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 March 31, 2020



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



For the transition period from			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	EEFT26	Nasdaq Global 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 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	☐
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 þ

On May 6, 2020, Euronet Worldwide, Inc. had 52,205,743 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 March 31, 2020 and December 31, 2019	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019	5
	Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	8
	Notes to the Unaudited Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
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
	March 31, 2020			December 31, 2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	709,521		$	786,081
ATM cash	558,580			665,641
Restricted cash	28,953			34,301
Settlement assets	773,336			1,013,067
Trade accounts receivable, net of credit losses of $3,967 at March 31, 2020 and $3,892 at December 31, 2019	92,860			201,935
Prepaid expenses and other current assets	309,385			217,707
Total current assets	2,472,635			2,918,732
Operating right of use lease assets	379,584			377,543
Property and equipment, net of accumulated depreciation of $411,616 at March 31, 2020 and $410,243 at December 31, 2019	356,558			359,980
Goodwill	714,499			743,823
Acquired intangible assets, net of accumulated amortization of $201,810 at March 31, 2020 and $204,853 at December 31, 2019	130,177			141,847
Other assets, net of accumulated amortization of $47,941 at March 31, 2020 and $46,788 at December 31, 2019	130,932			115,741
Total assets	$	4,184,385		$	4,657,666
LIABILITIES AND EQUITY
Current liabilities:
Settlement obligations	$	773,336		$	1,013,067
Trade accounts payable	88,392			81,743
Accrued expenses and other current liabilities	365,326			294,557
Current portion of operating lease liabilities	129,151			127,353
Short-term debt obligations and current maturities of long-term debt obligations	3,528			6,089
Income taxes payable	40,090			52,583
Deferred revenue	61,767			58,588
Total current liabilities	1,461,590			1,633,980
Debt obligations, net of current portion	1,083,618			1,090,939
Operating lease obligations, net of current portion	243,639			241,977
Deferred income taxes	52,613			56,067
Other long-term liabilities	53,653			55,361
Total liabilities	2,895,113			3,078,324
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; 62,853,785 issued at March 31, 2020 and 62,775,762 issued at December 31, 2019	1,257			1,256
Additional paid-in-capital	1,198,097			1,190,058
Treasury stock, at cost, 10,648,096 shares at March 31, 2020 and 8,554,908 shares at December 31, 2019	(703,716		)	(463,704		)
Retained earnings	1,018,475			1,016,554
Accumulated other comprehensive loss	(224,667		)	(164,890		)
Total Euronet Worldwide, Inc. stockholders’ equity	1,289,446			1,579,274
Noncontrolling interests	(174		)	68
Total equity	1,289,272			1,579,342
Total liabilities and equity	$	4,184,385		$	4,657,666

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 March 31,
	2020			2019
Revenues	$	583,907		$	577,509
Operating expenses:
Direct operating costs	359,456			353,833
Salaries and benefits	101,240			92,795
Selling, general and administrative	60,793			48,147
Depreciation and amortization	30,816			26,640
Total operating expenses	552,305			521,415
Operating income	31,602			56,094
Other income (expense):
Interest income	567			343
Interest expense	(9,233		)	(8,199		)
Loss on early retirement of debt	—			(928		)
Foreign currency exchange (loss) gain, net	(18,806		)	3,208
Other gains	31			25
Other expense, net	(27,441		)	(5,551		)
Income before income taxes	4,161			50,543
Income tax expense	(2,441		)	(15,964		)
Net income	1,720			34,579
Net loss (income) attributable to noncontrolling interests	201			(36		)
Net income attributable to Euronet Worldwide, Inc.	$	1,921		$	34,543

Earnings per share attributable to Euronet Worldwide, Inc. stockholders:
Basic	$	0.04		$	0.67
Diluted	$	0.04		$	0.62

Weighted average shares outstanding:
Basic	53,607,104			51,880,534
Diluted	54,779,321			55,576,867

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)



