Greetings and welcome to the Euronet Worldwide First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] It's my pleasure to introduce your host Mr. Desmond Acosta, Deputy General Counsel for Euronet Worldwide. Mr. Acosta, you may begin.

Thank you. Good morning, and welcome everyone to Euronet's quarterly results conference call. We'll present our results for the first quarter 2020 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 page two of the PowerPoint presentation we'll be giving 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 from those anticipated in such forward-looking statements as a result of a number of factors that are listed on page two 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'll be using during the call to their most comparable GAAP measures. Now, I'll turn the call over to our CEO, Mike Brown. Mike?

Thank you, Desmond, and thank you everybody for joining us today. We hope that you, your families and your friends are safe and well. I'll begin my comments on slide number 5. Two months ago, Euronet was poised to deliver another year of double-digit revenue and earnings growth to add another 4,500 ATMs in new and existing geographies to its fleet 50,000 to continue to grow its digital presence in both epay and Money Transfer and to continue to grow its brick-and-mortar transfer business two to three times faster than the market. We were also fielding additional inquiries on our leading-edge technology delivered through our REN platform, and we were well capitalized to accomplish all these initiatives with over $1 billion of cash in the bank or in our ATMs together with $950 million of availability on our revolving credit facility. And then as you know the world changed. It was hit by the COVID-19 pandemic. Borders were closed. Shelter-in-place orders were issued. Airports restaurants and businesses closed. Stadiums and churches closed. Local events are canceled. And millions of people across the globe were put on unemployment roles. It was almost as if the world changed overnight. Now, many companies are just trying to survive. A recent study pointed out that more than two-thirds of businesses have been adversely impacted. Euronet being one of them. So while we are one of the many businesses impacted by the virus, we are one of the fortunate ones. We continue to have a very strong balance sheet with more than $1 billion of cash and no significant debt service obligations for another five years. To put it in perspective, we could cover several years of payroll with the cash that we have. Because we are well capitalized with significant liquidity, we don't have…

Hi. Thank you, Mike, and thank you, everyone who has joined us today. Unlike previous earnings reports, I will begin my comments with the balance sheet on slide 10 rather than the income statement. As Mike mentioned, the first quarter earnings are not the type of results we are accustomed to reporting, but the strength of our balance sheet will help to see us through this crisis. As you can see here we finished the quarter with $709 million in unrestricted cash on hand. The decrease in cash from December 31st was a result of cash generated from operations offset by capital expenditures and $240 million in share repurchases, which we curtailed upon seeing the significance of COVID-19 impacts on our business. While we believe this $709 million cash balance is more than sufficient to sustain the business through the difficult times brought about by the pandemic, the company also has approximately $560 million cash in ATMs at the end of the quarter, which could be redeployed to operations giving the company more than $1.2 billion of cash with no significant debt service obligations for five years. Our total indebtedness was $1.1 billion as of March 31st, largely unchanged since the end of the year and with the first maturity date of March 2025. Next slide please. On slide 11, for the quarter, we delivered revenue of $584 million, operating income of $31.6 million, and adjusted EBITDA of $68.7 million. We delivered adjusted EPS of $0.55, a 35% decline versus the prior year as a result of the transaction declines from COVID-19 Mike mentioned during his comments. Next slide please. I’m on slide 12. EFT transactions in the quarter grew 13% driven by strength in Asia Pacific and U.S. markets in the quarter, partially offset by lower European ATM transactions…

Thank you, Rick. As I close I want to reflect for a moment on our path. There's a little picture on page -- in Greece on like page 16 that I'd like you to look at. We concluded a year -- last year where we celebrated our 25th anniversary. Many of the management team pictured here have been with us for a majority of those years. And we have gone through a lot together from recessions to regulatory rate reductions to demonetization you name it, we've seen it. We've drawn on these past experiences to get us through the crisis. Next slide please. We hope that all of these words have given you the same level of confidence in the long-term growth prospects that we believe in. This picture right here was produced in Greece, one of our important markets looking to recover from the pandemic. Like you, we are looking forward to more normalcy in our daily life and in our business. But until we can all gather again on a beach in Greece, stay safe. With that operator we'll be happy to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Rayna Kumar with Evercore. Your line is open.

Good morning. Thanks for taking my question. You gave some really good details on recent transaction trends and a framework for revenue. Could you help us better understand the impact on all three segments on EBITDA for the second quarter?

Can you restate that Rayna?

Yes. Could you help us -- give us a framework on how to think of segment EBITDA for 2Q and beyond?

