
(4,613
)
 
26,703

 
(40,198
)
 
97,311

Comprehensive income
97,644

 
127,056

 
132,038

 
277,080

Comprehensive loss (income) attributable to noncontrolling interests
480

 
(113
)
 
674

 
(163
)
Comprehensive income attributable to Euronet Worldwide, Inc.
$
98,124

 
$
126,943

 
$
132,712

 
$
276,917

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,
 
2018
 
2017
Net income
$
172,236

 
$
179,769

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
78,726

 
69,520

Share-based compensation
12,597

 
11,817

Unrealized foreign exchange loss (gain), net
21,459

 
(21,035
)
Deferred income taxes
(1,208
)
 
(14,856
)
Loss from unconsolidated affiliates
117

 

Accretion of convertible debt discount and amortization of debt issuance costs
10,582

 
10,068

Non-cash impairment of acquired intangible assets

 
2,286

Changes in working capital, net of amounts acquired:
 
 
 
Income taxes payable, net
10,022

 
10,924

Trade accounts receivable
(87,237
)
 
(7,861
)
Prepaid expenses and other current assets
42,552

 
77,538

Trade accounts payable
(81,149
)
 
(118,677
)
Deferred revenue
2,525

 
(2,497
)
Accrued expenses and other current liabilities
9,877

 
54,233

Changes in noncurrent assets and liabilities
1,474

 
6,455

Net cash provided by operating activities
192,573

 
257,684

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(12,854
)
 

Purchases of property and equipment
(82,129
)
 
(70,871
)
Purchases of other long-term assets
(5,787
)
 
(4,651
)
Other, net
1,401

 
1,499

Net cash used in investing activities
(99,369
)
 
(74,023
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of shares
11,757

 
8,328

Repurchase of shares
(177,163
)
 
(2,310
)
Borrowings from revolving credit agreements
4,267,881

 
1,839,963

Repayments of revolving credit agreements
(4,003,662
)
 
(1,808,695
)
Repayments of long-term debt obligations
(51,199
)
 
(6,563
)
Repayments of capital lease obligations
(4,739
)
 
(3,473
)
Borrowings from short-term debt obligations, net
204,211

 
99,081

Other, net
1

 
284

Net cash provided by financing activities
247,087

 
126,615

Effect of exchange rate changes on cash and cash equivalents and restricted cash
(38,084
)
 
53,494

Increase in cash and cash equivalents and restricted cash
302,207

 
363,770

Cash and cash equivalents and restricted cash at beginning of period
900,518

 
812,088

 
 
 
 
Cash and cash equivalents and restricted cash at end of period
$
1,202,725

 
$
1,175,858

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid during the period
$
19,243

 
$
17,359

Income taxes paid during the period
$
55,338

 
$
34,769

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. (together with its subsidiaries, the “Company” or “Euronet”) is a leading electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Euronet's primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services, software solutions, electronic distribution of prepaid mobile airtime and other electronic payment products, foreign currency exchange services and global money transfer services.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared from the records of the Company, in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the consolidated financial position and the results of operations, comprehensive income and cash flows for the interim periods. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2017, including the notes thereto, set forth in the Company’s 2017 Annual Report on Form 10-K. Certain amounts in prior years have been reclassified to conform to the current year's presentation.
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 reported 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, 2018.
Seasonality
Euronet’s EFT Processing Segment experiences its heaviest demand for dynamic currency conversion ("DCC") services during the third quarter of the fiscal year, coinciding with the tourism season followed by lower transaction levels during the fourth quarter. Additionally, the epay Segments is impacted by seasonality during the fourth quarter and the first quarter of each year due to higher transaction levels during the holiday season and lower levels following the holiday season. Seasonality in the Money Transfer Segment varies by regions 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 experiences its lowest transaction levels during the first quarter of each year.
(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), and subsequently modified the standard with several ASUs. The Company adopted the standard on January 1, 2018 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting under Topic 605.
The Company completed its review of customer contracts relative to the requirements of Topic 606 and concluded that revenues from certain customer contracts in the epay Segment should be recorded differently under the principal versus agent guidance of Topic 606. With respect to those contracts, the Company concluded that it earns a commission from content providers for distributing and processing their prepaid mobile airtime and other electronic payment products, but it is not the principal for the products themselves. As a result, the impact of the change in accounting principle was a reduction of $16.4 million and $53.3 million in both revenues and direct operating expenses for the three and nine months ended September 30, 2018, respectively, with no impact on reported net income.


7

Table of Contents



Contract Balances
The new standard requires the deferral of incremental costs to obtain customer contracts, known as contract assets, which are then amortized to expense as part of selling, general and administrative expense over the respective periods of expected benefit. The Company completed its review of such costs and concluded that a transition adjustment was not necessary related to contract assets. However, the Company has implemented processes and controls to record such costs on an ongoing basis and will disclose them if they become material.

The Company records deferred revenues when cash payments are received or due in advance of its performance. The increase in the deferred revenue balance for the first nine months of 2018 is primarily driven by $36.0 million of cash payments received in the current year for which we have not yet satisfied the performance obligations, that were offset by $35.0 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2017.

Variable Consideration
Within the EFT segment, outsourcing services are generally billed on the basis of a fixed fee per ATM, plus a transaction-based fee. Transaction-based fees are recognized at the time the transactions are processed and outsourcing management fees are recognized ratably over the contract period. These fees can be variable based on transaction volume tiered discounts; however, as all tiered discounts are calculated monthly, the actual discount is recorded on a monthly basis. In addition, the epay segment generates commissions from the distribution of electronic content. It is common for these long-term contracts to contain award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics or program milestones and can be based upon customer discretion.

