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 March 31, 2019
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 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


Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
EEFT
The Nasdaq Stock Market, LLC
(Nasdaq Global Select Market)

On May 6, 2019, Euronet Worldwide, Inc. had 51,964,031 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 2.
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
 
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,216,297

 
$
1,054,357

Restricted cash
74,945

 
76,595

Trade accounts receivable, net of allowances for doubtful accounts of $24,564 at March 31, 2019 and $24,287 at December 31, 2018
715,612

 
693,616

Prepaid expenses and other current assets
228,675

 
263,019

Total current assets
2,235,529

 
2,087,587

Operating right of use lease asset
351,169

 

Property and equipment, net of accumulated depreciation of $381,406 at March 31, 2019 and $373,180 at December 31, 2018
303,796

 
291,869

Goodwill
704,054

 
704,197

Acquired intangible assets, net of accumulated amortization of $197,060 at March 31, 2019 and $190,920 at December 31, 2018
110,143

 
114,485

Other assets, net of accumulated amortization of $52,514 at March 31, 2019 and $50,821 at December 31, 2018
109,362

 
123,017

Total assets
$
3,814,053

 
$
3,321,155

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
408,798

 
$
528,913

Accrued expenses and other current liabilities
758,914

 
712,012

Current portion of operating lease liabilities
114,654

 

Short-term debt obligations and current maturities of long-term debt obligations
360,358

 
38,017

Income taxes payable
40,227

 
40,159

Deferred revenue
61,456

 
59,293

Total current liabilities
1,744,407

 
1,378,394

Debt obligations, net of current portion
412,862

 
589,782

Operating lease obligations, net of current portion
225,093

 

Deferred income taxes
82,143

 
57,145

Other long-term liabilities
61,638

 
62,992

Total liabilities
2,526,143

 
2,088,313

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; 60,035,677 issued at March 31, 2019 and 59,897,309 issued at December 31, 2018
1,201

 
1,198

Additional paid-in-capital
1,142,691

 
1,104,264

Treasury stock, at cost, 8,085,537 shares at March 31, 2019 and 8,077,311 shares at December 31, 2018
(393,307
)
 
(391,551
)
Retained earnings
704,348

 
669,805

Accumulated other comprehensive loss
(167,199
)
 
(151,043
)
Total Euronet Worldwide, Inc. stockholders’ equity
1,287,734

 
1,232,673

Noncontrolling interests
176

 
169

Total equity
1,287,910

 
1,232,842

Total liabilities and equity
$
3,814,053

 
$
3,321,155

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
March 31,
 
2019
 
2018
Revenues
$
577,509

 
$
550,515

Operating expenses:
 
 
 
Direct operating costs
353,833

 
343,324

Salaries and benefits
92,795

 
85,706

Selling, general and administrative
48,147

 
50,011

Depreciation and amortization
26,640

 
26,002

Total operating expenses
521,415

 
505,043

Operating income
56,094

 
45,472

Other income (expense):
 
 
 
Interest income
343

 
296

Interest expense
(8,199
)
 
(7,606
)
Loss on early retirement of debt
(928
)
 

Loss from unconsolidated affiliates

 
(117
)
Foreign currency exchange gain, net
3,208

 
1,935

Other gains
25

 
31

Other expense, net
(5,551
)
 
(5,461
)
Income before income taxes
50,543

 
40,011

Income tax expense
(15,964
)
 
(13,667
)
Net income
34,579

 
26,344

Net loss (income) attributable to noncontrolling interests
(36
)
 
69

Net income attributable to Euronet Worldwide, Inc.
$
34,543

 
$
26,413

 
 
 
 
Earnings per share attributable to Euronet Worldwide, Inc. stockholders:
 
 
 
Basic
$
0.67

 
$
0.51

Diluted
$
0.62

 
$
0.49

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
51,880,534

 
51,899,282

Diluted
55,576,867

 
53,953,246

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
March 31,
 
2019
 
2018
Net income
$
34,579

 
$
26,344

Translation adjustment
(16,156
)
 
22,948

Comprehensive income
18,423

 
49,292

Comprehensive (income) loss attributable to noncontrolling interests
(7
)
 
15

Comprehensive income attributable to Euronet Worldwide, Inc.
$
18,416

 
$
49,307

See accompanying notes to the unaudited consolidated financial statements.

5

Table of Contents

Euronet Worldwide, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(in thousands, except share data)

 
 
Number of
Shares
Outstanding
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
 
Treasury
Stock
Balance as of December 31, 2017
 
52,808,158

 
$
1,178

 
$
1,072,005

 
$
(217,161
)
Net income (loss)
 
 
 
 
 
 
 
 
Other comprehensive income
 
 
 
 
 
 
 
 
Stock issued under employee stock plans
 
116,358

 
2

 
2,468

 
(1,237
)
Share-based compensation
 
 
 
 
 
4,029

 
 
Repurchase of shares
 
(1,418,895
)
 
 
 
 
 
(125,000
)
Balance as of March 31, 2018
 
51,505,621

 
$
1,180

 
$
1,078,502

 
$
(343,398
)


 
 
Number of
Shares
Outstanding
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
 
Treasury
Stock
Balance as of December 31, 2018
 
51,819,998

 
$
1,198

 
$
1,104,264

 
$
(391,551
)
Net income
 
 
 
 
 
 
 
 
Other comprehensive loss
 
 
 
 
 
 
 
 
Stock issued under employee stock plans
 
130,136

 
3

 
5,194

 
(1,756
)
Share-based compensation
 
 
 
 
 
4,490

 
 
Repurchase of shares
 
 
 
 
 
 
 
 
Issuance of convertible notes, net of tax
 
 
 
 
 
71,660

 
 
Repurchases and conversions of convertible notes, net of tax
 
6

 
 
 
(42,917
)
 
 
Balance as of March 31, 2019
 
51,950,140

 
$
1,201

 
$
1,142,691

 
$
(393,307
)
See accompanying notes to the unaudited consolidated financial statements.


