SEC Filing - Euronet Worldwide, Inc.

View:

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



☐	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)

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	Nasdaq Global Select Market
1.375% Senior Notes due 2026	EEFT	Nasdaq Global Select Market

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 ☑ 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 ☑ 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 ☑	Accelerated filer o	Non-accelerated filer o	Smaller reporting company	☐
Emerging growth company		☐

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 ☐ No ☑

On August 7, 2019, Euronet Worldwide, Inc. had 54,486,877 shares of Common Stock outstanding.

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

Table of Contents



		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018	5
	Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	8
	Notes to the Unaudited Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	45

	Signatures	46

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
	June 30, 2019			December 31, 2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,558,461		$	1,054,357
Restricted cash	71,297			76,595
Trade accounts receivable, net of allowances for doubtful accounts of $24,937 at June 30, 2019 and $24,287 at December 31, 2018	836,713			693,616
Prepaid expenses and other current assets	235,279			263,019
Total current assets	2,701,750			2,087,587
Operating right of use lease assets	376,343			—
Property and equipment, net of accumulated depreciation of $381,771 at June 30, 2019 and $373,180 at December 31, 2018	324,298			291,869
Goodwill	706,367			704,197
Acquired intangible assets, net of accumulated amortization of $201,566 at June 30, 2019 and $190,920 at December 31, 2018	104,374			114,485
Other assets, net of accumulated amortization of $54,549 at June 30, 2019 and $50,821 at December 31, 2018	120,204			123,017
Total assets	$	4,333,336		$	3,321,155
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable	$	432,140		$	528,913
Accrued expenses and other current liabilities	791,213			712,012
Current portion of operating lease liabilities	124,131			—
Short-term debt obligations and current maturities of long-term debt obligations	23,998			38,017
Income taxes payable	47,490			40,159
Deferred revenue	62,455			59,293
Total current liabilities	1,481,427			1,378,394
Debt obligations, net of current portion	1,096,735			589,782
Operating lease liabilities, net of current portion	241,630			—
Deferred income taxes	52,984			57,145
Other long-term liabilities	62,337			62,992
Total liabilities	2,935,113			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; 62,563,955 issued at June 30, 2019 and 59,897,309 issued at December 31, 2018	1,251			1,198
Additional paid-in-capital	1,172,834			1,104,264
Treasury stock, at cost, 8,083,716 shares at June 30, 2019 and 8,077,311 shares at December 31, 2018	(393,353		)	(391,551		)
Retained earnings	772,501			669,805
Accumulated other comprehensive loss	(155,050		)	(151,043		)
Total Euronet Worldwide, Inc. stockholders’ equity	1,398,183			1,232,673
Noncontrolling interests	40			169
Total equity	1,398,223			1,232,842
Total liabilities and equity	$	4,333,336		$	3,321,155

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except share and per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues	$	691,867		$	622,224		$	1,269,376		$	1,172,739
Operating expenses:
Direct operating costs	393,811			361,512			747,644			704,836
Salaries and benefits	98,550			91,723			191,345			177,429
Selling, general and administrative	53,842			52,357			101,989			102,368
Depreciation and amortization	27,767			26,263			54,407			52,265
Total operating expenses	573,970			531,855			1,095,385			1,036,898
Operating income	117,897			90,369			173,991			135,841
Other income (expense):
Interest income	513			416			856			712
Interest expense	(10,029		)	(10,061		)	(18,228		)	(17,667		)
Loss on early retirement of debt	(8,903		)	—			(9,831		)	—
Loss from unconsolidated affiliates	—			—			—			(117		)
Foreign currency exchange (loss) gain, net	(121		)	(20,690		)	3,087			(18,755		)
Other (losses) gains	(29		)	29			(4		)	60
Other expense, net	(18,569		)	(30,306		)	(24,120		)	(35,767		)
Income before income taxes	99,328			60,063			149,871			100,074
Income tax expense	(31,323		)	(16,427		)	(47,287		)	(30,094		)
Net income	68,005			43,636			102,584			69,980
Net loss attributable to noncontrolling interests	148			88			112			157
Net income attributable to Euronet Worldwide, Inc.	$	68,153		$	43,724		$	102,696		$	70,137