Well, I won't go out on the limb on beyond [technical difficulty] but on there I think that you should anticipate that the EBITDA numbers for the EFT business will be negative and they will remain positive for the epay and Money Transfer segments.

Got it. That's very helpful. And could you quantify how many ATMs you expect to winterize in the second quarter and the expected cost savings? And just separately do you view -- do you foresee any problems with your ATM supply chain through Diebold or NCR.

Well, so far -- okay, so we've got about 8500 that are "winterized" that's what we used to call it, but now they're COVID-ized right now. We will continue to bring probably more of those into that into the winterized kind of position here shortly. We have been a little bit hamstrung because we can't even get people out to visit our ATMs to do the winterization. So in places like airports that are closed there's no reason to keep an ATM there and pay all the additional fees that you need to. So we'll probably do more. We don't have an exact number. Our goal is probably another 1,500 or so more. But -- so that's kind of what we're looking at. We'll just have to see. The nice thing is and you probably starting to read them there's an article after article coming out over the last say week or so about the consternations of Europe trying to figure out how to open up their tourist trade. Because in many of these markets, particularly, the Southern Mediterranean markets 25% of those countries' GDP sometimes is all about tourism. So the Europe -- EU understands that for them not to go into a total recession they need to open up the tourism. So we'll just kind of have to wait and see. With respect to supply chain on the ATMs, we had a number of orders in. I mean everything is going gangbusters until end of February. And so all those orders are kind of in process. We would imagine that there'll be some short interruptions maybe a month or so from Diebold and NCR, but we'll have to wait and see. But for the time being, we don't really need those ATMs. And we're also making -- doing as we always have done, we're doing a good job of culling the non-performers. So those ATMs end up coming up for redeployment in those same kind of markets. So I don't anticipate them being -- that the supply chain will be well-interrupted. We're looking for sites though every day because that's just what we do.

I think the other thing Rayna to keep in mind, again the benefit of our technology is we can run any ATM in our network. We don't have to be -- we don't have to rely on one particular brand. So again a real benefit of the flexibility and the value of our technology. So we can make use of -- we could even pick up refurbished ATMs. We can pick up different brand ATMs. So we don't see that as being a gating factor for our continued growth.

Yes. And because every -- we actually don't use the software that comes with most people's purchase of ATMs. We have our own native ATM software called EFTS that I mentioned before that we coded back in the last recession. That allows us to treat every one of our ATMs as if they're just an IP device hung up our network. So it makes everything easy.

It's really good detail. It's also good to see that you've renewed both your Walmart contracts domestic and the cross border. What are the terms of the new contract? Did you have to take any new pricing concession?

They're substantially similar. We didn't do anything on the revenue side, but we will work together with Walmart on some promotional activity but it's substantially similar.

Got it. Thank you.

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

Hey. Mike and Rick, good morning. Thanks for the effusive confidences. As usual Mike, I think, you're absolutely right. Question for you on Money Transfer in particular. Clearly digital commerce of all kinds stands to gain from the pandemic. And I just wonder if you could, sort of, frame for us how confident you are with Euronet's digital Money Transfer footprint today? I know the business still has a, lot of, sort of cash on the counter remittance. Are there things you can do to accelerate your digital share? And do you feel like you're far enough ahead of the curve to continue to grow as you said 2 times to 3 times faster than the market as measured by the World Bank in the long run?

Yes, I think, we do. I mean, the reason we have been -- we've been growing two to three – probably, almost 3 times average faster than the market for freaking in the last 10 years run. So there's no reason that's going to slow down. We have a value proposition that everybody likes. We have the second biggest payout network in the world, which gives us the ability to do more with people. And then we've got a better value proposition from both the customers and the agents. So yes, we can do that. But when it comes to digital you might hear that we have -- that we're planning on launching our new app in 18 new markets in this quarter. We've got like five coming out in the next few weeks and then another 13 or something after that. So one of the biggest challenges to having a large digital presence is being able to send money in local language in lots of different markets and having the licenses to do so. We've got all that now pretty much buttoned up. So, you'll see a bigger focus there. And finally, of all the Money Transfer companies in the world, we have connections to over three billion bank accounts around the world. Back when we were little, we didn't have because the two big guys had exclusive arrangements we couldn't get cash payouts. So we went to country after country after country and connected into their – into their bank account schemes, so that we could at least pay out to bank accounts. Because of that we've got the largest bank account payout network in the world with three billion accounts that we have access to. So, all that again goes back to this digital side, when you go digital-to-digital and digital-to-bank accounts and we're also doing lots of these connections now to wallets payouts and wallets, we announced that last quarter. So we're feeling pretty comfortable that we're going to see very strong growth in the digital side.

