Greetings and welcome to the Euronet Worldwide third quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference may be 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, Bruce. Good morning and welcome everyone to Euronet’s quarterly results conference call. We will present our results for the third quarter of 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 statement disclaimer on the first page of the PowerPoint presentation we’ll be making today. Statements 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 update under any circumstances. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures we will use during this call to their most comparable GAAP measures. Now I’ll turn the call over to our CFO, Rick Weller.

Thank you, Jeff. Good morning and thank you to everyone who has joined us today. I will begin my comments on Slide No. 5. For the third quarter, we delivered revenue of $714 million, operating income of $151 million, and adjusted EBITDA of $181 million. Third quarter adjusted EPS was $2.16 a share, a 34% year-over-year increase and $0.06 ahead of the guidance we provided in July. This $0.06 overachievement includes about a penny of headwind from FX changes and approximately $0.025 of headwind from convertible bond related share dilution driven by our nicely improved share price. These headwinds were more than offset by approximately $0.05 of favorability in taxes, aided by the exercise of nearly expired options. Net-net, the business outperformed our expectations by nearly $0.05, clearly an outstanding achievement and another record quarterly earnings performance. Next slide, please. Slide 6 shows our three-year transaction trend by segment. EFT transactions grew 16% from continued expansion of our ATM and POS processing networks in Europe and India. Epay transactions declined 3%. The decline was principally from the Middle East where, as noted in prior quarters, we ceased processing for a large mobile top-up distributor with low value, low margin mobile transactions. This quarter marks the anniversary of this event, and we are now starting to see nice non-mobile growth from the Middle East. Money transfers grew 16%, which included contributions from all areas of our money transfer business. Next slide, please. Slide 7 presents our results on a reported basis. On a year-over-year basis, there were significant swings in foreign currencies where we operate. The major currencies declined up to 10% with some of the minor currencies changing as much as twice that. To normalize the impact of these currency fluctuations, we have presented our results adjusted for currency on…

Thank you, Rick. I’d like for everybody to continue please on Slide No. 12. Thank you everybody for joining us today. As I reflect on the results from this quarter and see a 34% growth rate in adjusted EPS, I think it’s safe to say we pretty much crushed it this quarter. Not only did we have revenue and operating income contributions from all three segments but we continued to add new products and more devices into our new and existing markets. Our global teams continue to prove that they are the best at what they do, and these results are a direct reflection of their hard work and dedication, so I want to say thank you to each and every one of them. Let’s go now to the highlights for each segment, beginning with EFT on Slide No. 13. EFT continues to capitalize on the opportunities to deploy ATMs in new and existing markets, to sign new outsourcing agreements, and to expand our product portfolio. Last quarter, we talked to you about the strength of our ATM outsourcing pipeline, and as you likely saw in a press release a few weeks back, we signed and launched several new agreements in the quarter. To date, we have launched our ATM outsourcing agreement with Piraeus Bank in Romania and we’ve signed agreements with three banks in Poland as well as banks in Cyprus and Albania. These signed agreements are expected to be transitioned to our network in the fourth quarter and our pipeline for outsourcing agreements remains strong, with more ATMs likely to be signed in the next six to 12 months. We are also taking advantage of opportunities in new markets. This quarter, we launched our first outsourcing agreement in the Philippines with Security Bank and we helped launch a…

[Operator instructions] Our first question comes from the line of Jim Schneider from Goldman Sachs. Your line is now open.

Good morning and congratulations on the strong results. Thanks for taking my question. I was wondering if you could start on the ATM business, I guess a two-part question here. One would be in 2019, do you feel confident that you can still maintain that 10% clip of ATM additions, or is that something you could potentially accelerate heading into next year, and then maybe can you say something about when we would expect some more potential announcements around outsourcing in Asia?

Okay, so with respect to our goals for next year, we definitely would like to continue 10%-plus growth. I wish I could do a lot more than that, so we’ll do as many as we can, as long as we can find those really good sites, and you can see by our results that those good sites have generated very healthy profit. We continue to grow our sales base of site selectors and new countries that we’re going into, so we definitely want to keep going next year, at least as good as this year.