Earnings per share attributable to Euronet Worldwide, Inc. stockholders:
Basic	$	1.28		$	0.85		$	1.95		$	1.36
Diluted	$	1.25		$	0.82		$	1.90		$	1.30

Weighted average shares outstanding:
Basic	53,212,759			51,226,898			52,546,647			51,563,090
Diluted	54,702,459			53,492,835			53,945,770			53,871,279

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Net income	$	68,005	$	43,636		$	102,584		$	69,980
Translation adjustment	12,161		(58,533		)	(4,024		)	(35,585		)
Comprehensive income (loss)	80,166		(14,897		)	98,560			34,395
Comprehensive loss attributable to noncontrolling interests	136		180			129			194
Comprehensive income (loss) attributable to Euronet Worldwide, Inc.	$	80,302	$	(14,717	)	$	98,689		$	34,589

See accompanying notes to the unaudited consolidated financial statements.

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		)
Net income (loss)
Other comprehensive loss
Stock issued under employee stock plans	89,954		1		1,484		260
Share-based compensation					4,550
Repurchase of shares	(613,704	)					(50,000		)
Balance as of June 30, 2018	50,981,871		$	1,181	$	1,084,536	$	(393,138	)



	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
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		)
Net income (loss)
Other comprehensive income
Stock issued under employee stock plans	41,856			1,740			(46		)
Share-based compensation				6,003
Redemptions and conversions of convertible notes, net of tax	2,488,243	50		22,400
Balance as of June 30, 2019	54,480,239	$	1,251	$	1,172,834		$	(393,353	)

See accompanying notes to the unaudited consolidated financial statements.

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
Net income (loss)	43,724					(88		)	43,636
Other comprehensive loss			(58,442		)	(91		)	(58,533		)
Stock issued under employee stock plans									1,745
Share-based compensation									4,550
Repurchase of shares									(50,000		)
Balance as of June 30, 2018	$	507,091	$	(130,006	)	$	766		$	1,070,430



	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
Net income (loss)	68,153					(148		)	68,005
Other comprehensive income			12,149			12			12,161
Stock issued under employee stock plans									1,694
Share-based compensation									6,003
Redemptions and conversions of convertible notes, net of tax									22,450
Balance as of June 30, 2019	$	772,501	$	(155,050	)	$	40		$	1,398,223

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



	Six Months Ended June 30,
	2019			2018
Net income	$	102,584		$	69,980
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,407			52,265
Share-based compensation	10,493			8,579
Unrealized foreign exchange (gain) loss, net	(3,087		)	18,755
Deferred income taxes	4,555			192
Loss on early retirement of debt	9,831			—
Loss from unconsolidated affiliates	—			117
Accretion of convertible debt discount and amortization of debt issuance costs	9,685			6,994
Changes in working capital, net of amounts acquired:
Income taxes payable, net	7,302			(729		)
Trade accounts receivable	(146,441		)	35,456
Prepaid expenses and other current assets	25,606			12,304
Trade accounts payable	(95,083		)	(99,237		)
Deferred revenue	3,457			(84		)
Accrued expenses and other current liabilities	85,262			(35,553		)
Changes in noncurrent assets and liabilities	(11,857		)	265
Net cash provided by operating activities	56,714			69,304
Cash flows from investing activities:
Acquisitions, net of cash acquired	—			(12,854		)
Purchases of property and equipment	(67,727		)	(53,381		)
Purchases of other long-term assets	(3,436		)	(3,717		)
Other, net	2,403			962
Net cash used in investing activities	(68,760		)	(68,990		)
Cash flows from financing activities:
Proceeds from issuance of shares	7,037			4,136
Repurchase of shares	(2,448		)	(176,657		)
Borrowings from revolving credit agreements	2,043,598			2,573,941
Repayments of revolving credit agreements	(2,253,498		)	(2,333,885		)
Proceeds from long-term debt obligations	1,194,900			—
Repayments of long-term debt obligations	(446,702		)	(6,199		)
(Repayments of) borrowings from short-term debt obligations, net	(14,184		)	302,841
Debt issuance costs	(19,673		)	—
Other, net	(3,085		)	(3,255		)
Net cash provided by financing activities	505,945			360,922
Effect of exchange rate changes on cash and cash equivalents and restricted cash	4,907			(25,471		)
Increase in cash and cash equivalents and restricted cash	498,806			335,765
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	$	1,629,758		$	1,236,283

