Greetings and welcome to the Euronet Worldwide Third Quarter 2017 Earnings Conference Call. At this time, all phone participants are in a listen-only-mode. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today’s conference is being recorded. It is now my pleasure to introduce your host, Mr. Jeff Newman, Executive Vice President and General Counsel for Euronet Worldwide. Thank you. Mr. Newman, you may begin.

Thank you, Liz. Good morning and welcome everyone to Euronet’s quarterly results conference call. We will present our results for the third quarter 2017 on this call. We have Mike Brown, our Chairman and CEO; Rick Weller, our CFO; and Kevin Caponecchi, the CEO of our epay division, on the call. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the first page of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet’s or its management’s intensions, expectations or predictions of future performance are forward-looking statements. Euronet’s actual results may vary materially from those anticipated in such forward-looking statements as a result of a number of factors that are listed on the first page of our presentation. Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances. Now, I will turn the call over to our CFO, Rick Weller.

Good morning, and thank you, Jeff, and welcome to everyone joining us today. I will begin my comments on slide five. For the third quarter, we delivered revenue of about $638 million, adjusted operating income of $117 million and adjusted EBITDA of $145 million. Consistent with the approach of previous quarter’s adjusted operating income and adjusted EBITDA exclude about $125,000 of costs related to the proposed MoneyGram transaction. Third quarter adjusted EPS was a $1.61, a 19% year-over-year increase and a penny ahead of the guidance we provided in July. As it relates to our guidance, we received a penny a share a net benefit from two items. First item was a tailwind from FX, which was partially offset by the second item, share dilution from our convertible bonds. As we continue to deliver strong growth rates which will hopefully equate to an increase in our stock price, we would increase the number of shares in our EPS calculation. To that end, for your perspective, each $5 increase in our share price would result in about a half a penny dilutive impact on quarterly EPS. And while we would always prefer to see shareholder value improve, similar math would result in the other direction in the event of a decrease in share price. Now to slide six. Slide six shows our three-year transaction trend by segment. EFT transactions grew 26% from the expansion of our ATM networks in Europe and India, as well as the October 2016 acquisition of YourCash. epay transactions declined 7% with the largest decline from the loss of a high-volume, low-margin customer in the Middle East together with smaller mobile transaction declines, which were partially offset by non-mobile transaction growth. You can see in the epay revenues that while we lost a fair number of low…

Thank you, Rick, and thank you to everyone for joining us today. Here in Kansas City, it’s a beautiful warm fall day and it looks like our results match that. I’ll start on slide number 13 by echoing Rick’s comments. The EFT results for this quarter are truly exceptional and a reflection of our focus to deploy more ATMs and more products to these ATMs across more markets, and certainly reflect the success of the ATMs we deployed last year that we had full quarter results this year. This quarter, we continued to expand the presence of our value-added service products. In Poland, we signed a cardless payout agreement with Samsung. This agreement will allow customers to receive money back on select Samsung products through a cardless transaction on Euronet ATMs. It’s kind of a like a rebate that we know of here in the United States. In Romania, we launched Ria Cash payout on our Euronet ATMs. This has been a successful product between our two segments in Poland, and now Romanian customers can receive domestic or international remittances by simply entering their code on the ATM, giving customers more convenience through access to Money Transfers available for payout 24 hours a day, 7 days a week. In India, we expanded the prepaid travel card relationship with Thomas Cook that we told you about last quarter, by now adding multi-currency functionality through enabling a customer the ability to load value in their home currency and have easy and convenient access to several currencies as they travel. We also signed an agreement with CitySightSeeing Budapest to sale our tour bus tickets through our ATMs in Budapest. And in Poland, we launched a campaign to issue Uber discount codes through our ATMs. Next slide, please? During the quarter, we signed a…

[Operator Instructions] Our first question comes from the line of Chris Shutler with William Blair. Your line is now open.

Hey, guys. Good morning.

Good morning, Chris.

So, first on, in epay, the non-mobile side, could you just give us the percentage of gross profit from non-mobile? And on the mobile side, is there any sign of the deterioration slowing down yet?

Yes. Chris, this is Kevin. So, the non-mobile makes up 58% of the total gross margins. So, consistent with the trend that you’ve seen today, non-mobile continues to be a bigger component of the total business. As it relates to the mobile decline, we expect mobile decline to continue, but we have seen a slowing of the mobile decline across all of our markets. And as I’ve mentioned previously, there is kind of two drivers for the mobile decline. One is mobile operators going direct to consumers via their smartphone; and secondly, mobile operators offering the consumer more for less, which has an impact on our overall ARPU.