6

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity (continued)
(in thousands)

 
 
 Retained Earnings
 
Accumulated Other
Comprehensive Loss
 
 
Noncontrolling
Interests
 
Total
Balance as of December 31, 2017
 
$
436,954

 
$
(94,458
)
 
$
960

 
$
1,199,478

Net income (loss)
 
26,413

 
 
 
(69
)
 
26,344

Other comprehensive income
 
 
 
22,894

 
54

 
22,948

Stock issued under employee stock plans
 
 
 
 
 
 
 
1,233

Share-based compensation
 
 
 
 
 
 
 
4,029

Repurchase of shares
 
 
 
 
 
 
 
(125,000
)
Balance as of March 31, 2018
 
$
463,367

 
$
(71,564
)
 
$
945

 
$
1,129,032


 
 
 Retained Earnings
 
Accumulated Other
Comprehensive Loss
 
 
Noncontrolling
Interests
 
Total
Balance as of December 31, 2018
 
$
669,805

 
$
(151,043
)
 
$
169

 
$
1,232,842

Net income
 
34,543

 
 
 
36

 
34,579

Other comprehensive loss
 
 
 
(16,156
)
 
(29
)
 
(16,185
)
Stock issued under employee stock plans
 
 
 
 
 
 
 
3,441

Share-based compensation
 
 
 
 
 
 
 
4,490

Issuance of convertible notes, net of tax
 
 
 
 
 
 
 
71,660

Repurchases and conversions of convertible notes, net of tax
 
 
 
 
 
 
 
(42,917
)
Balance as of March 31, 2019
 
$
704,348

 
$
(167,199
)
 
$
176

 
$
1,287,910

See accompanying notes to the unaudited consolidated financial statements.


7

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Three Months Ended
March 31,
 
2019
 
2018
Net income
$
34,579

 
$
26,344

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
26,640

 
26,002

Share-based compensation
4,490

 
4,029

Unrealized foreign exchange gain, net
(3,208
)
 
(1,935
)
Deferred income taxes
3,468

 
2,818

Loss from unconsolidated affiliates

 
117

Accretion of convertible debt discount and amortization of debt issuance costs
4,071

 
3,477

Changes in working capital, net of amounts acquired:
 
 
 
Income taxes payable, net
635

 
(674
)
Trade accounts receivable
(31,456
)
 
51,720

Prepaid expenses and other current assets
33,787

 
36,763

Trade accounts payable
(115,380
)
 
(98,581
)
Deferred revenue
3,005

 
2,501

Accrued expenses and other current liabilities
51,377

 
(28,241
)
Changes in noncurrent assets and liabilities
953

 
3,488

Net cash provided by operating activities
12,961

 
27,828

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired

 
(7,257
)
Purchases of property and equipment
(31,390
)
 
(24,415
)
Purchases of other long-term assets
(1,783
)
 
(1,808
)
Other, net
187

 
201

Net cash used in investing activities
(32,986
)
 
(33,279
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of shares
5,171

 
2,300

Repurchase of shares
(2,275
)
 
(126,577
)
Borrowings from revolving credit agreements
1,209,446

 
1,010,643

Repayments of revolving credit agreements
(1,425,398
)
 
(841,786
)
Proceeds from long-term debt obligations
525,000

 

Repayments of long-term debt obligations
(94,199
)
 
(2,449
)
(Repayments of) borrowings from short-term debt obligations, net
(11,779
)
 
1,557

Debt issuance costs
(11,812
)
 

Other, net
(1,452
)
 
(1,792
)
Net cash provided by financing activities
192,702

 
41,896

Effect of exchange rate changes on cash and cash equivalents and restricted cash
(12,387
)
 
12,525

Increase in cash and cash equivalents and restricted cash
160,290

 
48,970

Cash and cash equivalents and restricted cash at beginning of period
1,130,952

 
900,518

 
 
 
 
Cash and cash equivalents and restricted cash at end of period
$
1,291,242

 
$
949,488

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid during the period
$
5,491

 
$
5,621

Income taxes paid during the period
$
12,074

 
$
11,981

See accompanying notes to the unaudited consolidated financial statements.

8

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, 2018, including the notes thereto, set forth in the Company’s 2018 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, 2019.
Seasonality
Euronet’s EFT Processing Segment experiences its heaviest demand for ATM cash withdrawal transaction and 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

The Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), as amended, as of January 1, 2019, using the modified retrospective approach and comparative periods were not restated. The new standards provide a number of optional practical expedients in transition.
The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected to combine lease and non-lease components and to include short-term leases with an initial term of 12 months or less on the balance sheet.
In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases. The election of the hindsight practical expedient resulted in, for substantially all leases in effect on January 1, 2019, the lease term for implementation of this pronouncement, as the lease’s life being January 1, 2019 through the lease’s contractual termination date, rather than the actual lease life as set out in the lease agreement. Lease lives for lease agreements committed to on January 1, 2019 and, thereafter, are included based on the lease’s commencement date and termination date. In the application of hindsight, the Company evaluated the performance of all the leases and the associated markets in relation to the Company’s

9

Table of Contents

operations, which resulted in the determination that the exercise of renewal options would not be reasonably certain in determining the expected lease term.
Adoption of the new standard resulted in the recognition of additional operating right of use lease assets and lease liabilities of approximately $296.9 million, as of January 1, 2019. The Company reclassified $16.6 million and $2.7 million of deferred cost and deferred credits, respectively, to Right of use (ROU) lease assets as of March 31, 2019.

