UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2020
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission File Number: 001-31648
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ þ
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þ
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Accelerated filer
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Non-accelerated filer
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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
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On October 30, 2020, Euronet Worldwide, Inc. had 52,314,901 shares of Common Stock outstanding.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Table of Contents
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands, except share and per share data)
See accompanying notes to the unaudited consolidated financial statements.
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As of
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September 30,
2020 |
December 31,
2019 |
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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$
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ATM cash
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Restricted cash
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Settlement assets
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Trade accounts receivable, net of credit losses of $
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Prepaid expenses and other current assets
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Total current assets
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Operating right of use lease assets
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Property and equipment, net of accumulated depreciation of $
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Goodwill
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Acquired intangible assets, net of accumulated amortization of $
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Other assets, net of accumulated amortization of $
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Total assets
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$
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$
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LIABILITIES AND EQUITY
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Current liabilities:
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Settlement obligations
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$
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$
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Trade accounts payable
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Accrued expenses and other current liabilities
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Current portion of operating lease liabilities
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Short-term debt obligations and current maturities of long-term debt obligations
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Income taxes payable
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Deferred revenue
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Total current liabilities
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Debt obligations, net of current portion
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Operating lease obligations, net of current portion
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Deferred income taxes
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Other long-term liabilities
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Total liabilities
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Equity:
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Euronet Worldwide, Inc. stockholders’ equity:
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Preferred Stock, $
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Common Stock, $
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Additional paid-in-capital
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Treasury stock, at cost,
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(
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(
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)
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Retained earnings
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Accumulated other comprehensive loss
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(
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) |
(
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)
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Total Euronet Worldwide, Inc. stockholders’ equity
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Noncontrolling interests
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Total equity
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Total liabilities and equity
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$
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$
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands, except share and per share data)
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2020
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2019
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2020
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2019
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Revenues
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$
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$
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$
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$
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Operating expenses:
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Direct operating costs
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Salaries and benefits
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Selling, general and administrative
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Goodwill and acquired intangible assets impairment
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Depreciation and amortization
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Total operating expenses
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Operating income (loss)
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(
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Other income (expense):
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Interest income
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Interest expense
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(
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(
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)
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(
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(
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Loss on early retirement of debt
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(
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Foreign currency exchange loss, net
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(
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(
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(
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(
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Other gain (loss)
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(
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Other expense, net
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(
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(
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(
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(
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Income (loss) before income taxes
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(
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Income tax expense
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(
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(
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)
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(
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) |
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(
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) | |||
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Net income (loss)
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(
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) |
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Net (income) loss attributable to noncontrolling interests
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(
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) |
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Net income (loss) attributable to Euronet Worldwide, Inc.
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$
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$
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$
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(
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) |
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$
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Earnings (loss) per share attributable to Euronet Worldwide, Inc. stockholders:
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Basic
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$
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$
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$
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(
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) |
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$
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Diluted
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$
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$
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$
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(
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) |
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$
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Weighted average shares outstanding:
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Basic
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Diluted
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See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands)
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2020
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2019
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2020
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2019
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Net income (loss)
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$
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$
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$
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(
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) |
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$
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Translation adjustment
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(
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) |
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(
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Comprehensive income (loss)
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(
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) |
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Comprehensive (income) loss attributable to noncontrolling interests
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(
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) |
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Comprehensive income (loss) attributable to Euronet Worldwide, Inc.
