EURONET WORLDWIDE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)
The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Company overview, geographical locations and main products and services
Euronet is a leading electronic payments provider. We offer payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Our primary product offerings include comprehensive ATM, POS, card outsourcing, card issuing and merchant acquiring services, software solutions, electronic distribution of prepaid mobile airtime and other electronic payment products, foreign currency exchange services and global money transfer services. We operate in the following three segments: 1) The EFT Processing Segment, which processes transactions for a network of 42,713 ATMs and approximately 438,000 POS terminals acrossEurope , theMiddle East ,Africa ,Asia Pacific , andthe United States . We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal and deposit services, ATM network participation, outsourced ATM and POS management solutions, credit, debit and prepaid card outsourcing, DCC, and other value added services. Through this segment, we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems. 2) The epay Segment, which provides distribution, processing and collection services for prepaid mobile airtime and other electronic content. We operate a network of approximately 775,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic content inEurope , theMiddle East ,Asia Pacific ,the United States andSouth America . We also provide vouchers and physical gift fulfillment services inEurope .
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3) The Money Transfer Segment, which provides global consumer-to-consumer money transfer services, primarily under the brand names Ria, IME, AFEX, and xe and global account-to-account money transfer services under the brand name xe. We offer services under the brand names Ria and IME through a network of sending agents, Company-owned stores (primarily inNorth America ,Europe andMalaysia ) and our websites (riamoneytransfer.com and online.imeremit.com), disbursing money transfers through a worldwide correspondent network that includes approximately 510,000 locations. xe is a provider of foreign currency exchange information and offers money transfer services on its currency data websites (xe.com and x-rates.com). In addition to money transfers, we also offer customers bill payment services (primarily in theU.S. ), payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services for a wide variety of issued checks, along with competitive foreign currency exchange services and prepaid mobile top-up. Through our xe brand, we offer cash management solutions and foreign currency risk management services to small-to-medium-sized businesses. We have six processing centers inEurope , five inAsia Pacific and two inNorth America . We have 36 principal offices inEurope , 14 inAsia Pacific , 10 inNorth America , three in theMiddle East , two inSouth America and one inAfrica . Our executive offices are located inLeawood, Kansas , USA. With approximately 73% of our revenues denominated in currencies other than theU.S. dollar, any significant changes in foreign currency exchange rates will likely have a significant impact on our results of operations (for a further discussion, see Item 1A - Risk Factors and Item 7A - Quantitative and Qualitative Disclosures About Market Risk).
Sources of income and cash flow
EFT Processing Segment - Revenues in the EFT Processing Segment, which represented approximately 20% of total consolidated revenues for the year endedDecember 31, 2021 , are derived from fees charged for transactions made by cardholders on our proprietary network of ATMs, fixed management fees and transaction fees we charge to customers for operating ATMs and processing debit and credit cards under outsourcing and cross-border acquiring agreements, foreign currency exchange margin on DCC transactions, domestic and international surcharge, foreign currency dispensing and other value added services such as advertising, prepaid telecommunication recharges, bill payment, and money transfers provided over ATMs. Revenues in this segment are also derived from cardless payment, banknote recycling, tax refund services, license fees, professional services and maintenance fees for proprietary application software and sales of related hardware. epay Segment - Revenues in the epay Segment, which represented approximately 34% of total consolidated revenues for the year endedDecember 31, 2021 , are primarily derived from commissions or processing fees received from mobile phone operators for the processing and distribution of prepaid mobile airtime and commissions earned from the distribution of other electronic content, vouchers, and physical gifts. The proportion of epay Segment revenues earned from the distribution of prepaid mobile phone time as compared with other electronic products has decreased over time, and digital media content now produces approximately 70% of epay Segment revenues. Other electronic content offered by this segment includes digital content such as music, games and software, as well as, other products including prepaid long distance calling card plans, prepaid Internet plans, prepaid debit cards, gift cards, vouchers, transport payments, lottery payments, bill payment, and money transfer. Money Transfer Segment - Revenues in the Money Transfer Segment, which represented approximately 46% of total consolidated revenues for the year endedDecember 31, 2021 , are primarily derived from transaction fees, as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to customers at retail exchange rates. We have a sending agent network in place comprised of agents, customer service representatives, Company-owned stores, primarily inNorth America ,Europe andMalaysia , and Ria, and xe branded websites, along with a worldwide network of correspondent agents, consisting primarily of financial institutions in the transfer destination countries. Sending and correspondent agents each earn fees for cash collection and distribution services, which are recognized as direct operating costs at the time of sale.
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The Company offers a money transfer product called Walmart-2-Walmart Money Transfer Service which allows customers to transfer money to and from Walmart stores in theU.S. Our Ria business executes the transfers with Walmart serving as both the sending agent and payout correspondent. Ria earns a lower margin from these transactions than its traditional money transfers; however, the arrangement has added a significant number of transactions to Ria's business. The agreement with Walmart establishes Ria as the only party through which Walmart will sellU.S. domestic money transfers branded with Walmart marks. The agreement is effective untilApril 2026 . Thereafter, it will automatically renew for subsequent one year terms unless either party provides notice to the contrary. The agreement imposes certain obligations on each party, the most significant being service level requirements by Ria and money transfer compliance requirements by Walmart. Any violation of these requirements by Ria could result in an obligation to indemnify Walmart or termination of the contract by Walmart. However, the agreement allows the parties to resolve disputes by mutual agreement without termination of the agreement. Corporate Services, Eliminations and Other - In addition to operating in our principal operating segments described above, our "Corporate Services, Eliminations and Other" category includes non-operating activity, certain inter-segment eliminations and the cost of providing corporate and other administrative services to the operating segments, including most share-based compensation expense. These services are not directly identifiable with our reportable operating segments.