Transaction fees, as well as any tiered volume discounts or incentive fees, are calculated and billed monthly in accordance with the terms established in the contract. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on as assessment of Euronet's anticipated performance and all information (historical, current and forecast) that is reasonably available. 

Arrangements with Multiple Performance Obligations
The Company's most significant revenues are generated from transaction fees for which there are no remaining performance obligations left to fulfill after revenue is recognized. An insignificant amount of revenues are generated from contracts with customers which may include multiple performance obligations. For such arrangements, Euronet allocates revenues to each performance obligation based on its relative standalone selling price.

Disaggregation of Revenues
Revenues are recognized when control of the promised goods or services is transferred to Euronet's customers, in an amount that reflects the consideration it expects to be entitled to in exchange for goods or services.

The following table presents the Company's revenues disaggregated by segment and region. Sales and usage-based taxes are excluded from revenues. The Company believes disaggregation by segment and region best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The disaggregation of revenues by segment and region is based on management's assessment of segment performance together with allocation of financial resources, both capital and operating support costs, on a segment and regional level. Both segments and regions benefit from synergies achieved through concentration of operations and are influenced by macro-economic, regulatory and political factors in the respective segment and region.


8

Table of Contents

 
For the Three Months Ended September 30, 2018
 
For the Nine Months Ended September 30, 2018
(in thousands)
EFT
Processing
 
epay
 
Money
Transfer
 
Total
 
EFT
Processing
 
epay
 
Money
Transfer
 
Total
North America
$
7,613

 
$
41,346

 
$
147,830

 
$
196,789

 
$
23,956

 
$
124,667

 
$
420,568

 
$
569,191

Europe
226,531

 
123,386

 
84,492

 
434,409

 
485,030

 
340,180

 
240,266

 
1,065,476

Asia Pacific
27,570

 
17,505

 
31,195

 
76,270

 
83,310

 
52,116

 
95,049

 
230,475

Other
22

 
3,194

 
4,774

 
7,990

 
37

 
11,776

 
13,060

 
24,873

Eliminations

 

 

 
(953
)
 

 

 

 
(2,771
)
Total
$
261,736

 
$
185,431

 
$
268,291

 
$
714,505

 
$
592,333

 
$
528,739

 
$
768,943

 
$
1,887,244


 
For the Three Months Ended September 30, 2017
 
For the Nine Months Ended September 30, 2017
(in thousands)
EFT
Processing
 
epay
 
Money
Transfer
 
Total
 
EFT
Processing
 
epay
 
Money
Transfer
 
Total
North America
$
8,065

 
$
15,633

 
$
131,615

 
$
155,313

 
$
23,065

 
$
48,440

 
$
379,620

 
$
451,125

Europe
192,147

 
141,561

 
69,802

 
403,510

 
391,213

 
382,316

 
190,080

 
963,609

Asia Pacific
25,977

 
22,556

 
24,101

 
72,634

 
73,614

 
68,291

 
72,744

 
214,649

Other
132

 
4,484

 
2,587

 
7,203

 
138

 
13,484

 
6,761

 
20,383

Eliminations

 

 

 
(826
)
 

 

 

 
(1,989
)
Total
$
226,321

 
$
184,234

 
$
228,105

 
$
637,834

 
$
488,030

 
$
512,531

 
$
649,205

 
$
1,647,777

As noted above, prior period amounts have not been adjusted under the modified retrospective method.

In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. The new standard specifies that liabilities within its scope are considered to be financial liabilities, and amends the guidance in ASC 405-20, Extinguishments of Liabilities, by directing entities to derecognize prepaid stored-value product liabilities based on expected breakage in proportion to the pattern of rights expected to be exercised by the consumer. Derecognition for breakage is permitted only to the extent that it is probable that a significant reversal of recognized breakage will not subsequently occur. The new standard is consistent with the breakage guidance in Topic 606. The Company adopted this ASU as of January 1, 2018 along with Topic 606. The adoption of this standard did not have a significant impact on the Company's consolidated financial statements and related disclosures.

In August 2016, the FASB issued an accounting standard classified under FASB ASC Topic 230, “Statement of Cash Flows”. This accounting standard provides guidance on eight specific cash flow issues. Subsequently, the FASB issued amendments to this accounting standard that required companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the statement of cash flows.

The Company adopted these standards as of January 1, 2018. The adoption of these accounting standards resulted in an increase in net cash provided by operating activities of $27.2 million for the nine months ended September, 2017. As of September 30, 2018, the Company had $73.5 million of restricted cash consisting of restricted cash held in trust and/or cash held on behalf of others and cash collateral on bank credit arrangements. Cash held in trust and/or cash held on behalf of others is in connection with the administration of the customer collection and vendor remittance activities by certain subsidiaries within the Company’s epay and EFT Processing Segments. Amounts collected on behalf of certain mobile phone operators and/or merchants are deposited into a restricted cash account. The bank credit arrangements primarily represent cash collateral on deposit with commercial banks to cover guarantees.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will update the existing guidance on accounting for leases and require new qualitative and quantitative disclosures about the Company’s leasing activities. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard requires lessees to account for all leases on the balance sheet, except for certain short-term leases that have a maximum possible lease term of 12 months. The accounting for lessors is largely unchanged from the previous accounting guidance, except for leverage lease accounting which is not permitted for leases entered into or modified after the effective date of the new standard.

