Greetings, and welcome to the Euronet Worldwide Second Quarter Earnings Call. [Operator Instructions]. As a reminder, this 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, Amani. Good morning, and welcome everyone to Euronet's quarterly results conference call. We will present our results for the second quarter 2018 on this call. We have Mike Brown, our Chairman and CEO; Rick Weller, our CFO; and Kevin Caponecchi, 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'll be making today. Statements made on this call that concern Euronet's or its management's intentions, 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 updates under any circumstances. In addition, I should note that the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures that will use during this call to their most comparable GAAP measures. Now I'll turn the call over to our CFO, Rick Weller.

Thanks, Jeff. And good morning, and thank you to all who are joining us today. I will begin my comments on Slide 5. We finished the second quarter delivering revenue of $622 million, operating income of $90 million and adjusted EBITDA of $121 million. As was the case in the first quarter, our revenue was reduced by approximately $12 million on a constant currency basis from our prospective adoption of the new GAAP ASC 606 revenue recognition standard. Had we not adopted this standard, consolidated revenue on a constant currency basis would have grown yet more than the reported numbers. Second quarter adjusted EPS was $1.32, a 21% increase over the prior year and in line with the guidance we provided in April versus our guidance, adjusted EPS includes approximately $0.02 of headwind from FX rate changes and a $0.01 of share dilution headwind from our convertible bonds. These headwinds were partially offset by $0.01 of tax benefit. So net-net, we came in a couple of cents ahead of guidance. And for those of you who may likely ask, we continue to believe our third quarter adjusted earnings tax rate will remain in the mid-20s, 20% range. Finally, we purchased approximately 600,000 shares during the quarter, which we had included in the map to reach our $1.32 adjusted EPS guidance. Next slide please. Slide 6 shows our 3-year transaction trend by segment. EFT transactions grew 18% from expansion of our ATM and POS processing networks in Europe and India. Epay transactions declined 4% -- sorry, 12% with the decline coming principally from the Middle East where we noted in prior quarters, we ceased processing for a large distributor with low-value, low-margin transactions. Total Money Transfer transactions grew 18%. Money Transfers and non-Money Transfers grew at relatively the same rate. Money…

Thank you, Rick, and thank you everyone joining us today. As I reflect on the quarter, I think it's fair to say that virtually all of our operating result indicators are coming in strong. We see revenue growth across all geographies and all product categories except for mobile, which hasn't changed from our expectation. Revenue and gross profit per transaction are consistent to up across all segments. In all segments posted operating income margin improvement. All in all, I think it's hard to find a weak spot. Our teams across all 3 segments in every part of the world and in every time zone have done an outstanding job. And I am happy to report that the third quarter is stacking up to be even better. With that said, let me now comment on each segment. I'll begin with EFT on Slide # 13. It's worth mentioning again EFT delivered another exceptional quarter. As I reflect on these excellent results, I'd like to highlight three trends that are driving growth within the segment. First, we continue to see plenty of opportunity to deploy ATMs across our existing markets and in new markets. Over the last year, we have grown are owned ATM base by 14% and we still have thousands of ATMs in the pipeline. Second, we continue to add new products to our ATM. This quarter we began testing direct access fees or surcharge fees on certain international transactions and in certain new European markets and commenced the integration of INNOVA TAXFREE VAT refund services into our product line up. And finally, as we told you for several years, as global banks were struggling with the financial crisis and the related impact on their capital structure, they turned their attention away from investment in technology, and their ATM in…

[Operator Instructions]. Our first question comes from Mike Grondahl with Northland Securities.

First, a question on outsourcing. That Piraeus Romanian Bank, how many ATMs did they have that you won? And then, roughly your range in ATMs kind of in your outsourcing pipeline?

Okay. So I don't remember the exact number, but it wasn't a huge number. Piraeus Bank is a rather small bank in Romania. I don't remember that exact number. But the answer to your second question is, in the pipeline, people that we are talking, sales pipeline, it's 2,000 to 4,000 ATMs. It's pretty amazing.

Great. That's really nice. And then could you just describe what specifically you're going for Kroger?

Well, some of that's proprietary to them. But what we have done -- and actually maybe even Kevin might be the best guy to do this, because he runs epay and he's the one to deliver that. So we're providing a solution behind there in their money centers. But I'll let Kevin talk.

Yes, Mike. We work with Kroger to help them drive some efficiency and throughput in their money center. Their money center or their service center is a major focus for Kroger, and they offer a bunch of different services there; bill paid, check cashing et cetera. And they had some inefficiencies in that area. And we provided solutions to address their inefficiencies and to maximize value for the consumer and maximize value for Kroger.