In June 2016, the Financial Accounting Standards Board ("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 is 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
March 31,
 
2019
 
2018
Computation of diluted weighted average shares outstanding:
 
 
 
Basic weighted average shares outstanding
51,880,534

 
51,899,282

Incremental shares from assumed exercise of stock options and vesting of restricted stock
1,285,139

 
1,578,071

Incremental shares from assumed conversion of convertible notes
2,411,194

 
475,893

Diluted weighted average shares outstanding
55,576,867

 
53,953,246

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 months ended March 31, 2019 and 2018. 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 402,000 for the three months ended March 31, 2019 and approximately 1,151,000 for the three months ended March 31, 2018.
The Company's convertible notes have settlement features requiring the Company upon conversion to settle the principal amount of the debt and any conversion value in excess of the principal value ("conversion premium"), for cash or shares of the Company's common stock or a combination thereof, at the Company's option. 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 $188.73 per share and $72.18 per share for the new Convertible Senior Notes ("Convertible Notes") issued on March 18, 2019 and the existing convertible notes due on 2044, respectively. The dilutive effect increases the more the market price exceeds the conversion price. Upon issuance of the Convertible Notes, the Company provided a notice of redemption to the trustee of the indenture governing the existing convertible notes. As of March 31, 2019 and 2018, the stock price exceeded the conversion price and the existing convertible notes were dilutive to earnings per share. Further, as a result of the share price increasing from $78.92 at March 31, 2018 to $142.59 at March 31, 2019, 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. For the three months ended March 31, 2019, the remaining maximum dollar value of shares that may yet be purchased under the Repurchase program was

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$200.0 million. 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 quarter of 2019, the Company did not make any repurchases under the Repurchase Program. In connection with the issuance of the Convertible Notes, the Board of Directors of the Company authorized the Company to repurchase up to $120 million of the Company’s common stock concurrently with or following the issuance of the Convertible Notes. This authorization will expire on March 11, 2021. For the first quarter 2019, the Company did not make any repurchases under this special authorization.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists entirely of foreign currency translation adjustments. The Company recorded foreign currency translation losses of $16.2 million for the three months ended March 31, 2019, and gains of $22.9 million for the three months ended March 31, 2018. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three months ended March 31, 2019 and 2018.
(4) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the three months ended March 31, 2019 is presented below:
(in thousands)
 
Acquired
Intangible
Assets
 
Goodwill
 
Total
Intangible
Assets
Balance as of December 31, 2018
 
$
114,485

 
$
704,197

 
$
818,682

Increases (decreases):
 
 
 
 
 
 
Acquisition
 

 
686

 
686

Amortization
 
(5,186
)
 

 
(5,186
)
Other (primarily changes in foreign currency exchange rates)
 
844

 
(829
)
 
15

Balance as of March 31, 2019
 
$
110,143

 
$
704,054

 
$
814,197

Estimated amortization expense on intangible assets with finite lives, before income taxes, as of March 31, 2019, is expected to total $15.5 million for the remainder of 2019, $19.9 million for 2020, $19.0 million for 2021, $18.0 million for 2022, $13.2 million for 2023 and $6.7 million for 2024.
The Company completed the acquisitions of a small Indonesian business for an immaterial amount of cash consideration. The acquisition has been accounted for as business combinations in accordance with U.S. GAAP and the results of operations have been included from the date 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, 2018 resulted in no impairment charge.
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 2018 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.
(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
 
As of
(in thousands)
March 31, 2019
 
December 31, 2018
Money transfer settlement obligations

$
464,888

 
$
310,710

Accrued expenses
187,521

 
293,864

Accrued amounts due to mobile operators and other content providers
73,434

 
65,878

Derivative liabilities
27,526

 
36,102

Current portion of capital lease obligations
$
5,545

 
$
5,458

Total
$
758,914

 
$
712,012





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(6) UNEARNED REVENUES
Accounting Standards Codification ("ASC") Topic 606, “Revenue from Contracts with Customers” (“Topic 606”) 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. Such costs are not material; 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 quarter of 2019 is primarily driven by $16.0 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations, largely offset by $13.9 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2018.

(7) DEBT OBLIGATIONS
Debt obligations consist of the following:
 
As of
(in thousands)
March 31, 2019
 
December 31, 2018
Credit Facility:
 
 
 
Revolving credit agreements, due 2023
$

 
$
215,725

 


 


Convertible Debt:
 
 
 
1.50% convertible notes, unsecured, due 2044
333,886

 
379,859

0.75% convertible notes, unsecured, due 2049
425,947

 

 
 
 
 
Other obligations
26,845

 
38,513

 
 
 
 
Total debt obligations
786,678

 
634,097

Unamortized debt issuance costs
(13,458
)
 
(6,298
)
Carrying value of debt
773,220

 
627,799

Short-term debt obligations and current maturities of long-term debt obligations
(360,358
)
 