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$
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$
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$
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(
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) |
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$
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|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands, except share data)
|
Number of
Shares Outstanding
|
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Common
Stock
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Additional
Paid-in Capital
|
Treasury
Stock
|
|||||||||||
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Balance as of December 31, 2018
|
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$
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$
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$
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(
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)
|
||||
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Net income
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|||||||||||||||
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Other comprehensive loss
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Stock issued under employee stock plans
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(
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)
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Share-based compensation
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Issuance of convertible notes, net of tax
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||||||||||||
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Repurchase and conversions of convertible notes, net of tax
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(
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) | ||||||||||
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Balance as of March 31, 2019
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(
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)
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|||||||
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Net income (loss)
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||||
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Other comprehensive income
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||||
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Stock issued under employee stock plans
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(
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) | ||||
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Share-based compensation
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|||||
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Redemptions and conversions of convertible notes, net of tax
|
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||||
|
Balance as of June 30, 2019
|
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|
$
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|
$
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$
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(
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) | ||||
|
Net income (loss)
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|||||
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Other comprehensive income
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Stock issued under employee stock plans
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(
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) | ||||
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Share-based compensation
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Repurchase of shares
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(
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) |
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(
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Other
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(
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) |
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Balance as of September 30, 2019
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(
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) | ||||
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Number of
Shares Outstanding
|
Common
Stock
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Additional
Paid-in Capital
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Treasury
Stock
|
||||||||||||
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Balance as of December 31, 2019
|
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$
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$
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$
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(
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)
|
||||
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Net income (loss)
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Other comprehensive loss
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Stock issued under employee stock plans
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(
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)
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Share-based compensation
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||||||||||||
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Repurchase of shares
|
(
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)
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(
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)
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||||||||||
|
Balance as of March 31, 2020
|
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(
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)
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|||||||
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Net (loss) income
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Other comprehensive income
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Stock issued under employee stock plans
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Share-based compensation
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||||
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Balance as of June 30, 2020
|
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|
$
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|
$
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$
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(
|
) | ||||
|
Net income
|
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||||||
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Other comprehensive income
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Stock issued under employee stock plans
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Share-based compensation
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Balance as of September 30, 2020
|
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(
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|||||