	Three Months Ended March 31,
	2020			2019
Net income	$	1,720		$	34,579
Translation adjustment	(59,818		)	(16,156		)
Comprehensive (loss) income	(58,098		)	18,423
Comprehensive loss (income) attributable to noncontrolling interests	242			(7		)
Comprehensive (loss) income attributable to Euronet Worldwide, Inc.	$	(57,856	)	$	18,416

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited, in thousands, except share data)



	Number of Shares Outstanding	Common Stock		Additional Paid-in Capital			Treasury Stock
Balance as of December 31, 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
Repurchase 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	)



	Number of Shares Outstanding		Common Stock		Additional Paid-in Capital		Treasury Stock
Balance as of December 31, 2019	54,220,854		$	1,256	$	1,190,058	$	(463,704	)
Net income (loss)
Other comprehensive loss
Stock issued under employee stock plans	80,519		1		1,701		(249		)
Share-based compensation					6,338
Repurchase of shares	(2,095,683	)					(239,763		)
Balance as of March 31, 2020	52,205,690		$	1,257	$	1,198,097	$	(703,716	)

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

(Unaudited, in thousands)



	Retained Earnings		Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance as of December 31, 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									(42,917		)
Balance as of March 31, 2019	$	704,348	$	(167,199	)	$	176		$	1,287,910



	Retained Earnings		Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance as of December 31, 2019	$	1,016,554	$	(164,890	)	$	68		$	1,579,342
Net income (loss)	1,921					(201		)	1,720
Other comprehensive loss			(59,777		)	(41		)	(59,818		)
Stock issued under employee stock plans									1,453
Share-based compensation									6,338
Repurchase of shares									(239,763		)
Balance as of March 31, 2020	$	1,018,475	$	(224,667	)	$	(174	)	$	1,289,272

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)



	Three Months Ended March 31,
	2020			2019
Net income	$	1,720		$	34,579
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	30,816			26,640
Share-based compensation	6,338			4,490
Unrealized foreign exchange loss (gain), net	18,806			(3,208		)
Deferred income taxes	(2,043		)	3,468
Accretion of convertible debt discount and amortization of debt issuance costs	4,616			4,071
Changes in working capital, net of amounts acquired:
Income taxes payable, net	(10,454		)	635
Trade accounts receivable	300,063			(31,456		)
Prepaid expenses and other current assets	(119,648		)	33,787
Trade accounts payable	(126,242		)	(115,380		)
Deferred revenue	4,119			3,005
Accrued expenses and other current liabilities	14,811			51,377
Changes in noncurrent assets and liabilities	(17,018		)	953
Net cash provided by operating activities	105,884			12,961
Cash flows from investing activities:
Acquisitions, net of cash acquired	475			—
Purchases of property and equipment	(30,392		)	(31,390		)
Purchases of other long-term assets	(2,046		)	(1,783		)
Other, net	357			187
Net cash used in investing activities	(31,606		)	(32,986		)
Cash flows from financing activities:
Proceeds from issuance of shares	1,700			5,171
Repurchase of shares	(240,530		)	(2,275		)
Borrowings from revolving credit agreements	805,500			1,209,446
Repayments of revolving credit agreements	(805,500		)	(1,425,398		)
Proceeds from long-term debt obligations	—			525,000
Repayments of long-term debt obligations	—			(94,199		)
Net borrowing from short-term debt obligations	(2,163		)	(11,779		)
Debt issuance costs	—			(11,812		)
Other, net	(1,651		)	(1,452		)
Net cash (used in) provided by financing activities	(242,644		)	192,702
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(59,260		)	(12,387		)
(Decrease) increase in cash and cash equivalents and restricted cash	(227,626		)	160,290
Cash and cash equivalents and restricted cash at beginning of period	1,817,379			1,130,952

Cash and cash equivalents and restricted cash at end of period	$	1,589,753		$	1,291,242

Supplemental disclosure of cash flow information:
Interest paid during the period	$	3,678		$	5,491
Income taxes paid during the period	$	16,064		$	12,074