So, at this point, are you -- I guess, how are you feeling confidence wise in terms of that being a more sustainable trend? Or -- just trying to gauge your confidence on that?

Yes. As we’ve mentioned, fourth quarter as the non-mobile becomes a bigger component of the overall business, we get increased seasonality in epay and so similar to EFT, which their big quarter is the third quarter during tour season. Our big quarter is going to be the fourth quarter with all holidays. So with more products and more places, we’re expecting a strong fourth quarter performance from the epay division.

And then, turning to Money Transfer. Could you guys just walk through the callouts -- I know they were force to the callouts. But, I guess mainly the hurricane and the one-time currency adjustment, just how big those items were, and if you’re seeing the impact of the hurricanes lessen as we get into Q4 here?

Yes. We, Chris, haven’t itemized each of those items, those numbers, because a big part of that was the discount to the Walmart2Walmart product. And for competitive reasons, we haven’t made that as detailed out there. Clearly, those other two pieces were a smaller components of it. And then, with respect to the movement into the fourth quarter, yes, we’re seeing that that is subsiding the hurricane effect, as those stores started reopening. Because for example in Florida, they just simply closed the stores, those stores are now starting to reopen. In Texas, you have a little bit of flood damage in some of those stores. So, it will take them a little bit longer. But for the -- and then Puerto Rico, as you know, there was a lot of damage down there. A Puerto Rico’s a small volume in there, but nonetheless had some impact on it. But, we’re seeing that that impact is dissipating as we go through the quarter.

And then, lastly, on also Money Transfer in India. Just, Mike, maybe just walk us through how you see that opportunity playing out? You’re adding a lot of locations. Just give us a sense maybe how big India is today for you in Money Transfer, and what the incremental margins in that Indian business are and just how you look at the growth over the next couple of years?

Okay. So, India is not that -- I mean, at this moment, it’s not that bigger corridor for us, but it should be. I mean, the reality is, it should be our number one corridor, if you base that upon total sends to in India. I mean, it’s 75 or $6 billion market, which is roughly three times, the total transfers to Mexico as an example. So, the key here is to build out quality pickup locations, which we’ve articulated over the last two quarters, since we have opened up the three guys that we mentioned Weizmann et cetera, last quarter; we’re doing more things with wallets et cetera, this quarter. But, now that we’ve got these guys signed up, we need to get all their subagents signed up and live with our system. So, that’s what we’re doing. We’re about half way there right now. And then, in addition to that, now, once you get the payout guys live with your system, the payout agents live with your system, you’ve got to then market back to the same locations, to your send agents to make sure they understand that you’ve got a very high-quality payout network. So, we’re beginning that marketing now as well. This is something that isn’t going to be like a light switch on and off; it’s going to be more and more people are going to find out about it, tell each other about it. We’ve got a very good value proposition compared to our competitors. And so, we would expect for the next two years of this to continue to grow every single quarter. But, we’re excited because like I said, it’s freaking -- the biggest market in the world really to send money to.

Our next question comes from the line of Mike Grondahl with Northland Securities. Your line is now open.

Hey. Thanks, guys, and congratulations on the quarter. Maybe just a little follow-up on India. Mike, you mentioned that you got a compelling value proposition compared to your competitors in India. Could you highlight that for us? And then, secondly, how do you plan on marketing your new payouts in India and even the business at Asda in the UK?

Well, I mean, we market it by the same way we market any new quarter that we light up. We do this with marketing materials and the agents, little flags that we put up on their windows et cetera. We make sure that we bring the agents together, and we actually did that with a number of our Middle Eastern agents and brought them all together to make them aware of our new -- our new payout location. It’s just guerilla marketing, which is how we work every single day. We’ve got a good value proposition. And as you know, the three big agents that we signed up last quarter were before us exclusive just to one of our competitors. So, now, people are going to have more choice.

And Mike, in the Money Transfer business, there are several things that are important to the customer when sending their money, the confidence, the security, the speed, the ease of the beneficiary picking up money in that distant country. And so, we have all of those other pieces we’ve had in our business which is the confidence, the security, the ease, the same day service in that. In our business, we just didn’t have the quality of the agent pickup element. And so now that we have that, it would be consistent with the same type of value proposition that we offer our other customers across the other markets. And that just a great value proposition for a highly secured product that’s convenient and easy for the customer to pick up.