(38,017
)
Long-term debt obligations
$
412,862

 
$
589,782


Credit Facility
On October 17, 2018, the Company entered into a new unsecured revolving credit agreement (the "Credit Facility") for $1.0 billion that expires on October 17, 2023. Fees and interest on borrowings are based upon the Company's corporate credit rating and are based, in the case of letter of credit fees, on a margin , and in the case of interest, on a margin over London Inter-Bank Offered Rate (“LIBOR”) or a margin over the base rate, as selected by the Company, with the applicable margin ranging from 1.125% to 2.0% or 0.175% to 1.0% for base rate loans. The Credit Facility allows for borrowings in Australian Dollars, British Pounds Sterling, Canadian Dollars, Czech Koruna, Danish Krone, Euros, Hungarian Forints, Japanese Yen, New Zealand Dollars, Norwegian Krone, Polish Zlotys, Swedish Krona, Swiss Francs, and U.S. Dollars.
Convertible Debt
On March 18, 2019, the Company completed the sale of $525 million of Convertible Senior Notes ("Convertible Notes"). The Convertible Notes mature in March 2049 unless repurchased or converted prior to such date, and are convertible into shares of Euronet Common Stock at a conversion price of approximately $188.73 per share. The Company used $94.2 million of the new debt to repurchase $49 million aggregate principal amount of the Company's 1.5% Convertible Senior Notes outstanding due 2044 (the "Existing Convertible Notes") from a limited number of holders in privately negotiated transactions. The Company expects to use the remainder of the net proceeds for general corporate purposes, which may include redeeming the remaining Existing Convertible Notes, repaying borrowings outstanding under the Credit Facility, share repurchases or acquisitions.
On March 18, 2019, the Company provided a notice of redemption to the trustee of the indenture governing the Existing Convertible Notes (the "Existing Indenture"), pursuant to which the Company will redeem all of the remaining principal

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amount outstanding of the Existing Convertible Notes on May 28, 2019 (the "Redemption Date"). The redemption price of the Existing Convertible Notes to be redeemed is cash equal to 100% of the principal amount of the Existing Convertible Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date.
In accordance with ASC 470-20-30-27, proceeds from the issuance of convertible debt is allocated between debt and equity components so that debt is discounted to reflect the Company's nonconvertible debt borrowing rate. ASC 470-20-35-13 requires the debt discount to be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The allocation resulted in an increase to additional paid-in capital of $99.7 million and $66.1 million for the Convertible Notes and the Existing Convertible Notes, respectively. The issuance of the Convertible Notes and the redemption of the Existing Convertible Notes resulted in a net $21.5 million recognition of deferred tax liabilities within the additional paid-in capital.
Contractual interest expense for the Existing Convertible Notes was $1.5 million for the three months ended March 31, 2019 and 2018, respectively. Accretion expense was $2.9 million and $2.8 million for the three months ended March 31, 2019 and 2018, respectively. The effective interest rate was 4.7% for both the three months ended March 31, 2019 and 2018. As of March 31, 2019, the unamortized discount was $16.4 million.
Contractual interest expense for the Convertible Notes was $0.2 million for the three months ended March 31, 2019. Accretion expense was $0.6 million for the three months ended March 31, 2019. The effective interest rate was 4.4% for the three months ended March 31, 2019. As of March 31, 2019, the unamortized discount was $99.1 million and will be amortized through March 2025.
(8) 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 March 31, 2019, the Company held in its Ria operations foreign currency forward contracts outstanding in the U.S. with a notional value of $338 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 March 31, 2019, the Company had foreign currency forward contracts outstanding with a notional value of $166 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 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 $18.6 million and $18.7 million for the three months ended March 31, 2019 and 2018. 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.

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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 March 31, 2019 was approximately $1.3 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
 
March 31, 2019
 
December 31, 2018
 
Balance Sheet Location
 
March 31, 2019
 
December 31, 2018
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaid expenses and other current assets
 
$
45,542

 
$
44,637

 
Accrued expenses and other current liabilities

 
$
(27,526
)
 
$
(36,102
)

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The following tables summarize the gross and net fair value of derivative assets and liabilities as of March 31, 2019 and December 31, 2018 (in thousands):
Offsetting of Derivative Assets
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
As of March 31, 2019
 
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
 
$
45,542

 
$

 
$
45,542

 
$
(21,436
)
 
$
(7,232
)
 
$
16,874

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
44,637

 
$

 
$
44,637

 
$
(25,187
)
 
$
(9,918
)
 
$
9,532

Offsetting of Derivative Liabilities
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
As of March 31, 2019
 
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
 
$
(27,526
)
 
$

 
$
(27,526
)
 
$
21,436

 
$
153

 
$
(5,937
)
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
(36,102
)
 
$

 
$
(36,102
)
 
$
25,187

 
$
2,048

 
$
(8,867
)
See Note 9, Fair Value Measurements, for the determination of the fair values of derivatives.

Income Statement Presentation
The following table summarizes the location and amount of gains and losses on derivatives in the Consolidated Statements of Income for the three months ended March 31, 2019 and 2018:
 
 
 
 
Amount of Gain Recognized in Income on Derivative Contracts (a)
 
 
Location of Gain Recognized in Income on Derivative Contracts
 
Three Months Ended
March 31,
(in thousands)
 
 
2019
 
2018
Foreign currency exchange contracts
 
Foreign currency exchange gain, net
 
$
2,459

 
$
1,295

(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.
(9) 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

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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 March 31, 2019
(in thousands)
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$

 
$
45,542

 
$

 
$
45,542

Liabilities
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current liabilities
 
$

 
$
(27,526
)
 
$

 
$
(27,526
)
 
 
 
 
As of December 31, 2018
(in thousands)
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$

 
$
44,637

 
$

 
$
44,637

Liabilities
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current liabilities
 
$

 
$
(36,102
)
 
$

 
$
(36,102
)

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 March 31, 2019 and December 31, 2018, the fair values of the Existing Convertible Notes were $660.8 million and $571.6 million, respectively, with carrying values of $333.9 million and $379.9 million, respectively. As of March 31, 2019, the fair value of the Convertible Notes was $581.0 million with carrying value of $425.9 million.
(10) 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, 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, domestic and international surcharge 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.