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. (the “Company” or “Euronet”) was established as a Delaware corporation on December 13, 1997 and succeeded Euronet Holding N.V. as the group holding company, which was founded and established in 1994. Euronet is a leading electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Euronet's primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services, electronic distribution of prepaid mobile airtime and other electronic payment products, 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, 2019, including the notes thereto, set forth in the Company’s 2019 Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include computing income taxes, estimating the useful lives and potential impairment of long-lived assets and goodwill, as well as allocating the purchase price to assets acquired and liabilities assumed in acquisitions and revenue recognition. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2020.

Seasonality

Euronet’s Electronic Funds Transfer ("EFT") Processing Segment experiences its heaviest demand for dynamic currency conversion services during the third quarter of the fiscal year, normally coinciding with the tourism season. Additionally, the EFT Processing and epay Segments are normally impacted by seasonality during the fourth quarter and first quarter of each year due to higher transaction levels during the holiday season and lower levels following the holiday season. Seasonality in the money transfer segment varies by region of the world. In most markets, Euronet usually experiences increased demand for money transfer services from the month of May through the fourth quarter of each year, coinciding with the increase in worker migration patterns and various holidays, and its lowest transaction levels during the first quarter of the year.

COVID-19 (coronavirus)

The outbreak of the COVID-19 (coronavirus) pandemic has resulted in travel restrictions across borders, and shelter-in-place orders in most of the countries where the Company operates. The majority of these orders went into effect in late February 2020 or early March 2020. These orders have negatively impacted all of our three operating segments. The EFT Segment has experienced declines in transaction volumes due to these restrictions, especially high-margin cross-border transactions. Although the epay Segment has experienced revenue growth from increased digital content purchases which can be completed remotely, many of its POS retail locations have been closed, reducing in person transactions. Our Money Transfer Segment has experienced declines in transaction volumes due to the restrictions noted above, which have also led to the temporary closure of many of our company owned stores and agents. The Money Transfer Segment has experienced an increase in receivable delinquencies as our agents have been temporarily closed as nonessential services.

In response to the COVID-19 driven impacts, the Company has implemented several key measures to offset the impact across the business, including negotiating certain third party contracts, reducing travel, decreasing planned 2020 capital expenditures, and expanding ATM winterizations (placing them in dormancy status) in more sites and more markets.

Table of Contents

(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform due to the anticipated cessation of LIBOR on or before December 31, 2021. This guidance is effective from March 12, 2020 through December 31, 2022 and could impact the accounting for LIBOR provisions in the Company’s unsecured credit agreement. The Company does not expect that the adoption of this guidance will have a significant impact on its consolidated financial statements.

The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), as of January 1, 2020, 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 replaced the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The adoption of this standard did not have a significant impact on the Company's consolidated financial statements and related disclosures.

(3) SETTLEMENT ASSETS AND OBLIGATIONS

Settlement assets represent funds received or to be received from agents for unsettled money transfers and from merchants for unsettled prepaid transactions. The Company records corresponding settlement obligations relating to amounts payable. Settlement assets consist of cash and cash equivalents, restricted cash, accounts receivable and prepaid expenses and other current assets. Cash received by Euronet agents and merchants generally become available to the Company within two weeks after initial receipt by the business partner. Receivables from business partners represent funds collected by such business partners that are in transit to the Company.

Settlement obligations consist of money transfers and accounts payable to agents and content providers. Money transfer accounts payable represent amounts to be paid to transferees when they request funds. Most agents typically settle with transferees first then obtain reimbursement from the Company. Money order accounts payable represent amounts not yet presented for payment. Due to the agent funding and settlement process, accounts payable to agents represent amounts due to agents for money transfers that have not been settled with transferees.