Supplemental disclosure of cash flow information:
Interest paid during the period	$	7,107		$	9,857
Income taxes paid during the period	$	36,543		$	31,710

See accompanying notes to the unaudited consolidated financial statements.

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 digital media 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 transactions 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 Segment 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

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.

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 does not expect that the adoption of this guidance to have a significant impact 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 June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding	53,212,759	51,226,898	52,546,647	51,563,090
Incremental shares from assumed exercise of stock options and vesting of restricted stock	1,489,700	1,494,766	1,399,123	1,537,018
Incremental shares from assumed conversion of convertible notes	—	771,171	—	771,171
Diluted weighted average shares outstanding	54,702,459	53,492,835	53,945,770	53,871,279

The table includes the impact of all stock options and restricted stock that are dilutive to the Company’s weighted average common shares outstanding during the three and six months ended June 30, 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 782,000 and 805,000 for the three and six months ended June 30, 2019, respectively, and approximately 1,209,000 and 1,124,000 for the three and six months ended June 30, 2018, respectively.

The Company issued new Convertible Senior Notes ("Convertible Notes") due March 2049 on March 18, 2019 and retired the existing convertible notes ("Retired Convertible Notes") that would have matured in 2044 on May 28, 2019. The Company's Convertible Notes currently have and the Retired Convertible Notes had a 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. The Company has 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 and the Retired Convertible Notes were included in the calculation of diluted earnings per share if their inclusion was dilutive. The dilutive effect increases the more the market price exceeds the conversion price. The Retired Convertible Notes had a dilutive effect in the three and six months ended June 30, 2018 as the $83.77 market price per share of Common Stock as of June 30, 2018 exceeded the $72.18 conversion price per share. 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. As of June 30, 2019, the Convertible Notes did not have a dilutive effect on the earnings per share. See Note 7, Debt Obligations, for more information about the 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. During the three and six months

Table of Contents

ended June 30, 2019, there were no repurchase of stock, the remaining maximum dollar value of shares that may yet be purchased under the Repurchase program was $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 half 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 three and six months ended June 30, 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 gains of $12.2 million for the second quarter of 2019, and losses of $4.0 million, $58.5 million, and $35.6 million for the first half of 2019,the three and six months ended June 30, 2018, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three and six months ended June 30, 2019 and 2018.

(4) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET

A summary of acquired intangible assets and goodwill activity for the six months ended June 30, 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	(10,303		)	—		(10,303		)
Other (primarily changes in foreign currency exchange rates)	192			1,484		1,676
Balance as of June 30, 2019	$	104,374		$	706,367	$	810,741

Estimated amortization expense on intangible assets with finite lives, before income taxes, as of June 30, 2019, is expected to total $10.2 million for the remainder of 2019, $19.7 million for 2020, $18.9 million for 2021, $17.8 million for 2022, $13.1 million for 2023 and $6.7 million for 2024.

In January 2019, the Company completed the acquisition of the majority interests of a small Indonesian business in which the Company previously held the minority interest 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.

Table of Contents

(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:



	As of
(in thousands)	June 30, 2019		December 31, 2018
Money transfer settlement obligations	$	405,228	$	310,710
Accrued expenses	274,033		293,864
Accrued amounts due to mobile operators and other content providers	80,298		65,878
Derivative liabilities	25,577		36,102
Current portion of capital lease obligations	6,077		5,458
Total	$	791,213	$	712,012

(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 half of 2019 is primarily driven by $26.3 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations, largely offset by $23.2 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2018.