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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 months ended March 31, 2019 and 2018:
 
 
For the Three Months Ended March 31, 2019
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
145,703

 
$
176,114

 
$
256,581

 
$
(889
)
 
$
577,509

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
83,776

 
133,525

 
137,404

 
(872
)
 
353,833

Salaries and benefits
 
19,431

 
14,753

 
51,156

 
7,455

 
92,795

Selling, general and administrative
 
9,086

 
8,052

 
29,109

 
1,900

 
48,147

Depreciation and amortization
 
16,642

 
1,785

 
8,138

 
75

 
26,640

Total operating expenses
 
128,935

 
158,115

 
225,807

 
8,558

 
521,415

Operating income (expense)
 
$
16,768

 
$
17,999

 
$
30,774

 
$
(9,447
)
 
$
56,094


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For the Three Months Ended March 31, 2018
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
135,704

 
$
176,845

 
$
238,836

 
$
(870
)
 
$
550,515

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
81,837

 
134,922

 
127,431

 
(866
)
 
343,324

Salaries and benefits
 
17,005

 
14,417

 
47,357

 
6,927

 
85,706

Selling, general and administrative
 
9,115

 
8,733

 
29,699

 
2,464

 
50,011

Depreciation and amortization
 
16,200

 
1,878

 
7,895

 
29

 
26,002

Total operating expenses
 
124,157

 
159,950

 
212,382

 
8,554

 
505,043

Operating income (expense)
 
$
11,547

 
$
16,895

 
$
26,454

 
$
(9,424
)
 
$
45,472


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)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
EFT Processing
 
$
222,338

 
$
215,106

 
$
1,533,051

 
$
1,220,141

epay
 
34,105

 
31,172

 
689,573

 
780,220

Money Transfer
 
47,282

 
45,517

 
1,461,137

 
1,310,775

Corporate Services, Eliminations and Other
 
71

 
74

 
130,292

 
10,019

   Total
 
$
303,796

 
$
291,869

 
$
3,814,053

 
$
3,321,155


The following table presents the Company's revenues disaggregated by segment and region. Sales and usage-based taxes are excluded from revenues. The Company believes disaggregation by segment and region best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The disaggregation of revenues by segment and region is based on management's assessment of segment performance together with allocation of financial resources, both capital and operating support costs, on a segment and regional level. Both segments and regions benefit from synergies achieved through concentration of operations and are influenced by macro-economic, regulatory and political factors in the respective segment and region.
 
For the Three Months Ended March 31, 2019
(in thousands)
EFT
Processing
 
epay
 
Money
Transfer
 
Total
Europe
$
107,611

 
$
114,906

 
$
85,559

 
$
308,076

North America
8,205

 
39,664

 
134,832

 
182,701

Asia Pacific
29,877

 
17,374

 
30,713

 
77,964

Other
10

 
4,170

 
5,477

 
9,657

Eliminations

 

 

 
(889
)
Total
$
145,703

 
$
176,114

 
$
256,581

 
$
577,509


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For the Three Months Ended March 31, 2018
(in thousands)
EFT
Processing
 
epay
 
Money
Transfer
 
Total
Europe
100,087

 
113,451

 
73,958

 
287,496

North America
$
8,016

 
$
41,051

 
$
128,984

 
$
178,051

Asia Pacific
27,594

 
17,453

 
32,141

 
77,188

Other
7

 
4,890

 
3,753

 
8,650

Eliminations

 

 

 
(870
)
Total
$
135,704

 
$
176,845

 
$
238,836

 
$
550,515


(11) INCOME TAXES
The Company's effective income tax rate was 31.6% and 34.2% for the three months ended March 31, 2019 and 2018, respectively. The Company's effective income tax rates for the three months ended March 31, 2019 and 2018 were higher than the applicable statutory income tax rate of 21% as a result of certain foreign earnings of the Company being subject to higher local statutory income tax rates and the application to the Company of the U.S. global intangible low-taxed income ("GILTI") tax provision. The GILTI provision subjects the Company's current foreign earnings to U.S. taxation creating additional U.S. tax expense.
(12) COMMITMENTS
As of March 31, 2019, the Company had $76.7 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $46.2 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 March 31, 2019, the Company had granted off balance sheet guarantees for cash in various ATM networks amounting to $12.3 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $54.6 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 March 31, 2019, the balance of cash used in the Company's ATM networks for which the Company was responsible was approximately $461 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;

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In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, the Company has entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions of operating units or assets made by Euronet, the Company has agreed to indemnify the seller against third-party claims made against the seller relating to the operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet has agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made; and
Euronet has entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to the Company’s benefit plans. Under such agreements, the Company has agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
The Company is also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company has money transfer operations. The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, the Company is not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of March 31, 2019 or December 31, 2018.
(13) 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.
(14) LEASES
The Company enters into operating leases for ATM sites, office space, retail stores and equipment. The Company's finance leases are immaterial. Right of use assets and lease liabilities are recognized at commencement date based on the present value of the lease payment over the lease term. The present value of lease payments is determined using the incremental borrowing rate based on information available at the lease commencement date. All leases with fixed payments, including leases with an initial term of 12 months or less are recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Most leases include an option to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The Company also has a unilateral termination right for a majority of the ATM site leases. Since the Company is not reasonably certain to exercise the renewal or terminal options, the options are not considered in determining the lease term, and associated payment impacts are excluded from lease payments.
Certain of the Company's lease agreements include variable rental payments based on revenues generated from the use of the leased location and certain leases include rental payments adjusted periodically for inflation. Variable lease payments are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs and are excluded from the right of use assets and lease liabilities balances. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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Future minimum lease payments

Future minimum lease payments under the operating leases as of March 31, 2019 are:
 
As of March 31, 2019
Maturity of Lease Liabilities (in thousands)
Operating Leases
Remainder of 2019
$
115,891

