Euronet Worldwide, Inc. (“Euronet” or the “Company”) (NASDAQ: EEFT), a leading electronic payments provider, reports third quarter 2012 financial results.
Euronet reports the following consolidated results for the third quarter 2012 compared with the same period of 2011:
- Revenues of $316.4 million, a 6% increase from $299.5 million (15% increase on a constant currency(1) basis).
- Operating income of $24.2 million, a 20% increase from $20.1 million (32% increase on a constant currency basis).
- Adjusted EBITDA(2) of $42.6 million, a 13% increase from $37.6 million (24% increase on a constant currency basis).
- Net income attributable to Euronet of $14.6 million or $0.28 diluted earnings per share, compared with net loss of $3.2 million or $0.06 diluted loss per share.
- Adjusted cash earnings per share(3) of $0.42, a 14% increase from $0.37.
- Transactions of 587 million, a 12% increase from 524 million.
See the reconciliation of non-GAAP items in the attached financial schedules.
"I am pleased with our 32% constant currency operating income growth in the quarter," stated Michael J. Brown, Euronet's Chairman and Chief Executive Officer. "The EFT and Money Transfer Segments delivered exceptional 80% and 38% constant currency operating income growth, respectively. While we continue to see decreases in the epay Segment versus the same quarter last year, the segment's results improved sequentially, posting revenue and operating income growth of 4% and 1%, respectively. We are optimistic that epay will soon contribute more to earnings growth as we continue to refocus our sales initiatives, introduce more non-mobile content and rollout additional value added services."
Segment and Other Results
The EFT Processing Segment reports the following results for the third quarter 2012 compared with the same period of 2011:
- Revenues of $64.9 million, a 29% increase from $50.2 million (47% increase on a constant currency basis).
- Operating income of $14.5 million, a 61% increase from $9.0 million (80% increase on a constant currency basis).
- Adjusted EBITDA of $20.9 million, a 47% increase from $14.2 million (65% increase on a constant currency basis).
- Transactions of 302 million, a 22% increase from 247 million.
- Operated 17,370 ATMs as of September 30, 2012, a 37% increase from 12,668.
Revenue, operating income and Adjusted EBITDA growth in the third quarter was driven by a 37% increase in ATMs under management, transaction growth in virtually every market and increased sales of value added services in Europe which are seasonally higher during the third quarter compared to other quarters. While costs increased to support this growth, they did not increase commensurate with revenue, reflecting the leveragability of the business.
Transactions grew 22%, with the largest increases in Poland, Romania, India, Euronet Middle East and our cross border acquiring business. Revenues grew at a faster rate than transactions due to increased sales of value added services, which earn more revenue per transaction than traditional EFT transactions, and monthly recurring fees paid by banks for rights to access our ATMs in Central and Eastern Europe and India. ATM growth of 37% was partially attributable to brown label ATMs deployed in India, which are still in the ramp-up phase and are not yet generating a profit. ATMs acquired from the cash4you network in Poland, the acquisition of PayNet in Romania and expansion of our Independent ATM Deployed (IAD) Networks in new and existing markets also contributed to ATM and operating income growth.
The epay Segment reports the following results for the third quarter 2012 compared with the same period of 2011:
- Revenues of $171.6 million, a 2% decrease from $174.3 million (6% increase on a constant currency basis).
- Operating income of $10.1 million, a 24% decrease from $13.3 million (22% decrease on a constant currency basis).
- Adjusted EBITDA of $15.1 million, a 15% decrease from $17.7 million (10% decrease on a constant currency basis).
- Transactions of 277 million, a 2% increase from 271 million.
- Point of sale ("POS") terminals of approximately 631,000 as of September 30, 2012, a 7% increase from approximately 591,000.
- Retailer locations of approximately 304,000 as of September 30, 2012, an 8% increase from approximately 282,000.
Constant currency revenue growth in the epay Segment was due to the September 2011 acquisition of cadooz. Operating income and Adjusted EBITDA were adversely impacted by three previously announced matters: mobile operator distribution strategy changes in Brazil, certain retailers in Australia going direct with mobile operators and economic pressures in Spain. In the quarter, Australia partially lapped the downturn from certain retailers going direct with mobile operators in September last year. Partially offsetting these decreases were increased prepaid mobile sales in the U.S. and continued demand for non-mobile content, particularly in Germany.
The Money Transfer Segment reports the following results for the third quarter 2012 compared with the same period of 2011:
- Revenues of $80.0 million, a 7% increase from $75.1 million (13% increase on a constant currency basis).
- Operating income of $6.2 million, a 29% increase from $4.8 million (38% increase on a constant currency basis).
- Adjusted EBITDA of $10.9 million, a 10% increase from $9.9 million (16% increase on a constant currency basis).
- Total transactions of 7.9 million, a 25% increase from 6.3 million.
- Network locations of approximately 170,000 as of September 30, 2012, a 21% increase from approximately 140,000.
Revenue, operating income and Adjusted EBITDA growth in the quarter was driven by the 25% increase in total transactions. Increased operating profit was driven by continued network expansion, which grew 21% over the same quarter last year. Money transfer transactions increased 14%, commensurate with revenue on a constant currency basis. U.S. initiated transfers increased 19% compared to the same quarter last year, including an 18% increase in transfers to Mexico. Non-U.S. initiated transfers increased 7%, despite continued economic pressure in Europe. The segment continued to see a strong 86% growth in non-money transfer transactions, which earn significantly lower revenue per transaction than money transfers.
Corporate and other reports $6.6 million of expense for the third quarter 2012 compared with $7.0 million for the third quarter 2011. Share-based compensation expense is the primary reason for the decrease in expense.
Balance Sheet and Financial Position
Unrestricted cash on hand was $191.8 million as of September 30, 2012, compared to $178.6 million as of June 30, 2012. Cash increased as a result of cash generated from operations as well as temporary working capital changes in the epay segment due to the timing of settlements, partly offset by $61 million in payments on the revolving credit facility. Total indebtedness was $261.6 million as of September 30, 2012, compared to $321.4 million as of June 30, 2012. On October 15, 2012, the Company repurchased substantially all of the $171 million principal amount of 3.5% convertible bonds using cash on the balance sheet and available capacity on the Company's revolving credit facility. As announced on October 12, 2012, capacity on the Company's revolving credit facility was increased from $275 million to $400 million.
The Company currently expects adjusted cash earnings per share for the fourth quarter 2012, assuming foreign currency exchange rates remain stable through the end of the quarter, to be approximately $0.47 before a tax charge of up to potentially $0.04 per share as a result of a federal alternative minimum tax and state income tax expense related to the non-recurring fourth quarter repurchase of the Company's convertible bonds.