	As of
(in thousands)	March 31, 2020		December 31, 2019
Settlement assets:
Settlement cash and cash equivalents	$	256,456	$	282,188
Settlement restricted cash	36,243		49,168
Accounts receivable	364,148		574,410
Prepaid expenses and other current assets	116,489		107,301
Total settlement assets	$	773,336	$	1,013,067
Settlement obligations:
Trade account payables	$	353,498	$	504,667
Accrued expenses and other current liabilities	419,838		508,400
Total settlement obligations	$	773,336	$	1,013,067

A portion of the Company's credit losses are recorded in the accounts receivable within settlement assets. The balance of credit losses related to accounts receivable within settlement assets was $28.3 million and $24.0 million as of March 31, 2020 and December 31, 2019, respectively.

Table of Contents

The table below reconciles cash and cash equivalents, restricted cash, ATM cash, settlement cash and cash equivalents, and settlement restricted cash as presented within "Cash and cash equivalents and restricted cash" in the Consolidated Statement of Cash Flows.



	As of
(in thousands)	March 31, 2020		December 31, 2019		March 31, 2019		December 31, 2018
Cash and cash equivalents	$	709,521	$	786,081	$	558,454	$	385,031
Restricted cash	28,953		34,301		34,398		31,237
ATM cash	558,580		665,641		421,897		395,378
Settlement cash and cash equivalents	256,456		282,188		235,946		273,948
Settlement restricted cash	36,243		49,168		40,547		45,358
Cash and cash equivalents and restricted cash at end of period	$	1,589,753	$	1,817,379	$	1,291,242	$	1,130,952

(4) 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 period. 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 the potential dilution of options to purchase the Company's Common Stock, assumed vesting of restricted stock and the assumed conversion of the Company's convertible debt.

The following table provides the computation of diluted weighted average number of common shares outstanding:



	Three Months Ended March 31,
	2020	2019
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding	53,607,104	51,880,534
Incremental shares from assumed exercise of stock options and vesting of restricted stock	1,172,217	1,285,139
Incremental shares from assumed conversion of convertible debentures	—	2,411,194
Diluted weighted average shares outstanding	54,779,321	55,576,867

The table includes all stock options and restricted stock that are dilutive to the Company's weighted average common shares outstanding during the period. 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 for the three months ended March 31, 2020 and 2019 of approximately 886,000 and 402,000, 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 feature 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 for the three months ended March 31, 2019 as the $142.59 market price per share of common stock as of March 31, 2019 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. The market price per share per share of common stock was $85.72, therefore, according to ASC Topic 260, Earnings per Share (“ASC 260”), there was no dilutive effect of the assumed conversion of the debentures as of March 31, 2020, whereas the dilutive effect was 2,411,194 shares for the three months ended March 31, 2019. See Note 8, Debt Obligations, to the Consolidated Financial Statements for more information about the convertible notes.

Table of Contents

Share repurchases

The Company's Board of Directors had authorized a stock repurchase program allowing Euronet to repurchase up to $375 million in value or 10.0 million shares of stock through March 31, 2020. On March 11, 2019, in connection with the issuance of the Convertible Notes, the Board of Directors authorized an additional repurchase program of $120 million in value of the Company's common stock through March 11, 2021. On February 26, 2020, the Company put a repurchase program in place to repurchase up to $250 million in value, but not more than 5.0 million shares of common stock through February 28, 2022. For the first quarter of 2020, the Company repurchased $239.8 million in value of Euronet common stock under the repurchase programs. Repurchases under either program may take place in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists entirely of foreign currency translation adjustments. The Company recorded foreign currency translation losses of $59.8 million for the three months ended March 31, 2020 and $16.2 million for the three months ended March 31, 2019. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three months ended March 31, 2020 and 2019.