Jim, I would add to that, you commented on Asia outsourcing. As we commented in our comments, we did see some expansion in the Philippines here, so if we have a fair wind to our back and we’re successful at signing some of these that are in the pipeline, we will be able to hit the 10% growth rate and then some as we go into ’19.

That’s helpful, thank you. Then maybe turning to DCC for a moment, in terms of the market transparency and consumer choice proposals that you’ve heard bandied about by the various European regulatory authorities and industry groups, are any of these possibilities around price transparency that might require a significant systems upgrade or might incur significant systems costs associated with implementing those? Maybe just a clarification related to DCC - I think, Mike, you said on the Visa DCC enablement, you said a majority, I believe, of your ATMs would be enabled. I would have thought it would be the vast, vast majority, so maybe you can clarify any ones that would be excluded from that, please.

In answer to your last question, we probably used a calmer number than reality. I mean, we’ll end up with DCC on the vast majority of our ATMs, that won’t be a problem. But with respect to transparency guidelines and system changes and stuff like that, that’s one of the things that we really bring to the table, is we have the most advanced driving system on the planet. Making the changes that people are requiring is pretty much a snap for us. We can understand, depending on what they require, certain banks may be a lot slower, which is probably why they’ve got that one to three year thing in there, at least in their discussions. I mean, we’ve heard of banks that to change the menus on their ATMs, for example, they have to send a guy out with a thumb drive to each and every ATM to do so. For us, it’s all point and click, and we can change the menus, we can change the product offerings and everything centrally on one or a subset, or all the ATMs really simultaneously. For us, it’s going to be quite easy and virtually zero expense, but I could see how some banks with their old, archaic systems might have more of a challenge with it. That also is why we’re finding more of these outsourcing opportunities, because these banks just keep on spending money on these archaic systems when we can do everything so much more cost effectively and time effectively as well.

That’s great. Thank you so much.

The next question comes from the line of Rayna Kumar from Evercore. Your line is open.

Hi, thanks for taking my question. Nice results. With Visa now allowing global DCC, you’ve put out an initial earnings benefit of $0.60 to $0.65 for next year. Is this estimate based on ATMs you currently have in place or also assumes new ATMs that you can add as a result? Can you just walk us through the math behind it?

Rayna, it’s on our existing fleet, so to the extent that we would deploy ATMs in new jurisdictions and things like that, that will add to our future growth opportunities.

Are you seeing opportunities to add ATMs in areas across Europe which were deemed maybe unprofitable prior to Visa allowing global DCC, where you can now go ahead and place new ATMs?

I think the answer to that is perhaps, but not really in Europe. Europe is still way under ATM-ed on continental Europe, and it only takes a visit to Europe to see that, that with the exception of mostly our ATMs, you never see an ATM in continental Europe that isn’t at the branch of a bank, and they’re closing branches left and right. I think I read an article that in Spain alone over the last six years, they’ve closed 40% of their branches and with them went 40% of the ATMs. We just see a lot of opportunity in Europe. The ability to acquire international transactions and do DCC with them from Visa will allow us to expand into other markets as well outside of just the EU and India.

That’s very helpful. With the new credit facility agreement in place, can you increase your share repurchase authorization, and if so, can we expect you to be more aggressive in share repurchase going forward?

With respect to the first question, it’s a bit of a mechanical thing. We’ve had the authorization to repurchase up to $250 million worth of shares, but we haven’t had the ability within our old credit agreement to do so. The board has given us authorization, we just haven’t been able to execute on that because we didn’t want to break one of the covenants of our financing agreement. Now with the new financing agreement, obviously we don’t have that limitation so we’re able to do so; but with respect to intensifying that share buyback, what we’ve done time and time again is we take advantage of market dislocations and weirdness in the market, and we’ve bought back shares. We’ve been very opportunistic. We don’t have a plan to do X-amount of share repurchases in a given year, but we just stand ready to jump on opportunities as they present themselves to us.