9

Table of Contents

The new standard is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. A modified retrospective approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company expects to adopt the new standard on January 1, 2019 and use the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company expects to elect the "package of practical expedients", which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to it.
The Company currently anticipates this standard will have a material impact on its consolidated balance sheets but will not have a material impact on its consolidated income statements. The Company currently expects the most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases. The Company currently expects its accounting for capital leases to remain substantially unchanged. The Company is continuing to assess the potential impacts of the standard.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently in the process of evaluating the effect of the adoption of ASU 2016-13 on its consolidated financial statements.
(3) STOCKHOLDERS' EQUITY
Earnings Per Share
Basic earnings per share has been computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share has been computed by dividing earnings available to common stockholders by the weighted average shares outstanding during the respective period, after adjusting for any potential dilution from options to purchase the Company's common stock, assumed vesting of restricted stock and the assumed conversion of the Company’s convertible debentures. The following table provides the computation of diluted weighted average number of common shares outstanding:

Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Computation of diluted weighted average shares outstanding:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
51,182,502

 
52,590,837

 
51,436,228

 
52,463,511

Incremental shares from assumed exercise of stock options and vesting of restricted stock
1,521,560

 
1,863,883

 
1,525,204

 
1,789,307

Incremental shares from assumed conversion of convertible notes
1,559,830

 
1,329,765

 
1,559,830

 
1,329,765

Diluted weighted average shares outstanding
54,263,892

 
55,784,485

 
54,521,262

 
55,582,583

The table includes the impact of all stock options and restricted stock that are dilutive to the Company’s weighted average common shares outstanding during the three and nine months ended September 30, 2018 and 2017. The calculation of diluted earnings per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding of approximately 436,000 and 792,000 for the three and nine months ended September 30, 2018, respectively, and approximately 458,000 and 884,000 for the three and nine months ended September 30, 2017, respectively.
The Company's convertible notes have settlement features requiring the Company upon conversion to settle the principal amount of the debt and the conversion value in excess of the principal value ("conversion premium") for cash or shares of the Company's common stock or a combination thereof, at the Company's option. At issuance, the Company stated its intent to settle any conversion of these notes by paying cash for the principal value and issuing common stock for any conversion premium.  Accordingly, the convertible notes are included in the calculation of diluted earnings per share if their inclusion is dilutive. The convertible notes would only have a dilutive effect if the market price per share of common stock exceeds the conversion price of $72.18 per share and the dilutive effect increases the more the market price exceeds the conversion price.

10

Table of Contents

As of September 30, 2018 and 2017, the stock price exceeded the conversion price and these notes were dilutive to earnings per share. Further, as a result of the share price increasing from $94.79 at September 30, 2017 to $100.22 at September 30, 2018, there was an increase in shares from the assumed conversion of convertible notes.
Share repurchases
The Company's Board of Directors has authorized a stock repurchase program ("Repurchase Program") allowing Euronet to repurchase up to $375 million in value or 10.0 million shares of stock through March 31, 2020. Repurchases under the Repurchase 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. For the first nine months of 2018, the Company repurchased $175.0 million, in value of Euronet common stock under the Repurchase Program.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists entirely of foreign currency translation adjustments. The Company recorded foreign currency translation losses of $4.6 million and $40.2 million for the three and nine months ended September 30, 2018, respectively, and gains of $26.7 million and $97.3 million for the three and nine months ended September 30, 2017, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three and nine months ended September 30, 2018 and 2017.
(4) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the nine months ended September 30, 2018 is presented below:
(in thousands)
 
Acquired
Intangible
Assets
 
Goodwill
 
Total
Intangible
Assets
Balance as of December 31, 2017
 
$
150,543

 
$
717,386

 
$
867,929

Increases (decreases):
 
 
 
 
 
 
Acquisitions
 

 
20,742

 
20,742

Amortization
 
(17,179
)
 

 
(17,179
)
Other (primarily changes in foreign currency exchange rates)
 
(4,778
)
 
(22,383
)
 
(27,161
)
Balance as of September 30, 2018
 
$
128,586

 
$
715,745

 
$
844,331

Estimated amortization expense on intangible assets with finite lives, before income taxes, as of September 30, 2018, is expected to total $5.4 million for the remainder of 2018, $21.2 million for 2019, $20.4 million for 2020, $19.5 million for 2021, $18.5 million for 2022 and $13.7 million for 2023.
The Company completed the acquisitions of two small European businesses for an immaterial amount of cash consideration, completing one acquisition in the first quarter of 2018 and completing the other acquisition in the second quarter of 2018. The acquisitions have been accounted for as business combinations in accordance with U.S. GAAP and the results of operations have been included from the respective dates of acquisition in the EFT Processing Segment.
The Company’s annual goodwill impairment test is performed during the fourth quarter of its fiscal year. The annual impairment test for the year ended December 31, 2017 resulted in impairment charges of $31.8 million.
Determining the fair value of reporting units requires significant management judgment in estimating future cash flows and assessing potential market and economic conditions. It is reasonably possible that the Company’s operations will not perform as expected, or that the estimates or assumptions included in the 2017 annual impairment test could change, which may result in the Company recording material non-cash impairment charges during the year in which these changes take place.

