Greetings, and welcome to the Euronet Worldwide Second Quarter 2022 Earnings Call. It is now my pleasure to introduce your host, Ms. Hope Gregg, Associate General Counsel for Euronet Worldwide. Ms. Gregg, you may begin.

Thank you. Good morning, everyone, and welcome to Euronet's quarterly results conference call for the second quarter 2022. On this call, we have Mike Brown, our Chairman and CEO; and Rick Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the power point presentation we'll be making today. Statements made on this call that concern Euronet or its management's intentions, expectations or preventions 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. Except as may be required by law, Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such updates. 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 CFO, Rick Weller.

Thank you, Hope, and thank you to everyone joining us this morning. I will begin my comments on Slide 5. For the second quarter, we produced revenue of $843 million, operating income of $101 million and adjusted EBITDA of $147 million. We delivered adjusted EPS of $1.73, a 226% increase from the $0.53 in the second quarter of 2021. These strong improvements include all metrics. In all metrics were driven by revenue growth in all three segments, which includes a strong rebound in domestic and international cash withdrawal transactions in the EFT segment from the continued lifting of COVID restrictions across the globe as travel is recovered. Next slide, please. Slide 6. As it's been the case for the last two-plus years, the strength of our balance sheet has allowed us to make investments and operate the business in a way that will continue to deliver long-term shareholder value. As you can see, we ended the second quarter with more than $1 billion in unrestricted cash and debt of $2.1 billion. The increase in cash is largely from cash generated from operations of about $75 million in the second quarter of '22, as well as short-term borrowings to fund ATM cash and certain capital -- working capital needs, which is also reflected in the increase in debt. This increase in cash is partially offset by cash paid into the ATMs in response to seasonal increases in travel trends, share repurchases of $104 million and working capital requirements. Slide 7, please. Before I discuss each segment briefly, I'd like to draw your attention to the significance of currency change year-over-year. As you may have noted in the press release and on the first slide, reported GAAP revenue grew 18% year-over-year. But on a constant currency basis, that is, if the currency…

Thank you, Rick, and thank you, everybody, for joining us today. I will start my comments from Slide number 12. Well, those of you who have been following us for a while, probably have figured out that Rick tends to be a little bit more conservative, while I tend to be a bit more optimistic. So while his observations on the business and how changes in the economy are affecting our results are all valid, I'm here to tell you that while over the last three months, everything has changed, I'll also tell you, really, nothing has changed. Let me repeat that, so I really think then, nothing really has changed with respect to the future of our business. We can all open our favorite news site and see the travel and hospitality industries have largely become chaotic. There are canceled flights, airport capacity restraints and who hasn't seen the picture of the baggage room at London Heathrow, Heathrow is one of the largest global travel hubs in the world, and their CEO announced last week that they were capping their capacity at 100,000 passengers a day for the remainder of the summer due to unacceptable service conditions. For perspective, that is less than 50% of the 220,000 passengers per day that were through Heathrow in 2019. I think it's important to pause there to help you understand what this particular example means to our business. Let's not forget, travelers from the U.K. are by far the largest producer of high-value international transactions on our ATMs because every card has a cross currency component. So the limiting of passengers to and from the British airports has had a more significant impact on our forecast. Further to the travel demand, we also heard Delta's CEO say during their earnings call last…

Thank you. [Operator Instructions] Your first question comes from the line of Pete Heckmann from D.A. Davidson. Please go ahead.

Hey. Good morning. Thanks for taking my question. On the FX headwind, it's certainly larger than what I was calculating. And I think maybe one of the issues is I'm kind of straight lining the country percentages across the quarters where seasonally, clearly, you have a much greater percentage of euro transactions in the second quarter. But did I hear you say that your guidance for the second half essentially is based on current spot rates or essentially little change from the second quarter?

Yeah, kind of current run rate going forward, Pete, we don't try to outguess what's going to happen with it. So kind of that 101, 102 range for the euro as you're seeing it today.

