Good day, ladies and gentlemen. Greetings and welcome to the Euronet Worldwide Fourth Quarter and Full-Year 2021 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] It is now my pleasure to introduce your host, Mr. Scott Claassen, General Counsel for Euronet Worldwide. Thank you. Mr. Claassen, you may begin.

Thank you. Good morning, and welcome everyone to Euronet's quarterly results conference call. We will present our results for the fourth quarter and the full-year of 2021 on this call. We have our Chairman and CEO, Mike Brown; our CFO, Rick Weller; and the CEO of our epay division, Kevin Caponecchi, on the call. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide 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 second slide of our presentation. Euronet does not intend to update those forward-looking statements and undertakes no duty to any person to provide any such update. 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 will turn the call over to our CEO, Mike Brown. Mike?

Thank you, Scott, and thank you to everyone who is joining us today. I'll begin my comments on Slide number 5. I am happy to be joining you today on the other side of a year that continued to present more uncertainties from the COVID pandemic, but one where we have emerged stronger with more products and better network and even more advanced technology. Just as it did through the heart of the pandemic, the strength of our balance sheet has afforded us the luxury of continuing to invest in our business and our best-in-class employees. Our pre-pandemic strategy consisted of two key points: one, deploy ATMs in more markets; and two, expand our physical and digital distribution in both epay and Money Transfer. Our investments validated that these strategies remain effective, and we believe that they will continue to result in strong earnings growth rates in the coming years. We achieved these strong double-digit growth rates in revenue, adjusted operating income and adjusted EBITDA for the full-year of 2021, despite a year with highly irregular travel patterns, that moved from heavy restrictions across most of the world to promising travel patterns later in the year, only to be set back by Omicron in the second half of the fourth quarter. Despite this setback, the current data suggests a strong rebound in travel recovery beginning in the second quarter of this year 2022. As we ended the year, and airlines increased flight capacity, we saw improvements in cash withdrawal trends, particularly through the first half of the fourth quarter as the Omicron variant spread across the globe, air travel was interrupted and lockdowns were implemented in certain countries, resulting in lighter transaction recovery than early in the quarter. In epay, we continue to see strong adoption of our digital products…

Thank you, Mike, and good morning to everyone who's had a chance to join us. I'll begin my comments starting with the balance sheet on Slide 14. I think it's worth repeating that we were pleased to finish the quarter with consolidated double-digit growth. As it has been for the past two years, our balance sheet remains strong and continues to allow us to invest in our physical and digital networks, our technology, compliance, new products and new markets. As you can see, we ended the year with more than $1.2 billion in cash. The sequential increase is the result of $65 million in cash generated from operations, $125 million cash returned from ATMs and a drawdown on our revolver to enable effective treasury management for year-end settlements across many currencies. The majority of which was repaid after year-end. Partially offsetting these increases in cash were capital expenditures of approximately $30 million and share repurchases of approximately $228 million. Finally, as we move through 2022 and see the return of earnings to pre-COVID levels in lockstep with the continued recovery of tourism, we anticipate this year the return of pre-COVID leverage ratios. Slide 15. For the fourth quarter, we achieved revenue of $811 million operating income of $25 million, adjusted operating income of $67.6 million and adjusted EBITDA of $113 million. The slightly lighter than expected EBITDA growth rate was largely the result of the impact of the Omicron variant on the cash withdrawal trends in the EFT segment, as Mike discussed earlier. Had it not been for the travel interruptions caused by Omicron, our transactions were on course to put us within the range of our adjusted EBITDA expectations for the quarter. We delivered adjusted EPS of $1.15, a 4% increase from $1.11 for the fourth quarter last year.…