Opportunities and Challenges
The global product markets in which we operate are large and fragmented, which poses both opportunities and challenges for our technology to disrupt new and existing competition. As an organization, our focus is on increasing our market presence through both physical (ATMs, POS terminals, company stores and agent correspondents) and digital assets and providing new and improved products and services for customers through all of our channels, which may in turn drive an increase in the number of transactions on our networks. Each of these opportunities also presents us with challenges, including differentiating our portfolio of products and services in highly competitive markets, the successful development and implementation of our software products and access to financing for expansion. 1) The EFT Processing Segment opportunities include physical expansion into target markets, developing value added products or services, increasing high value DCC and surcharge transactions and efficiently leveraging our portfolio of software solutions. Our opportunities are dependent on renewing and expanding our card acceptance, ATM and POS management and outsourcing, cash supply and other commercial agreements with customers and financial institutions. Operational challenges in the EFT Processing Segment include obtaining and maintaining the required licenses and sponsorship agreements in markets in which we operate and navigating frequently changing rules imposed by international card organizations, such as Visa® and Mastercard®, that govern ATM interchange fees, direct access fees and other restrictions. Our profitability is dependent on the laws and regulations that govern DCC transactions, specifically in the E.U., as well as the laws and regulations of each country that we operate in that may impact the volume of cross-border and cross-currency transactions. The timing and amount of revenues in the EFT Processing Segment is uncertain and unpredictable due to inherent limitations in managing our estate of ATMs, which is dependent on contracts that cover large numbers of ATMs, which are complicated by legal and regulatory considerations of local countries, as well as our customers' decisions whether to outsource ATMs. 2) The epay Segment opportunities include renewing existing and negotiating new agreements in target markets in which we operate, primarily with mobile operators, digital content providers, financial institutions and retailers. The overall growth rate in the prepaid mobile phone and digital media content markets, shifts between prepaid and postpaid services, and our market share in those respective markets will have a significant impact on our ability to maintain and grow the epay Segment revenues. There is significant competition in these markets that may impact our ability to grow organically and increase the margin we earn and the margin that we pay to retailers. The profitability of the epay Segment is dependent on our ability to adapt to new technologies that may compete with POS distribution of digital content and prepaid mobile airtime, as well as our ability to leverage cross-selling opportunities with our EFT and Money Transfer Segments. The epay Segment opportunities may be impacted by government-imposed restrictions on retailers and/or content providers with whom we partner in countries in which we have a presence, and corresponding licensure requirements mandated upon such parties to legally operate in such countries. 35 -------------------------------------------------------------------------------- 3)The Money Transfer Segment opportunities include expanding our portfolio of products and services to new and existing customers around the globe, which in turn may lead to an increase in transaction volumes. The opportunities to expand are contingent on our ability to effectively leverage our network of bank accounts for digital money transfer delivery, maintaining our physical agent network, cross selling opportunities with our EFT and epay segments and our penetration into high growth money transfer corridors. The challenges inherit in these opportunities include maintaining compliance with all regulatory requirements, maintaining all required licenses, ensuring the recoverability of funds advanced to agents and the continued reliance on the technologies required to operate our business. The volume of transactions processed on our network is impacted by shifts in our customer base, which can change rapidly with worker migration patterns and changes in unbanked populations across the globe. Foreign regulations that impact cross-border migration patterns and the money transfer markets can significantly impact our ability to grow the number of transactions on our network. For all segments, our continued expansion may involve additional acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services. Our ability to effectively manage our growth has required us to expand our operating systems and employee base, particularly at the management level, which has added incremental operating costs. An inability to continue to effectively manage expansion could have a material adverse effect on our business, growth, financial condition or results of operations. Inadequate technology and resources would impair our ability to maintain current processing technology and efficiencies, as well as deliver new and innovative services to compete in the marketplace.
COVID-19[female[feminine
The outbreak of the COVID-19 (coronavirus) pandemic has resulted in varying degrees of border and business closures, travel restrictions and other social distancing orders in most of the countries where we operate during the years endedDecember 31, 2021 and 2020. These types of orders were first put into effect in the first half of 2020. As the number and rate of new cases has fluctuated in various locations around the global, the closures, restrictions and other social distancing orders have been modified, rescinded and/or re-imposed. Although vaccines for COVID-19 are widely available in theU.S. and theEuropean Union , their availability is still limited in many parts of the world where we operate. In addition, the rate of acceptance and long term effectiveness of the vaccines, especially against new variants, are still unknown. 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 we have a higher mix of digital distribution or a higher concentration of retailers that are deemed essential and have remained open during the pandemic. The Money Transfer Segment continues to be impacted by the pandemic-related restrictions in certain markets that limit customers' ability to access our network of company-owned stores and agents.
In response to the impacts of the COVID-19 pandemic, we have implemented several key measures to offset the impact across the business, including renegotiating certain third-party contracts, reducing travel and decrease in capital expenditure.
Segment Revenues and Operating Income For The Years EndedDecember 31, 2021 and 2020 Revenues Operating Income (Expense) (in thousands) 2021 2020 2021 2020 EFT Processing$ 591,138 $ 468,726 $ (501 ) $ (66,711 ) epay 1,011,482 835,517 123,037 96,678 Money Transfer 1,400,957 1,183,849 119,595 59,709 Total 3,003,577 2,488,092 242,131 89,676
Corporate Services, Eliminations and Other (8,134 ) (5,392 )
(58,115 ) (43,054 ) Total$ 2,995,443 $ 2,482,700 $ 184,016 $ 46,622 36
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Summary
Our annual consolidated revenues increased by 21% for 2021 compared to 2020. The increase in revenues for 2021 was primarily due to the easing of COVID-19 related travel restrictions in 2021 compared to 2020, which led to an increase in demand for DCC, domestic and international surcharge and other value added services in our EFT Processing Segment as well as growth in the number of money transfers processed by the core Ria business and the number of transactions processed by our epay subsidiaries. Our annual consolidated operating income increased by 295% for 2021 compared to 2020. The increase in operating income for 2021 was primarily due to the increases in transaction volume across all three segments and corresponding increase in revenues, a$106.6 million decrease in non-cash impairment of goodwill and acquired intangible assets, partially offset by a$38.6 million increase in non-cash impairment of contract assets, and increases in stock-based compensation and selling general and administrative expenses.
Net income attributable to
Impact of exchange rate variations
Our revenues and local expenses are recorded in the functional currencies of our operating entities, and then are translated intoU.S. dollars for reporting purposes; therefore, amounts we earn outside theU.S. are negatively impacted by a strongerU.S. dollar and positively impacted by a weakerU.S. dollar. Considering the results by country and the associated functional currency, our 2021 consolidated operating income was approximately 2.1% higher due to changes in foreign currency exchange rates when compared to 2020. If significant, in our discussion we will refer to the impact of fluctuations in foreign currency exchange rates in our comparison of operating segment results. To provide further perspective on the impact of foreign currency exchange rates, the following table shows the changes in values relative to theU.S. dollar during 2021 and 2020, of the currencies of the countries in which we have our most significant operations: Average Translation Rate Year Ended December 31, 2021 Increase Currency 2021 2020 Percent Australian dollar$ 0.7513 $ 0.6904 9 % British pound$ 1.3755 $ 1.2835 7 % Canadian dollar$ 0.7979 $ 0.7464 7 % euro$ 1.1830 $ 1.1412 4 % Hungarian forint$ 0.0033 $ 0.0033 0 % Indian rupee$ 0.0135 $ 0.0135 0 % Malaysian ringgit$ 0.2415 $ 0.2383 1 % New Zealand dollar$ 0.7073 $ 0.6504 9 % Polish zloty$ 0.2595 $ 0.2571 1 % 37
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Comparison of operating results for the years ended
EFT Processing Segment
The following table summarizes the operating results of our EFT processing segment for the years ended
Year Ended December 31, Year-over-Year Change
Increase
Increase (Decrease)
(dollar amounts in thousands) 2021 2020 (Decrease) Amount Percent
Total revenues $ 591,138 $ 468,726 $ 122,412 26 %
Operating expenses:
Direct operating costs 354,254 302,637 51,617 17 %
Salaries and benefits 98,584 91,526 7,058 8 %
Selling, general and administrative 47,832 35,388 12,444 35 %
Goodwill impairment - 21,861 (21,861 ) n/m
Depreciation and amortization 90,969 84,025 6,944 8 %
Total operating expenses 591,639 535,437 56,202 10 %
Operating loss $ (501 ) $ (66,711 ) $ 66,210 (99 )%
Transactions processed (millions) 4,366 3,275 1,091 33 %
Active ATMs as of December 31 42,713 37,729 4,984 13 %
Average active ATMs 41,461 42,126 (665 ) (2 )%
_________________
n/m: not meaningful
Revenues
EFT Processing Segment total revenues were $591.1 million for the year
ended December 31, 2021 , an increase of $122.4 million or 26% compared to the
same period in 2020. Beginning in the late first quarter of 2020, the COVID-19
related government-imposed border and business closures, travel restrictions and
other orders significantly reduced tourism throughout Europe , which led to a
significant decrease in high-margin cross-border transactions (DCC) and
surcharge transactions from March through December of 2020. During 2021, we
began increasing our estate of active ATMs as certain countries began easing
COVID-19 restrictions; however, remaining cross-border travel patterns prevented
our volume of DCC and surcharge transactions from returning to pre-COVID-19
levels. Revenues increased for the year ended December 31, 2021 compared to the
same period in 2020 as cross-border travel and corresponding DCC and surcharge
revenues increased, partially offset by the year ended December 31, 2020
including two months of pre-COVID-19 level DCC and surcharge transaction volumes
compared to the year ended December 31, 2021 which had various levels of
restrictions throughout the entire period. Foreign currency movements increased
revenues by approximately $12.3 million for the year ended December 31, 2021 ,
compared to the same period in 2020.