See accompanying notes to the unaudited consolidated financial statements.
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
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
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|
||||
|
Net income
|
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|
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|
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|||||||
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Other comprehensive loss
|
|
(
|
)
|
|
(
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)
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|
(
|
)
|
|||||||
|
Stock issued under employee stock plans
|
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|
|||||||||||||
|
Share-based compensation
|
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|
|||||||||||||
|
Issuance of convertible notes, net of tax
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|
|||||||||||||
|
Repurchases and conversions of convertible notes
|
|
(
|
)
|
|||||||||||||
|
Balance as of March 31, 2019
|
|
|
(
|
)
|
|
|
|
|
||||||||
|
Net income (loss)
|
|
|
|
|
|
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|
(
|
) |
|
|
|
||||
|
Other comprehensive income
|
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|
|
|
|
|
|
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|
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|
||||
|
Stock issued under employee stock plans
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|
||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|
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|
|
||||
|
Redemptions and conversions of convertible notes
|
|
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|
|
|
|
|
|
|
|
|
|
||||
|
Balance as of June 30, 2019
|
|
|
|
|
(
|
) |
|
|
|
|
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|
||||
|
Net income (loss)
|
|
|
|
|
|
|
(
|
|
|
|
|
|||||
|
Other comprehensive loss
|
|
|
|
|
(
|
|
(
|
|
|
(
|
|
|||||
|
Stock issued under employee stock plans
|
|
|
|
|
|
|
|
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|
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|
|||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Repurchase of shares
|
|
|
|
|
|
|
|
|
|
(
|
|
|||||
|
Other
|
|
|
|
|
|
|
|
|
|
(
|
|
|||||
|
Balance as of September 30, 2019
|
$
|
|
|
$
|
(
|
$
|
(
|
|
$
|
|
|
|||||
|
Retained Earnings
|
Accumulated Other
Comprehensive Loss
|
Noncontrolling
Interests
|
Total
|
|||||||||||||
|
Balance as of December 31, 2019
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
|
|
||||
|
Net income (loss)
|
|
|
|
|
(
|
)
|
|
|
||||||||
|
Other comprehensive loss
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
||||||||
|
Stock issued under employee stock plans
|
|
|
||||||||||||||
|
Share-based compensation
|
|
|
||||||||||||||
|
Repurchase of shares
|
(
|
)
|
||||||||||||||
|
Balance as of March 31, 2020
|
|
|
(
|
)
|
(
|
)
|
|
|
||||||||
|
Net (loss) income
|
|
(
|
|
|
|
|
|
|
|
|
(
|
|
||||
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Stock issued under employee stock plans
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance as of June 30, 2020
|
|
|
|
|
(
|
) |
|
(
|
) |
|
|
|
||||
|
Net income
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Stock issued under employee stock plans
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Balance as of September 30, 2020
|
$
|
|
|
$
|
(
|
$
|
|
$
|
|
|
||||||
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(Unaudited, in thousands)
|
|
Nine Months Ended
September 30, |
||||||
|
|
2020
|
2019
|
|||||
|
Net (loss) income
|
$
|
(
|
) |
$
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||
|
Depreciation and amortization
|
|
|
|
|
|||
|
Share-based compensation
|
|
|
|
|
|||
|
Unrealized foreign exchange loss, net
|
|
|
|
||||
|
Deferred income taxes
|
(
|
) |
|
|
|||
|
Goodwill and acquired intangible assets impairment
|
|
|
|
|
|||
|
Loss on early retirement of debt
|
|
|
|
|
|||
|
Accretion of convertible debt discount and amortization of debt issuance costs
|
|
|
|
|
|||
|
Changes in working capital, net of amounts acquired:
|
|
|
|||||
|
Income taxes payable, net
|
(
|
) |
|
|
|||
|
Trade accounts receivable
|
|
|
|
||||
|
Prepaid expenses and other current assets
|
(
|
) |
(
|
) | |||
|
Trade accounts payable
|
(
|
) |
(
|
)
|
|||
|
Deferred revenue
|
(
|
) |
|
|
|||
|
Accrued expenses and other current liabilities
|
|
|
|
|
|||
|
Changes in noncurrent assets and liabilities
|
(
|
) |
(
|
) | |||
|
Net cash provided by operating activities
|
|
|
|
|
|||
|
Cash flows from investing activities:
|
|
||||||
|
Acquisitions, net of cash acquired
|
(
|
) |
|
|
|||
|
Purchases of property and equipment
|
(
|
) |
(
|
)
|
|||
|
Purchases of other long-term assets
|
(
|
) |
(
|
)
|
|||
|
Other, net
|
|
|
|
|
|||
|
Net cash used in investing activities
|
(
|
) |
(
|
)
|
|||
|
Cash flows from financing activities:
|
|||||||
|
Proceeds from issuance of shares
|
|
|
|
|
|||
|
Repurchase of shares
|
(
|
) |
(
|
)
|
|||
|
Borrowings from revolving credit agreements
|
|
|
|
|
|||
|
Repayments of revolving credit agreements
|
(
|
) |
(
|
)
|
|||
|
Proceeds from long-term debt obligations
|
|
|
|
|
|||
|
Repayments of long-term debt obligations
|
|
|
(
|
)
|
|||
|
Net repayments from short-term debt obligations
|
(
|
) |
(
|
)
|
|||
|
Debt issuance costs
|
|
|
(
|
)
|
|||
|
Other, net
|
(
|
) |
(
|
)
|
|||
|
Net cash (used in) provided by financing activities
|
(
|
) |
|
|
|||
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash
|
|
|
(
|
) | |||
|
(Decrease) increase in cash and cash equivalents and restricted cash
|
(
|
) |
|
|
|||
|
Cash and cash equivalents and restricted cash at beginning of period
|
|
|
|
|
|||
|
Cash and cash equivalents and restricted cash at end of period
|
$
|
|
|
$
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|||||||
|
Interest paid during the period
|
$
|
|
|
$
|
|
|
|
|
Income taxes paid during the period
|
$
|
|
|
$
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
(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, changes in equity 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 normally experiences its heaviest demand for dynamic currency conversion ("DCC") 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 varying degrees of travel restrictions and shelter-in-place and other social distancing orders in most of the countries where the Company operates during the three and nine months ended September 30, 2020. Although the majority of these orders went into effect in late February 2020 or early March 2020, new orders are being implemented, or reinstated, as the pandemic spreads around the globe and there is a resurgence of infections. The EFT Segment has experienced declines in certain transaction volumes due to these restrictions, especially high-margin cross-border transactions. The epay Segment has experienced the impacts of consumer movement restrictions in certain markets, while other markets have been positively impacted where the Company has a higher mix of digital distribution or a higher concentration of retailers that are deemed essential and have remained open during the pandemic.