Right. And just to put in perspective, we’ve lit up, out of all these locations, we’ve already lit up 52,000 of these locations that are active. So, we’ve got -- and with more to come.

Got it. If we look at your ATM business for a moment. Overall, adjusted EBITDA margin there in the third quarter was like 45%, so very high. Is it possible to break out what your core ATMs are doing, what the low margin India ATMs are doing, and then what your cash is doing, just so we can kind of see the three pieces?

Well, actually, Mike, we prefer not to do that just for competitive reasons. When it comes to ATM deployment, I mean, we’re kind of the best guys added in the world, and I prefer not to let my competitors dissect my numbers quite that much. So, I apologize. But, what we try to do though with you is define these three things. So, you know the share of products and you know that these low-margin ATMs as an example, I mean the typical ones that we signed before this quarter, they’re making like $20 a month kind of profit, and it’s only just basic data processing that we do with them as opposed to owning the equipment, doing all the cash forecasting, doing all their cash reconciliation and so forth, which is where we have the high-value ATMs and then finding the sites. So, it’s -- these are three kinds of different businesses. And we think we’ve got a pretty good idea on how to mix and match these things to deliver good quarters.

Got it, that’s fair. And hey, just lastly, I think you said XE conversions was running at four times the prior rate. So, that basically means if you were converting customers at let’s say 0.5%, you’re now converting them at 2%. Am I thinking about that right?

Yes. You’re thinking about that right, but this would be new customers coming into the fold on top of the old customers. That’s why Rick said that is it isn’t like we’ve added four times as many customers, but these are the new guys coming in on top of the old ones. So, they’ll continue to accumulate and they’ll become our old ones, as time goes on. So, but, it’s all a good news. It just shows you that we’ve got a better value proposition than was offered by XE as a competitor of ours before and it’s getting traction.

Our next question comes from the line of Andrew Jeffrey with SunTrust. Your line is now open.

Hey. Good morning, guys. Thanks for taking my question.

Good morning, Andrew.

Mike, when you look at the EFT strategy, and I’m thinking particularly in Europe and in Eastern Europe, it sounds like Euronet’s been going at alone a little bit more in the last year or so as opposed to in a bank partnership kind of strategy. I’m wondering if you can talk about the outlook for Euronet-owned ATM deployments versus in partnership with banks, whether that’s changing, whether you favor one strategy over another in the long-term?

Well, actually, if you look at the outsourcing contract that we signed, which would be the ones in conjunction with the banks in Europe, we -- outsourcing is a tough game to sell to banks overseas. There is lots of politics involved, people -- we can operate an ATM probably half as expense of as any bank can. But we’re half as expensive because I’ve got to get rid of kind of their people who do this and we give them economies of scale. So, for that reason and labor laws and everything else, it’s tough to get outsourcing contract. So, virtually, all of our ATMs that we’ve added in Europe over the last two or three years, not all but I’d say 95%, have all been our own ATMs at risk. India is a little bit different game. In India, and Kevin might add a little bit extra to this, but in India, we do this in conjunction with bank partnerships. And that’s what this, quote, brown label model that the Indian regulator allows is that you actually put them out under the brand of a bank, but we do them half risk and then we get the transaction revenue. So, that’s kind of how it works.

And it sounds like your preference is to...

Well, it is -- oh, yes, about my preference. Let me tell you, my preference would be to do outsourcing contract every day of the week because I have no risk, I have no CapEx. And all I do is get a monthly fee and it’s virtually 95% margin to the bottom-line.

And you can light up several hundred or several thousand at one time instead of finding site-by-site-by-site. [Multiple speakers]

Yes. So, I love that. But it’s just like I said, it’s just a real challenge to get banks to stop doing their inefficient way.

And does the potential advent of surcharge in some European markets change that at all, change the balance of…

We’ll know, I mean, all surcharge does is it makes another potential revenue stream available to you as the deployer with the ATMs that you spend money on to put at risk. So, what it might do, if it becomes more pervasive than it is today, it would allow you to put ATMs in more and more locations. Because you’ve got an additional revenue stream that you don’t have today.

And with regard to the money transfer business, I think Rick alluded to the fact that you’re starting to see better transaction growth at Walmart in particular driven by lower retail pricing. Could you comment or elaborate a little bit on that? And then, maybe talk about when you think the sustainable organic revenue growth is for that business longer term?