Average monthly revenues per ATM increased to $1,188 for the year ended December
31, 2021 compared to $927 for the same period in 2020. Revenues per transaction
was $0.14 for both years ended December 31, 2021 and 2020. For the year ended
December 31, 2021 , the average monthly revenues per ATM increased primarily due
to the lower average ATM count in Asia Pacific , partially offset by increases in
Europe , as we modified our estate of ATMs beginning in the second quarter of
2020 and DCC and international surcharge transactions began to recover from 2020
volumes.
Direct operating costs
EFT Processing Segment direct operating costs were $354.3 million for the
year ended December 31, 2021 , an increase of $51.6 million or 17% compared to
the same period in 2020. Direct operating costs primarily consist of site rental
fees, cash delivery costs, cash supply costs, maintenance, insurance,
telecommunications, payment scheme processing fees, data center
operations-related personnel, as well as the processing centers'
facility-related costs and other processing center-related expenses and
commissions paid to retail merchants, banks and card processors involved with
POS DCC transactions. For the year ended December 31, 2021 , the increase in
direct operating costs was primarily due to the increase in transaction volumes,
and costs associated with modifying our estate of ATMs. Foreign currency
movements increased direct operating costs by approximately $7.6 million for the
year ended December 31, 2021 compared to the same period in 2020.
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Gross profit
Gross profit, which is calculated as revenues less direct operating costs, less acquired contract cost impairments, was$236.9 million for the year endedDecember 31, 2021 , an increase of$70.8 million or 43% compared to$166.1 million for the same period in 2020. Gross profit as a percentage of revenues ("gross margin") increased to 40.1% for the year endedDecember 31, 2021 , compared to 35.4% for the same period in 2020. For the year endedDecember 31, 2021 , the increase in gross profit and gross margin was primarily driven by the increase in cross-border transactions and overall increase in transaction volumes. Salaries and benefits Salaries and benefits expenses were$98.6 million for the year endedDecember 31, 2021 , an increase of$7.1 million or 8% compared to the same period in 2020. The increase in salaries and benefits for the year endedDecember 31, 2021 compared to the same period in 2020 was primarily driven by an increase in bonus expense and a$2.3 million increase from foreign currency movements in the countries where we employ our workforce. As a percentage of revenues, these expenses decreased to 16.7% for the year endedDecember 31, 2021 , compared to 19.5% for the same period in 2020.
Selling, general and administrative expenses
Selling, general and administrative expenses were$47.8 million for the year endedDecember 31, 2021 , an increase of$12.4 million or 35% compared to the same period in 2020. The increase in these expenses is primarily driven by a$5.3 million increase in professional fees and a$2.4 million increase from foreign currency movements. As a percentage of revenues, these expenses increased to 8.1% for the year endedDecember 31, 2021 , compared to 7.5% for the same period in 2020.Goodwill impairment Due to the economic impacts of the COVID-19 pandemic, the Company recorded a$21.9 million non-cash goodwill impairment charge related to two reporting units during the second quarter of 2020. A$14.0 million non-cash goodwill impairment charge was recorded for Innova as a result of the decline in value added tax, or VAT, refund activity directly related to the decline in international tourism within theEuropean Union , and a$7.9 million non-cash goodwill impairment charge was recorded for Pure Commerce related to the decline in international tourism inAsia Pacific .
Depreciation and amortization
Depreciation and amortization expenses were$91.0 million for the year endedDecember 31, 2021 , an increase of$6.9 million or 8% compared to the same period in 2020. Foreign currency movements increased these expenses by$2.2 million for the year endedDecember 31, 2021 , compared to the same period in 2020, with the remainder of the increase driven by the acquisition of additional ATMs and software assets. As a percentage of revenues, these expenses decreased to 15.4% for the year endedDecember 31, 2021 , compared to 17.9% for the same period in 2020. Operating (loss) EFT Processing Segment had operating losses of$0.5 million for the year endedDecember 31, 2021 , a decrease of$66.2 million or 99% compared to the same period in 2020. Operating income (loss) as a percentage of revenues ("operating margin") decreased to (0.1%) for the year endedDecember 31, 2021 , compared to (14.2%) for the same period in 2020. Operating (loss) per transaction was less than ($0.01 ) for the year endedDecember 31, 2021 , compared to ($0.02 ) for the same period in 2020. For the year endedDecember 31, 2021 , the decrease in operating loss and increase in operating margin was primarily driven by the easing of COVID-19 restrictions in limited regions where we operate and the$21.9 million decrease in non-cash goodwill impairment charges, partially offset by the decrease in tourism in the months of January andFebruary 2021 compared to the same periods in the prior period.
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epay-segment
The following table summarizes the operating results of our epay segment for the years ended
Year Ended December 31 ,
Year-over-year variation
(dollar amounts in thousands) 2021 2020 Increase Amount Increase Percent Total revenues$ 1,011,482 $ 835,517 $ 175,965 21 % Operating expenses: Direct operating costs 760,891 630,391 130,500 21 % Salaries and benefits 79,451 64,769 14,682 23 % Selling, general and administrative 39,602 35,789 3,813 11 % Depreciation and amortization 8,501 7,890 611 8 % Total operating expenses 888,445 738,839 149,606 20 % Operating income$ 123,037 $ 96,678 $ 26,359 27 % Transactions processed (billions) 3.12 2.40 0.72 30 % Revenues epay Segment total revenues were$1,011.5 million for the year endedDecember 31, 2021 , an increase of$176.0 million or 21% compared to the same period in 2020. The increase in revenues was primarily due to an increase in the number of transactions processed driven by continued digital media growth. Foreign currency movements increased revenues by approximately$22.4 million for the year endedDecember 31, 2021 , compared to the same period in 2020. The epay segment was impacted by COVID-19 pandemic-driven government-imposed lockdowns and business closures, primarily at retail outlets, which were offset by increases in digital media offerings inAsia and revenues derived from businesses that were classified as essential and remained open during the pandemic. Revenues per transaction decreased to$0.32 for the year endedDecember 31, 2021 , compared to$0.35 for the same period in 2020. The decrease in revenues per transaction was primarily driven by the increase in the number of mobile transactions processed in a region where we generally earn lower revenues per transaction. Direct operating costs epay Segment direct operating costs were$760.9 million for the year endedDecember 31, 2021 , an increase of$130.5 million or 21% compared to the same period in 2020. Direct operating costs primarily consist of the commissions paid to retail merchants for the distribution and sale of prepaid mobile airtime and other prepaid products, expenses incurred to operate POS terminals and the cost of vouchers sold and physical gifts fulfilled. The increase in direct operating costs was primarily due to the increase in transaction volumes of low-value mobile top-up transactions, an increase in retailer commissions and theU.S. dollar weakening against key foreign currencies during 2021. Foreign currency movements increased direct operating costs by approximately$16.5 million for the year endedDecember 31, 2021 , compared to the same period in 2020.