(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET

A summary of acquired intangible assets and goodwill activity for the three months ended March 31, 2020 is presented below:



(in thousands)	Acquired Intangible Assets			Goodwill			Total Intangible Assets
Balance as of December 31, 2019	$	141,847		$	743,823		$	885,670
Decreases:
Acquisition	—			(474		)	(474		)
Amortization	(5,726		)	—			(5,726		)
Other (primarily changes in foreign currency exchange rates)	(5,944		)	(28,850		)	(34,794		)
Balance as of March 31, 2020	$	130,177		$	714,499		$	844,676

Estimated amortization expense on intangible assets with finite lives as of March 31, 2020, is expected to total $16.1 million for the remainder of 2020, $20.8 million for 2021, $19.8 million for 2022, $15.3 million for 2023, $9.3 million for 2024 and $6.3 million for 2025.

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, 2019 resulted in no impairment charge. The Company considered the impact of COVID-19 on its operations at the reporting unit level and determined that there was no impairment as of March 31, 2020.

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 2019 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. In response to the COVID-19 pandemic, we will continue to monitor the evaluation of global medical experts and scientists. As information regarding the impact of the COVID-19 pandemic on the Company's business, including intangible assets, becomes available, the impacts to cash flows and the related impact on recovery of intangible assets will be evaluated.

(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:



	As of
(in thousands)	March 31, 2020		December 31, 2019
Accrued expenses	$	228,724	$	246,699
Derivative liabilities	130,555		41,935
Current portion of capital lease obligations	6,047		5,919
Deferred income taxes	—		4
Total	$	365,326	$	294,557

Table of Contents

(7) 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 2020 is primarily driven by $19.0 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations, largely offset by $15.7 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2019.

(8) DEBT OBLIGATIONS

Debt obligations consist of the following:



	As of
(in thousands)	March 31, 2020			December 31, 2019
Credit Facility:
Revolving credit agreement	$	—		$	—
Convertible Debt:
0.75% convertible notes, unsecured, due 2049	440,713			436,965

1.375% Senior Notes, due 2026	661,560			673,440

Other obligations	3,598			6,215

Total debt obligations	1,105,871			1,116,620
Unamortized debt issuance costs	(18,725		)	(19,592		)
Carrying value of debt	1,087,146			1,097,028
Short-term debt obligations and current maturities of long-term debt obligations	(3,528		)	(6,089		)
Long-term debt obligations	$	1,083,618		$	1,090,939

Credit Facility

On October 17, 2018, the Company entered into an 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 unsecured revolving credit agreement 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 revolving credit facility contains a $200 million sublimit for the issuance of letters of credit, a $50 million sublimit for U.S. Dollar swingline loans, and a $90 million sublimit for certain foreign currencies swingline loans.

The unsecured revolving credit agreement contains customary affirmative and negative covenants, events of default and financial covenants. The Company was in compliance with all debt covenants, as of March 31, 2020.

Convertible Debt

On March 18, 2019, the Company completed the sale of $525.0 million of Convertible Senior Notes ("Convertible Notes"). The Convertible Notes mature in March 2049 unless redeemed or converted prior to such date, and are convertible into shares of Euronet Common Stock at a conversion price of approximately $188.73 per share if certain conditions are met (relating to the closing price of Euronet Common Stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require the Company to purchase their notes on each of March 15, 2025, March 15, 2029, March 15, 2034,

Table of Contents

March 15, 2039 and March 15, 2044 at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.

On March 18, 2019, the Company provided a notice of redemption to the trustee of the indenture governing the Company's 1.5% Convertible Senior Notes due 2044 (the "Retired Convertible Notes"), 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.

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 Convertible Notes was $1.0 million for the three months ended March 31, 2020. Accretion expense for the Convertible Notes was $3.7 million for the three months ended March 31, 2020. Contractual interest expense for the Convertible Notes and Retired Convertible Notes was $0.2 million and $1.5 million, respectively for the three months ended March 31, 2019. Accretion expense for the Convertible Notes and Retired Convertible Notes was $0.6 million and $2.9 million, respectively for the three months ended March 31, 2019. The effective interest rate was 4.4% for the three months ended March 31, 2020. As of March 31, 2020, the unamortized discount was $84.3 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 March 31, 2020, the Company has outstanding €600 million ($661.6 million) principal amount of the Senior Notes. In addition, the Company may redeem some or all of these notes on or after February 22, 2026 at their principal amount plus any accrued and unpaid interest.