Well, I mean, I think the Money Transfer division has done a heck of a job. I mean, the reality is, depending on which World Bank report you read into which country peer you talk about, the money transfer industry is growing 3% to 4%. And we’ve been consistently 11%, 12%, 13% quarter-on-quarter for years now. So, we’re obviously growing faster than the market’s growing. I think that’s because of our superior technology and our superior value proposition. How long that will continue? Don’t know. But, I think we’ve figured how to compete. And by opening up new corridors like India, which is the biggest one in the world, it -- that tends to fuel more growth, the strategic relationships that we’ve got now with the big retail chains like Walmart Asda, like Walmart here in the U.S., like Dia in Spain are all good things. So, really, I can’t tell you where it’s going to end, but I’m excited about the possibilities that we have. And let’s not forget about the digital side. We had 37% growth in our digital business this last quarter over prior year quarter. And that’s why we bought XE. And so, if we can keep growing that piece of our business, which three years ago was statistically non-existent for us, that would be really good.

And one last one for me with regard to your digital strategy and success. Has most of the growth been -- customer growth come, do you think, from banks, is there some element of cannibalization or is this unique incremental business?

No, no, I don’t think this is cannibalization. This is usually new customers. And so, no, I don’t -- I think the typical labor, cash based transaction that is most of our business is still cash-based and labors. But, what we’re doing is, I think who we’re cannibalizing with the digital strategy are the immigrants who were more paid or better paid, and maybe made their transfers through banks or perhaps did it in some other way.

Our next question comes from the line of Rayna Kumar with Evercore. Your line is now open.

Could you talk a little bit about how you see the sustainability of the 40% plus EBITDA growth you saw in your ATM business over the next 12 to 18 months? Maybe talk about where you’re adding ATMs next. And then, if you can quantify how much of your EFT revenue growth in the quarter was attributable to value-added transactions?

Well, we have a nice amount of that revenue that was value-added transactions but we don’t break that out. But with respect to sustainability, I mean hitting a 40 plus percent growth, I mean holy smokes! On a big number that’s 45% of our business and it just keeps outperforming quarter after quarter after quarter, it’s a little scary looking forward to keep that up, but we continue to manage to do it because we’re learning new tricks every day. I just spent the last four days in Greece last week or maybe this week, I’m starting to lose track, this week and we had all our EFT guys together and they’ve got new strategies, new ideas to do more business. We’re only -- we’re in the EU and we’re live in 23 countries, so there are more EU countries to go into, plus there are more markets outside the EU to look at other than just India. So, we’re kind of pursuing lots of these. Really, we believe the globe is open, and the reality is banks don’t focus like we do on customers. So, we see a lot of opportunity.

And Rayna, another really important part of this, again, is if you take a look at the number of ATMs per population, that number just decreases the farther east you go. And if you overlay that with the number of accounts being opened and customers being banked, that number is an exact inverse to that kind of growth. So, where the markets are underpenetrated in ATMs and where the markets are, where there are more aggressive account growth is right where we are. And as Mike said, there’re still a number of markets that we’re not in. So, you said what’s the sustainability of it? We’ve been asked answering that same question for the last several years. We’re fortunate that we are operating in a sector where there is great growth prospects, both from number of machines and number of accounts being opened, which plays to our benefit.

Great, that’s really helpful. Could you just elaborate on what the non-recurring cost adjustment on the one currency that impacted your money transfer business, can you just call out exactly what that is and exactly what it was for?

We don’t call out exactly what that number was, but it was just a rate dislocation that we had in a particular corridor. It’s, like we said, it’s a onetime item, so we shouldn’t see it recur again. But, as I mentioned earlier, we didn’t quantify each of those piece parts, because then that gives people more of inability to see exactly what the metrics are on the Walmart thing, which we prefer to keep more insulated because of competitive reason.

Got it. Do you expect any impact from the hurricanes in the fourth quarter?

Marginal.

Our next question comes from the line of Jason Deleeuw with Piper Jaffray. Your line is now open.

Thanks and good morning. Question on the ATM revenue per transaction, it increased 18% year-over-year. Could you just walk through the drivers? I know there are a lot of cross-currents there, but it was really strong and kind of help us think of the sustainability of this level?

As we’ve articulated before, when we have domestic customers come to our ATMs across Europe, you get -- in almost all these markets, you get a domestic interchange fee. When you have foreign customers coming to your ATMs, you make maybe three to more than three times that amount of money per transaction. So, it’s just the tourist effect or the holiday effect of Q3. You’re going to get a lot more people travelling around going on their holidays, so you have a larger proportion of those people making higher value transactions. And that’s always going to be the case with Q3.