11

Table of Contents

(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
 
As of
(in thousands)
September 30, 2018
 
December 31, 2017
Accrued expenses
$
305,969

 
$
301,390

Money transfer settlement obligations
341,073

 
343,613

Accrued amounts due to mobile operators and other content providers
79,155

 
92,291

Derivative liabilities
25,829

 
22,495

Total
$
752,295

 
$
759,789


(6) DEBT OBLIGATIONS
Debt obligations consist of the following:
 
As of
(in thousands)
September 30, 2018
 
December 31, 2017
Credit Facility:
 
 
 
Term loan, due 2019
$

 
$
51,094

Revolving credit agreements, due 2019
266,738

 
3,000

 
266,738

 
54,094

Convertible Debt:
 
 
 
1.50% convertible notes, unsecured, due 2044
377,863

 
369,259

 
 
 
 
ATM credit facility
200,000

 

 
 
 
 
Other obligations
33,696

 
27,763

 
 
 
 
Total debt obligations
878,297

 
451,116

Unamortized debt issuance costs
(3,835
)
 
(5,816
)
Carrying value of debt
874,462

 
445,300

Short-term debt obligations and current maturities of long-term debt obligations
(233,074
)
 
(41,288
)
Long-term debt obligations
$
641,388

 
$
404,012


Credit Facility
As of September 30, 2018, the Company had a $675 million senior secured credit facility (the "Credit Facility") consisting of a $600 million revolving credit agreement and a $75 million term loan, which was retired early during the third quarter of 2018. The Credit Facility was subsequently replaced by a new credit agreement on October 17, 2018, which resulted in long-term debt obligation classification for the Credit Facility as of September 30, 2018. See Note 13, Subsequent Event, for further details.
Interest on borrowings under the revolving credit facility varies based upon the Company's consolidated total leverage ratio, as defined in the Company's credit agreement, and is based on a margin over the London Inter-Bank Offered Rate (“LIBOR”) or a margin over a base rate, as selected by the Company, with the applicable margin ranging from 1.375% to 2.375% for LIBOR loans or 0.375% to 1.375% for base rate loans. Accordingly, the weighted average interest rate for borrowings outstanding under the Company's revolving credit facility was 3.58% as of September 30, 2018.
Convertible Debt
The Convertible Senior Notes (“Convertible Notes”) had a principal amount outstanding of $402.5 million as of September 30, 2018. The Convertible Notes mature in October 2044 unless repurchased or converted prior to such date, and are convertible into shares of Euronet Common Stock at a conversion price of approximately $72.18 per share. Holders of the Convertible

12

Table of Contents

Notes have the option to require the Company to purchase their notes at par on October 1, 2020, and have additional options to require the Company to purchase their notes at par on October 1, 2024, 2029, 2034, and 2039, or upon a change in control of the Company.
Holders may convert all or any portion of their Convertible Notes at their option at any time prior to October 1, 2044 only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter), if the closing sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; (2) during the five consecutive business day period after any ten consecutive trading day period (the measurement period) in which the trading price for the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Company's common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. If the holders exercise their option to convert, the Company is required to deliver cash or shares of the Company's common stock, at the Company's option, to satisfy the principal amount and the conversion premium. As of September 30, 2018, the conversion threshold in clause (1) of the preceding sentence had been met and the Convertible Notes became convertible at the holders' option during the fourth quarter of 2018.
Contractual interest expense for the Convertible Notes was $1.5 million and $4.5 million for the three and nine months ended September 30, 2018 and 2017, respectively. Accretion expense was $2.9 million and $8.6 million for the three and nine months ended September 30, 2018, respectively, and $2.8 million and $8.2 million for the three and nine months ended September 30, 2017, respectively. The effective interest rate was 4.7% for the three and nine months ended September 30, 2018. As of September 30, 2018, the unamortized discount was $24.6 million, and will be amortized through October 1, 2020.
ATM Credit Facility
On May 11, 2018, the Company entered into a short-term credit facility in the amount of $300 million for the sole purpose of providing cash for its ATM network. Interest is charged on this financing on an annual basis at the Overnight LIBOR rate plus 1.75%. The facility expires on November 30, 2018. The Company repaid $100 million of the facility during the third quarter of 2018. The weighted average interest rate for borrowings under the ATM credit facility was 3.7% and 3.6% for the three and nine months ended September 30, 2018.
(7) 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) short-term borrowings that are payable in currencies other than the U.S. dollar. 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 Topic 815, Derivatives and Hedging ("ASC Topic 815"), primarily due to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates being reflected concurrently in earnings for both the derivative instrument and the hedged transaction and having an offsetting effect.
Foreign currency exchange contracts - Ria Operations and Corporate
In the United States, the Company's Ria operations use 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. As of September 30, 2018, the Company held in its Ria operations foreign currency forward contracts outstanding in the U.S. with a notional value of $328 million, primarily in Australian dollars, Canadian dollars, British pounds, euros 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 foreign currency denominated other asset and liability positions. As of September 30, 2018, the Company had foreign currency forward contracts outstanding with a notional value of $275 million, primarily in euros and Polish zloty.
Foreign currency exchange contracts - HiFX Operations
HiFX 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

