For facilitator of global transactions Euronet in the world (NASDAQ: EEFT), the last quarter of 2018 showed very credible performances in each of the three main business segments of the company. More importantly, Euronet’s epay division appears to be returning to a growth mode after several quarters of poor performance.
Let’s review the highlights of the report, released on February 7, as well as management’s earnings guidance for the first quarter of 2019. (Note that all comparable figures that follow refer to the previous year’s quarter, the fourth quarter of 2017.)
Euronet profits: the raw figures
|Metric||Q4 2018||Q4 2017||Year-over-year growth|
|Income||$ 649.4 million||$ 604.6 million||14.9%|
|Net income (loss)||$ 60 million||($ 22.9 million)||N / A|
|Diluted EPS||$ 1.10||($ 0.44)||N / A|
What happened with Euronet this quarter?
Electronic funds transfer (EFT) processing revenues increased 10% to $ 146.5 million. The company attributed the growth to a 13% increase in transactions and a 9% increase in active ATMs. Euronet added around 1,300 high-value ATMs in Europe and India during the fourth quarter, bringing its total number of ATMs to 40,354 by year-end. EFT operating profit decreased 13% to $ 22.4 million, due to a one-time acquisition charge of $ 6.6 million in the quarter that management related to an acquisition previous unspecified.
Epay segment revenue declined 3% to $ 215 million. The company adopted new GAAP accounting standard ASC 606 in January 2018; under the previous reporting standard, epay’s revenue would have increased by 13%. The segment made a 21% jump in transactions, to 344 million. The increase in volume was attributed to an increase in transactions in Germany and India, which partially offset the loss in the previous year from a high volume, low value customer in the Middle East.
Epay reported operating income of $ 29.3 million, compared to a loss of $ 6.3 million in the fourth quarter of 2017 (in which the business recorded an impairment charge of $ 31.8 million). On a comparability-adjusted basis, epay’s operating income improved 13% from the prior year quarter.
As the growth of its mobile airtime top-up services declined, epay diversified its revenue base by diversifying into non-mobile revenues, including the sale of digital content and services, as well as gift cards. branded physicals. In the fourth quarter, epay launched a non-mobile digital content mall on Amazon.de (Amazon Germany), and launched Adidas gift cards for retail across Europe, among many other digital and physical product deployments. Investors finally seem to see the segment as a revenue driver, after a few years of epay as an obstacle to growth.
Revenue from Euronet’s largest segment, remittances, jumped 15% to $ 274.1 million. However, operating profit remained stable at $ 29.3 million. This was due to an impairment the company took in the fourth quarter on intangible assets related to the HiFX brand. HiFX operations have been merged into the fast growing, globally recognized XE foreign exchange service brand. Money transfer transactions increased 15% in the quarter. Management attributed the growth in money transfer to the increasing market share of its main brand Ria and the growing number of digital money transfer transactions.
What management had to say
In the business earnings conference call, CFO Rick Weller highlighted both epay’s effective performance and strong results when the three segments grow in tandem:
[Epay] had a very good fourth quarter. Adjusted for the new 606 revenue standard, pro forma revenue at constant currencies increased 17%, adjusted operating profit increased 19%, and EBITDA increased by 16%. These excellent results were driven by strong fourth quarter sales in non-mobile content. Gross profit per transaction increased slightly due to a stronger combination of transactions in India, but operating margins increased year over year due to continued growth in our non-mobile products at high margin …
This is a very good end of 2018 where all three segments posted double digit growth in all measures. With double-digit epay contributions this quarter, along with double-digit EFT and money transfer performance, it’s easy to see that [Euronet] pulls on all cylinders.
Discover all our earnings call transcripts.
Euronet provides very limited profit forecasts. The organization expects adjusted EPS of $ 0.83 for the first quarter of 2019. If it reaches this benchmark, Euronet will exceed adjusted EPS by $ 0.73 achieved in the first quarter of 2018 with a strong margin of 14%. Investors are clearly excited about the current conditions and the outlook for continued EPS growth: stocks rose 12% in the two trading days following the release of Euronet’s results.
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