Gross profit
Gross profit was$250.6 million for the year endedDecember 31, 2021 , an increase of$45.5 million or 22% compared to$205.1 million for the same period in 2020. Gross margin increased to 24.8% for the year endedDecember 31, 2021 , compared to 24.6% for the same period in 2020. The increase in gross profit and gross margin is primarily driven by the increase in transaction volumes. 40
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Salaries and benefits
Salaries and benefits expenses were$79.5 million for the year endedDecember 31, 2021 , an increase of$14.7 million or 23% compared to the same period in 2020. The increase in salaries and benefits was primarily driven by an increase in headcount to support the growth of the business and an increase in bonus expense. Foreign currency movements in the countries where we employ our workforce increased these expenses by$2.4 million for the year endedDecember 31, 2021 , compared to the same period in 2020. As a percentage of revenues, these expenses increased to 7.9% for the year endedDecember 31, 2021 , compared to 7.8% for the year endedDecember 31, 2020 .
Selling, general and administrative expenses
Selling, general and administrative expenses were$39.6 million for the year endedDecember 31, 2021 , an increase of$3.8 million or 11% compared to the same period in 2020. Foreign currency movements increased these expenses by$1.2 million for the year endedDecember 31, 2021 , compared to the same period in 2020. As a percentage of revenues, these expenses decreased to 3.9% for the year endedDecember 31, 2021 , compared to 4.3% for the same period in 2020.
Depreciation and amortization
Depreciation and amortization expenses were$8.5 million for the year endedDecember 31, 2021 , an increase of$0.6 million or 8% compared to the same period in 2020. Depreciation and amortization expense primarily represents depreciation of POS terminals we install in retail stores and amortization of acquired intangible assets. As a percentage of revenues, these expenses decreased to 0.8% for the year endedDecember 31, 2021 , compared to 0.9% for the same period in 2020. Operating income epay Segment operating income was$123.0 million for the year endedDecember 31, 2021 , an increase of$26.4 million or 27% compared to the same period in 2020. Operating margin increased to 12.2% for the year endedDecember 31, 2021 , compared to 11.6% for the same period in 2020. Operating income per transaction was$0.04 for both years endedDecember 31, 2021 and 2020. The increases in operating income and operating margin for the year endedDecember 31, 2021 compared to the same period in 2020 was primarily due to an increase in the number of higher-margin digital media transactions.
Money transfer segment
The following table summarizes the operating results of our money transfer segment for the years ended
Year Ended December 31, Year-over-Year Change
Increase
Increase (Decrease)
(dollar amounts in thousands) 2021 2020 (Decrease) Amount Percent
Total revenues $ 1,400,957 $ 1,183,849 $ 217,108 18 %
Operating expenses:
Direct operating costs 793,218 649,033 144,185 22 %
Acquired contract cost impairment 38,634 - 38,634 n/a
Salaries and benefits 255,816 213,511 42,305 20 %
Selling, general and administrative 157,955 142,161 15,794 11 %
Goodwill and acquired intangible assets
impairment - 84,741 (84,741 ) (100 )%
Depreciation and amortization 35,739 34,694 1,045 3 %
Total operating expenses 1,281,362 1,124,140 157,222 14 %
Operating income $ 119,595 $ 59,709 $ 59,886 100 %
Transactions processed (millions) 135.1 116.5 18.6 16 %
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Revenue
Money Transfer Segment total revenues were$1,401.0 million for the year endedDecember 31, 2021 , an increase of$217.1 million or 18% compared to the same period in 2020. The increase in revenues was primarily due to increases inU.S. outbound and international-originated money transfers, partially offset by decreases in theU.S. domestic business and transactions in theMiddle East region. Revenues per transaction increased to$10.37 for the year endedDecember 31, 2021 , compared to$10.16 for the same period in 2020. Foreign currency movements increased revenues by approximately$30.3 million for the year endedDecember 31, 2021 , compared to the same period in 2020.
Direct operating costs
Money Transfer Segment direct operating costs were$793.2 million for the year endedDecember 31, 2021 , an increase of$144.2 million or 22% compared to the same period in 2020. Direct operating costs primarily consist of commissions paid to agents who originate money transfers on our behalf and correspondent agents who disburse funds to the customers' destination beneficiaries, together with less significant costs, such as bank depository fees. The increase in direct operating costs was primarily due to the increase in the number ofU.S. outbound and international-originated money transfer transactions and corresponding increase in agent commissions. Foreign currency movements increased direct operating costs by approximately$15.3 million for the year endedDecember 31, 2021 , compared to the same period in 2020.
Impairment of the cost of acquired contracts
During the fourth quarter of 2021, we identified certain contract assets that had a carrying balance greater than the estimated remaining cash flows in the contracts and recorded a corresponding$38.6 million non-cash impairment of costs to fulfill a contract. The impairment charge is the result of lower-than-expected customer transaction volumes related to these specific contracts, stemming primarily from COVID-19 related disruptions. These charges are included in the gross profit calculation.
Gross profit
Gross profit was$569.1 million for the year endedDecember 31, 2021 , an increase of$34.3 million or 6% compared to$534.8 million for the same period in 2020. Gross margin decreased to 40.6% for the year endedDecember 31, 2021 , compared to 45.2% for the same period in 2020. The increase in gross profit was primarily attributable to the increase in transaction volume and the decrease in gross margin is primarily attributable to the$38.6 million non-cash contract asset impairment charge and the increased agent commissions for the year endedDecember 31, 2021 compared to the same period in 2020.
Salaries and benefits
Salaries and benefits expenses were$255.8 million for the year endedDecember 31, 2021 , an increase of$42.3 million or 20% compared to the same period in 2020. The increase in salaries and benefits was primarily driven by an increase in headcount to support the growth of the business and an increase in bonus expense. Foreign currency movements in the countries where we employ our workforce increased these expenses by$6.1 million for the year endedDecember 31, 2021 , compared to the same period in 2020. As a percentage of revenues, these expenses increased to 18.3% for the year endedDecember 31, 2021 , compared to 18.0% for the same period in 2020.
Selling, general and administrative expenses
Selling, general and administrative expenses were$158.0 million for the year endedDecember 31, 2021 , an increase of$15.8 million or 11% compared to the same period in 2020. The increase in these expenses is primarily driven by an increase in marketing expenses, professional fees and travel related expenses. Foreign currency movements increased these expenses by$3.6 million for the year endedDecember 31, 2021 , compared to the same period in 2020. As a percentage of revenues, these expenses decreased to 11.3% for the year endedDecember 31, 2021 , compared to 12.0% for the same period in 2020.
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Due to the economic impacts of the COVID-19 pandemic, the Company recorded an$82.7 million non-cash goodwill impairment charge related to the xe reporting unit during the second quarter of 2020. The non-cash goodwill impairment charge was recorded for xe as a result of declines in the international payments business stemming from economic uncertainty. During the second half of 2020, a$2.0 million non-cash acquired intangible asset impairment charge was recorded for xe on previously acquired customer relationship intangible assets due to the discontinuation of trading with certain customers during 2020.
Depreciation and amortization
Depreciation and amortization expenses were$35.7 million for the year endedDecember 31, 2021 , an increase of$1.0 million or 3% compared to the same period in 2020. Depreciation and amortization primarily represents amortization of acquired intangible assets and depreciation of money transfer terminals, computers and software, leasehold improvements and office equipment. As a percentage of revenues, these expenses decreased to 2.6% for the year endedDecember 31, 2021 , compared to 2.9% for the same period in 2020.