13

Table of Contents

as part of its operations. HiFX aggregates its foreign currency exposures arising from customer contracts and may hedge some or all of the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from HiFX's total portfolio of positions were $16.8 million and $52.5 million for the three and nine months ended September 30, 2018, respectively, and $16.7 million and $48.4 million for the three and nine months ended September 30, 2017, respectively. All of the derivative contracts used in the Company's HiFX operations are economic hedges and are not designated as hedges under ASC Topic 815. The duration of these derivative contracts is generally less than one year.
The fair value of HiFX'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. HiFX 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. HiFX does not expect any significant losses from counterparty defaults.
The aggregate equivalent U.S. dollar notional amounts of foreign currency derivative customer contracts held by the Company in its HiFX operations as of September 30, 2018 was approximately $1.2 billion. The majority of customer contracts are written in major currencies such as the U.S. dollar, euro, New Zealand dollar, British pound, and Australian 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, 2018
 
December 31, 2017
 
Balance Sheet Location
 
September 30, 2018
 
December 31, 2017
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaid expense and other current assets
 
$
41,399

 
$
36,574

 
Accrued expenses and other current liabilities

 
$
(25,829
)
 
$
(22,495
)

14

Table of Contents

The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2018 and December 31, 2017 (in thousands):
Offsetting of Derivative Assets
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
As of September 30, 2018
 
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
 
$
41,399

 
$

 
$
41,399

 
$
(15,915
)
 
$
(4,515
)
 
$
20,969

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
36,574

 
$

 
$
36,574

 
$
(15,050
)
 
$
(7,603
)
 
$
13,921

Offsetting of Derivative Liabilities
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
As of September 30, 2018
 
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
 
$
(25,829
)
 
$

 
$
(25,829
)
 
$
15,915

 
$
1,004

 
$
(8,910
)
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
(22,495
)
 
$

 
$
(22,495
)
 
$
15,050

 
$
2,716

 
$
(4,729
)
See Note 8, Fair Value Measurements, for the determination of the fair values of derivatives.

Income Statement Presentation
The following table summarizes the location and amount of gains and losses on derivatives in the Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017:
 
 
 
 
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)
 
 
2018
 
2017
 
2018
 
2017
Foreign currency exchange contracts
 
Foreign currency exchange gain (loss), net
 
$
2,058

 
$
3,062

 
$
10,438

 
$
(3,007
)
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its HiFX 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.
(8) 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

15

Table of Contents

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.
The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:
 
 
 
 
As of September 30, 2018
(in thousands)
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$

 
$
41,399

 
$

 
$
41,399

Liabilities
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current liabilities
 
$

 
$
(25,829
)
 
$

 
$
(25,829
)
 
 
 
 
As of December 31, 2017
(in thousands)
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$

 
$
36,574

 
$

 
$
36,574

Liabilities
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current liabilities
 
$

 
$
(22,495
)
 
$

 
$
(22,495
)

Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses and other current obligations approximate their fair values because of the relatively short-term maturities of these financial instruments. The carrying values of the Company’s long-term debt (other than the Convertible Notes), including the current portion, approximate fair value because interest is primarily based on LIBOR, which resets at various intervals of less than one year. The Company estimates the fair value of the Convertible Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of September 30, 2018 and December 31, 2017, the fair values of the Convertible Notes were $562.6 million and $503.7 million, respectively, with carrying values of $377.9 million and $369.3 million, respectively.
(9) SEGMENT INFORMATION
The Company’s reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting. The Company currently operates in the following three reportable operating segments:
1)
Through the EFT Processing Segment, the Company processes transactions for a network of ATMs and POS terminals across Europe, the Middle East and Asia Pacific and the United States. The Company provides comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion and other value added services. Through this segment, the Company also offers a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
2)
Through the epay Segment, the Company provides distribution, processing and collection services for prepaid mobile airtime and other electronic payment products in Europe, the Middle East, Asia Pacific, the United States and South America.

16

Table of Contents

3)
Through the Money Transfer Segment, the Company provides global money transfer services under the brand names Ria, HiFX, IME and xe. Ria 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. HiFX offers account-to-account international payment services to high-income individuals and small-to-medium sized businesses. xe is a provider of foreign currency exchange information and offers money transfers on its currency data websites. The Company also offers customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services, foreign currency exchange services and mobile top-up. The Company provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses under the brand name HiFM.
In addition, the Company accounts for non-operating activity, most share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in its administrative division, “Corporate Services, Eliminations and Other.” These services are not directly identifiable with the Company’s reportable operating segments.
The following tables present the Company’s reportable segment results for the three and nine months ended September 30, 2018 and 2017:
 
 
For the Three Months Ended September 30, 2018
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
261,736

 
$
185,431

 
$
268,291

 
$
(953
)
 
$
714,505

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
101,763

 
142,665

 
144,758

 
(950
)
 
388,236

Salaries and benefits
 
21,653

 
14,491

 
48,945

 
8,019

 
93,108

Selling, general and administrative
 
11,227

 
9,968

 
32,483

 
2,109

 
55,787

Depreciation and amortization
 
16,694

 
1,881

 
7,854

 
32

 
26,461

Total operating expenses
 
151,337

 
169,005

 
234,040

 
9,210

 
563,592

Operating income (expense)
 
$
110,399

 
$
16,426

 
$
34,251

 
$
(10,163
)
 
$
150,913


 
 
For the Three Months Ended September 30, 2017
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
226,321

 
$
184,234

 
$
228,105

 
$
(826
)
 
$
637,834

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
99,024

 
143,023

 
123,588

 
(820
)
 
364,815

Salaries and benefits
 
16,817

 
13,955

 
44,110

 
7,252

 
82,134

Selling, general and administrative
 
8,878

 
9,145

 
28,648

 
2,608

 
49,279

Depreciation and amortization
 
14,805

 
2,461

 
7,403

 
36

 
24,705

Total operating expenses
 
139,524

 
168,584

 
203,749

 
9,076

 
520,933

Operating income (expense)
 