Great, and just one final question from me. How much of your money transfer top line growth would you say came from share gains from MoneyGram, given their more stringent compliance system in place?

Well again, let’s not forget we’re 3.5% of the world and MoneyGram is 5% of the world. You’ve got Western Union roughly 17%. I mean, when you look at our gains, we took them from everybody, and so I think that’s what’s happening and I think there’s a lot of times immigrants in various countries, they believe they’re better served through the independent channel than even through the large channel. We kind of look at is as there’s more than 75% of the market is out there even without those guys. I imagine we’re taking market share from them and Western Union and everybody, because when you have a market that’s growing at, call it 4% maybe tops, and we’re growing four times as fast as that, we’ve got to be taking market share from everybody.

Thank you.

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

Hey, good morning guys. Lots of good stuff to talk about here. Mike, you highlighted pretty enthusiastically the performance of your money transfer business, especially the growth of the agent network, and in India perhaps in particular. Can you elaborate a little bit - you know, when you talk about that, that eightfold growth increase, I assume that that’s inbound from all over the world, and I wonder if as you continue to break down exclusivity in a market like that, perhaps you reach a tipping point at which your share gains accelerate. Is that a dynamic you start to think about over time?

Well obviously if we’re growing our transactions paid out in India 8x, then we’re increasing our share gains; but I think the trick here is in every single market, you just have to have really good payout. We started 11 years ago when RIA became part of Euronet with primarily a LatAm focus for payout. We’ve grown that focus now to all these countries around the world, hundreds of countries around the world, and that just helps us attract more and more immigrant transactions from all these different, diverse immigrant groups, so that’s the key - just keep doing more of that and that will grow our market share gains.

Okay, so you wouldn’t necessarily think about a second derivative acceleration where--

Well okay, if we want to get to calculus, yes, I can believe in a second derivative, and the reason you might see that is because what you get in all these markets is when you kind of get a momentum going, then there’s a lot of word of mouth between the immigrants and their immigrant communities. Yes, you do a lot of times see that acceleration, or as you call it, your second derivative, so I can kind of buy that, but I can’t promise when exactly that will happen. But certainly with the second largest market in the world and it still is not one of our hugest markets, we’ve got a lot of growth to do and I can’t wait for your second derivative.

Well, calculus was never my strong suit, but I talk a good game, I guess.

Andrew, if you look at our business, when we acquired RIA here, as Mike said, 11 years ago, we did about $200 million a year in revenue, and this year we’ll do a billion dollars a year in revenue. So as we continue to add to that network, which was 40,000-some when we acquired it, now 360,000-some, we every year are seeing a bit of that second derivative in our math. We also have to think that every time we add a payout location, it is essentially tantamount to adding another product into the network, because that’s another location that we can get to, another receiving customer, so that when someone wants to send, there is essentially a product or a receiving payout area there for that customer. Our history has demonstrated that as we’ve had this consistent and dedicated focus that Mike commented on by the money transfer team, we have consistently seen that that has delivered the growth in transaction. Maybe at some point we’ll go beyond 17 or 18% growth there, which will be a nice number to see, but it certainly is nice to see 17 and 18% numbers.

And we’re seeing that, remember, on top of the fact that we’re doing five times the volume we did 11 years ago. Even with the law of large numbers working against us, we continue to get these huge gains in transactions, and it’s because of that network effect - remember, when we add a new country to payout, that means all of our pay-in agents, all of our transaction-acquiring channels, whether it’s digital or bricks and mortar, can now access that payout location, so you get this immediate network effect and it is multiplicative. It’s not just India but it’s kind of like all over the place we’ve gotten that, and that’s why I think we can keep posting these good results year after year after year, even though our number gets bigger.