Other obligations

Certain of the Company's subsidiaries have available lines of credit and overdraft credit facilities that generally provide for short-term borrowings that are used from time to time for working capital purposes. As of March 31, 2020 and December 31, 2019, borrowings under these arrangements were $3.6 million and $6.2 million, respectively.

Uncommitted Line of Credit

On September 4, 2019, the Company entered into an Uncommitted Loan Agreement with Bank of America which may provide Euronet up to $100.0 million under an uncommitted line of credit. Interest on borrowings is equal to LIBOR plus 0.65% and the agreement expires September 4, 2020. As of March 31, 2020, no amounts were outstanding under the line of credit.

(9) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to foreign currency exchange risk resulting from (i) the collection of funds or the settlement of money transfer transactions in currencies other than the U.S. dollar, (ii) derivative contracts written to its customers in connection with providing cross-currency money transfer services and (iii) certain foreign currency denominated other asset and liability positions. The Company enters into foreign currency derivative contracts, primarily foreign currency forwards and cross-currency swaps, to minimize its exposure related to fluctuations in foreign currency exchange rates. As a matter of Company policy, the derivative instruments used in these activities are economic hedges and are not designated as hedges under ASC 815, primarily due to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates are reflected concurrently in earnings for both the derivative instrument and the transaction and have an offsetting effect.

Foreign currency exchange contracts - Ria Operations and Corporate

In the United States, the Company uses short-duration foreign currency forward contracts, generally with maturities up to 14 days, to offset the fluctuation in foreign currency exchange rates on the collection of money transfer funds between initiation of a transaction and its settlement. Due to the short duration of these contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to these foreign currency forward contracts. Most derivative contracts executed with counterparties in the U.S. are governed by an International Swaps and Derivatives Association agreement that includes standard netting arrangements; therefore, asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity. As of March 31, 2020, the Company had

Table of Contents

foreign currency forward contracts outstanding in the U.S. with a notional value of $213 million. The foreign currency forward contracts consist 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 short-term borrowings that are payable in currencies other than the U.S dollar. As of March 31, 2020, the Company had foreign currency forward contracts outstanding with a notional value of $193 million, primarily in euros.

Foreign currency exchange contracts - xe Operations

xe, writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. xe aggregates its foreign currency exposures arising from customer contracts and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from xe's total portfolio of positions were $18.1 million and $18.6 million for the three months ended March 31, 2020 and 2019, respectively. All of the derivative contracts used in the Company' s xe operations are economic hedges and are not designated as hedges under ASC 815. The duration of these derivative contracts is generally less than one year.

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

The aggregate equivalent U.S. dollar notional amounts of foreign currency derivative customer contracts held by the Company in its xe operations as of March 31, 2020 was approximately $1.5 billion. The significant majority of customer contracts are written in major currencies such as the euro, U.S. dollar, British pound, Australian dollar and New Zealand dollar.

Balance Sheet Presentation

The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below:



	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
(in thousands)	Balance Sheet Location	March 31, 2020		December 31, 2019		Balance Sheet Location	March 31, 2020			December 31, 2019
Derivatives not designated as hedging instruments
Foreign currency exchange contracts	Prepaid expenses and other current assets	$	142,148	$	54,765	Accrued expenses and other current liabilities	$	(130,555	)	$	(41,935	)

The following tables summarize the gross and net fair value of derivative assets and liabilities as of March 31, 2020 and December 31, 2019 (in thousands):

Offsetting of Derivative Assets



							Gross Amounts Not Offset in the Consolidated Balance Sheet
As of March 31, 2020	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	$	142,148	$	—	$	142,148	$	(105,671	)	$	(14,633	)	$	21,844

As of December 31, 2019
Derivatives subject to a master netting arrangement or similar agreement	$	54,765	$	—	$	54,765	$	(34,935	)	$	(7,362	)	$	12,468