$
86,797

 
$
15,650

 
$
24,356

 
$
(9,902
)
 
$
116,901


17

Table of Contents


 
 
For the Nine Months Ended September 30, 2018
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
592,333

 
$
528,739

 
$
768,943

 
$
(2,771
)
 
$
1,887,244

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
279,927

 
403,010

 
412,895

 
(2,760
)
 
1,093,072

Salaries and benefits
 
57,704

 
43,235

 
145,420

 
24,178

 
270,537

Selling, general and administrative
 
30,557

 
27,191

 
93,610

 
6,798

 
158,156

Depreciation and amortization
 
49,277

 
5,653

 
23,702

 
94

 
78,726

Total operating expenses
 
417,465

 
479,089

 
675,627

 
28,310

 
1,600,491

Operating income (expense)
 
$
174,868

 
$
49,650

 
$
93,316

 
$
(31,081
)
 
$
286,753


 
 
For the Nine Months Ended September 30, 2017
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
488,030

 
$
512,531

 
$
649,205

 
$
(1,989
)
 
$
1,647,777

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
238,753

 
393,269

 
348,724

 
(1,978
)
 
978,768

Salaries and benefits
 
46,125

 
39,606

 
125,273

 
21,613

 
232,617

Selling, general and administrative
 
23,960

 
27,628

 
77,912

 
10,208

 
139,708

Acquired intangible assets impairment

 
2,286

 

 

 

 
2,286

Depreciation and amortization
 
39,816

 
7,667

 
21,941

 
96

 
69,520

Total operating expenses
 
350,940

 
468,170

 
573,850

 
29,939

 
1,422,899

Operating income (expense)
 
$
137,090

 
$
44,361

 
$
75,355

 
$
(31,928
)
 
$
224,878


The following table presents the Company’s property and equipment and total assets by reportable segment:
 
 
Property and Equipment, net as of
 
Total Assets as of
(in thousands)
 
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
EFT Processing
 
$
209,912

 
$
196,451

 
$
1,460,848

 
$
1,040,135

epay
 
29,496

 
28,135

 
616,406

 
695,990

Money Transfer
 
43,684

 
43,564

 
1,366,298

 
1,255,765

Corporate Services, Eliminations and Other
 
75

 
153

 
17,234

 
148,139

   Total
 
$
283,167

 
$
268,303

 
$
3,460,786

 
$
3,140,029


(10) INCOME TAXES
The Company's effective income tax rate was 25.5% and 27.4% for the three and nine months ended September 30, 2018, respectively, compared to 13.4% and 19.3% for the three and nine months ended September 30, 2017, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2017 was less than the applicable statutory rate of 35% primarily due to the release of a $16.3 million valuation allowance against certain foreign deferred tax assets and, to a lesser extent, the Company's U.S. tax position. In 2017, the significant year-over-year and year-to-date profitability of ATMs under management in Europe allowed the release of the valuation allowance as the Company believes that certain foreign deferred assets, including net operating loss carryforwards, will more likely than not be realized in future periods. In addition, the Company had significant U.S. federal tax net operating loss carryforwards with no recent history of significant U.S. taxable income; therefore, the Company had recorded a valuation allowance against its net U.S. deferred tax assets. Accordingly, in instances when the Company generated pre-tax U.S. GAAP income, no income tax expense was recognized to the extent there were net operating loss carryforwards to offset the pre-tax U.S. GAAP income.
The Company's effective income tax rate for the three and nine months ended September 30, 2018 was higher than the applicable statutory income tax rate of 21% as a result of the enactment into law of what is commonly known as the Tax Cuts and Jobs Act of 2017 (the "Act") and the Act's impact on the Company's U.S. income tax positions at the end of 2017. The most significant provisions of the Act are the transition tax on previously undistributed foreign earnings of foreign subsidiaries, the reduction in the U.S. corporate statutory income tax rate from 35% to 21% beginning on January 1, 2018, and new taxes on certain foreign sourced earnings. As stated above, the Company had recorded a valuation allowance against its net U.S. deferred tax assets. Upon enactment of the Act, the Company expected to utilize its historic U.S. federal tax net operating losses to partially offset the transition tax and released the associated valuation allowance in the fourth quarter of 2017. This

18

Table of Contents

change has created additional U.S. tax expense as the Company now recognizes income tax expense on its pre-tax U.S. GAAP income. In addition, the Act's global intangible low-taxed income ("GILTI") provision has subjected the Company's foreign earnings to additional U.S. tax expense.
The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period of up to one year from the Act's enactment date for companies to complete their accounting. In accordance with SAB 118, the Company provided provisional amounts where appropriate which it believes represent a reasonable estimate based on available information and its interpretations of the Act. Further, the Company is allowed to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or recognize such taxes as current period expenses when incurred. Due to the complexity of calculating GILTI, the Company has not determined which method it will apply. The Company will continue to evaluate the Act and adjust the provisional amounts as additional information becomes available.
(11) COMMITMENTS
As of September 30, 2018, the Company had $74.3 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $47.9 million are outstanding under the Credit Facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $3.7 million of cash deposits held by the respective issuing banks.
Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of September 30, 2018, the Company had granted off balance sheet guarantees for cash in various ATM networks amounting to $23.2 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $29.4 million over the terms of agreements with the customers.
From time to time, the Company enters into agreements with commercial counterparties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Euronet's liability under such indemnification provisions may be mitigated by relevant insurance coverage and may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnification obligations include the following:
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for damage to ATMs and theft of ATM network cash that, generally, is not recorded on the Company’s Consolidated Balance Sheets. As of September 30, 2018, the balance of cash used in the Company's ATM networks for which the Company was responsible was approximately $318 million. The Company maintains insurance policies to mitigate this exposure;
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for losses suffered by its customers and other parties as a result of the breach of its computer systems, including in particular, losses arising from fraudulent transactions made using information stolen through its processing systems. The Company maintains systems of internal controls and insurance policies to mitigate this exposure;
In connection with the license of proprietary systems to customers, the Company provides certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
Euronet has entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which the Company has agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from the Company’s use of the vendor’s product or the services of the vendor or consultant;
In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, the Company has entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions of operating units or assets made by Euronet, the Company has agreed to indemnify the seller against third-party claims made against the seller relating to the operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet has agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made; and

