Article

Q1 revenues 'hit on all cylinders' for ATM operator Euronet

Kansas-based international IAD starts off the year by accelerating Q1 expansion and revenues.

April 24, 2013 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

ATM operator/EFT processor/money transfer service provider/prepaid product distributor Euronet Worldwide Inc. is off to a fast start in 2013, marking better-than-expected gains in the first quarter. In an April 24 earnings call, the company described strong returns across all segments of the business with revenues of $335.6 million for the quarter — a 13 percent improvement over Q1 2012.

"By all accounts, I think we can say that we hit on all cylinders this quarter — a great start to the year," said chairman and CEO Michael J. Brown.

Results for the first quarter follow, along with comments from executives made during the call and Q&A. All results are for Q1 2013 compared with Q1 2012. Results on a constant currency basis are included in parentheses.

Consolidated results

revenues of $335.6 million, a 13 percent increase from $297.6 million (14 percent);
operating income of $19.2 million, a 22 percent increase from $15.8 million (22 percent);
adjusted EBITDA of $39.4 million, an 11 percent increase from $35.4 million (11 percent);
net income attributable to Euronet of $12.0 million or 24 cents diluted earnings per share, compared with net income of $13.2 million or 26 cents diluted earnings per share;
adjusted cash earnings per share of 38 cents, a 15 percent increase from 33 cents.

EFT processing segment results and highlights

revenues of $63.3 million, a 27 percent increase from $49.9 million (28 percent);
operating income of $6.6 million, a 10 percent increase from $6.0 million (12 percent);
adjusted EBITDA of $14.9 million, a 24 percent increase from $12.0 million (25 percent);
transactions of 274 million, a 3 percent increase from 266 million;
operated 17,973 ATMs as of March 31, 2013, a 15 percent increase from 15,614;
increased revenue from ATMs and value-added services in Europe by 15 percent;
ATM growth of 15 percent attributable to expansion in Poland and additional "brown-label" machines in India.
The largest transaction increases occurred in Poland, Romania, Serbia, China and in the company's cross-border acquiring business.

ATM/EFT side-notes

The January 2013 acquisition of direct currency conversion solution provider Pure Commerce contributed marginally to revenue and adjusted EBITDA growth, Euronet said. Without expenses related to the purchase, the EFT segment's first quarter operating income would have increased 33 percent year-over-year.

During the Q & A segment, Brown said that the purchase of Pure Commerce by Euronet fits in with a strategy of offering value-added services as a perk for EFT outsourcing customers or a "pass-through" for banks that are not outsourcing customers.

"Given that it's just right down the fairway with what we already do, it complements our business with respect to additional territory, it gives us great reference-name customers, and it gives us a more efficient customer interface technology," he ssaid. "We're excited to see what it will do out there."

Other value-added services include mobile top-up and iTunes purchasing for gifting or self use (actually, about 75 percent of iTunes gift cards are purchased for self use, Brown said). In European countries where iTunes cards aren't as widely offered as they are in the U.S., purchasing at the ATM is a great convenience. The ATM user designates a purchase amount and receives a unique PIN that can be used for transactions at the iTunes store.

Euronet still faces challenges, Brown said. The company has yet to land an outsourcing agreement with a truly major European bank. "We haven't nailed one yet, but we're talking," he said.

During the first quarter Euronet lost a longterm relationship with its first banking customer in India, IDBI. Brown said that the FI decided to take its transaction processing in-house. Euronet still had the contract for managed services, but when that came up for renewal after 11 years, the government-owned bank was required to put it out for bids.

"These were very low-margin ATMs for us to start with, contributing less than $50,000 after tax per quarter," Brown said. "A third party came in willing to provide managed services that further reduced those margins. We made the decision not to pursue the renewal because the commercial terms didn't make sense for our business."

This will result in a total ATM reduction of 1,600 machines for the company. While ending the IDBI relationship "significantly impacts" ATM and transaction numbers, it won't make much of a dent in future quarterly results. And despite the setback, Brown said, "Net-net, we continue to see positive results coming from India."

Epay segment

revenues of $189.6 million, a 7 percent increase from $176.4 million (8 percent);
operating income of $14.8 million, a 12 percent increase from $13.2 million (11 percent);
transactions of 278 million, a 5 percent increase from 266 million;
approximately 674,000 POS terminals as of March 31, 2013, an 11 percent increase from approximately 607,000;
approximately 350,000 retailer locations as of March 31, 2013, a 19 percent increase from approximately 294,000.

Increases largely resulted from prepaid mobile sales in the U.S., expansion of non-mobile content sales, particularly in Germany, and the November 2012 acquisition of ezi-pay in New Zealand. Declines in the U.K., Australia and Spain partially offset this growth.

Money transfer segment (Ria Money Transfer)

revenues of $82.9 million, a 16 percent increase from $71.4 million (16 percent);
operating income of $6.0 million, a 40 percent increase from $4.3 million (40 percent);
total transactions of 8.1 million, a 19 percent increase from 6.8 million;
approximately 199,000 network locations as of March 31, 2013, a 28 percent increase from approximately 155,000.

Growth in the quarter was driven by the 19 percent increase in total transactions. Increased operating profit was driven by a continued expansion of the network, which grew 28 percent over the same quarter last year.

Q2 outlook

Euronet expects adjusted cash earnings per share for the second quarter 2013 to be approximately 47 cents, assuming that foreign currency exchange rates remain stable.

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photo: John Liu

graphs: Euronet Worldwide Inc.

About Suzanne Cluckey

Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.