Thanks, Rick. I think there are a lot of highlights and information on these slides. So let me summarize a few of the key takeaways as I see them. First of all, all industry data and more of this comes out every day for you to read on the Internet, point to a significantly better travel season across the world, which gives us confidence in our view that our EFT segment earnings results will again significantly contribute to our consolidated earnings growth. Let's remember, EFT did roughly $370 million in EBITDA in 2019, dropped to only $39 million in 2020, jumped back up last year to $90 million in 2021 with really only 4.5 months of real possibility for travel last year. That's a $50 million swing in a year, so you can easily see the leverage that we have in this business as travel resumes. epay and Money Transfer both continued to grow at strong rates, both of these divisions have had an extraordinary growth over the last two years. And we have doubled down to invest more in personnel and programs to continue strong double-digit growth in the future. Consumer digital plus Dandelion is 9% of our total money transfer revenue and is growing at exceptionally strong double-digit growth rates. We are still on track to deliver connections for the B2B portion of this project that will connect our customers and their customers to more than 80% of the world's GDP by the end of the first quarter 2022. Our REN technology is really gaining steam. And in the fourth quarter, we signed – actually, it was third and fourth quarter, we signed 21 new agreements worth $78 million in revenue over the next six years. Demand for RFPs, proofs-of-concepts have just about overwhelmed our staff, and we are adding capacity to sell more and deliver more deals more quickly. I cannot promise, but I am optimistic that 2022s REN sales will be at least 2x that of 2021. So while COVID caused a reduction to our historically strong double-digit growth rate trajectory, it did not diminish the value that our business, employees and products and technologies have added to the payments world and we expect that 2022 will be the year where we get back on the rails of those double-digit growth rates. With that, I will be happy to take questions. Operator, will you please assist?

[Operator Instructions] Our first question or comment comes from the line of Andrew Schmidt from Citi. Your line is open.

Hey, Mike, Rick, Kevin. Thanks for taking my questions here and appreciate all the detail on the technology and the utility. So all good stuff. I want to start off on the EFT segment. Could you talk about your assumptions for the recovery in high-value international transactions in that segment? And how it might have changed from what you outlined in the third quarter. Just curious, the level of recovery you see in the high-value portion of those transactions to get to that sort of $7 number from 2019? Thanks.

Yes. Our thinking hasn't changed, albeit we have seen a little bit of backdrop because of Omicron. But if it weren't for really, I would call it the enthusiasm that we're seeing across the travel industry, it could have led us to a more conservative kind of view. But with the enthusiasm we've been seeing out there, I'm going to say, which is largely supported by the fact that the Omicron variant is proving to be less worrisome, less impactful on health and therefore, I think, causing people to be more resilient and more interested in getting out. And I think people are just quite frankly tiring. So our assumptions back then is that we would see that the international travel will kind of resume to about, let's call it, an 80% to 90% of 2019 levels kind of trajectory. And that our high value transactions would be somewhat north of 70%, but kind of in that ballpark. And so if we see that that we get a much more robust recovery than that, obviously, that would be very beneficial. And I would tell you, look, a few months ago, I would read some things after Omicron came out that just kind of didn't settle well with me thinking, all crap, here we go again. But as we've washed through this wave, we've really, I think, started seeing that there is such a more significant level of optimism of getting back and starting to travel. And in fact, Mike even shared with me this morning a discussion he had with a friend of his who has recently been trying to book a trip to go to Europe this summer. And the agent said, look, things are getting tight. You might want to think about booking in 2023. I mean that's great news for our business. So again, we're kind of thinking total in that 80% to 90%, the high value something north of 70%, but that's kind of where we're shaking out right now, Andrew.

And just – the one point I need to make here is that the EU has come out and told all their member states that they don't think lockdowns help curtail the spread of this pandemic. So when you come to that conclusion, all of a sudden, all that friction which is what's been the challenge to get people to go back out, all that friction starts to disappear. So that's what's exciting.

Yes. That's great to hear. And this is consistent with the trends that we see as well. I appreciate that commentary. Just as a follow-up before I hop back in the queue. On the Money Transfer margins down on an EBITDA basis from a margin perspective in 2021, it seems like a combination of comparisons, mix and then investments. Just trying to get your thoughts on 2022. What are the factors we should think about in the margin trajectory there? Thanks.

Well, I'll let maybe Rick talk about margins in specific, but the general thought here is, our two largest areas where over 70% of our money comes from is Europe and North America. And you saw those transactions are way up, continued strong growth. We're getting whacked in the Middle East and in Asia, and that kind of pulls us down. But when we are watching these huge growth rates, well over 15% in those two areas, we said, let's kind of double down here. Let's expand to more digital apps in more countries. Let's make some investments, we've done so. And that's really whacked our margins here on the outset. So what we hope is that as our revenues continue to grow this year, we'll grow more into the margins that we've seen in the past. But it is going to be in the first quarter and probably not in the second quarter. Would that be right?

Yes. I think that's well said, Mike, I would just add on to that, that unfortunately, we've seen more pressure out of the Middle East and Asia than we’ve kind of then – really than we've seen in the rest of the world. For all practical purposes, we've really only seen what I would call the virus impact in our domestic business, again, kind of localized, if you will, and then also in the Middle East, Asia. And as we said, we had 26% back draft on that. And even if that decline just slows as opposed to continues, which at least the signs are out there that it would, then as Mike said, it will kind of keep us from maybe getting that that rebound recovery in the first and second. But we expect to enjoy more of that benefit coming in the third or fourth.