Okay. So that makes sense. And then in terms of the capacity issues in the travel industry and you talked about airports, I mean, do you find that that's like discouraging currently planned travel or just limiting days of travel? I guess what are the primary impacts and which countries -- yes, like you certainly cited the U.K., what other countries might be impacted there?

Well, virtually -- I mean you can just Google it. And virtually every country with a big airport has got problems. And they're limiting flights, they're canceling flights. They're doing all those kinds of things. We did bring out the problems in the U.K. because all three of the London airports Luton, Gatwick and Heathrow all have the same problems. They're limiting customers to like less than half of what they had in 2019. And these are very lucrative customers for us, So -- and also, let's not forget, we were cooking (ph). March was great. April was better. May was even better than that. And then we watch things start to flatten out a little bit in June that got regressed by about 1% because of these travel issues. And if you look at our revenue profile for the quarters, we do about 10% of these travelers transactions in the first quarter, 25% in the second, 45% in the third and then 20% in the fourth. So you can tell that every year that we've ever done this prior to COVID, we see this big inflection in Q3 over Q2, where it's almost twice as many travelers and transactions. So with them capping the flight, we don't expect that to occur this year. So we do see that they're going to work through this, but it's going to be next year before we get the full benefit of that.

Okay. Okay. I got it. And just...

It's -- I mean, it could -- timing couldn't have been at a worse time. I mean, people weren't -- they weren't hiring these people for the airports until March, and it takes six months to clear them through security, it's just crazy.

Pete, I would repeat one of the comments that Mike made earlier and that is, again, what we see is very good correlation here with activity on our ATMs. And so you could almost kind of follow our transaction meter with the news reports of the disruption in the airports throughout Europe there. So it again validates our view and understanding of the business is that when the airplanes unload, people will go to the ATMs and take out cash. So it again just restores our confidence that as these kinks get worked out of the system and the travelers there you read about the pent-up demand and things like that, we're very encouraged by it. We certainly would rather not see it, but we see that it's very consistent with our -- with the behaviors that we've seen before.

And just a little added thing. We saw another article where the average plane fare is 30% higher than it was in '19. And part of that is supply and demand, there's just not enough supply. And so that's also limiting the number of travelers because it just costs so much more to bring your family to a vacation spot.

Fair enough. I appreciate it.

And your next question will come from the line of Joel Riechers of Truist Company. Your line is open.

Hi, guys. Thanks so much for taking my questions. I was just wondering if you could provide a little bit of insight into what the revenue contribution was for as for the quarter and what that might look like for the rest of the year? And kind of whether or not that was a source of margin pressure? And then my last question, I was just a little bit surprised to see the cost structure suffer given cross-border trends. And it looks like volume and revenue per ATM were strong, but like I said, kind of margins disappoint a little bit. Is this the cost of new ATM locations, renewing leases on existing locations or something entirely different? And is there anything you guys can do on your end to address that? Thank you.

Yeah. The first piece is on the margin of the EFT there. Yes, that's just the cost of ramping back up those ATMs. As we said, we restored nearly all -- I mean there's a few that hadn't been reactivated, but we're bringing those ATMs back online, putting cash in them and things like that. So that's a natural kind of an output of the business. Let's see, the first part of your question was...

What do you expect the margin to be -- margin profile going forward?

Yeah. I mean as we continue to add more and more of our high-value transactions, the margin numbers will improve. As I've shared with people before is we won't achieve the margin number this year that we did in '19 because we still are going to be short 30% or more of the transactions that are our highest value transactions. And so as those transactions come in -- and they contribute at an 80-plus kind of a percent gross profit margin. So as those transactions come in, they really enhance the margins. So as we go through this year at being less than what that '19 level was, we won't produce that same level of EFT margin. But as we get back into next year and we start seeing the full recovery, then we'll make nice move toward that. We've also shared with folks that we wouldn't anticipate that our full year, let's call it, on a comparable '19 basis margin would be quite as high as what we had in '19. Because we've added more and more of our own ATMs. We've replaced some of the outsourced ATMs, but our new ATMs, they may not give us as much margin when you're just talking about a mathematical calculation, but they certainly give us more profit. So that's why we've continued to add ATMs. So you'll see a little bit of that show up in the margin, but you should also then start seeing it show up more contribute on the profit line.

