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Value-Added Transactions Lift Euronet Worldwide's ATM Business

By Asit Sharma - May 2, 2019 at 9:12AM

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The transactions giant also raked in profit in its money transfer operations, while digital content services continued to stabilize.

Secure electronic financial transactions processor Euronet Worldwide (EEFT -0.43%) delivered first-quarter 2019 results on April 29 that slightly outpaced management's forecast. Euronet delivered strong transaction growth across its three major revenue streams, and also reported progress in a new cloud-based transactions initiative over the last three months. As we discuss details from the quarter below, note that all comparable numbers refer to the prior-year quarter.

Euronet earnings: The raw numbers

Metric Q1 2019 Q1 2018 Year-Over-Year Growth
Revenue $577.5 million      $550.5 million      4.9%
Net income      $34.5 million $26.3 million    31.2%
Diluted EPS $0.62 $0.49 26.5%

EPS = earnings per share. Data source: Euronet Worldwide.  

What happened with Euronet this quarter?

Two cartoon mobile phones with dollars floating between them.

Image source: Getty Images.

Euronet's electronic funds transfer (EFT) processing segment improved revenue by 7% to $145.7 million, due to a 10% increase in active network ATMs and an expansion of 11% in the total number of transactions processed. As in the last several quarters, transaction growth occurred primarily in Europe and India. Management noted that the segment enjoyed an increase in value-added revenue, including foreign currency dispensing transactions, dynamic currency conversion, and domestic and international surcharges. Operating income soared 46% to nearly $17 million. Total ATM count rose 9.6% against the prior-year quarter to roughly 42,000.

The company's epay segment notched essentially flat revenue of $176.1 million, but operating income rose 7% to $18 million. It's evident that epay's business has finally turned a corner, and its new emphasis on digital sales was formalized this quarter when management changed the way it refers to services outside of prepaid mobile top-up sales. Euronet will now collectively refer to such services as "digital media." Management believes this accurately reflects epay's shift toward a host of digital businesses, from providing access to games, software, and content at retail points of sale to offering multinational companies turnkey solutions for branded digital gift cards.

Euronet's money transfer segment proved to be the company's workhorse this quarter. Money transfer revenue increased 7% to $256.6 million, and operating income jumped 16% to $30.7 million. Euronet attributed the top- and bottom-line success to strength across both physical and digital transfers. Total transactions grew by 10%, as money transfer volume expanded 10% and nontransfer volume (which includes check cashing and currency exchange) expanded by 5%. Network locations increased by 8% versus the first quarter of 2018 to 377,000.

The sterling margin in EFT processing due to value-added services, combined with solid profits in epay and money transfer, helped push Euronet's total operating margin higher by 140 basis points this quarter, to 9.7%. This operational leverage allowed the organization to book $0.85 in adjusted earnings per share (EPS), exceeding management's first-quarter EPS guidance by $0.02.

What management had to say

As I've recently discussed, Euronet is beginning to deploy its internal transaction processing capabilities within a digitally integrated payments hub. The company is selling services on this cloud-based payments environment to a number of third parties. During Euronet's earnings conference call, CEO Mike Brown provided investors with an update on this latest strategic effort to expand the company's recurring transactions base:

We are using our technology to actively support parties who are making inroads to disrupt the more traditional players by providing them with state-of-the-art technology and immediate access to our expansive physical network, which would take years to build from scratch

Payments disruptors across several payment categories have already taken advantage of our Digital Integrated Payments Cloud. Some examples include companies ranging from software and media to card processing and account withdrawal to alternative payment and money transfer, and we've added several new integrations into our cloud this quarter.

Looking forward

Management provides but a single number for investors to anticipate in terms of quarterly financial guidance. Moving forward from Euronet's traditionally weak first quarter, executives expect adjusted EPS to roughly double sequentially in the second quarter to $1.69. If the company meets this ambitious benchmark, it will achieve growth of 28% against the $1.32 in adjusted EPS recorded in the second quarter of 2018. 

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