Got it. Thank you very much, guys. Appreciate the comments.

Okay.

Thank you. Our next question or comment comes from the line of Peter Heckmann from D.A. Davidson & Company. Your line is open.

Hey, everyone. This is John on for Pete. In prepaid, what was the background for the loss of the key customer? I think you generated approximately $5 million in annual operating profits. And what was the competitive takeaway? Or was that customer acquired or something else? Do you guys think that prepaid can grow at double-digit in 2022?

Yes. I'll jump in here and comment real quickly and then ask if Kevin has anything else to offer here. But this just an in-house versus purchasing from outside decision. As you can appreciate, the volumes that we were doing were admirable, they were – we were very happy with that. But at the end of the day, it was just simply a cost kind of a decision that they made to bring it in-house. And so on one hand, it's bad that you lose it on the second hand, it's great that you know that you can drive and grow a customer's business to where you're that meaningful for them. And so it was just simply in-house versus outsourcing, if you will. So Kevin, if you have anything else you'd like to offer jump in.

No, no, that's right. And then with regard to the expectation, I think Mike and Rick both articulated that we're shooting for a low double-digit growth through 2022.

Got it. Thank you. Yes. And I know that management anticipates double-digit growth in Money Transfer in 2022? And how do you guys think – we should think about the relative growth rates between digital and agent-based transfers as well as the contribution from Dandelion?

Okay. So Dandelion, you remember, that was kind of a little mix of apples and oranges there. You saw that we had huge growth in our digital business this year. We expect that to continue. We ended up with around 50% growth for the year and in our digital business. And Dandelion will be a piece of that as we go out there and sell this to more and more fintechs like we have been doing in the past. So we'll see that start to contribute. We really believe that once we get through Q1, and we've got 80% of the world's GDP connected to us with those countries. Then we've got kind of a full product to sell. Right now, we've got a few early adopters, and that's great. But by the end of Q1, we'll really have kind of more of a full product to sell, and we should see those contributions. When it comes actually to the margins – do you make more money on a physical transaction versus a digital transaction. I would say that a lot of people – this is a great way to lie. You can kind of bake these numbers anyway you want. The reality is because I don't have an agent to pay on a digital transaction, the gross profit per transaction seems to be greater right off the top. But that leaves out the fact that when you do digital, you've got to market digital. And you've got to consider what it costs you to acquire those customers. So I would tell you that at the end of the day, the digital transactions that we do have a better margin than our physical ones, but not a way, way better margin.

Well, what I'd also tell you is to not get yourself preoccupied with margins, worry about how much money you drop in your bank account, profits, okay? So while I could mathematically produce a better margin on a digital transaction, I may not make as much money. And as you know, we're in the business of making money. So I think what we'll continue to see is an outsized growth of our consumer digital product here. As we said, it makes up about 9% of our business with a fraction of that being the Dandelion. We said that it grew 35% on a year-over-year basis here in the fourth quarter on the revenue side, even better on transaction side. And we would expect that kind of growth rates to continue. And if we really start hitting our stride on Dandelion, it could give us some yet even better opportunity there. So I think we'll continue to see some very nice growth, nice hyper growth out of our digital consumer channel. And again, looking very forward to the contributions from Dandelion as it kind of comes into its kind of first phase of maturity.

That's great color. Thank you so much.

Thank you. Our next question or comment comes from the line of Darrin Peller from Wolfe Research. Your line is open.

Hey, thanks guys. I want to hold it on EFT for one more minute. When we look at the run rate, it was trending off of about 80 – mid-80% of 2019 levels. And when you look at the underlying $7 in EPS for 2022, are you assuming that, that rate generally holds? I know you're talking about reopening, but then Omicron offset some of it. Really the big question would just be if you can give us a sense of what you're incorporating for travel into the 2022 numbers? And maybe remind us, if you don't mind, the earnings sensitivity. So if we go back from the 80-ish percent rate or 60% to 70% rate we're at now up to 100% and 120%. What kind of step function would you expect to see in earnings per share?