Okay. That's helpful color. I appreciate it. And then, if I could just ask one on the REN ecosystem. Especially, as it relates to the REV payments cloud, but maybe just generally I guess. Do you worry about or think about the health of neo-banks some news this morning about a pretty sharp decline in some UK neo-bank app downloads? And then, sort of broad -- specifically but then broadly, how is the pipeline? Is this a market where you can continue to sell in, or are -- is the selling cycle just kind of frozen its point?

Well, what this might do is force a lot of those folks to take a hard look at the additional feature functionality that they have versus their competitors. And being able to connect into the REV payment cloud will give them an advantage over their competitors. Yes, we've seen that slow down a little bit, but we've got -- they all need to survive. And what we can offer them is pretty darn good. So what we want to do is just continue to make them successful. We – yeah, when you look at it, the biggest guys out there are people who are our customers. The biggest -- it was -- it is a neo-bank but Xoom was our very first customer to take advantage of our REV cloud. We then went to Remitly. We've got several other neo-banks that we're dealing with now. You heard about the neo-bank connections that we had in -- with ING Bank in Spain. We've talked about that where they have three million accounts and they're using our ATMs. So it's not just on the digital side but on the physical side too, because all those guys need to provide physical access for their customers as well.

And as Mike said in his comments, we've had a lot of discussion with people about real-time payment networks. These are not a neo-bank that's starting up. It's a whole country that's shifting over to a real-time, real settlement kind of a network. So you have to again take a look at the completeness of the REN and REV platforms. It's not targeted at any one particular thing. The beauty of it is the simplicity of the API connection process, the richness of the product and the features that's within it. And at a time, when the world is changing and changing to real-time payment, real-time settlement structures whether that's with a neo-bank or a Fed, if you will, a Fed -- Central Bank of any country.

And in fact, let me -- I'll add to that. Kevin Caponecchi runs epay. He also runs Asia Pacific. And he's seen a lot of movement here because these markets in Asia are being in such feeling that they've got to modernize. And so they're really pushing this real-time payments thing. So, I'll let Kevin describe what we're doing there a little bit, because this is really, really exciting. I really believe that our REV -- REN and REV solutions can almost be -- I won't say another leg of the stool, but could be a significant portion of our business in the years to come.

Yeah. So -- this is Kevin. So, one of the things that's evolving in Asia that's probably the most interesting is the development of all these various wallets. And the biggest challenge that a wallet has is source of funds. How do I -- if I'm a wallet, how do I connect myself to the source of funds of the consumers? What's so interesting about these real-time payment networks is they basically enable to an API connection, the issuer of the wallet can tap into the RTP or the real-time payment network and basically get access to all the bank accounts in that particular country. So the RTP network is basically rocket fuel for the development of these wallets. And these wallets are really interesting to Euronet, because of the full breadth and basket of products and services that we have and we can then offer the wallet not only connections or to the RTP network of our country, but then we can facilitate putting epay content into the wallet. We can white label the various Money Transfer services to the wallet. So the wallet becomes a perfect ecosystem for Euronet to service.

Appreciated. Thanks.

Thank you. Our next question comes from the line of Andrew Schmidt with Citi. Your line is open.

Hey guys. Thanks for taking my questions. Hope everyone is doing well in this environment. So -- obviously there's not a lot of clarity or visibility right now, but I think it's helpful to provide a framework, particularly heading into the back half. If we were to see current trends continue, particularly into the third quarter, should we expect to see similar impacts to what you're outlining for the second quarter? Obviously, DCC is a large component but just -- but anything on that front would be helpful? Thank you.

Well as -- again, we're not trying to provide a lot of out guidance, but let's just think about how we kind of constructed the second quarter. And as we said earlier, we've identified a rather substantial amount of cost savings that we're actively working at doing. But as you can appreciate, you can't get all of those affected as quickly as you would like. And so not all of those kind of savings numbers have been baked into the second quarter number. So as you articulated in your scenario, if it doesn't change much now through the third quarter, what I would likely expect to see is that we could have some resilience on the cost side, because we'll continue to implement those cost strategies and we'll start seeing a little better cash flow coming out of that, again assuming that the transaction levels would remain relatively constant with now as you set up that question. If we start on the other hand seeing where countries start opening up, where airports are open, where travel begins to resume and things like that, it will start adding to it. But we didn't try to out guess when that could happen in the second quarter. So hopefully, we see upside from here. But again we're trying to be careful about how far out on the limb we go.