Operating result
Money Transfer Segment operating income was$119.6 million for the year endedDecember 31, 2021 , an increase of$59.9 million or 100% compared to the same period in 2020. Operating margin increased to 8.5% for the year endedDecember 31, 2021 , compared to 5.0% for the same period in 2020. Operating income per transaction increased to$0.89 for the year endedDecember 31, 2021 , compared to$0.51 for the same period in 2020. The increase in operating income, operating margin and operating income per transaction for the year endedDecember 31, 2021 compared to the same period in 2020 was primarily driven by the decrease in non-cash goodwill impairment charges, and an increase in transaction volume, specifically the higher margin transactions forU.S. outbound and international-originated money transfers, partially offset by the increase in agent commissions,$38.6 million non-cash contract asset impairment and an increase in headcount to support the growth of the business.
Corporate services
The following table summarizes the results of operations of Corporate Services for the years ended
Year Ended December 31, Year-over-Year Change
Increase Increase
(Decrease) (Decrease)
(dollar amounts in thousands) 2021 2020 Amount Percent
Salaries and benefits $ 50,988 $ 34,336 $ 16,652 48 %
Selling, general and administrative 6,582 8,306 (1,724 ) (21 )%
Depreciation and amortization 545 412 133 32 %
Total operating expenses $ 58,115 $ 43,054
Business operating expenses
Total Corporate operating expenses were$58.1 million for the year endedDecember 31, 2021 , an increase of$15.1 million or 35%, compared to the same period in 2020. The increase is primarily due to a$14.6 million increase in share based compensation for the year endedDecember 31, 2021 , compared to the same period in 2020. 43
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Other expenses, net
Year Ended December 31, Year-over-Year Change
Increase
(dollar amounts in thousands) 2021 2020 (Decrease) Amount (Decrease) Percent
Interest income $ 664 $ 1,040 $ (376 ) (36 )%
Interest expense (38,198 ) (36,604 ) (1,594 ) 4 %
Foreign currency exchange loss, net (10,866 ) (3,756 ) (7,110 ) 189 %
Other gains, net 59 869 (810 ) (93 )%
Other expense, net $ (48,341 ) $ (38,451 ) $ (9,890 ) 26 %
Exchange loss, net
Foreign currency exchange activity includes gains and losses on certain foreign currency exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies. Assets and liabilities denominated in currencies other than the local currency of each of our subsidiaries give rise to foreign currency exchange gains and losses. Foreign currency exchange gains and losses that result from remeasurement of these assets and liabilities are recorded in net income. The majority of our foreign currency exchange gains or losses are due to the remeasurement of intercompany loans which are not considered a long-term investment in nature and are in a currency other than the functional currency of one of the parties to the loan. For example, we make intercompany loans based in euros from our corporate division, which is composed ofU.S. dollar functional currency entities, to certain European entities that use the euro as the functional currency. As theU.S. dollar strengthens against the euro, foreign currency exchange losses are recognized by our corporate entities because the number of euros to be received in settlement of the loans decreases inU.S. dollar terms. Conversely, in this example, in periods where theU.S. dollar weakens, our corporate entities will record foreign currency exchange gains. We recorded a net foreign currency exchange loss of$10.9 million for the year endedDecember 31, 2021 , compared to a net foreign currency exchange loss of$3.8 million for the same period in 2020. These realized and unrealized foreign currency exchange losses reflect the fluctuation in the value of theU.S. dollar against the currencies of the countries in which we operated during the respective periods. 44
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income tax expense
Our effective tax rates as reported and adjusted are calculated below:
Year Ended December 31,
(dollar amounts in thousands) 2021 2020
Income before income taxes $ 135,675 $ 8,171
Income tax expense (65,088 ) (11,475 )
Net income $ 70,587 $ (3,304 )
Effective income tax rate 48.0 % 140.4 %
Income before income taxes $ 135,675 $ 8,171
Adjust: Goodwill and acquired intangible assets impairment - (106,602 )
Adjust: Acquired contract cost impairment (38,634 ) -
Adjust: Other gains, net 59 869
Adjust: Foreign currency exchange (loss) gain, net (10,866 ) (3,756 )
Income before income taxes, as adjusted $ 185,116 $ 117,660
Income tax expense $ (65,088
)
Adjustment: Tax benefit attributable to foreign exchange loss, net
1,716
4,055
Income tax expense, as adjusted$ (66,804 ) $ (15,530 ) Effective income tax rate, as adjusted 36.1
% 13.2%
We calculate our effective income tax rate by dividing income tax expense by pre-tax book income. Our effective income tax rates were 48.0% and 140.4% for the years endedDecember 31, 2021 and 2020, respectively. The effective income tax rates were significantly influenced by the impact of the goodwill and acquired intangible asset impairment, acquired contract cost impairment, and foreign currency exchange gains (losses). Excluding foreign currency exchange gains (losses), goodwill and acquired intangible asset impairment, and acquired contract cost impairment items from pre-tax income, as well as the related tax effects for these items, our adjusted effective income tax rates were 36.1% and 13.2% for the years endedDecember 31, 2021 and 2020, respectively. The effective income tax rate, as adjusted, for 2021 was higher than the applicable statutory income tax rate of 21% as a result of an increase in the valuation allowance related to the projected utilization ofU.S. tax benefits, the non-recognition of tax benefits from losses in certain foreign countries where we have a limited history of profitable earnings and certain foreign earnings being subject to higher local statutory tax rates. The effective income tax rate, as adjusted, for 2020 was lower than the applicable statutory income tax rate of 21% primarily because of the release of unrecognized tax benefits for the completion of foreign country tax audits. We determine income tax expense based upon enacted tax laws applicable in each of the taxing jurisdictions where we conduct business. Based on our interpretation of such laws, and considering the evidence of available facts and circumstances and baseline operating forecasts, we have accrued the estimated income tax effects of certain transactions, business ventures, contract and organizational structures, and the estimated future reversal of timing differences. Should a taxing jurisdiction change its laws or dispute our conclusions, or should management become aware of new facts or other evidence that could alter our conclusions, the resulting impact to our estimates could have a material adverse effect on our results of operations and financial condition. Income before income taxes, as adjusted, income tax expense, as adjusted and effective income tax rate, as adjusted, are non-U.S. GAAP financial measures that management believes are useful for understanding why our effective income tax rates are significantly different than would be expected. These non-U.S. GAAP measures are used by management to conduct and evaluate its business during its regular review of operating results for the periods presented.
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Our total liability for uncertain tax positions under Accounting Standards
Codification ("ASC") 740-10-25 and -30 was $41.0 million as of December 31,
2021 . The application of ASC 740-10-25 and -30 requires significant judgment in
assessing the outcome of future income tax examinations and their potential
impact on the Company's estimated effective income tax rate and the value of
deferred tax assets, such as those related to the Company's net operating
loss carryforwards. It is reasonably possible that the balance of gross
unrecognized tax benefits could significantly change within the
next twelve months, as a result of the resolution of audit examinations and
expirations of certain statutes of limitations and, accordingly, materially
affect our Consolidated Financial Statements. At this time, it is not possible
to estimate the range of change due to the uncertainty of potential outcomes.