19

Table of Contents

Euronet has entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to the Company’s benefit plans. Under such agreements, the Company has agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
The Company is also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company has money transfer operations. The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, the Company is not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of September 30, 2018 or December 31, 2017.
(12) LITIGATION AND CONTINGENCIES
From time to time, the Company is a party to legal or regulatory proceedings arising in the ordinary course of its business. Currently, there are no legal proceedings or regulatory findings that management believes, either individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition or results of operations. In accordance with U.S. GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
(13) SUBSEQUENT EVENT
On October 17, 2018, the Company entered into a new unsecured revolving credit agreement for $1.0 billion that expires on October 17, 2023. Interest on borrowings varies based upon the Company's corporate credit rating and on a margin over LIBOR or a margin over the base rate, as selected by the Company, with the applicable margin ranging from 1.125% to 2.0% or 0.175% to 1.0% for base rate loans. The new credit facility replaced the $675 million senior secured credit facility that was due to expire on April 9, 2019.
Once each of Euronet's domestic subsidiaries reaches a certain size, it is required under the unsecured revolving credit agreement to provide a guarantee of all the outstanding obligations under the credit agreement.



20

Table of Contents

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;
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 the effects in Europe of the Brexit vote, and economic conditions in specific countries and regions; the effects of demonetization in India; 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; Visa's announced rule change to allow our ATMs to provide DCC beginning mid-April of next year; our ability to comply with increasingly stringent regulatory requirements, including anti-money laundering, anti-terrorism, anti-bribery, consumer and data protection requirements, and the E.U. General Data Protection Regulation, or GDPR, and Payment Services Directive 2, or PSD2, 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; 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, 2017 and in Part II, Item 1A-Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018. Our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are 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.


21

Table of Contents

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:
The EFT Processing Segment, which processes transactions for a network of 41,902 ATMs and approximately 279,000 POS terminals across Europe, the Middle East and Asia Pacific and the United States. 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 payment products. We operate a network of approximately 687,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic payment products 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, IME and xe, and global account-to-account money transfer services under the brand name HiFX. We offer services under the brand names Ria and IME through a network of sending agents, Company-owned stores (primarily in North America, Europe and Malaysia) and Ria branded websites (riamoneytransfer.com and imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 361,000 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). We offer services under the brand name HiFX through HiFX branded websites and HiFX customer service representatives. 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 HiFM 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, 11 in Asia Pacific, nine 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.

SOURCES OF REVENUES AND CASH FLOW
Euronet primarily earns revenues and income 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 37% and 31% of total consolidated revenues for the third quarter and first nine months of 2018, respectively, are primarily 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 license fees, professional services and maintenance fees for proprietary application software and sales of related hardware.

22

Table of Contents

epay Segment — Revenues in the epay Segment, which represented approximately 26% and 28% of total consolidated revenues for the third quarter and first nine months of 2018, respectively, are 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 payment products, vouchers, and physical gifts. The proportion of epay Segment revenues earned from the distribution of prepaid mobile phone time as compared with other electronic products has decreased over time, and non-mobile content now produces approximately 60% of epay Segment revenues. Other electronic payment products offered by this segment include digital content such as music, games and software, as well as other products, including 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 37% and 41% of total consolidated revenues for the third quarter and first nine months of 2018, respectively, are 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, xe and HiFX 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 2020. 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 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 payment 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.
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;

23

Table of Contents

our entry into additional card acceptance and ATM management agreements with banks;
our ability to obtain required licenses in markets we intend to enter or expand services;
our ability to enter into and renew ATM network cash supply agreements with financial institutions;
the availability of financing for expansion;
our ability efficiently to 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.;
our ability to expand and sign additional customers for the cross-border merchant processing and acquiring business; and
the continued development and implementation of our software products and their ability to interact with other leading products.

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.
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 development of mobile phone networks in the markets in which we do business and the increase in the number of mobile phone users;
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;

24

Table of Contents

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; and
the availability of financing for further expansion.

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 digital 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 digital 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 payment products, expansion of our network of retailers and access to products of mobile operators and other content providers) remain present.
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 the 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 ("PSD2") and using our various licenses in the United States;
our ability to provide additional value-added products under the xe brand, and;
the considerations regarding the use of our various trade names within the money transfer business.

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

25

Table of Contents

our ability to maintain current processing technology and efficiencies, as well as deliver new and innovative services to compete in the marketplace.