So if you go into the money center in Kroger, right now, and you want to do a bill pay, it will all go through our system.

And Mike, the part that -- we'll be a little careful on what we say here, is that, as Kevin said, it allowed for the efficiency, but the real value is the enhanced ability to provide the right product to the customer, to effectively give customer choice on what they may want to do, to allow Kroger to expand its value proposition. And that's the intelligence part of the switching fabric that's been put there. So 1 piece is to get efficiency but the real value is to get the intelligence in it.

Got it. And then real quick, Mike. On the DCC update. Are you basically saying that like 1 of the 3 councils or European parties that get to weigh in on the ultimate decision now wants the DCC cap eliminated?

Absolutely. Okay. Yes, there are 3 different parties. And the first party that came out suggested a DCC cap in a 36-month implementation and more better transparency, okay. The second group that came out, they said specifically no cap. They were 100% against the cap. And they just want a more simplified kind of transparency guideline.

And we're waiting for the view of the third one, the parliament.

Yes. And the interesting thing is momentum is growing against the cap. Because the first guys came out with the cap. They kind of -- from what we hear that it wasn't even very well thought out. And again, a lot of blowback from people who say that's not free market. And there are a lot of negative repercussions of having a cap and putting up -- putting any kind of financial strain on those people who are putting out ATMs to offset all those ATMs that are being closed, the branches are being closed. So it's nice politics in our direction.

Our next question comes from Andrew Jeffrey with SunTrust.

Mike, by all accounts, a really nice clean quarter. And I want to focus, I guess, a little bit on Money Transfer where it seems like you're expanding the network. And you mentioned this marrying the better growth and the receive locations with the send locations and how -- and that's a 2-sided network that you're building. And we hear a ton about. I get a lot of question about competition and what about these new players in Mexico and more capital coming into the space. And yet, and here you are putting up mid-high teens organic revenue growth growing 3x plus market. What's going on? I mean how do we frame up the competitive environment? How do you explain your growth? How do you substantiate the sustainability of it because this -- there seems to be a big disconnect in how the market user business and the numbers you are posting?

Well, as I've said before, they're really -- when it comes to public data point, there's only two other guides that you can compare it to, right. And from my perspective, they're both kind of losers. They are just not growing and we are growing and it's because we have a better value proposition. Let's not forget that if you take the top 3 players out there, we account for a whopping 25% of worldwide family remit. That means there's 75% of the world left out there. And so what we're doing is we just continue to take pieces not only from the two big guys but also from that other 75%. So I've got like 3% worldwide market share, I'm not going to be satisfied till I get to get the other 97%. So it's just a big opportunity for us and we have a better value proposition both for the agent and for the customer.

Andrew, may be to go on a couple observations too. As Mike said in his comments, we have continued to be very attentive to compliance requirements. And in today's world, we see an ever-increasing requirement for compliance whether it's coming from the regulator, and it's not just 1 regulator like United States, there's 50. Every country has 1. And it's also coming from the banks, because the banks get a lot of pressure from the OCC. And their respective regulators around the world to deal with money laundering, with terrorism, with fraud et cetera. And so as Mike said, we really paid attention to that. And we, maybe more than anything, we have a team at Ria that is focused and dedicated to compliance. It's not a turn the eye the other way. And that's given us the ability that when these other guys get closed down by regulators or their bank accounts get closed off or things like that, that gives us the opportunity to consistently deliver this high quality, high security, high confidence product that's now available in what we believe is the second largest network in the market out there. So you continue to get the benefit of being attentive to compliance, the investments we've made in that area the -- and the network effects.

Okay. And as a quick follow up on the EFT business. Recognizing there are lots of moving pieces in DCC and it's frustrating that the time line is extended as it is. You mentioned surcharge, Mike, and starting to experiment with surcharge. If we're two-plus years out maybe even longer from getting clarity or implementation, I guess, on whatever DCC cap, should there be any to come down the line. Is surcharge a potential offset or at least a partial offset?

Oh! Yes, for sure. For sure. There's a ton of transactions that we -- that surcharge would be applicable to. Let's not forget that if you're -- if you have a Visa issued card outside the EU, we can't even offer you DCC. So those would be cards that would be applicable perhaps to surcharge. So there's a huge market out there. We just continue to add more and more products alongside DCC. So we've got offsets and growth of other product lines. That just is ATM outsourcing. It's huge. If these -- if some of these things come in, 5-year agreements, the banks always pay on time. It's -- those are great additions -- additional revenues to that segment.