In response to the COVID-19 driven impacts, the Company has implemented several key measures to offset the impact across the business, including renegotiating certain third party contracts, reducing travel, decreasing planned 2020 capital expenditures, and expanding ATM winterizations (placing them in dormancy status, terminating, or re-negotiating) in more sites and more markets.
(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have on the consolidated financial statements.
In March 2020, the 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 becomes 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)
|
September 30,
2020
|
December 31,
2019
|
||||||
|
Settlement assets:
|
||||||||
|
Settlement cash and cash equivalents
|
$
|
|
|
$
|
|
|
||
|
Settlement restricted cash
|
|
|
|
|
||||
|
Accounts receivable, net of credit losses
|
|
|
|
|
||||
|
Prepaid expenses and other current assets
|
|
|
|
|
||||
|
Total settlement assets
|
$
|
|
|
$
|
|
|
||
|
Settlement obligations:
|
||||||||
|
Trade account payables
|
$
|
|
|
$
|
|
|
||
|
Accrued expenses and other current liabilities
|
|
|
|
|
||||
|
Total settlement obligations
|
$
|
|
|
$
|
|
|
||
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 $29.9 million and $24.0 million as of September 30, 2020 and December 31, 2019, respectively.
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)
|
September 30,
2020
|
December 31,
2019
|
September 30,
2019
|
December 31,
2018
|
||||||||||||
|
Cash and cash equivalents
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Restricted cash
|
|
|
|
|
|
|
|
|
||||||||
|
ATM cash
|
|
|
|
|
|
|
|
|
||||||||
|
Settlement cash and cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Settlement restricted cash
|
|
|
|
|
|
|
|
|
||||||||
|
Cash and cash equivalents and restricted cash at end of period
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
(4) STOCKHOLDERS' EQUITY
Earnings (Loss) Per Share
Basic earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings (loss) per share has been computed by dividing earnings (loss) 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, if such conversion would be dilutive.
The following table provides the computation of diluted weighted average number of common shares outstanding:
|
|
Three Months Ended September 30, |
|
Nine Months Ended
September 30, |
||||||||
|
|
2020
|
|
|
2019
|
|
|
2020
|
2019
|
|||
|
Computation of diluted weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|||
|
Basic weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed exercise of stock options and vesting of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
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 (loss) 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 1,122,000 and 1,887,000 for the three and nine months ended September 30, 2020, respectively, and approximately 751,000 and 841,000 for the three and nine months ended September 30, 2019, respectively.
The Company issued Convertible Senior Notes ("Convertible Notes") due March 2049 on March 18, 2019. The Company's Convertible Notes currently have 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 were included in the calculation of diluted earnings (loss) per share if their inclusion was dilutive. The dilutive effect increases the more the market price exceeds the conversion price. 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 $91.10 on September 30, 2020 and $146.30 on September 30, 2019, therefore, according to ASC Topic 260, Earnings per Share (“ASC 260”), there was no dilutive effect of the assumed conversion of the debentures for the three and nine months ended September 30, 2020 and 2019. See Note 8, Debt Obligations, to the consolidated financial statements for more information about the Convertible Notes.
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 three months ended September 30, 2020, there were no repurchases of stock under the repurchase programs and for the nine months ended September 30, 2020, the Company repurchased $239.8 million in value of Euronet common stock under the repurchase programs. Repurchases under either current 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 a foreign currency translation gain of $47.0 million and $19.4 million for the three and nine months ended September 30, 2020, respectively, and a loss of $56.9 million and $60.9 million for the three and nine months ended September 30, 2019, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three and nine months ended September 30, 2020 and 2019.