[Operator Instructions] Your next question is from the line of Andrew Schmidt of Citi. Your line is open.

Yeah. Hi. Good morning, Mike and Rick. Thanks for all the details. This is helpful. I want to start off with a question on just international transaction mix. Is there any reason to believe that high-value ATM transactions as a percentage of the mix, the total transaction mix shouldn't get back to where we were in 2019? Or do you think when all these issues are sorted out, we should be pretty close to back where we were in 2019. Just curious to get your thoughts on just the high-value part of the ATM transaction mix in EFT. Thanks a lot.

Yeah. So Andrew, thanks for the question. No, I mean every single data point that we see says that if we fix the travel chaos, we'll have the same mix that we had in '19 with the only very minor, minor exception that right now Russian travelers, their cards don't work anymore. And -- but that's just a little tiny bit so...

And I would add, it won't change it much, but I think it will start moving it in the positive direction. As Mike said, we're continuing to expand in the Asia, the Northern African and Latin American markets. And we should just bear in mind that those markets are all essentially different currencies. So as we see users of the ATMs there, we would expect that there will be a greater mix of transactions taken out that are going to be cross currency than if you're, for example, at an ATM in France because you've got a lot of euro-to-euro transactions there, whereas when we go into the Asian and Northern African markets, those are going to be separate currencies. So I think that kind of all lines it up to seeing an improving mix as we get back to being a full recovery.

And also our -- prior to COVID, data from these more developing economies where we put ATMs in South Asia and Egypt, as an example, those are very profitable for us because a much higher percentage of the traveler spend will be with cash. So we found that these ATMs are sometimes as much as twice as profitable as our European one. So as we expand into these new markets, first of all, as Rick said, each of these markets are in island (ph) currency. So every single traveler comes from abroad has got cross-currency potential for us. And second is they're just going to have to spend more, a higher percentage of their spend will be with cash. So that's why we're really excited about these expansion opportunities and how that will change our margins over time.

And I would just -- P.S., if you're doing the math of just dividing the revenue numbers by transactions, bear in mind, we've had a lot of transactions come into the EFT segment because these real-time payment transactions that we're processing based on the success of our REN platform sales, so they kind of skew, if you will, the revenue or profit per transaction. That's not because of lowering amounts that we're getting on our ATM withdrawals, it's just that we've got a lot of these lower price transactions. And we also debated a bit, we from time to time, have called them low value where they're really very high value because they come to us through and they all drop kind of to the bottom line, if you will, but it reflects the acceptance of our REN platform as well.

Got it. That's helpful. Yeah, it'd be good at some point to get an update on the mix of the overall EFT segment just because you have added some -- a lot of new products there, but we can connect off-line on that. I wanted to -- it's a little bit early to talk about next year, but I think it might be helpful just to level set how you think about earnings growth in a "normalized environment", whatever that means these days and then what factors above and beyond what would we consider normalized earnings should we consider for next year? Obviously, you still have the travel recovery to go next year, which should be incremental to add up boost. But just curious to hear your thoughts and the potential framework and how to think about that going forward. Thank you.