As Mike said, we're kind of experimenting and doing some testing there, because at the end of the day for a bank to put an ATM out there. And while we've got a wonderful and a competitive leading network in Europe of ATM, we're still a fraction of the total ATMs in the market. The banks are the big guys out there with those ATMs. And running an ATM is a costly proposition. Putting cash in front of customers is expensive whether it's for us, the banks or travel acts. And so as we take a look at -- I mean as those banks take a look at what they need to do to effectively run their business, they are beginning to get upset with having rate structures dictated by card organizations. And the only way they are going to ultimately keep ATMs open is if they're going to have the ability to recover a reasonable profit for making that cash available. So we believe that it's important to do some of that testing to see what it is because a surcharge or an access fee is just another alternative to us making money. We can make some money on DCC. We can make money alternatively on access fees or surcharges. So we are watching carefully what's happening in the market and we believe that it was time to start doing a little more testing to see how the consumers react to that, and obviously to test our capabilities.

And it does provide market expansion opportunities as well.

Well, because it's not only just in Europe, it's around the world.

And our next question comes from Peter Heckmann with Davidson.

Just a couple follow-ups. Could you give us an update on the Money Transfer side on the digital business? Any notable progress there? Or can you give us an idea of how that business might be going compared to the base?

Well, okay. So we've mentioned here that our digital transactions are growing -- have grown 47%. And so it's growing very nicely. We continue to put more and more emphasis on that. We think we can -- that we're just scratching the surface still in that business. That's where as somebody mentioned before, there's been a lot of investment in competitors may be on the digital side. But these guys really aren't coming up with the transaction that belay the excitement that people have with them. We continue to -- the nice thing is, we've got the second best payout network in the world. And that -- what that means is, that many more customers that you can access. So we will continue to invest. We are not done there at all.

Okay. Great. And then just more of accounting question. But in terms of seasonal cash in ATMs, probably be in the 10-Q. But how do we size that?

We've got nearly $0.75 billion in it -- in there right now. So we got a lot of our cashes in the ATM.

How does range easily? What would be the low of the year for that?

The low? Well, from our credit argument, the low is 0. I mean our own balance sheet cash, the low of the year would probably be about $250 million somewhere in that ballpark.

And our next question comes from Jim Schneider with Goldman Sachs.

I was wondering if you can maybe address, as you look into 2019 and plan your ATM deployments relative to how many you're planning to deploy this year. How is the DCC legislation impacting those plans, if at all? Do you actually -- are you more optimistic on incremental deployments in Europe than you were 3 months ago? And then, at what point in time do you kind of have to make a call with respect to those investments for deployments in calendar '19? Is it some place at the end of this calendar year or is it before that?

Well, obviously, we like the momentum that's moving away from the March information on caps. So that gives us a little bit more confident. But I'm just telling you, 2019, we're going to put in more ATMs than we're going to put in this year. We continue to grow our site selector group and we'll continue to use more and more interesting algorithms and data sets to find the good location. So next year will be bigger than this year. We've continued to put more products on those ATMs whether that might be direct access fees or other kinds of products. So '19 will continue to grow. And I said this over the last 2 calls, you will see us focus outside of Europe, not just within Europe and underneath the EU guidelines as we expand our network. So hopefully, '19 will be a nice expansion for us outside of Europe.

That's helpful color. And then maybe Mike, you spent a lot of time talking about the outsourcing opportunity for ATMs. Clearly that's attractive economically. What are the geographies or countries you think they are most promising with respect to that opportunity?

We're not going to really go into that. But in general, the geographies are Asia. But you know what, we just -- we are finding that this is a theme around the world. So we're going to start looking in other places other than Asia. But you know the nice thing is, Kevin has been running an Asian operation down in India for a long time. And so we're just kind of connected. We kind of -- we are a lot closer to the smell of money down there, and -- but I'm telling you this idea that banks run their own ATMs is economically, financially dumb. So we can help with these guys and we'll expand.

The other thing I think that is important to understand in our business is the role that outdated technology plays in all of these banks. All of these guys are operating on all the outdated stuff. And we, a few years ago, invested in developing new state-of-the-art technology for both the switching platform and the ATM. So we are not required or dependent upon an ATM box manufacturer to make the machine run the way we want it to run to produce the screens et cetera. And so now as these banks around the world have to deal with the investment decision, they are seeing that the -- there is no one out there that has the same quality of technology we have. Our switch has been ran and producing the volume of transactions on a limited dollar amount of CapEx that goes into it. And we are getting absolutely impressive results, results that make the biggest banks in the world turn their head. And so as we have benefited from this technology in our own business, we now see great opportunity to go outside of our business in outsourcing and so it's opening more and more doors. And it's a lot to like we said with the stuff that's on the competitive street is pretty archaic and does it provide the kind of consumer experiences that are really helpful, whether it's QR code reading, whether it's PIN-less transactions, whether it's non-ATM withdrawal transaction. We have a whole range of products that we put on those ATMs. And it's because of our technology.