(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the nine months ended September 30, 2020 is presented below:
|
(in thousands)
|
Acquired
Intangible
Assets
|
Goodwill
|
Total
Intangible
Assets
|
|||||||||
|
Balance as of December 31, 2019
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Increases (decreases):
|
|
|
|
|||||||||
|
Acquisition
|
|
|
(
|
) |
|
|
||||||
|
Amortization
|
(
|
) |
|
|
(
|
) | ||||||
|
Impairment
|
(
|
) |
(
|
) |
(
|
) | ||||||
|
Other (primarily changes in foreign currency exchange rates)
|
(
|
) |
|
|
|
|
||||||
|
Balance as of September 30, 2020
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
Of the total goodwill balance of $
2020 Impairment Charges
The COVID-19 pandemic and subsequent mitigation efforts, which include global business shutdowns, the closing of borders and the implementation of mandatory social distancing requirements, has created an unprecedented disruption to our business that began in March 2020. These mitigation efforts coupled with the negative economic impacts to the tourism industry caused a decline in revenues and changes to our forecasts. The Company tests for goodwill impairment on an annual basis in the fourth quarter each year and whenever events or circumstances dictate an interim impairment test is required. The Company determined the totality of these events constituted a triggering event that required us to perform an interim goodwill impairment assessment as of June 1, 2020. The Company concluded a triggering event had occurred for six reporting units, resulting in quantitative impairment tests. Three reporting units are within the EFT segment, two reporting units are within the Money Transfer segment, and one reporting unit is within the epay segment.
Under the quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. The Company uses weighted results from the discounted cash flow model ("DCF model") and guideline public company method ("Market Approach model") to estimate the current fair value of its reporting units when testing for impairment, as management believes forecasted cash flows and EBITDA are the best indicators of such fair value. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including sales volumes and gross margins, tax rates, capital spending, discount rates and working capital changes. Most of these assumptions vary significantly among the reporting units. Significant assumptions in the Market Approach model are actual and projected EBITDA, selected market multiple, and the estimated control premium. If the carrying value of the reporting unit exceeds its fair value, a goodwill impairment loss equal to such excess would be recognized. The DCF Model and Market Approach Model utilize Level 3 inputs in the fair value hierarchy as they include unobservable inputs that require significant management assumptions.
The Company completed an interim goodwill impairment test during the second quarter of 2020. It determined, after performing a quantitative review of six reporting units, that the fair value of three of the reporting units exceeded the respective carrying amounts. For the remaining three reporting units, the quantitative test indicated that the fair value of each of the reporting units was less than the respective carrying amounts. As a result, the Company recorded a non-cash goodwill impairment charge of $
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 and 2020 interim 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. As additional 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.
During the third quarter of 2020, the Company recorded a $1.5 million non-cash impairment charge for acquired intangible assets, specifically related to customer lists in the xe reporting unit.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
|
As of
|
||||||||
|
(in thousands)
|
September 30, 2020
|
December 31, 2019
|
||||||
|
Accrued expenses
|
$
|
|
|
$
|
|
|
||
|
Derivative liabilities
|
|
|
|
|
||||
|
Current portion of capital lease obligations
|
|
|
|
|
||||
|
Deferred income taxes
|
|
|
|
|
||||
|
Total
|
$
|
|
|
$
|
|
|
||
(7) UNEARNED REVENUES
The Company records deferred revenues when cash payments are received or due in advance of its performance. The decrease in the deferred revenue balance for the nine months ended September 30, 2020 is primarily driven by $31.5 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations, offset by $34.3 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)
|
September 30, 2020
|
December 31, 2019
|
||||||
|
Credit Facility:
|
||||||||
|
Revolving credit agreement
|
$
|
|
|
$
|
|
|
||
|
Convertible Debt:
|
||||||||
|
0.75% convertible notes, unsecured, due 2049
|
|
|
|
|
||||
|
1.375% Senior Notes, due 2026
|
|
|
|
|
||||
|
Other obligations
|
|
|
|
|
||||
|
Total debt obligations
|
|
|
|
|
||||
|
Unamortized debt issuance costs
|
(
|
) |
(
|
)
|
||||
|
Carrying value of debt
|
|
|
|
|
||||
|
Short-term debt obligations and current maturities of long-term debt obligations
|
(
|
) |
(
|
)
|
||||
|
Long-term debt obligations
|
$
|
|
|
$
|
|
|
||
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, euro, 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