2020
93,975

2021
68,283

2022
43,471

2023
24,907

Thereafter
45,003

Total lease payments
$
391,530

Less: imputed interest
(51,783
)
Present value of lease liabilities
$
339,747

Future minimum lease payments under the non-cancelable operating leases (with initial lease terms in excess of one year) as of December 31, 2018 as follows:
(in thousands)
 
Operating
Leases
Year ending December 31,
 
 
2019
 
$
80,803

2020
 
65,590

2021
 
49,052

2022
 
37,823

2023
 
30,192

Thereafter
 
48,191

Total minimum lease payments
 
$
311,651


Lease expense recognized in the Consolidated Statements of Income is summarized as follows:
Lease Expense (in thousands)
Income Statement Classification
 
Three Months Ended March 31, 2019
Operating lease expense
Selling, general and administrative and Direct operating costs
 
$
30,460

Variable lease expense
Selling, general and administrative and Direct operating costs

 
6,569

Total lease expense
 
 
$
37,029


Other information about lease amounts recognized in the consolidated financial statements is summarized as follows:
Lease Term and Discount Rate of Operating Leases
 
As of March 31, 2019
Weighted- average remaining lease term (years)
 
4.5

Weighted- average discount rate
 
3.2
%

The following table presents supplemental cash flow and non-cash information related to leases.
Other Information (in thousands)
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities (a)
 
$
30,083

Supplemental non-cash information on lease liabilities arising from obtaining ROU assets
 
 
ROU assets obtained in exchange for new operating lease liabilities
 
$
71,378

(a) Included in Net cash provided by operating activities on the Company's Consolidated Statements of Cash Flows.

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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 negotiations related to the United Kingdom's proposed departure of from the European Union, 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 2019; our ability to comply with increasingly stringent regulatory requirements, including anti-money laundering, anti-terrorism, anti-bribery, consumer and data protection and GDPR 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, general economic, financial and market conditions and the duration and extent of any future economic downturns; the cost of borrowing, availability of credit and terms of and compliance with debt covenants; renewal of sources of funding as they expire and the availability of replacement funding; and the outlook for markets we serve; 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, 2018. Our Annual Report on Form 10-K is available on the SEC's EDGAR website at www.sec.gov, and copies may also be obtained by contacting the Company. Any forward-looking statements made in this Form 10-Q speak only as of the date of this report. Except as required by law, we do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements.


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OVERVIEW
COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES
Euronet is a leading electronic payments provider. We offer payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Our primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services; software solutions and cloud based payment 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 42,034 ATMs and approximately 298,000 POS terminals across Europe, the Middle East, 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, DCC, domestic and international surcharge 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 digital media (formerly referred to as non-mobile content) and prepaid mobile airtime. We operate a network of approximately 718,000 POS terminals providing electronic processing of digital media and prepaid mobile airtime top-up services 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. xe also provides global account-to-account money transfer services. 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 online.imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 377,000 locations. xe offers money transfer services on its websites (xe.com and x-rates.com) and through its customer service representatives. The xe websites also provide foreign currency exchange information. 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, 14 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 70% 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 25% of total consolidated revenues for the first quarter of 2019, 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.

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epay Segment — Revenues in the epay Segment, which represented approximately 31% of total consolidated revenues for the first quarter of 2019, 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 digital media now produces approximately 63% 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 44% of total consolidated revenues for the first quarter of 2019, 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;

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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;

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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 digital media 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

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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 months ended March 31, 2019 and 2018 are summarized in the tables below:
 
 
Revenues for the Three Months Ended March 31,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2019
 
2018
 
Increase
(Decrease)
Amount
 
Increase
Percent
EFT Processing
 
$
145,703

 
$
135,704

 
$
9,999

 
7
 %
epay
 
176,114

 
176,845

 
(731
)
 
 %
Money Transfer
 
256,581

 
238,836

 
17,745

 
7
 %
Total
 
578,398

 
551,385

 
27,013

 
5
 %
Corporate services, eliminations and other
 
(889
)
 
(870
)
 
(19
)
 
2
 %
Total
 
$
577,509

 
$
550,515

 
$
26,994

 
5
 %
 
 
Operating Income (Expense) for the Three Months Ended March 31,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2019
 
2018
 
Increase (Decrease)
Amount
 
Increase
Percent
EFT Processing
 
$
16,768

 
$
11,547

 
$
5,221

 
45
%
epay
 
17,999

 
16,895

 
1,104

 
7
%
Money Transfer
 
30,774

 
26,454

 
4,320

 
16
%
Total
 
65,541

 
54,896

 
10,645

 
19
%
Corporate services, eliminations and other
 
(9,447
)
 
(9,424
)
 
(23
)
 
%
Total
 
$
56,094

 
$
45,472

 
$
10,622

 
23
%


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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 first quarter of 2019 was 5% less, due to the changes in foreign currency exchange rates when compared to the same period of 2018.
To provide further perspective on the impact of foreign currency exchange rates, the following table shows the changes in values relative to the U.S. dollar of the currencies of the countries in which we have our most significant operations:

 
 
Average Translation Rate
Three Months Ended March 31,
 
Decrease Percent
Currency (dollars per foreign currency)
 
2019
 
2018
 
Australian dollar
 
$
0.7125

 
$
0.7859

 
(9
)%
British pound
 
$
1.3024

 
$
1.3917

 
(6
)%
euro
 
$
1.1354

 
$
1.2289

 
(8
)%
Hungarian forint
 
$
0.0036

 
$
0.0039

 
(8
)%
Indian rupee
 
$
0.0142

 
$
0.0155

 
(8
)%
Malaysian ringgit
 
$
0.2445

 
$
0.2550

 
(4
)%
New Zealand dollar
 
$
0.6813

 
$
0.7270

 
(6
)%
Polish zloty
 
$
0.2639

 
$
0.2941

 
(10
)%

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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
EFT PROCESSING SEGMENT
The following table presents the results of operations for the three months ended March 31, 2019 and 2018 for our EFT Processing Segment:
 