Got it, okay. That’s helpful. Just a quick one on top of that. Can you just give us an update on surcharge in Europe and whether that can be a driver at any point in the--

Oh yes, sure. Surcharge continues to be a nice additive thing, because remember five or six years ago, there was--or eight years ago, there was nobody in continental Europe with surcharge and then Germany added it at about that time, and then two and a half, three years ago was when Spain added it, and then about a year and a half ago Austria added it, and now we’re looking at multiple other countries, I think considering it. On top of that, we have the direct access fee, which is essentially a surcharge on international transactions, so I think surcharge is kind of making its way. It’s growing. It’s kind of like every country that falls is another domino, and we’re doing that in every country that we possibly can. The underlying economic fact of the big banks in Europe, and none of these banks are really in great financial shape, the big banks in Europe have this huge expense with all this bricks and mortar, and it doesn’t make any sense for them at all to offer their ATMs at domestic interchange in most all these markets, because that’s less than what it costs them to produce that transaction. They’re in essence subsidizing their competitors, which makes no sense at all. It’s just a matter of them kind of getting the guys to say, by gosh, I’m going to surcharge anybody who’s not my customer, and as more and more banks are starting to do that, more and more countries are falling in line doing that, we could see that all across Europe just like we’ve seen it in the five English-speaking countries in the world.

Great, thank you.

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

Hey guys, congratulations on the quarter. First question, the outsourcing pipeline, is that still roughly 2,000 to 4,000 ATMs, and what’s the thought on timing or winning those?

The answer is yes, it is. It’s in that 2,000 to 4,000 range. As we said in the text before, in my comments before, we’re looking at the next six to 12 months we could see some of these things falling, and we’re out there in the thick of it, negotiating as we speak. Outsourcing agreements with banks are never easy because remember they used to do it internally, and they’re just wired to do it internally even though it makes no financial sense, so you’ve got to get these guys to change their way of thinking and make them feel comfortable that you can give them the service that they get internally, when the reality is we can give them better service than they can get internally.

What’s really exciting is to see the banks’ reactions to the type of technology that we can bring to bear for them that they simply haven’t had, and it even goes beyond the technology. It’s how our processes work, anywhere from servicing the ATM to balancing and reconciling the cash of the ATM, so we’re cautiously optimistic that we’ll see continued momentum in this area.

Got it. Your ATM revenue constant currency grew 18% year-over-year. DCC revenue obviously is a subset of that. Is that growing in line with that 18% or greater than that 18?

I would say it’s largely in line with that. As we said, we’ve got a mix of product that comes off our ATMs, and we didn’t put in here as well things like deposits. We’ve got several thousand recycler or depository ATMs in our business. We’re getting revenue off of those deposits and agreements that we have with banks. It wasn’t disproportionate, so I’d say it was generally in line.

Okay, great. Thanks guys.

The next question comes from the line of Andrew Schmidt from Citi. Your line is now open.

Hey Mike, hey Rick, good execution. Thanks for having me on.

No problem. Thank you for calling.

A quick question on the Visa DCC rule change. Maybe following up on some of the prior questions, can you talk a little bit, maybe conceptualize how the addressable market for ATM installations changes over the longer term as a result of that? Then just to follow up on that, is this something that can help you accelerate ATM installations over the next couple years, at least more in the near term as well?

We hope so. I think in Europe, we’ve pretty well got it covered. We understand the game plan, it doesn’t particularly accelerate us in Europe per se, but it could in other markets around the world. I think that’s what it does. Europe, remember, has always had Visa DCC on European-issued and acquired cards, so we’ve kind of had that game already under our belt and we know what to do with that, and we know how to find good sites in Europe. It’s just that now we’re able to--these Visa cards that have been issued outside of Europe, we now have access to them for a potential DCC transaction in other markets as well.

Got it. Maybe just a follow-up on the outsourcing pipeline. That clearly stepped up over the last couple of years. What’s changed - is it more company specific in terms of your capabilities, thinking about just your software capabilities or environmental, or is it a combination of both?