I mean as just a -- just a data point, we have ATMs and something like 130 airports now. And when they're closed obviously and those are very busy ATM locations. Well they're not busy now.

Yes. Got it. That's super helpful guys. And just on the expense savings front, is it fair to think about that $100 million is the addressable pie, or is there more to do there? And then, it sounds like the majority of the cost savings will start layering in the third quarter. Just some comments I guess, just magnitude the opportunity and timing would be helpful, if it pertains to cost savings?

Well we've got already identified and anticipated in our second quarter about half of those numbers, okay? So we would anticipate to continue to gain momentum for more. And when I say half of it, if you think of that as being a number for the year, you divide that by three and you look at what's in there we got about half of that one-third, if you will in there. And like I say, we would expect to increase that number as we go into the third quarter.

Got it. Thank you for that. And the last question, you guys did a good job of articulating the fact that you've been very opportunistic during these types of cycles. As it relates to the M&A pipeline, obviously it's important to get better visibility before making larger moves. Could you talk about just the M&A pipeline as it stands today? And then if you were to be opportunistic should we think about targets being more complementary to existing segments, or would you look to add sort of a different flavor in terms of just area to grow into?

So, as we said on prior calls, our focus usually is try to do more with what we have, where -- either tuck-ins or ways that we could add a new product or a geography where you can kind of get a one plus one equals three, kind of game. We have also complained on probably the last eight calls, that the price that people think their companies are worth has been kind of crazy. So we haven't done very many acquisitions. Where we were used to doing, two or three acquisitions a year, we've done like one in the last two years. So, what we're hoping is that this COVID crisis gets, these opportunities that we're looking at to be more reasonably priced. And if so, we're going to take a hard look at them. And if one plus one does give us three then we're going to have to figure out, how we pay for them. Where in the past we might have done mostly everything with cash, we are all about conserving our balance sheet. And making sure we survive this baby. Because we're going to come out on the other hand and try to crush as many competitors as we can. And we can't do that if we've got a weak balance sheet. So, we might see more stock-based, equity-based payments for acquisitions than cash payments. So that's kind of where our thinking is always looking. We're also noticing -- I mean, I'm getting freaking cold calls from people I talked to a year ago two years ago, who had outlandish prices. And now they're calling to make sure I'm healthy with my -- with respect to COVID. Well, that's another way of saying they realized that their price has gone down. And they're burning cash or they're not making much money. So they're looking for an acquirer.

Got it, that's helpful. Thank you, guys.

Thank you. Our next question comes from the line of Mayank Tandon with Needham. Your line is open.

Thank you, guys and good morning. Mike, this may compel consumers to maybe not use cash as much going forward. I'm just wondering on your thought process as you get forward in terms of beyond the crisis. How does that sort of play into your EFT expectations? Do you think EFT will then operate at a lower growth and profitability level once we come out of this crisis, given the potential shift away from cash by consumers?

Here's what I've been saying for a long, long time. Consumers are going to use more non-cash than cash payments when you look at the big picture. But like we say, when you're a traveller or you're a vacationer. And you're in a foreign country you're always going to want some cash in your pocket. You're going to pay for most things with a card, whether that's the hotel or an expensive souvenir or whatever. But you always like to have some cash. Our focus is just give people make it very easy for them to have access to the cash they need, while they're travelling. So, I don't see a lot of impact. We might get some impact, particularly in the domestic markets, like we've seen the transaction numbers in the U.K. go down just through the crisis. But when we pop out the other end, I don't expect to see a lot.

And I think to add to Mike's comments, as we have seen, there's certain other people that aren't necessarily going to be as survivable through this. So, as some players maybe go off the map. And as some of the banks as Mike said in his comments are dialling us up having some discussion about whether or not there's an opportunity we could have a bigger role in their ATM processing. So, it might very well be that you could see some contraction in the pie. But we're getting a bigger and bigger slice of the pie. So more opportunity, there's still many more places out there to deploy ATMs. We've already started picking up some good spots in which the competitors have failed in. And so I think when it's done we'll end up with a bigger piece of the pie.

And I think it's a -- …

Got it.

We're at 9 O'clock now. So, I think, we're going to have to end this call. But I want to thank everybody for listening. We've got a lot going on. Look forward to talking to you in about one quarter.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.