Greetings and welcome to the Euronet Worldwide Fourth 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. [Operator Instructions] As a reminder, this conference call 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, Lauren. Good morning, and welcome everyone to Euronet’s quarterly results conference call. We will present our results for the fourth quarter and full year 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 update under any circumstances. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures that we 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. Good morning and welcome to all who have joined us here today. For your benefit, I will start my comments on Slide 5. Euronet delivered fourth quarter revenue of $649 million, adjusted operating income of $84.8 million and adjusted EBITDA of $116.3 million. Our adjusted EPS for the fourth quarter was $1.37 per share, a 21% year-over-year increase and $0.10 ahead of our guidance we provided in October. These strong EPS results were driven by the performance of all three segments and the amount we exceeded guidance by, was largely attributable to favorable tax, less share dilution and improvements in foreign currency exchange rates with the lion share coming from taxes. The tax benefits largely stemmed from the additional tax deductions we got upon exercise of nearly expiring options and some benefits resulting from certain clarified IRS positions related to the December 2017 Tax Act. Slide 6, here we show our three year transactions by segment. EFT transactions grew 13% from expansion of our ATM and point-of-sale processing networks in Europe and India. Epay transactions grew 21% with significant contributions from India and Germany. Money transfers grew 15% with growth across virtually all areas of the money transfer business. Next slide please. On Slide 7 we present our financial results on an as-reported basis for the segment. On a year-over-year basis, there were significant swings in the foreign currency in where we operate. For the most part, the major currency declined between 3% and 6% with some of the minor currencies changing as much as three times that. To normalize the impacts of these currency fluctuations, we have presented our results adjusted for currency on the next slide. Here on Slide 8, I’ll review with you the segment results for the fourth quarter. EFT concluded its outstanding year…

Thank you, Rick, and thank you, everyone, for joining us today. I will start my comment on Slide #16. Well to start, I got to say, ladies and gentlemen, don't you just love this chart. As I speak with investors, one point they continued to make is the strength of our business and our ability to deliver consistent double-digit year-over-year growth. We certainly are well aware of the consistency of our growth, and we’re glad to see more and more investors are tuned into our sustained long-run double-digit growth. With the close of the final quarter of 2018, you can see from the graph on Slide 16, for six consecutive years we have grown our business at strong double-digit growth rate. We have achieved a strong growth by adding more emerging payment products, made possible by continued investments and advanced technology infrastructure to serve our needs and to meet the needs of the fast growing digitally driven payment space. This advanced technology will allow us to grow in bigger and bigger ways by focusing on the evolving payments infrastructure while leveraging the significant strength of our core markets. All of this strengthened our confident that this time next year we will be talking to you about our seventh year of double-digit year-over-year growth. So let me share with you a little more about the significance of our global assets and a bit of our secret sauce leading-edge technology supporting our growth as we go on to the next slide, Slide #17. Our growth is powered by our unique our powerful portfolio of physical and digital assets, which allows us to achieve success in our more traditional areas and has also lead to success in the next generation digital landscape. As you study this slide, you can see that the foundation…

Thank you. [Operator instructions] Our first question comes from Mike Grondahl with Northland Securities. Your line is open.

When you think about Visa in some of this new surcharge opportunity, is there any high-level way to kind of say what that adds to the TAM for ATM deployment?

Well, I mean the reality is -- in Europe, we’ve already going to near that term. We think this year across our state; it's probably worth an additional $0.60 to $0.65. But what’s exciting is -- at this I'm talking about the Visa. But what's exciting is Visa also opens up the rest of the world to it. And that TAM is huge. So we’ll just kind of leave in it that. We’ll be making an announcement as we go into more and more new countries. On surcharge side, as everyone might remember, I have been preaching this for five years. There is no logical reason for banks to continue to not allow surcharge in their countries because if they find them sells especially to bricks and motor banks, the biggest issuers. They find their sales competing with internet banks and given away their ATM transactions for less than a cost them to produce. So finally, common sense has started to permeate a number of these countries. We have seen this happened. It was Germany first. We have got Spain second, Austria was third, and that looks like Greece is going that way. So I would imagine that at some point out in the future surcharge would be allowed across most every European country, which offers both more money that you could make of the domestic -- our domestic customers as well as international customers. So it's just interesting because that -- I don’t know because if TAM gets bigger, but the money you can make off, this TAM gets bigger.