Well, let's see. What I would tell you, we're kind of seeing right now, especially on our high-value transactions, we wouldn't be quite at the 60% range there. We're probably closer to a 50% range. And we're a little higher on other international, but we don't make the kind of profit on a, just call it, a plane old interchange transaction as what we do on a DCC type of a transaction there. So maybe what we're seeing in the business is just a little bit inside, but let's call it directionally correct with what you're talking about. And as Andrew Schmidt asked earlier what our assumptions were for 2022, we're expecting those high-value transactions to come up and run just north of 70%. But that's kind of on an average for the year. So given that we're a little less than that right now, we would expect that would be ramping up a little bit more. But also keep in mind that we get a significant volume of our cross-border transactions in the second and third quarters. To give you kind of a general perspective, we get about 10% of our high-value transactions in the first quarter we get about 43% to 45% in the third quarter. And then that balance is split between second and fourth with a bigger bias towards second, okay? So we start seeing that stride kind of develop in the third – in the second quarter and really coming in the third. So just a few percentage differences on what we see peak out in the third quarter can be dramatically different. With respect to the leverage of that, I could go through lots of different math, but I think it's easiest to see in kind of what Mike said earlier, when our volumes are increasing, we expanded our business on a year-over-year basis in the $50 million, $60 million kind of dollar range. So there's incredible leverage. Even the delta difference between taking a look at our EBITDA number in terms of 2019, what we generated in EFT and you kind of compare it to, I'll just say, some of the street average numbers out there. You'll still see that there is a very big delta difference in that EBITDA number. I mean, in the ballpark of approaching $80 million, $100 million, it's substantial. So that's really what you see as the leverage from these high-value transactions coming through.

And that $50 million differential that we just talked about between last year and this year – in 2020, those markets were open for about 2.5 months this year for 4.5 months, but extra two months bought us $50 million. So that just shows you a huge amount of leverage on that.

All right. That's helpful. And then just one quick follow-up. I know, Mike, you've always talked quite a bit about the focus on profitability over revenue in the business. When I look at the margins of some of your growth parts of your business that we see, and let's focus on epay for a minute since Kevin's on also. I mean it still comes in at a relatively lower margin that I'd like to see for a very good operating leverage scale opportunities. So can you talk through that? I mean it's going to be an area of…

Yes. Let's not – okay. So let's not forget, we'll let this be the last question, operator. Let's not forget, epay is a distributor of digital content around the world. We have to split the commission, the revenue that we make with our partners, either physical or digital. So on average, we give away 80% of every revenue dollar in epay. So this idea that our margins can accelerate to teens or 20 or whatever, it's impossible because if we had no cost at all within epay, I'd have a 20% margin. So what you really have to – and EBITDA margin, what you have to really do is look at the operating margin. Operating margin in that business is probably 60-plus percent. And it is the most crushingly good margins that we have in the entire business. So you got to remember the kind of business that is. We have three different businesses that have three different econometric models. And you've got to factor that in.

Yes. I just would add to that, as I would like it to be 60%, it's more like 50, Mike, but that's okay. But if you look back to the last couple of years, and if you would take our either EBITDA margins or operating margins of the epay segment and divide them into gross profit rather than into revenue. What you would see is about 50%. And I mean it's –I think, arguable, anyone would accept that 50% margins in the business are absolutely brilliant, right? But that's because we give 80% of it to the retailer. So if we didn't account for it on what I'll call it a gross commission basis, you would see that number much, much better. And I mean, at the end of the day, that's really what you saw as the leverage that came through in 2021 on the epay business, is that as we grew that business, it gave us very nice operating income leverage expansion through the year. Now we're being more conservative on what that number is going to be as we go forward. But I would also really ask you to think about epay in a world of being a deposit processor, a digital economy enabler. Because what we're doing is we're allowing people to put money into an account that they can use to buy digital commerce whether that's music or video or it's even physical good like Amazon or Uber Eats kind of stuff. I mean this is all what I'll call, digital economy purchases, and that's really where you've been seeing the momentum of our business grow is in this, I'll call it, digital economy facilitation process. And we're starting to see the lines, if you will, blur a little bit between our epay kind of business and our EFT kind of business, where it's payment processing. So I think that there's incredibly more margin out there to go after, more opportunity. We're going into more countries. We get more products. So I think we'll continue to have a very good business there. But I would look at that margin may be slightly different than the way the – let's just call it, the basic top and bottom of GAAP produces a number.

All right. Thank you very much for that question. With that operator, I think we're a little bit over time here. So I'll close these questions. I look forward to talking to you in about 90 days. Hopefully, we'll be seeing the end of this Omicron thing by then, and we'll have some good news. So talk to you all later, and thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.