Yes, I think that’s what it is. The system that we have now that we’ve deployed across Europe and we’ve been using for three or four years, like I said, is so technically advanced and it lends itself both to the IT department to do what they’ve got to do technically but also to the marketing department. We can do CRM at the ATMs based on card numbers or groups of card numbers. We can do advertising, we can change screens, we can do all this. We can give flexibility for this very expensive distribution channel to a bank a lot better than they can do with any of the systems that are available today, so these banks are tired of putting up with overspending on archaic systems that certainly aren’t in today’s technology realm. We get all those added together, plus at the end of the day we save money.

Yes, I would add to that, that over the last few years, the banks have been largely recovering from the financial dislocation of a number of years ago, and Europe maybe more so than other parts because there was a lot of sovereign debt, the Basel III requirements kicked in, banks were really focused on their--in some cases, simply their survivability, their capital structure. Over those years, they didn’t make any investments in their customer delivery platforms or their ATMs, and as Mike said, over that time we were really innovating on our platform, and so now they’re sitting there, they’re kind of coming out of, let’s call it their capital issues, and they’re back to thinking about how they serve their customers. They realize they’ve got old archaic technology, they’re starting to see a change in the landscape of alternative payments, QR code kind of things. Their technology simply can’t handle those, and today like we said for Alipay, we’re processing those transactions whether it’s through POS terminals or it’s through our ATMs. I think we happen to be in a period where the banks are emerging from a time period of no investment, no intention, and they’re seeing that we really have a superior product to offer them.

Kevin is next to me and just reminded me, a lot of it is fear. It really comes down to what Rick said, is that these alternative payments, wallets, etc. that are now becoming pervasive around the world are scaring these banks into being forced to have more modern systems and more modern products. That’s what our system allows them to do - it allows them to be competitive with all these new wallets and so forth, so we’ve got a combination of maybe a little bit better finances, they’re sitting on archaic systems, on archaic ATMs, and they’re afraid of competitors. It’s kind of a perfect storm to our benefit.

Got it, that’s helpful. Just last question on the DCC regulations in the EU, I guess it’s fair to say that we’ll get clarity on what the transparency guidelines will look like in November. Any early indication in terms of just what those could look like or could represent when the consumer makes his transaction at the ATM?

There’s been a lot of stuff discussed. We really don’t know. Let’s not forget when the parliament comes up with its view on life, then the three groups all have to get together and come up with their view on life through this trilogue process. It could be towards the very end of the year before we really have an idea of what’s going on there.

And depending on how efficiently they go through their trilogue process, and there is no particular stated timelines, who knows whether it spills into next year. But I don’t think that you will see the clarity quite as quick as this November 5 date that we talked about, because as Mike said, that’s just the third guy putting their proposal on the table that then has to be compromised.

Yes, and then after that, it’s all three of them in a cage fight.

Got it, okay. Understood, guys. Thanks a lot. Good quarter.

Thank you.

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

Good morning. Thanks for taking my question. Thanks for all the color on the independent channel and the strategy there. I was wondering with those independent channel agents, what does RIA share with those agents? My sense is they’re mostly non-exclusive but maybe that’s not the case, so if you could just talk about the exclusivity situation there and then what’s the share that you have--you know, are you growing share and taking share with these agents?

Okay, so I don’t know what our, quote, share is. I mean, if you look at it, that’s 75% of the world and we only have 3.5% of the world, we can’t have a large share of it. But we are by far the largest player in this because we’re kind of a combination of small company aggressiveness combined with all these places we can pay out, so we look like a big company with respect to our product portfolio. This channel is virtually all non-exclusive, so as I mentioned before, we are hammering it out every day in this channel. It’s highly competitive - we don’t mind that because we’ve got the best product offering and we continue to grow, and it’s also the market where the compliance folks are squeezing down on it. The banks are squeezing down because they don’t like to have MSBs that aren’t very compliant, so it’s forcing a lot of these little guys out of the equation, and then we pick up market share that way too because we have a world-class and by far the best compliance out there of anybody. So it’s a long way to go. If there’s 75% outside of me and I’ve got 3 or 4%, I could grow 25x if I had it all.