And Mike, I would say, if you look at some of the graphs, the charts that we provided in there, and you think of it in contest of the United States, where surcharge is available, you can see that consumers clearly are willing to pay for convenience. And when that opportunity then presents itself, you’ll see more ATMs deploy so in doing some of this kind of market sizing math if you reach penetration levels similar to the United States. It essentially increases by two-fold what that addressable market is out there. And again as Mike said earlier in his comments, we have only got 43,000 out of these millions and millions of ATMs. So a very rich set of opportunities for us even before you get to surcharge, but then you put that on top of it and it makes it that much more.

Yes. Like a double tail …

It is a very long runway

And then real quick, U.S. to Latin America for Money Transfer, how was that -- can you just talk a little bit about that big channel for you?

Well, I mean, you saw that Money Transfer -- I mean, U.S. to Latin America it about 40% some of our business. And you saw that Money Transfer just basically knocked it out in the part. So obviously, that wouldn’t have happened if half of your business wasn’t doing well. We’re doing really well from America’s southbound. We’re doing really well from Europe, every direction bound.

Our next question comes from Chris Shutler with William Blair. Your line is open.

So an update, Mike, on outsourcing and network participation agreements in the pipeline that you are providing that and -- maybe give us a sense of how much revenue is in the pipeline that has been size and not installed?

Okay. So with respect to outsourcing agreement, we are still in discussion phases with several pretty large opportunities and many little ones as well. As far as how much revenue, we really -- historically these are binary deals. So we're either going to get them or not. And -- so we don’t really project until we get the deal. We probably have about 500 or so ATMs in the pipeline to be installed, but that's all right now. As we get these deals, we will announce some and these are very high margin deals. So they almost chase our earnings with a step function. And the cool part is -- this is not just where we originally dispatched these outsourcing deals, mainly in Europe, a little bit in Asia. The reality is these outsourcing deals are coming up from everywhere now. These banks are taking a hard look at their expenses. They have all technology run in these banks, very high cost of ownership, very high cost for run them, and we’re the perfect logical solution for them to be. And on top of that, our outsourcing -- if we outsource, we can connect those ATMs to the digital channel, and that’s something that current technology has a real problem. And let’s not forget too that we wouldn't call it exactly an outsourcing deal is kind of a software/outsourcing deal, but there is deal in Mozambique is huge. So that another deal we got to light up this year. We got to connect 11 banks. And so lots of good stuff in the pipe.

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

Mike, appreciate you're laying out the size of the global EFT opportunity. Can you talk a little bit about sort of how you balance the source requirements of expansion against that TAM? I mean, adding 3,800 to 4,000 machines a year is great, but you've got this huge market ….

We love that number to be bigger. Yes, I know its freaking huge isn't it. Okay, but at the end of the day to go after that market, the easiest way, of course, is outsourcing just, because you don't have to do any site selection. But it took us five years to get a step-up to the point where we can put in almost 4,000 ATMs handpicked one by one in a year. So as we go around the rest of the world, it'll take us some time to build up those steps. But boy, we know how to do it. And that's the thing. So what we're just doing is taking what we've learned in Europe and we're going to export that to other markets. So you're right. In a couple of years of, all we're doing is 4,000. I’m going to be disappointed. But I don't want to overcommit at this point in time. It's all about location, location, location. You've got to picked up really good site because at least ATMs are causing you $1,000 a month to have implanted in this particular spot, and you don't want to miss too often.

As we've said for years, this is just plain old hard work. I mean every location is a separately selected site, an agreement that bias, an agreement that has to be negotiated, a box that has to be bolted down and cash put into it. And so it's a huge market opportunity. But that's what we have historically done well in across all of these countries. Remember there are always -- this is not just like one team goes across all these different cultures, its separate team, its day-to-day plain old hand-to-hand the hard work.

Does that show maybe the emphasis a little bit toward these bigger outsourcing or interbank switch yields?

Now -- yes, the nice thing is we can do both at the same time. It's a different -- you've got to build up basically a feet on the boots on the ground kind of stuff to go find these locations one-by-one. And that's a different - it’s a different kind of sales guy and the guy who's going to go into a bank, and say, hey, trust me with your ATM distribution channel, look at all that we've did and what we can do for you. It's a different group. It's not an either or at all.

Got it. And if I may on Epay, how do we think about that business? Obviously, the accounting change muted the reported growth. I mean is this a double-digit revenue growth business?