And couple of other elements in that that impact the math is one is, as if you’d look at it on a constant currency basis, you would see a number of that’s in the low double digits year-over-year improvement, on a revenue per transaction. So, you have to first factor out that currencies piece. And then, the other piece is as we take a look at it is, we’ve got a stronger growth going in the third quarter in the European market than we do in the Asian market. And we make more money per transaction in the European and the Asia market. So, we’re getting some of that on the mix side there too. Not to diminish anything that Mike said there in terms of the focus on these high-quality, value-add type of locations for ATMs, but you get a little bit of mix and little currency that’s different than what you see on the surface there.

Great, thanks. And then, on your cash margins -- I mean, your cash impacting the margin this quarter, they would have expanded a 125 bps ex your cash. We’re going to be lapping your cash now and then your cash margin should be improving as you guys do your work on that. So, can we kind of think about kind of normal margin expansion trends for EFT going forward?

I would say, not until we get into the next year, because the fourth quarter is the first quarter we acquired them and had a few of more of those acquisition kind of cost that went into there. So that didn’t really give us any kind of any real bottom line or benefit that came into the fourth quarter. And then, as we told you when we did the acquisition, there was an incumbent processor in there that we had to run out the lights on there. We expect that that will happen about midway through 2018 when then it will start given us the ability to start getting some better margin numbers out of that business, which will then help kind of limit more of the impact on that business . So, it probably would be a couple of more quarters before you see that completely wash out.

And then, the last questions on Money Transfer, and it looks like we’re getting nice pickup in transactions, revenue growth probably going to start accelerating here. But, how should we think about the margins? I believe the previous discussion was that we could start expanding margins again next year or early next year. Can you just -- can give us an update on your thoughts on as -- how we can think about the margins for Money Transfer?

Well, I mean, what we would expect that as -- because Walmart is a significant chunk of what we do, and we took a price cut there with Walmart, and I think as Rick said, we’re beginning to outgrow that, we haven’t outgrown it yet. But with a little luck within a year when we resign that contract, we might be back to breakeven as far as our contributions and you could see margin start to expand from there as growth continues. It’s been a very strong product for us. It’s excellent value -- the best value proposition for a domestic money transfer that you can get anywhere in the United States. And people are flocking to it.

And once we get through the -- and get into the second quarter, we’ll start the comparable year-over-year comparisons there, because until then, we’ve got to lap it.

Yes. It’s April is was when we re-sign.

Our next question comes from the line of Peter Heckmann with D.A. Davidson. Your line is now open.

In terms of prepaid, we’ve seen a little bit of this transition from gross to net in terms of recognizing fees. And it seems like we’ve seen that relatively more often in the fourth quarter. Can you talk about that ongoing transition? Is there any callouts we should be thinking over the next couple of quarters in terms of modeling?

I wouldn’t say anything relative -- really different than what we’ve seen in the past. We would always welcome any kind of extra incremental promotional stuff that comes along. But right now, there is nothing necessarily in the -- that we see ahead of us there. So, I would say, not a lot different than historically we’ve seen, Pete.

And then, on the digital piece of Money Transfer, great growth there. How do you think about digital? Can you talk about digital as a percent of Money Transfer, either transactions or revenue? I’m sure it’s small at this point. But, as it grows, how do we think about the margin comparison between the traditional business and digital?

Well, we don’t disclose the mix of that or how much is made-up in there. But on a margin basis, it’s -- there -- I would say, for the most part it is at least as good or better than we see in the brick and mortar business. Okay? Because when we’re attracting a customer -- and let’s be mindful of the value proposition we have with the XE business. When we attract a customer that’s coming through that site, it’s not like we’re paying Google or someone else out there to generate that lead for us. We’ve got 250 million unique users coming to that site a year. We’ve got 50 million apps that are out there. And so, as we attract those customers -- and we can then either do one of two things. We can either pay that transaction out in a relatively low cost payout whether that’s to let’s say a bank account or we can use our very competitive physical network for payout. So, net-net, we don’t see that business as being dilutive to our margins. If anything, as we continue to have great acceptance on the customer part, coming from that extremely attractive portal, we expect to see it do good for our business. So, we don’t anticipate margin hits because of that.

Okay. That’s helpful. That’s all I had for now.

Okay. Operator, I think we’ve got time for one more question, if there is one.

I’m not showing any further phone questions at this time.

Okay, perfect. Well, then, everybody, I want to thank you for your time spending with us today. We’ll look forward to talking to you after the fourth quarter. Thank you very much.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone, have a great day.