Yes, great. That’s kind of what I was--I was trying to get a sense for all of that, so thanks. Then when you look at the different corridors by geography with the independent channel, are there any corridors that stand out as having the greatest opportunities for RIA?

No. I mean--

I’d say outside the U.S. I mean, the U.S. has always been the most competitive independent channel out there. You’ll see a lot of brand names if you go out into the more common communities that you see money transfer services, and that’s also the home turf of the bigger money transfer players in the world. As we saw when we acquired RIA years ago, they had only kind of started to get into the international markets, so they had established a foothold in there. You put that together with what we did, we really took the opportunity and expanded there, and just like with this India expansion here, India’s the largest corridor in the world. All of their transactions don’t come from the United States; in fact, most of their transactions come from places outside of the United States, so that non-United States footprint that we have really gives us the ability to take advantage. I think in answering your question, I would say the non-U.S. would be a little stronger foothold opportunity for us.

And our European-based international team and our Malaysian-based international team really kicked in really nicely this quarter too. I mean, actually we did great in the U.S. The numbers we had in money transfer were pretty phenomenal, and it was because every single component of money transfer really hit the cover off the ball.

Thanks for all that color, and great work on the quarter, guys.

Thank you, sir.

Our next question comes from the line of Mayank Tandon from Needham & Company. Your line is now open.

Operator, this will be our last question because we’re a little bit past the top of the hour. But go ahead, please.

Thanks Mike, I’ll keep it pretty quick. Just on the money transfer side, could you comment a little bit more on the Xoom relationship? Just want to understand what the economics are and how does that impact your business specifically.

Well, the economics are we get paid per transaction for any of the transactions that we pay out for them, and how this has evolved is the digital money transfer business of PayPal and Xoom, they need to have a worldwide network of payouts. They want to be very competitive in the world, and so we could allow them to do that because we’ve got the second best payout network in the world. That’s kind of how it works. It’s kind of a win-win for both of us, and that’s--you know, so we’re happy to do that. Let’s not forget too, we’ve had a historical relationship with PayPal. Kevin and his Epay division have nailed several deals with PayPal for Epay products, both mobile phone top-up, iTunes, Google Play, that kind of stuff. I think we’re in seven countries or something like that, so we’re able to go--you know, account to cash where they originally couldn’t do that, where most of the digital players in the world are just account to account. We can allow them to do account to cash as well. It strengthens their offering, provides some money for us, gives us a little payback on all that we’ve invested in, and it’s just one more good, strong relationship we’ve got with the company.

Great. If I can just squeeze one more in around the money transfer side, in terms of pricing pressure, obviously that’s industry wide. If you could just comment specifically, Mike, on what trends you’re seeing on the pricing front given your mix of corridors and segments, and then how does that sort of play into the revenue profile over time.

I’ll let Rick answer that because he’s got all the numbers in his head.

Well I wish I had them all, but at least on this one, I have this one. In our year-over-year numbers, we actually saw a little lift in both our revenue per transaction and our margins per transaction. I would say the same thing we’ve said in the past - there’s always pockets around the world that we will see more or less pricing competition, and it’s always our--and we always expect that there’s going to be more pricing competition because, just as Mike said in his summary comments on the independent channel, it’s the most fiercely competitive channel that’s out there, so we’re out there really working it very hard every day of the year. Our challenge then is always to try to find those other corridors that we can get a little better pricing per transaction, that we really leverage the asset, the payout infrastructure, the negotiations on the cost side of the payout, but we were fortunate to see that year over year, we saw a little bit of lift in it, so no real impacts hitting our business that we see in there on price. But I don’t want to--you know, I don’t want to make anybody believe that there isn’t price competition out there.

Right. Thank you for taking my questions. Appreciate it.

All right, Operator, I think we can conclude the call. Thank you everybody for joining us today. We’ll see you in about a quarter. Thank you very much.

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