 
Three Months Ended
March 31,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2019
 
2018
 
Increase (Decrease) Amount
 
Increase Percent
Total revenues
 
$
145,703

 
$
135,704

 
$
9,999

 
7
 %
Operating expenses:
 
 
 
 
 
 
 
 
Direct operating costs
 
83,776

 
81,837

 
1,939

 
2
 %
Salaries and benefits
 
19,431

 
17,005

 
2,426

 
14
 %
Selling, general and administrative
 
9,086

 
9,115

 
(29
)
 
 %
Depreciation and amortization
 
16,642

 
16,200

 
442

 
3
 %
Total operating expenses
 
128,935

 
124,157

 
4,778

 
4
 %
Operating income
 
$
16,768

 
$
11,547

 
$
5,221

 
45
 %
Transactions processed (millions)
 
691

 
622

 
69

 
11
 %
ATMs as of March 31,
 
42,034

 
38,358

 
3,676

 
10
 %
Average ATMs
 
40,918

 
37,651

 
3,267

 
9
 %

Revenues
EFT Processing Segment total revenues for the three months ended March 31, 2019 were $145.7 million, an increase of $10.0 million or 7% as compared to the same period in 2018. The increase in total revenues for the three months ended March 31, 2019 was primarily due to an increase in the number of ATMs under management in Europe. Specifically, the increase in the number of ATMs contributed to increases in the number of transactions processed. The transaction growth includes an increase in value-added transactions on the ATMs and point-of-sale terminals, including DCC, domestic and international surcharge, and foreign currency dispensing. Foreign currency exchange rate movements decreased total revenues by approximately $11.7 million for the first quarter of 2019 as compared to the same period in 2018.
Average monthly revenues per ATM were $1,187 for the three months ended March 31, 2019 compared to $1,201for the three months ended March 31, 2018. Revenues per transaction were $0.21 for the first quarter of 2019 compared to $0.22 for the first quarter of 2018. The decrease in average monthly revenues per ATM for the first quarter of 2019 was primarily the result of the impact of the strengthening of the U.S. dollar against key foreign currencies, partly offset by an increase in value-added transactions.
Direct operating costs
EFT Processing Segment direct operating costs were $83.8 million for the three months ended March 31, 2019, an increase of $1.9 million or 2% as compared to the same period in 2018. Direct operating costs in the EFT Processing Segment consist primarily of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications, data center operations-related personnel, as well as the processing centers’ facility-related costs and other processing center-related expenses and commissions paid to retail merchants, banks and card processors involved with POS DCC transactions. The increases in direct operating costs for the three months ended March 31, 2019 were primarily due to an increase in the number of ATMs under management, particularly our independent ATM network, partly offset by the impact of the strengthening of the U.S. dollar against key foreign currencies.

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Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $61.9 million for the three months ended March 31, 2019, compared to $53.9 million for the three months ended March 31, 2018. The increases in gross profit were primarily due to the growth in revenues from increases in ATMs under management, DCC transactions, domestic and international surcharge, and foreign currency dispensing. The net impact of the U.S. dollar strengthening against key foreign currencies partly offset the increase in gross profit for the first quarter of 2019. Gross profit as a percentage of revenues (“gross margin”) was 42.5% for the three months ended March 31, 2019, as compared to 39.7% for the three months ended March 31, 2018. For the three months ended March 31, 2019, the increase in gross margin was attributable to increases in DCC transactions, domestic and international surcharge, foreign currency dispensing, and also a higher volume of sales of POS devices in Greece in the first quarter of 2018 on which we earned a lower margin which did not occur in the current period.
Salaries and benefits
Salaries and benefits expense increased $2.4 million or 14% for the three months ended March 31, 2019, compared to the same period in 2018. As a percentage of revenues, these costs increased to 13.3% for the first quarter of 2019, compared to 12.5% for the first quarter of 2018. The increases were primarily due to additional headcount to support an increase in the number of ATMs and POS devices under management.
Selling, general and administrative
Selling, general and administrative expenses for the three months ended March 31, 2019 were $9.1 million, which was consistent with the same period in 2018. As a percentage of revenues, selling, general and administrative expenses were 6.2% for the three months ended March 31, 2019, compared to 6.7% for the three months ended March 31, 2018.
Depreciation and amortization
Depreciation and amortization expense increased $0.4 million for the three months ended March 31, 2019, compared to the same period in 2018. The increase was primarily attributable to the deployment of additional ATMs under management and software assets. As a percentage of revenues, depreciation and amortization expense was 11.4% for the first quarter of 2019, as compared to 11.9% for the same period of 2018.
Operating income
EFT Processing Segment operating income for the three months ended March 31, 2019 was $16.8 million, an increase of $5.2 million or 45% as compared to the same period in 2018. EFT Processing Segment operating income for the three months ended March 31, 2019 increased primarily due to increases in the number of DCC transactions, domestic and international surcharge, and foreign currency dispensing as a result of the increased number of ATMs, partly offset by the impact of the strengthening of the U.S. dollar against key foreign currencies.
Operating income as a percentage of revenues (“operating margin”) was 11.5% for the first quarter of 2019 compared to 8.5% for the first quarter of 2018. The increase in operating margin was primarily due to higher operating revenues partially offset by expenses incurred to support the increased revenues and additional ATMs under management. Operating income per transaction was $0.02 for the both the first quarter of 2019 and 2018.


