Double-digit transaction growth propelled electronic transactions processor Euronet Worldwide's (NASDAQ:EEFT) second quarter 2018 results, which were released on Wednesday before the markets opened. While growth was distributed unevenly among the company's three major segments, Euronet impressed investors by credibly building on its strong first-quarter performance. Below, we'll review raw numbers, details of the quarter, and management's outlook for the next three months:
Euronet earnings: The raw numbers
|Metric||Q2 2018||Q2 2017||Year-Over-Year Growth|
|Revenue||$622.2 million||$536.6 million||16%|
|Net income||$43.7 million||$51.4 million||(14.9%)|
What happened with Euronet this quarter?
Euronet reported a total year-over-year transaction increase of 8%, to 968 million transactions. This builds on the 5% transaction increase reported in the first quarter of 2018.
Electronic fund transfer (EFT) processing, Euronet's second-largest segment, enjoyed a 25% revenue leap versus the second quarter of 2017, to $194.9 million. Transaction volume advanced by 18%, and operating income improved by 35%, to $52.9 million.
The segment's total operated ATM count jumped by roughly 10% against the prior year to 41,205 machines. This includes 3,200 high-value ATMs deployed in India and Europe; 400 Easycash-branded ATMs in Ireland, which the company acquired from privately held Ulster Bank in May; and 300 low-margin ATMs in India.
Management is investing in the next wave of EFT volume growth through a goal of adding 3,500 high-value ATMs across its network by the end of 2018.
The company's money transfer segment booked revenue of $261.7 million, an increase of 21% against the prior-year period. Money transfer also benefited from attractive transaction volume: Transactions rose 18% during the last three months against the second quarter of 2017. Operating income improved on a scale similar to EFT processing: Segment profit rose 31% to $24.9 million. Management noted that expansion of money transfer locations is supporting volume growth. The segment boasted 355,000 network locations at quarter's end, more than 10% higher than the total at the end of the comparable period last year.
Among notable deals during the quarter, the money transfer business' RIA subsidiary signed an agreement to add more than 5,000 RIA cash collection locations at 7-Eleven stores.
Euronet's epay segment continued to post more modest results versus its peer divisions. Revenue increased 1% to $166.5 million, and operating income improved by 10% to $16.3 million. The company pointed to the loss of a Middle Eastern customer (a circumstance disclosed earlier this year) as a drag on performance. The former customer is characterized by management as having provided high volumes, but low margins. Total transaction volume in the epay segment declined 12% to $264 million, and was attributed primarily to the loss of this single customer.
Longer term, the epay segment should benefit from its shift away from prepaid mobile airtime top-up services to sales of digital retail products, games, and content. In the second quarter, for example, epay signed an exclusive deal with Amazon.com to provide a digital gift-card mall on Amazon's German site, Amazon.de.
On a companywide basis, the buoyant top line provided a lift to operating margin, which improved roughly two percentage points over the prior-year quarter to 14.5%.
Despite the higher operating profitability, a foreign currency swing of nearly $32.0 million proved a headwind against net income, and was the culprit behind Euronet's decline in net earnings and earnings per share against the second quarter of 2017.
The company added $370 million in borrowings to its balance sheet over the last three months, bringing total debt to $1.0 billion. Management observed that the leverage will be utilized for higher seasonal ATM cash funding.
What management had to say
In Euronet's earnings press release, CEO Michael Brown lauded the company's ability to drive transaction growth higher, which is having the single biggest impact on its rising revenue and EPS. Brown also mentioned the growth of new nonmobile products as a stabilizing force in epay's results:
I am pleased we delivered double-digit growth across most all of our consolidated financial metrics. The 21% increase in adjusted EPS was the result of double-digit operating income growth in EFT and money transfer, while [Euronet continued] to invest in growth. Epay largely continued on pace with the prior year, as we expected, with growth from nonmobile content offsetting certain mobile declines."
Euronet's management issues guidance on a quarterly basis, but restricts forecasts to an outlook on adjusted diluted EPS. For the third quarter of 2018, the company expects to generate adjusted diluted EPS of $2.10, assuming that currency prices remain stable. Landing on this number would equate to a 30% advance over third quarter 2017 adjusted earnings of $1.61. Euronet appears to be heading into the back half of the year with admirable momentum.