Net (income) loss attributable to non-controlling interests
Non-controlling interests represent the elimination of net income attributable to minority shareholders’ share of the following consolidated subsidiaries that are not wholly owned:
Subsidiary Percent Owned Segment - Country Movilcarga 95% epay - Spain Euronet China 85% EFT - China Euronet Pakistan 70% EFT - Pakistan Euronet Infinitium Solutions 65% EFT - India
Net income (loss) attributable to
Net income attributable toEuronet was$70.7 million for the year endedDecember 31, 2021 , an increase of$74.1 million compared to the net loss in the same period in 2020. For the year endedDecember 31, 2021 , the increase in net income was primarily attributable to the$150.5 million increase in gross profit driven by an increase in transaction volumes across all three segments and$106.0 million decrease in non-cash goodwill and intangible assets impairment charges, partially offset by an$80.7 million increase in salaries and benefits, a$53.6 million increase in income tax expense, a$30.3 million increase in selling, general and administrative expenses, an$8.7 million increase in depreciation and amortization expenses, a$7.1 million increase in foreign currency exchange losses, and an increase in other expenses aggregating$2.0 million . Translation Adjustment Translation gains and losses are the result of translating our foreign entities' balance sheets from local functional currency to theU.S. dollar reporting currency prior to consolidation and are recorded in comprehensive (loss) income. As required byU.S. GAAP, during this translation process, asset and liability accounts are translated at current foreign currency exchange rates and equity accounts are translated at historical rates. Historical rates represent the rates in effect when the balances in our equity accounts were originally created. By using this mix of rates to convert the balance sheet from functional currency toU.S. dollars, differences between current and historical exchange rates generate this translation adjustment. We recorded a net loss on translation adjustments of$78.5 million for 2021 and a net gain of$70.8 million for 2020. During 2021, theU.S. dollar strengthened compared to key foreign currencies, resulting in translation losses which were recorded in comprehensive (loss) income. In 2020, theU.S. dollar weakened compared to key foreign currencies, resulting in translation gains which were recorded in comprehensive (loss) income.
Cash and capital resources
Working capital
As ofDecember 31, 2021 , we had working capital of$1,455.8 million , which is calculated as the difference between total current assets and total current liabilities, compared to working capital of$1,510.5 million as ofDecember 31, 2020 . The decrease in working capital was primarily due to the$159.8 million decrease in cash and cash equivalents,$77.5 million decrease in prepaid expenses and other current assets,$45.9 million increase in trade accounts payable,$22.7 million increase in income taxes payable, and$2.9 million aggregate increase in other working capital balances, offset by the$132.3 million increase in ATM cash,$85.5 million increase in trade accounts receivable, and$36.3 million decrease in accrued expenses and other current liabilities. Our ratio of current assets to current liabilities was 1.79 and 1.81 atDecember 31, 2021 andDecember 31, 2020 , respectively.
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We require substantial working capital to finance operations. The Money Transfer Segment funds the payout of the majority of our consumer-to-consumer money transfer services before receiving the benefit of amounts collected from customers by agents. Working capital needs increase due to weekends and banking holidays. As a result, we may report more or less working capital for the Money Transfer Segment based solely upon the day on which the reporting period ends. The epay Segment produces positive working capital, but much of it is restricted in connection with the administration of its customer collection and vendor remittance activities. In our EFT Processing Segment, we obtain a significant portion of the cash required to operate our ATMs through various cash supply arrangements, the amount of which is not recorded onEuronet's Consolidated Balance Sheets. However, in certain countries, we fund the cash required to operate our ATM network from borrowings under the revolving credit facilities and cash flows from operations. As ofDecember 31, 2021 , we had approximately$543.4 million of our own cash in use or designated for use in our ATM network, which is recorded in ATM cash onEuronet's Consolidated Balance Sheet. ATM cash increased$132.3 million from$411.1 million as ofDecember 31, 2020 to$543.4 million as ofDecember 31, 2021 as a result of the 13% increase in the number of active ATMs as ofDecember 31, 2021 compared toDecember 31, 2020 . The Company has$1,260.5 million of unrestricted cash as ofDecember 31, 2021 compared to$1,420.3 million as ofDecember 31, 2020 . The decrease in unrestricted cash was primarily due to the$132.3 million increase in ATM cash as unrestricted cash was utilized to fill the additional active ATMs, the$227.8 million of shares repurchased under stock repurchase programs, and$92.2 million of capital expenditures, partially offset by the$406.6 million of cash provided by operating activities. Including the$543.4 million of cash in ATMs atDecember 31, 2021 , the Company has access to$1,803.9 million in available cash, and$689.3 million available under the Credit Facility with no significant long-term debt principal payments untilOctober 2023 . InMarch 2021 , the Company entered into an agreement to purchase the Piraeus Bank Merchant Acquiring business ofPiraeus Bank for €300 million, or approximately$360 million . The closing is targeted for the first half of 2022 and is subject to regulatory approvals, finalization of the commercial agreements, and customary closing conditions. The Company expects to finance the purchase price using cash on hand. See Note 6, Acquisitions, to our Consolidated Financial Statements for additional information. We had cash, cash equivalents and restricted cash of$2,086.1 million as ofDecember 31, 2021 , of which$1,558.2 million was held outside of theU.S. and is expected to be indefinitely reinvested for continued use in foreign operations. Repatriation of these assets to theU.S. could have negative tax consequences. The following table identifies cash and cash equivalents provided by/(used in) our operating, investing and financing activities for the years endedDecember 31, 2021 and 2020 (in thousands): Year Ended December 31, Liquidity 2021 2020 Cash and cash equivalents and restricted cash provided by (used in): Operating activities$ 406,576 $ 253,505 Investing activities (98,109 ) (105,531 ) Financing activities (212,236 ) 35,398
Effect of changes in exchange rates on cash and cash equivalents and restricted cash
(109,637 )
98,757
(Decrease) increase in cash and cash equivalents and restricted cash$ (13,406 ) $ 282,129 Operating cash flow Cash flows provided by operating activities were$406.6 million for the year endedDecember 31, 2021 compared to$253.5 million for the same period in 2020. The increase in operating cash flows was primarily due to the increase in net income and fluctuations in working capital mainly associated with the timing of the settlement processes with content providers in the epay Segment, with correspondents in the Money Transfer Segment, and with card organizations and banks in the EFT Processing Segment.
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Cash flow from investing activity
Cash flows used in investing activities were$98.1 million for the year endedDecember 31, 2021 compared to$105.5 million for the same period in 2020. We used$92.2 million for purchases of property and equipment for the year endedDecember 31, 2021 compared to$97.6 million for the same period in 2020. Cash used for software development and other investing activities totaled$5.9 million and$7.8 million for the year endedDecember 31, 2021 and 2020, respectively.
Cash flow from financing activity
Cash flows used in financing activities were$212.2 million for the year endedDecember 31, 2021 compared to cash flows provided by financing activities of$35.4 million for the same period in 2020. The increase in cash used in financing activities is primarily the result of the$13.0 million net borrowings on debt obligations for the year endedDecember 31, 2021 compared to$265.2 million for the same period in 2020. We repurchased$229.9 million of common stock during the year endedDecember 31, 2021 compared to repurchases of$241.5 million for the same period in 2020.$2.1 million of share repurchases during the year endedDecember 31, 2021 were in connection with the settlement of Restricted Stock Unit awards and the exercise of option awards in certain countries in which we operate. We received proceeds of$10.8 million and$18.1 million during the year endedDecember 31, 2021 and 2020, respectively, for the issuance of stock in connection with our Stock Incentive Plan.