Okay. Look at that, those double-digits baby. We are excited. I mean Epay has been working really hard just one little product at a time, one channel, one product, one market, one at a time. And it's been adding these things up. And we've been announced that quarter after quarter after quarter. And the nice thing is that non-mobile content is a trillion dollar industry. And so we keep lightening up more of it and it's making up for the fact that the other nice thing, I guess you could say is that mobile has finally began to decline less than double digits. So you've got that two of them working in tandem to give us that very good result for Epay.

I would add to that that as you take a look at the brands that we are helping facilitate essentially ecommerce for, okay, that these brands are demanding partners. And they have found that we have technology solutions that help them, and help them to get into more and more of these markets that we have the expertise in. And so this is a combination of both a) the market, but b) the tech technological advantages that we bring to it. So whether we’re talking about guys like Amazon or Netflix, these are really high-class brands that are demanding in the delivery of their product, the protection of their brand, the execution, et cetera. And so it's a combination, again, of both the market as well as our technology, and these brands interest to get closer and closer to what I might call the cash-based customer that wants to do e-commerce transaction. So we’re right in the middle of a perfect amount of energy generating around this space.

Our next question comes from Jim Schneider with Goldman Sachs. Your line is now open.

Just on the DCC regulation. It seems like the risk there is pretty diminimus at this point. But could you may be just do two things. First of all, clarify that there is no requirement likely to for the rate to be displayed relative to the local exchange rate at the time or prior to the transaction? And number two, can you maybe just kind of talk about your confidence in the timing for the DCC enablement by these -- in April, you talked about before?

Okay. So you got the first -- with respect to your first question, you got that little bit wrong. What the regulation says is that we would have to show -- this is probably being mid-2020, we have to show an ECB rate and our rate. So people could see it. But the nice thing is people know that they never going to get the ECB rate. So that's what changed. And there is no cap on it.

And we’ve done testing in the market where we have presented two customers, a range of spread that go from mid single-digit to low double-digit spreads and we have not seen meaningful decreases in the consumers opting into that when we've done our testing. So we will show an ECB reference rate and then what our rate would be? What that percentage is. And as we said in our notes, we don't think that that's going to drive a material difference in the market.

What you maybe have got confused on is that the customer will have -- still have no idea what is bank will charge it.

Yes. The local fees is issuing bank will not be presented side-by-side with us.

Yes. Okay. The only way to elaborate how much you get charge and what the rate was is when you get home and look at your statement.

Got it. That's clear. And then -- about your certainly around Visa-enabling DCC in April?

So far, so good. It's actually a very simple theory for us in Europe, because we actually do visit DCC in Europe. And so we're -- we'll just say so far, so good.

Yes. I mean, our level of work is simply the addition of a few more wins to the table that we've referenced in our system. And Visa has represented to us that they wouldn't have made the announcement if they weren't ready to deliver. And let's not forget, Visa makes a lot of money on these transactions so they've got a financial incentive to be on time.

And then maybe as a follow-up, I wanted to ask you, I mean, clearly Epay execution is very, very good as you mentioned with the new products from the non-mobile momentum you have there. Is kind of a double-digit 10% growth rate a new normal that we could expect to you to sustain in 2019? And if it not, a reason why not?

Well, we did -- for prior years we've been in that kind of 7ish, 7 to 8 range, and now it's great that we popped over into double digits. We would hope that this is the new normal. But I can't tell you for sure that. Let those go a little bit longer and then I'll -- maybe I have a little bit more confidence. But all the factors are pointing the right way.

Our next question is a follow-up from Chris Shutler with William Blair. Your line is reopened.

Hey, sorry for dropping off there earlier. Rick, just one quick follow-up on the tax rate and the cash tax rate in Q1 guide, and if you could talk about the tax rate that you're expecting for full year 2019, and then anything one-time in the first quarter guidance?

Nothing one-time in the first quarter. As we said in there, the more and more ATMs that we put in puts a little bit more pressure on that EFT segment. So, but that's -- that's all baked into the math, so no one-timers in there. Our tax rate, for both the quarter and the full year, we would put in the mid-20s range. Last year we started out with a little higher rate in the first quarter because of the new Tax Act, and then some of those positions were clarified in technical interpretations, et cetera. So we expect to see a little more consistency as we go throughout this year in about that mid 20s range. That's what we have in the first quarter as well.