SEGMENT SUMMARY RESULTS OF OPERATIONS
Revenues and operating income by segment for the three and nine months ended September 30, 2018 and 2017 are summarized in the tables below:
 
 
Revenues for the Three Months Ended September 30,
 
Year-over-Year Change
 
Revenues for the Nine Months Ended September 30,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2018
 
2017
 
Increase
(Decrease)
Amount
 
Increase
Percent
 
2018
 
2017
 
Increase
(Decrease) Amount
 
Increase
Percent
EFT Processing
 
$
261,736

 
$
226,321

 
$
35,415

 
16
%
 
$
592,333

 
$
488,030

 
$
104,303

 
21
%
epay
 
185,431

 
184,234

 
1,197

 
1
%
 
528,739

 
512,531

 
16,208

 
3
%
Money Transfer
 
268,291

 
228,105

 
40,186

 
18
%
 
768,943

 
649,205

 
119,738

 
18
%
Total
 
715,458

 
638,660

 
76,798

 
12
%
 
1,890,015

 
1,649,766

 
240,249

 
15
%
Corporate services, eliminations and other
 
(953
)
 
(826
)
 
(127
)
 
15
%
 
(2,771
)
 
(1,989
)
 
(782
)
 
39
%
Total
 
$
714,505

 
$
637,834

 
$
76,671

 
12
%
 
$
1,887,244

 
$
1,647,777

 
$
239,467

 
15
%
 
 
Operating Income (Expense) for the Three Months Ended September 30,
 
Year-over-Year Change
 
Operating Income (Expense) for the Nine Months Ended September 30,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2018
 
2017
 
Increase (Decrease)
Amount
 
Increase
Percent
 
2018
 
2017
 
Increase
Amount
 
Increase
(Decrease) Percent
EFT Processing
 
$
110,399

 
$
86,797

 
$
23,602

 
27
%
 
$
174,868

 
$
137,090

 
$
37,778

 
28
 %
epay
 
16,426

 
15,650

 
776

 
5
%
 
49,650

 
44,361

 
5,289

 
12
 %
Money Transfer
 
34,251

 
24,356

 
9,895

 
41
%
 
93,316

 
75,355

 
17,961

 
24
 %
Total
 
161,076

 
126,803

 
34,273

 
27
%
 
317,834

 
256,806

 
61,028

 
24
 %
Corporate services, eliminations and other
 
(10,163
)
 
(9,902
)
 
(261
)
 
3
%
 
(31,081
)
 
(31,928
)
 
847

 
(3
)%
Total
 
$
150,913

 
$
116,901

 
$
34,012

 
29
%
 
$
286,753

 
$
224,878

 
$
61,875

 
28
 %


26

Table of Contents

Impact of changes in foreign currency exchange rates
Our revenues and local expenses are recorded in the functional currencies of our operating entities and translated into U.S. dollars for financial 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. Considering the results by country and the associated functional currency, we estimate that our reported consolidated operating income for the third quarter and first nine months of 2018 was 1% less and 3% more, respectively, due to the changes in foreign currency exchange rates when compared to the same periods of 2017.
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 September 30,
 
Increase (Decrease) Percent
 
Average Translation Rate
Nine Months Ended September 30,
 
Increase (Decrease) Percent
Currency (dollars per foreign currency)
 
2018
 
2017
 
 
2018
 
2017
 
Australian dollar
 
$
0.7311

 
$
0.7896

 
(7
)%
 
$
0.7579

 
$
0.7661

 
(1
)%
British pound
 
$
1.3027

 
$
1.3091

 
 %
 
$
1.3516

 
$
1.2756

 
6
 %
euro
 
$
1.1624

 
$
1.1754

 
(1
)%
 
$
1.1944

 
$
1.1136

 
7
 %
Hungarian forint
 
$
0.0036

 
$
0.0038

 
(5
)%
 
$
0.0038

 
$
0.0036

 
6
 %
Indian rupee
 
$
0.0143

 
$
0.0156

 
(8
)%
 
$
0.0149

 
$
0.0153

 
(3
)%
Malaysian ringgit
 
$
0.2444

 
$
0.2347

 
4
 %
 
$
0.2509

 
$
0.2302

 
9
 %
New Zealand dollar
 
$
0.6684

 
$
0.7309

 
(9
)%
 
$
0.6999

 
$
0.7156

 
(2
)%
Polish zloty
 
$
0.2702

 
$
0.2762

 
(2
)%
 
$
0.2814

 
$
0.2613

 
8
 %

27

Table of Contents

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
EFT PROCESSING SEGMENT
The following table presents the results of operations for the three and nine months ended September 30, 2018 and 2017 for our EFT Processing Segment:
 
 
Three Months Ended
September 30,
 
Year-over-Year Change
 
Nine Months Ended
September 30,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2018
 
2017
 
Increase Amount
 
Increase Percent
 
2018
 
2017
 
Increase (Decrease) Amount
 
Increase Percent
Total revenues
 
$
261,736

 
$
226,321

 
$
35,415

 
16
%
 
$
592,333

 
$
488,030

 
$
104,303

 
21
%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
101,763

 
99,024

 
2,739

 
3
%
 
279,927

 
238,753

 
41,174

 
17
%
Salaries and benefits
 
21,653

 
16,817

 
4,836

 
29
%
 
57,704

 
46,125

 
11,579

 
25
%
Selling, general and administrative
 
11,227

 
8,878

 
2,349

 
26
%
 
30,557

 
23,960

 
6,597

 
28