Other sources of capital
Credit Facility - OnOctober 17, 2018 , the Company entered into a$1.0 billion unsecured credit agreement (the "Credit Facility") that expires onOctober 17, 2023 . The Credit Facility 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, andU.S. dollars. The Credit Facility contains a$200 million sublimit for the issuance of letters of credit, a$50 million sublimit forU.S. dollar swingline loans, and a$90 million sublimit for certain foreign currencies swingline loans. As ofDecember 31, 2021 , fees and interest on borrowings are based upon the Company's corporate credit rating (as defined in the Credit Facility) and are based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over the London InterBank Offered Rate ("LIBOR") or a margin over the base rate, as selected by us, with the applicable margin ranging from 1.125% to 2.0% (or 0.175% to 1.0% for base rate loans). As ofDecember 31, 2021 , we had$283.4 million of borrowings and$57.3 million of stand-by letters of credit outstanding under the Credit Facility. The remaining$689.3 million under the Credit Facility was available for borrowing. As ofDecember 31, 2021 , the weighted average interest rate under the Credit Facility was 1.2%, excluding amortization of deferred financing costs. Convertible debt - OnMarch 18, 2019 , we completed the sale of$525.0 million in principal amount of Convertible Senior Notes due 2049 ("Convertible Notes"). As ofDecember 31, 2021 the carrying value of the Convertible Notes was$468.2 million . The Convertible Notes were issued pursuant to an indenture, dated as ofMarch 18, 2019 (the "Indenture"), by and between the Company andU.S. Bank National Association , as trustee. The Convertible Notes have an interest rate of 0.75% per annum payable semi-annually in March and September, and are convertible into shares ofEuronet common stock at a conversion price of approximately$188.73 per share if certain conditions are met (relating to the closing prices ofEuronet common stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require the Company to repurchase for cash all or part of their Convertible Notes on each ofMarch 15, 2025 , 2029, 2034, 2039 and 2044 at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date. In connection with the issuance of the Convertible Notes, we recorded$12.8 million in debt issuance costs, which are being amortized throughMarch 1, 2025 .
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Senior Notes - OnMay 22, 2019 , the Company completed the sale of €600 million ($669.9 million ) aggregate principal amount of Senior Notes that expire inMay 2026 (the "Senior Notes"). The Senior Notes accrue interest at a rate of 1.375% per year, payable annually in arrears commencingMay 22, 2020 , until maturity or earlier redemption. As ofDecember 31, 2021 , the Company has outstanding €600 million ($682.1 million ) principal amount of the Senior Notes. In addition, the Company may redeem some or all of these notes on or afterFebruary 22, 2026 at their principal amount plus any accrued and unpaid interest. Other debt obligations - Certain of our subsidiaries have available credit lines and overdraft facilities to generally supplement short-term working capital requirements, when necessary. There were$0.9 million outstanding under these other obligation arrangements as of bothDecember 31, 2021 andDecember 31, 2020 .
Other uses of capital
Capital expenditures and requirements – Total capital expenditures for 2021 were
Contractual lease obligations - The Company has entered into contractually binding operating and finance lease commitments to operate the business. Operating lease expenses were$55.6 million and$83.1 million for the years endedDecember 31, 2021 and 2020, respectively. Finance lease expenses were not material for 2021 or 2020. For additional information on operating and finance lease obligations, see Note 13, Leases, to the Consolidated Financial Statements. At current and projected cash flow levels, we anticipate that cash generated from operations, together with cash on hand and amounts available under our Credit Facility and other existing and potential future financings will be sufficient to meet our debt, leasing, and capital expenditure obligations. If our capital resources are not sufficient to meet these obligations, we will seek to refinance our debt and/or issue additional equity under terms acceptable to us. However, we can offer no assurances that we will be able to obtain favorable terms for the refinancing of any of our debt or other obligations or for the issuance of additional equity.
Share buyback plan
The Company's Board of Directors had authorized a stock repurchase program allowingEuronet to repurchase up to$375 million in value or 10.0 million shares of stock throughMarch 31, 2020 . The Company repurchased all$375 million of stock under this program. OnMarch 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 throughMarch 11, 2021 . The Company repurchased$110.6 million of stock under this program. OnFebruary 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 throughFebruary 28, 2022 . The Company has repurchased$227.8 million of stock under this program. OnDecember 8, 2021 , the Company put a repurchase program in place to repurchase up to$300 million in value, but not more than 5.0 million shares of common stock throughDecember 8, 2023 . For the year endedDecember 31, 2021 , the Company repurchased 2.0 million shares under the repurchase programs at a weighted average purchase price of$113.88 for a total value of$227.8 million . Repurchases under the programs 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.
Inflation and functional currencies
Generally, the countries in which we operate have experienced low and stable inflation in recent years. Therefore, the local currency in each of these markets is the functional currency. Currently, we do not believe that inflation will have a significant effect on our results of operations or financial position. We continually review inflation and the functional currency in each of the countries where we operate.
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Off-balance sheet arrangements
We have certain significant off-balance sheet items described in Note 20, Commitments, to the Consolidated Financial Statements. On occasion, we grant guarantees of the obligations of our subsidiaries and we sometimes enter into agreements with unaffiliated third parties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. Our liability under such indemnification provisions may be subject to time and materiality limitations, monetary caps and other conditions and defenses. To date, we are not aware of any significant claims made by the indemnified parties or parties to whom we have provided guarantees on behalf of our subsidiaries and, accordingly, no liabilities have been recorded as ofDecember 31, 2021 .
Significant Accounting Policies and Estimates
The preparation of financial statements in conformity withU.S. GAAP which requires management to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Management considers an accounting policy and estimate to be critical if it requires the use of assumptions that were uncertain at the time the estimate was made and if changes in the estimate or selection of a different estimate could have a material effect on the Company's financial condition and results of operations. Our most critical estimates and assumptions are used for computing income taxes, allocating the purchase price to assets acquired and liabilities assumed in acquisitions, and potential impairment of intangible assets and goodwill. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from these estimates. For a summary of all of the Company's significant accounting policies, see Note 3, Summary of Significant Accounting Policies and Practices, to the accompanying Consolidated Financial Statements. Accounting for income taxes The deferred income tax effects of transactions reported in different periods for financial reporting and income tax return purposes are recorded under the asset and liability method prescribed under ASC Topic 740, Income Taxes ("ASC 740"). This method gives consideration to the future tax consequences of deferred income or expense items and immediately recognizes changes in income tax laws upon enactment. The consolidated statement of operations effect is generally derived from changes in deferred income taxes, net of valuation allowances, on the balance sheet as measured by differences in the book and tax bases of our assets and liabilities. We have significant tax loss carryforwards, and other temporary differences, which are recorded as deferred tax assets and liabilities. Deferred tax assets realizable in future periods are recorded net of a valuation allowance based on an assessment of each entity's, or group of entities', ability to generate sufficient taxable income within an appropriate period, in a specific tax jurisdiction. In assessing the recognition of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. As more fully described in Note 14, Income Taxes, to the Consolidated Financial Statements, gross deferred tax assets were$270.9 million as ofDecember 31, 2021 , partially offset by a valuation allowance of$100.5 million . The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We make judgments and estimates on the scheduled reversal of deferred tax liabilities, historical and projected future taxable income in each country in which we operate, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and current projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowance atDecember 31, 2021 . If we have a history of generating taxable income in a certain country in which we operate, and baseline forecasts project continued taxable income in this country, we will reduce the valuation allowance for those deferred tax assets that we expect to realize.