Table of Contents

Offsetting of Derivative Liabilities



									Gross Amounts Not Offset in the Consolidated Balance Sheet
As of March 31, 2020	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	$	(130,555	)	$	—	$	(130,555	)	$	105,671	$	1,760	$	(23,124	)

As of December 31, 2019
Derivatives subject to a master netting arrangement or similar agreement	$	(41,935	)	$	—	$	(41,935	)	$	34,935	$	827	$	(6,173	)

See Note 10, 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, 2020 and 2019:



		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)		2020		2019
Foreign currency exchange contracts - Ria Operations	Foreign currency exchange gain, net	$	1,019	$	2,459

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

See Note 10, Fair Value Measurements, for the determination of the fair values of derivatives.

(10) 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.

Table of Contents

The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:



		As of March 31, 2020
(in thousands)	Balance Sheet Classification	Level 1		Level 2			Level 3		Total
Assets
Foreign currency exchange contracts	Other current assets	$	—	$	142,148		$	—	$	142,148
Liabilities
Foreign currency exchange contracts	Other current liabilities	$	—	$	(130,555	)	$	—	$	(130,555	)



		As of December 31, 2019
(in thousands)	Balance Sheet Classification	Level 1		Level 2			Level 3		Total
Assets
Foreign currency exchange contracts	Other current assets	$	—	$	54,765		$	—	$	54,765
Liabilities
Foreign currency exchange contracts	Other current liabilities	$	—	$	(41,935	)	$	—	$	(41,935	)

Other Fair Value Disclosures

The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt obligations approximate fair values due to their short maturities. The carrying values of the Company’s revolving credit agreements approximate fair values because interest is based on LIBOR that 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, 2020, the fair values of the Convertible Notes and Senior Notes were $597.0 million and $615.7 million, respectively, with carrying values of $440.7 million and $661.6 million, respectively.

(11) SEGMENT INFORMATION

Euronet’s reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting (“ASC 280”). 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 and Asia Pacific. 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 U.S. and South America.

Through the Money Transfer Segment, the Company provides global money transfer services under the brand names, Ria, AFEX Money Express, IME, and xe. Ria, AFEX Money Express 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. 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. Furthermore, xe provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses.

Table of Contents

In addition, the Company accounts for non-operating activity, 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, 2020 and 2019:



	For the Three Months Ended March 31, 2020
(in thousands)	EFT Processing		epay		Money Transfer		Corporate Services, Eliminations and Other			Consolidated
Total revenues	$	145,825	$	172,911	$	266,234	$	(1,063	)	$	583,907
Operating expenses:
Direct operating costs	87,536		130,074		142,909		(1,063		)	359,456
Salaries and benefits	22,091		15,697		53,864		9,588			101,240
Selling, general and administrative	10,941		8,838		38,582		2,432			60,793
Depreciation and amortization	20,322		1,844		8,571		79			30,816
Total operating expenses	140,890		156,453		243,926		11,036			552,305
Operating income (expense)	$	4,935	$	16,458	$	22,308	$	(12,099	)	$	31,602



	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

The following table presents the Company’s total assets by reportable segment:



	Total Assets as of
(in thousands)	March 31, 2020		December 31, 2019
EFT Processing	$	1,755,395	$	1,914,144
epay	763,636		962,671
Money Transfer	1,406,116		1,560,136
Corporate Services, Eliminations and Other	259,238		220,715
Total	$	4,184,385	$	4,657,666

Table of Contents

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, 2020
(in thousands)	EFT Processing		epay		Money Transfer		Total
Europe	$	99,474	$	115,277	$	91,058	$	305,809
North America	15,019		33,852		137,895		186,766
Asia Pacific	31,328		19,274		30,848		81,450
Other	4		4,508		6,433		10,945
Eliminations	—		—		—		(1,063		)
Total	$	145,825	$	172,911	$	266,234	$	583,907



	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