And our next question comes from Rayna Kumar with Evercore ISI.

Mike, previously you mentioned that you were discussing the terms of your debt covenants with your lender sellout for more share repurchase. Do you have an update on that and when you can be more aggressive on shared buyback? And ideally, how much share repurchase would you like to do?

I think, Rick pretty much summed it up. We'll take advantage of market dynamics. And if the market doesn't treat us well, then we'll buy back some stock. We got a lot of cash that we're producing. The new agreement that we have, we hope we'll have a little bit wider margins as far as cash repurchasing, but we can't really give you an update on that until we close that deal. But everything's is moving in our direction. I mean if you think about our current agreement, it's almost 5 years old. The financials that this company had 5 years ago are not any different from where they are today. So we are in a very strong position.

And Rayna, I would suspect that will get a little bit more flexibility. Because we've got some absolutely great banks in our credit agreement. We have world-class banks that we've had a long-term relationship with. And so we think that their interest and ours are very aligned. And so we'll see kind of how the process goes.

That's very helpful. As you continue to add more ATMs throughout the year, can you get back to the 20% plus constant currency topline growth we've seen in the EFT business in the past?

Yes, I think so.

I mean, we're only a couple of ticks off of the number, Rayna.

This 18% is not good enough I guess. We'll get to work.

18% is not bad at all. Could we see this as soon as the third quarter?

We'll just have to see.

Okay. And finally, just -- good to get the update on DCC regulation. If only the transparency guidelines go into place, are you going to have to make any investments?

No. No, that's the advantage of our switch. And our technology is whatever they want, we can implement it really quickly.

Our final question comes from Jason Deleeuw with Piper Jaffray.

On the Kroger announcement, the platform-as-a-service. Congrats on that. But I guess I'm wondering why is that in the epay segment? Why isn't that in Money Transfer, since it sounds like you'll be doing bill pay and Money Transfer? And could you get an opportunity to expand or create a money -- more robust Money Transfer relationship with Kroger?

That, of course, is possible. But the reason that it's in epay, it is because the technology that we use in epay with a lot of our retailers was basically modified to do this for Kroger. So the technology and the kind of the whole approach of multiple products being able to be purchased off of a single screen in all of the kind of good stuff we give them for productivity. And bill payment is really strong across our epay segment. So it actually fits.

And yes, I mean, the other thing I think to observe is that, this is where you see a nice intersection of the capability and strength across our businesses here. We've got the switching knowledge that comes from our EFT business. We got the, like money knowledge is kind of from the Money Transfer business, and clearly we have the large retailer relationships at the epay business that we put a wide variety, wide range of product through those retailers. So it really is kind of leveraging all of our technology and experiences and capabilities to deliver to this group of high and world-class retailers.

So we were able actually on this to give you a little more detail. The original technology that the Kroger solution was based upon started in Germany with our epay division there. And then it was expanded and enhanced with our development team here in Kansas City. And it's even being used -- parts of it are being used in EFT. So we have a -- technology is a theme here. That's all I've got to say. A lot of companies talk about sales, a lot talk to you about technology. We've got the best stuff out there and it's starting to gain traction.

And is the revenue model per transaction revenue model or is it some sort of like recurring monthly fee or how does that work?

Yes, yes, it's the latter.

And then the -- also the commentary around partnering with startup FinTech company so they can leverage your compliant platform. What businesses would that be? Is that Money Transfer? Is that prepay ATM? I mean just any thoughts there on how big of an opportunity.

Well, probably not as much on the ATM side. But every prepaid company now is under a lot of compliance, as of course all the Money Transfer companies.

And it really does cut across segments both in the Money Transfer and the epay because there are a lot of parties out there that receive cash as payment on certain types of transactions. Not indifferent than in epay where when we sell a product at a retailer, we are indifferent as to what the retailer takes this consideration. As I've said before, it's cash, check or check-ins. We don't care what they take. But what's important in this process is really understanding the role of how that cash moves through and the compliance and things like that. So it does have a lot of crossover applicability in our 3 different segments.

And thank everyone who joined us today. Operator, I think we can sign off. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.