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Additionally, we follow the provisions of ASC 740-10-25 and -30 to account for
uncertainty in income tax positions. Applying the standard requires substantial
management judgment and use of estimates in determining whether the impact of a
tax position is "more likely than not" of being sustained on audit by the
relevant taxing authority. We consider many factors when evaluating and
estimating our tax positions, which may require periodic adjustments and which
may not accurately anticipate actual outcomes. It is reasonably possible that
amounts reserved for potential exposure could change significantly as a result
of the conclusion of tax examinations and, accordingly, materially affect our
operating results.
Business combinations
In accordance with ASC Topic 805, Business Combinations ("ASC 805"), we allocate
the acquisition purchase price of an acquired entity to the assets acquired,
including identifiable intangibles, and liabilities assumed based on their
estimated fair values at the date of acquisition. Management applies various
valuation methodologies to these acquired assets and assumed liabilities which
often involve a significant degree of judgment, particularly when liquid markets
do not exist for the particular item being valued. Examples of such items
include loans, deposits, identifiable intangible assets and certain other assets
and liabilities acquired or assumed in business combinations. Management uses
significant estimates and assumptions to value such items, including, projected
cash flows and discount rates. For larger or more complex acquisitions, we
generally obtain third-party valuations to assist us in estimating fair values.
The use of different valuation techniques and assumptions could change the
amounts and useful lives assigned to the assets and liabilities acquired and
related amortization expense. During the measurement period, which is not to
exceed one year from the acquisition date, we may record adjustments to the
assets acquired and liabilities assumed, with the corresponding offset to
goodwill. Upon the conclusion of the measurement period, any subsequent
adjustments are recorded to earnings.
In accordance with ASC Topic 350, Intangibles -Goodwill and Other ("ASC 350"), we evaluate the carrying value of our indefinite-lived assets, including goodwill, at least annually or more frequently whenever events or changes in circumstances indicate that the asset may be impaired, or in the case of goodwill, that the fair value of the reporting unit may be less than its carrying amount. Our annual impairment tests are performed during the fourth quarter and are performed at the reporting unit level. Our annual process for evaluating goodwill allows us to perform a qualitative assessment for all reporting units, and then perform a quantitative goodwill impairment test for those reporting units in which it is deemed necessary. The qualitative factors evaluated by the Company include: economic conditions of the local business environment, overall financial performance, sensitivity analysis from the most recent quantitative test, and other entity specific factors as deemed appropriate. If we determine a quantitative goodwill impairment test is appropriate, the test involves comparing the fair value of a reporting unit to its carrying amount, including goodwill, after any long-lived asset impairment charges. Generally, the fair value is determined using discounted projected future cash flows and market multiple of earnings. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, a goodwill impairment loss is recognized in an amount equal to the excess. 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 our operations will not perform as expected, or that estimates or assumptions could change, which may result in the recording of material non-cash impairment charges during the year in which these determinations take place. The COVID-19 pandemic and subsequent mitigation efforts, which included global business shutdowns, the closing of borders and the implementation of mandatory social distancing requirements, created an unprecedented disruption to our business beginning in the first half of 2020. These mitigation efforts coupled with the negative economic impacts to the tourism industry caused some of our reporting units to either have a temporary or sustained decline in revenues and earnings and necessitated changes to our forecasted outlook. We determined the totality of these events constituted a triggering event that required us to perform an interim goodwill impairment assessment as ofJune 1, 2020 . We 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. The fair value of these reporting units were determined using weighted results from the discounted cash flow model ("DCF model") and guideline public company method ("Market Approach model"). A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including forecasted revenue, forecasted EBITDA margin, and discount rate. Significant assumptions and inputs in the Market Approach model are EBITDA, EBITDA market multiple, and the estimated control premium. 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 results of theJune 1, 2020 quantitative test were that three of the six reporting units' fair value exceeded their 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, we recorded a non-cash goodwill impairment charge of$104.6 million with respect to the xe, Innova and Pure Commerce reporting units. A total of$21.9 million of the impairment charge was included within the EFT Segment, and$82.7 million of the impairment charge was included in the Money Transfer Segment. Subsequent toJune 1, 2020 and through year-end 2021, including the fourth quarter annual impairment test, management monitored whether there were events or changes in circumstances that had occurred, at a reporting unit level, to indicate that goodwill was impaired or further impaired. There were no indications of impairment and no additional non-cash goodwill impairment charges were recorded. 51
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Acquired finite-lived intangible assets are amortized over their estimated useful lives. We evaluate the recoverability of our intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to its fair value. In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of our finite-lived intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized over the revised estimated useful life.
From
Recently issued accounting pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data – Note 3 – Summary of Significant Accounting Policies and Practices”.
Forward-looking statements
This document contains statements that constitute forward-looking statements
within the meaning of section 27A of the Securities Act of 1933 and section 21E
of the Securities Exchange Act of 1934 ("Exchange Act"). Generally, the words
"believe," "expect," "anticipate," "intend," "estimate," "will" and similar
expressions identify forward-looking statements. However, the absence of these
words or similar expressions does not mean the statement is not forward-looking.
All statements other than statements of historical facts included in this
document are forward-looking statements, including, but not limited to,
statements regarding the following:
º our business plans and financing plans and requirements;
º trends affecting our business plans and financing plans and requirements;
º trends affecting our business;
º the adequacy of capital to meet our capital needs and expansion
plans; º the assumptions underlying our business plans; º our ability to repay indebtedness; º our estimated capital expenditures; º the potential outcome of loss contingencies; º our expectations regarding the closing of any pending acquisitions; º business strategy; º government regulatory action; º the expected effects of changes in laws or accounting standards;
º the impact of the COVID-19 pandemic, including its variants, on our results
operations and financial condition;
º technological advances; and
º projected costs and revenues.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct. Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may materially differ from those in the forward-looking statements as a result of various factors, including, but not limited to, conditions in world financial markets and general economic conditions, including impacts from the COVID-19 pandemic; the effectiveness of vaccines and treatments against COVID-19 variants; the effects inEurope of theU.K.'s departure from the E.U. and economic conditions in specific countries and regions; technological developments affecting the market for our products and services; our ability to successfully introduce new products and services; foreign currency exchange rate fluctuations; the effects of any breach of our computer systems or those of our customers or vendors, including our financial processing networks or those of other third parties; interruptions in any of our systems or those of our vendors or other third parties; our ability to renew existing contracts at profitable rates; changes in fees payable for transactions performed for cards bearing international logos or over switching networks such as card transactions on ATMs; our ability to comply with increasingly stringent regulatory requirements, including anti-money laundering, anti-terrorism, anti-bribery, sanctions, consumer and data protection and theEuropean Union's General Data Protection Regulation and Second Revised Payment Service Directive requirements; changes in laws and regulations affecting our business, including tax and immigration laws and any laws regulating payments, including DCC transactions, changes in our relationships with, or in fees charged by, our business partners; competition; the outcome of claims and other loss contingencies affectingEuronet ; the cost of borrowing, availability of credit and terms of and compliance with debt covenants; and renewal of sources of funding as they expire and the availability of replacement funding and those factors referred to above and as set forth and more fully described in Part I, Item 1A - Risk Factors. Any forward-looking statements made in this Form 10-K speak only as of the date of this report. Except as required by law, we do not intend, and do not undertake, any obligation to update any forward looking statements to reflect future events or circumstances after the date of such statements.
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