Euronet’s third-quarter revenue, adjusted EBITDA, operating income, and cash EPS were all nicely ahead of our estimates and consensus, and fourth-quarter guidance looks about $0.03 ahead of prior consensus on a currency-adjusted basis. It is no surprise that strength in the quarter was driven by the EFT and money transfer segments.
In the EFT segment, we believe foreign card transactions are having a significantly positive contribution to profit growth. Transactions grew 6%, the ATM count grew 11%, but revenue increased 28% and adjusted EBITDA increased 33%. In Europe, Euronet has been focusing much more on high-value sites and products in recent years as opposed to high-volume sites where it may only generate domestic interchange.
The company is competing with banks that are mostly interested in placing ATMs where their customers are, not where other banks’ customers are, thus providing Euronet and other independent ATM deployers the ability to place ATMs at sites that attract significant interest from out-of-country consumers. We believe rolling out dynamic currency conversion (DCC) at point-of-sale locations, improving DCC opt-in rates, and the addition of other value-added services (CRM to help banks offer loans to customers, Google Play, iTunes, etc.) are all contributing to Euronet’s growth. We generally believe Euronet’s strategy is a smart one, but we also believe investors should keep in mind outlier regulatory risks associated with offering more richly priced payments services in the EU and relying on higher foreign card interchange rates, which are set by the payment networks.
In money transfer, transactions grew 56% and revenue grew 58%, which drove even better profit growth. Key drivers include the core business, which management stated is still growing revenue and gross profit in the double-digits (13% in the fourth quarter and first quarter, and we believe it is still around this level), as well as Wal-Mart (WMT $76.25; Underperform) and HiFX. As a reminder, the Walmart-2-Walmart rollout began on April 24 and the HiFX acquisition closed on May 20. Segment revenue grew $27 million sequentially, compared with the typical $2 million increase we have seen in past third quarters. HiFX had 2013 revenue of $64 million, and it lost U.K. Post Office as a customer early this year (expected at time of acquisition).
We do not believe HiFX has grown much since acquired, so a rough estimate of incremental third-quarter revenue from HiFX would be $6 million. This means Wal-Mart likely contributed about $19 million of the sequential increase in revenue compared to our estimate of $12 million in the second quarter. Taken together these estimates would imply Euronet’s Wal-Mart run-rate is at least $31 million per quarter, but given commentary on the call that revenue continues to show month-over-month improvement, we would not be surprised if the run rate is closer to $35 million or $40 million per quarter. We believe Walmart-2-Walmart generated about $191 million of revenue for MoneyGram in 2013, so it appears Euronet is well on its way to capturing a significant majority of this revenue.