Yes. And I may also -- and I may also add to that, Chris, you've been following us for awhile, but some people are a little bit newer. I mean, obviously we have seasonality and you see the big kick-up in revenues and profits in the EFT division in the second and third quarters. But what people might forget is that we have to pay for those ATMs in the first quarter. So yes, we can winterize them, but we still have depreciation, we still have rent, we still have a lot of other costs associated with them. So what that means is the bigger we grow our estate kind of that uglier Q1 gets with respect to the drag of those ATMs that are very profitable for the year, but not the problem maybe even losing a little bit of money in the first quarter. So it's kind of an FYI.

And then lastly, Mike, can you give us an update on -- you talked about folding high FX into the XE brand. Just how -- what kind of trends you're seeing underneath the covers in that business number of state visitors, conversion rates to do a transfer, et cetera? Thank you.

So since we've released -- okay, so we rebranded. And since we've now rebranded and released a brand new app for doing transactions under the XE brand for high FX -- you might say high FX customer, we've seen higher conversion rates, we've seen really good adoption -- still more work to be done, but the first -- new customers converting and all that -- all the numbers kind of the metrics that you look at on digital acquisition of customers and transaction have all been played in the right direction. I mean the reality is high FX. A lot of people knew that who were spending money, but the XE brand know by hundreds of millions of people, so it just help.

Thank you. Our last question comes from Rayna Kumar with Evercore ISI. Your line is now open.

Could you help us better understand your 2019 outlook for constant currency revenue growth across EFT Money Transfer. And I know you addressed Epay, but at least the other two segments would be helpful.

Rayna, it seems like this question comes up about every year there. But if we take a look at our business here, we continue to feel confident and the ability to grow the EFT and deploy ATMs. That business grew in the 20s and has grown that way for the last several years. So we would again believe that we’re going to have strong double-digit growth out of that business. Clearly, the addition to the Visa DCC gives us yet more momentum. And as Mike said, a little bit more activity on the surcharge front. That hopefully manifests itself into some stronger numbers for us, and some more ATM locations to deploy. So we would continue to feel pretty good about strong double-digit growth rates out of that business. Then as we go to the Money Transfer business, we’ve consistently performed in that, let's call it mid-to-upper team level. And we don't see any reason that we won’t continue to do that. As Mike said rebranding high FX into the XE gives us a more momentum on those customer conversions. That's a big huge market. And the market is also growing. The World Bank just reported that 18 over 17 grew something like 10%. And so those numbers are good growth. We continue to have a lot of additional network expansion that’s available out there to us. So again, we would feel pretty comfortable that we will be in that, let’s call it a mid-teens kind of rate there for Money Transfer. And then finally, with Epay, it's probably a little bit more of the potential wildcard, I think on the upside. We continue to see the confidence as this non-mobile product come into our portfolio. We've got more markets. We're taking it at two out there. We got more technical solutions that we're providing. We’re helping brands do things like scheduled payments or advance payments on annual subscriptions and things like that. Those are all just kind of like baked in recurring run rate transactions for us. So I want to say that that we would expect to be in the double-digit range there. But I probably push this to the upper side as the singles to the lower-sided doubles there. And we might see breakout this year of that. So you kind of put all that tighter. As Mike said, all of our businesses are doing well. And we don't see any particular matter on the horizon that should cause us to think differently at this point.

Just as a follow-up, how much of that strong Money Transfer top line growth? Is that - how much of that is coming from shared gains from MoneyGram given they're more stringent compliance in place? And then secondly, what are you seeing out there for cross-border Money Transfer pricing in your outlook for 2019?

Well, we haven't seen much difference in the pricing numbers there, as I said. Actually, we saw a little bit of increase in our average revenue per transaction. So we always see areas within the Money Transfer that can be more and more competitive on pricing and things like that. Our team does a great job at being able to focus its business on transactions that make good money. And it's proven in the numbers. As it relates to taking share from the competitors, it's hard for us to tell exactly where the numbers come from there. But as we said last quarter, and we reviewed, and even in this Pie-Chart here, where you can see the part that's really that kind of unaddressed independent channel, we have a lot more of our business focused on that part of the market. And I'd say that's where we've probably seeing most of our successes. I'm sure that we picked up some benefits from the challenges that some of our competitors have, but I think that our success has more to do with our story and less to do with their story.

Okay. I think -- with that, I think we're going to end. Is that correct, operator?

Yes, sir. That does conclude today's question-and-answer session.

All right. Well, thank you everyone for joining us today. We look forward to talking to you at the end of the first quarter. Mike, Rick and Kevin, signing out.

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