Table of Contents

(7) DEBT OBLIGATIONS

Debt obligations consist of the following:



	As of
(in thousands)	June 30, 2019			December 31, 2018
Credit Facility:
Revolving credit agreements, due 2023	$	6,129		$	215,725

Convertible Debt:
0.75% convertible notes, unsecured, due 2049	429,563			—
1.50% convertible notes, unsecured, due 2044	—			379,859

1.375% Senior Notes, due 2026	682,080			—

Other obligations	24,279			38,513

Total debt obligations	1,142,051			634,097
Unamortized debt issuance costs	(21,318		)	(6,298		)
Carrying value of debt	1,120,733			627,799
Short-term debt obligations and current maturities of long-term debt obligations	(23,998		)	(38,017		)
Long-term debt obligations	$	1,096,735		$	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. The weighted average interest rate of the Company's borrowing under the Credit Facility was 2.23% as of June 30, 2019.

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 redeemed or converted prior to such date, and are convertible into shares of Euronet Common Stock at a conversion price of approximately $188.73 per share. The Company used $94.2 million of the net proceeds from the issuance of the new debt to repurchase $49 million aggregate principal amount of the Company's 1.5% Convertible Senior Notes outstanding due 2044 (the "Retired 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 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 Retired Convertible Notes (the "Existing Indenture"), pursuant to which the Company would redeem all of the remaining principal amount outstanding of the Retired Convertible Notes on May 28, 2019 (the "Redemption Date") for cash at a redemption price equal to 100% of the principal amount of the Retired Convertible Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date. The issuance of the Convertible Notes and the conversion of the Retired Convertible Notes, resulted in a $25.6 million recognition and a $34.2 million reversal of deferred tax liabilities within the additional paid-in capital as of June 30, 2019, respectively.

Prior to the Redemption Date, approximately $352.4 million principal amount of the Retired Convertible Notes were submitted for conversion. The Company elected to settle the conversion of such Retired Convertible Notes through a combination of cash and stock. The Company paid cash equal to $1,000 for each $1,000 principal amount of Retired Convertible Notes submitted for conversion and satisfied the remainder of the conversion obligation by issuing shares of the Company's Common Stock

Table of Contents

valued bonds valued at $147.24 per share. As a result, the Company paid cash of $352.4 million and issued approximately 2.5 million shares of its Common Stock. In accordance with ASC 470, the Company recognized a loss of $9.8 million on the conversion and redemption of the debt for the first half of 2019, representing the difference between the fair value of the Retired Convertible Notes converted and the carrying value of the bonds at the time of conversion.

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 for the Convertible Notes.

Contractual interest expense for the Retired Convertible Notes was $1.5 million for the first half of 2019. Accretion expense was $1.8 million and $4.6 million for the three and six months ended June 30, 2019, respectively.

Contractual interest expense for the Convertible Notes was $1.0 million and $1.1 million for the three and six months ended June 30, 2019, respectively. Accretion expense was $3.6 million and $4.2 million for the three and six months ended June 30, 2019, respectively. The effective interest rate was 4.4% for the three and six months ended June 30, 2019. As of June 30, 2019, the unamortized discount was $95.4 million and will be amortized through March 2025.

1.375% Senior Notes due 2026

On May 22, 2019, the Company completed the sale of €600 million ($669.9 million) aggregate principal amount of Senior Notes that expire on May 2026 (the “Senior Notes”). The Senior Notes accrue interest at a rate of 1.375% per year, payable annually in arrears commencing May 22, 2020, until maturity or earlier redemption. As of June 30, 2019, the Company has outstanding €600 million ($682.1 million) principal amount of the Senior Notes. In addition, the Company may redeem some or all of these notes on or after February 22, 2026 at their principal amount plus any accrued and unpaid interest.

(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 June 30, 2019, the Company held in its Ria operations foreign currency forward contracts outstanding in the U.S. with a notional value of $278 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 June 30, 2019, the Company had foreign currency forward contracts outstanding with a notional value of $86 million, primarily in euros and Polish zloty.