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EPAY SEGMENT
The following table presents the results of operations for the three months ended March 31, 2019 and 2018 for our epay Segment:
 
 
Three Months Ended
March 31,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2019
 
2018
 
Increase (Decrease) Amount
 
Increase (Decrease) Percent
Total revenues
 
$
176,114

 
$
176,845

 
$
(731
)
 
 %
Operating expenses:
 
 
 
 
 
 
 
 
Direct operating costs
 
133,525

 
134,922

 
(1,397
)
 
(1
)%
Salaries and benefits
 
14,753

 
14,417

 
336

 
2
 %
Selling, general and administrative
 
8,052

 
8,733

 
(681
)
 
(8
)%
Depreciation and amortization
 
1,785

 
1,878

 
(93
)
 
(5
)%
Total operating expenses
 
158,115

 
159,950

 
(1,835
)
 
(1
)%
Operating income
 
$
17,999

 
$
16,895

 
$
1,104

 
7
 %
Transactions processed (millions)
 
338

 
258

 
80

 
31
 %
Revenues
epay Segment total revenues for the three months ended March 31, 2019 were $176.1 million, a decrease of $0.7 million as compared to the same period in 2018. Foreign currency exchange rate movements decreased total revenues by approximately $11.8 million for the first quarter of 2019 as compared to the same period in 2018.
Revenues per transaction were $0.52 for the first quarter compared to $0.69 for the same period in 2018. The decrease in revenues per transaction was primarily the result of the increase in a high-volume, low-margin transactions processed in India.
Direct operating costs
epay Segment direct operating costs were $133.5 million for the three months ended March 31, 2019, a decrease of $1.4 million as compared to the same period in 2018. Direct operating costs in our epay Segment include the commissions we pay to retail merchants for the distribution and sale of prepaid mobile airtime and other prepaid products, expenses incurred to operate POS terminals and the cost of vouchers sold and physical gifts fulfilled. The decrease in direct operating costs for the first quarter of 2019 was primarily due to the net impact of the U.S. dollar strengthening against key foreign currencies partially offset by the increase in the commission paid to wholesalers.
Gross profit
Gross profit was $42.6 million for the three months ended March 31, 2019, as compared to $41.9 million for the three months ended March 31, 2018. The increase was primarily due to the growth in digital media transactions processed, partly offset by a decrease in prepaid mobile transactions processed in certain markets and the net impact of the U.S. dollar strengthening against key foreign currencies.
During the three months ended March 31, 2019, the gross margin was 24.2% for the three months ended March 31, 2019, as compared to 23.7% for the same period in 2018 due to the increase in the percentage of digital media transactions processed for which we earn a higher gross margin than mobile transactions.
Salaries and benefits
Salaries and benefits expense increased $0.3 million or 2% for the three months ended March 31, 2019, compared to the same period in 2018. The increase was mainly driven by increased headcount to support growth in the segment. As a percentage of revenues, salaries and benefits were 8.4% for the three months ended March 31, 2019 which was generally consistent with 8.2% for the same period in 2018.

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Selling, general and administrative
Selling, general and administrative expenses were $8.1 million for the three months ended March 31, 2019, a decrease of 8% as compared to the same period in 2018. The decrease for the first quarter of 2019 was mainly due to higher promotional cost for certain digital media products in 2018 which did not recur in the current period. As a percentage of revenues, selling, general and administrative expenses were 4.6% for the three months ended March 31, 2019 compared to 4.9% for the same period in 2018.
Depreciation and amortization
Depreciation and amortization expense primarily represents depreciation of POS terminals we place in retail stores and the amortization of acquired intangible assets. Depreciation and amortization expense was $1.8 million for the three months ended March 31, 2019, a decrease of 5% as compared to the same period in 2018. As a percentage of revenues, depreciation and amortization expense was 1.0% for the three months ended March 31, 2019 as compared to 1.1% for the three months ended March 31, 2018.
Operating income
epay Segment operating income for the three months ended March 31, 2019 was $18.0 million, an increase of $1.1 million as compared to the same period in 2018. Operating income for the three months ended March 31, 2019 improved as a result of the increased gross profit from the distribution of more digital media products, along with operating cost controls.
Operating margin increased to 10.2% for the three months ended March 31, 2019 from 9.6% for the same period in 2018. The increase was mainly due to an increase in the percentage of revenues from digital media products which earn a higher margin than mobile transactions. Operating income per transaction decreased to $0.05 for the three months ended March 31, 2019 from $0.07 for the same period in 2018. The decrease was primarily due to the increase in high volume, low margin transactions processed in India.


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Table of Contents

MONEY TRANSFER SEGMENT
The following table presents the results of operations for the three months ended March 31, 2019 and 2018 for the Money Transfer Segment:
 
 
Three Months Ended
March 31,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2019
 
2018
 
Increase (Decrease) Amount
 
Increase (Decrease) Percent
Total revenues
 
$
256,581

 
$
238,836

 
$
17,745

 
7
 %
Operating expenses:
 
 
 
 
 
 
 
 
Direct operating costs
 
137,404

 
127,431

 
9,973

 
8
 %
Salaries and benefits
 
51,156

 
47,357

 
3,799

 
8
 %
Selling, general and administrative
 
29,109

 
29,699

 
(590
)
 
(2
)%
Depreciation and amortization
 
8,138

 
7,895

 
243

 
3
 %
Total operating expenses
 
225,807

 
212,382

 
13,425

 
6
 %
Operating income
 
$
30,774

 
$
26,454

 
$
4,320

 
16
 %
Transactions processed (millions)
 
26.6

 
24.3

 
2.3

 
9
 %
Revenues</