Foreign currency exchange contracts - xe Operations

xe writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. xe aggregates its foreign currency exposures arising from customer contracts and 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 xe's total portfolio of positions were $16.1 million and $34.7 million for the three and six months ended June 30, 2019, respectively, and $16.8 million and $35.5 million for the three and six months ended June 30,

Table of Contents

2018, respectively. All of the derivative contracts used in the Company's xe operations are economic hedges and are not designated as hedges under ASC Topic 815. The duration of these derivative contracts is generally less than one year.

The fair value of xe's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. xe manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering into contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. xe does not expect any significant losses from counterparty defaults.

The aggregate equivalent U.S. dollar notional amounts of foreign currency derivative customer contracts held by the Company in its xe operations as of June 30, 2019 was approximately $1.4 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	June 30, 2019		December 31, 2018		Balance Sheet Location	June 30, 2019			December 31, 2018
Derivatives not designated as hedging instruments
Foreign currency exchange contracts	Prepaid expenses and other current assets	$	38,182	$	44,637	Accrued expenses and other current liabilities	$	(25,577	)	$	(36,102	)

Table of Contents

The following tables summarize the gross and net fair value of derivative assets and liabilities as of June 30, 2019 and December 31, 2018 (in thousands):

Offsetting of Derivative Assets



							Gross Amounts Not Offset in the Consolidated Balance Sheet
As of June 30, 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	$	38,182	$	—	$	38,182	$	(19,279	)	$	(3,838	)	$	15,065

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 June 30, 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	$	(25,577	)	$	—	$	(25,577	)	$	19,279	$	969	$	(5,329	)

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 and six months ended June 30, 2019 and 2018:



		Amount of Gain (Loss) Recognized in Income on Derivative Contracts (a)
	Location of Gain (Loss) Recognized in Income on Derivative Contracts	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)		2019			2018		2019		2018
Foreign currency exchange contracts	Foreign currency exchange gain (loss), net	$	(2,126	)	$	7,085	$	334	$	8,380

(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its xe operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above.

Table of Contents

(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 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 June 30, 2019
(in thousands)	Balance Sheet Classification	Level 1		Level 2			Level 3		Total
Assets
Foreign currency exchange contracts	Other current assets	$	—	$	38,182		$	—	$	38,182
Liabilities
Foreign currency exchange contracts	Other current liabilities	$	—	$	(25,577	)	$	—	$	(25,577	)



		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 value of the Company’s Credit Facility approximates fair value because interest is primarily based on LIBOR, which resets at various intervals of less than one year. The Company estimates the fair values of the Convertible Notes and Senior Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of June 30, 2019, the fair values of the Convertible Notes and the Senior Notes were $519.2 million and $678.0 million, respectively, with carrying values of $429.6 million and $682.1 million, respectively.

Table of Contents

(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:

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 digital media products in Europe, the Middle East, Asia Pacific, the United States and South America.

Through the Money Transfer Segment, the Company provides global money transfer services under the brand names Ria, 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. xe offers account-to-account international payment services to high-income individuals and small-to-medium sized businesses. xe is also a provider of foreign currency exchange information and offers money transfers on its currency data websites. The Company also offers customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services, foreign currency exchange services and mobile top-up. The Company provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses under the brand name HiFM.

In addition, the Company accounts for non-operating activity, most share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in its administrative division, “Corporate Services, Eliminations and Other.” These services are not directly identifiable with the Company’s reportable operating segments.

The following tables present the Company’s reportable segment results for the three and six months ended June 30, 2019 and 2018:



	For the Three Months Ended June 30, 2019
(in thousands)	EFT Processing		epay		Money Transfer		Corporate Services, Eliminations and Other			Consolidated
Total revenues	$	231,946	$	184,160	$	276,783	$	(1,022	)	$	691,867
Operating expenses:
Direct operating costs	105,568		140,427		148,834		(1,018		)	393,811
Salaries and benefits	21,339		14,998		52,713		9,500			98,550
Selling, general and administrative	10,745