Probably the biggest hit -- the biggest contribution to our earnings growth next year is going to be travel. As we work through this chaos and when we get more normalized travel trends, I mean that's just -- like Rick says, we get 80 percent plus of that next transaction revenue fall straight to the pretax line across that same ATM estate. So that's our -- that's our -- will be our single largest contributor next year. But let's not forget, we're going to end up with a very good second half for epay, Money Transfer continues to gain market share. We're getting closer and closer to closing some big Dandelion deals there. REN continues to pick up. We see the Piraeus Bank Merchant Acquiring business growing very nicely. So I mean, we've got a whole lot of growth levers for next year in addition to which is kind of like low-hanging fruit and that's just getting the travel industry back on its feet.

Got it. Thank you, Mike. Thank you, Rick. Appreciate the comments.

Thank you. And our next question will come from the line of Vasu Govil from Keefe, Bruyette, & Woods.

Thank you very much for taking my question. Apologies if I missed this, but can you revisit your assumptions on the EFT segment in terms of the return of the high-value transactions. It sounded like you saw a full recovery to 2019 levels in sort of May and June and then it rolled over in July. And now you're expecting it to sort of be worse, continually worse. If you could just like revisit those assumptions that you're making in the guide.

Yes. No, I'm sorry, if we misstated it, we did not see a full recovery in April and May, but we saw that the recovery was moving in the direction that we had expected in those high-value transactions. As we've said in the past, our assumption for the full year, recognizing that in the early part of the year would have been yet still in more of a recovery mode following the Omicron variant, if you will, that led to some more restrictions. But what we were seeing in the May and June period was a continuing improvement against the '19 levels. And then we saw that flatten out in the early part of June and then kind of reverse in the latter part of June. So we have not yet got back to a '19 level, but we were seeing progress right -- well in line with our expectation of that low 70% number that we had talked about. And now, as we've said, we've kind of adjusted our thinking just simply by taking a look at what we're seeing in the current trends to say that, that recovery rate of those high-value transactions will be kind of more in the mid to the upper end of the 60% range. So not a big difference, but you can even tell if you want to do some like grenade math and assume that low 70s would have been something like 72%, 73% and mid to high-60s could be something like 67% to 68%, you can put your own numbers in there, but that will give you a delta difference of about 5% or 6%. And so you can see that in our articulation of the changes in our EPS number that the travel congestion impacted us by about $0.20 a share. Even to Andrew's further -- other question about looking forward to 2023, if you then just said, well, if that $0.20 might be roughly equal to 5 to 6 percentage points, well, take the 30 delta between that and 100 and divide it, you've got about 5 turns on that. We'll take 5 turns at $0.20. You're in the $80 to $100 -- $0.80 on $0.20, you take that 5 turns, you're getting in the $0.80 to $1 improvement on our earnings per share if we get to that full recovery level. So if we said that we were at full level in May and June or April and May, we just misstated that. But it was certainly approaching the expectations that we had previously set out.

Understood. Thanks for all that color. And I guess my follow-up is just on your total -- how you've sort of approached guide. It seems like you're taking the conservative start at least on some of the factors that you called out. Is that sort of a fair read of how you've laid out the guidance? And where do you think you've laid out so many drivers that are sort of headwinds, where do you think you might have some buffer if things don't get worse from here?

I think that the potential upside, they fall in several areas. One is we've continued to have nice REN and Dandelion type of sales. We may be we're a little bit intimidated by all these travel loads that you see out there, maybe the airlines get their acts together quicker. But as Delta said, they're going to put a cap on their flights through the rest of the summer. So that's probably going to put a little bit of pressure there. Our -- Mike made a comment about rolling out the new Apple card product, I think that we've been -- we've appropriately considered that in our expectations. But we know that it had very good traction here in the United States. So it's got a possibility of helping us out there. I don't see any kind of one silver bullet that we've been too conservative on. We try to come up with that number right down the middle of the fairway. There's probably inherently a little bias towards conservatism, but I don't think that we're undershooting it much.

There are -- some people believe that they because of these travel woes, that the travel season may be elongated a little bit this year. So that might provide us with some upside as well. So we'll just have to see.

And we did see some of that last year as we went from the third to the fourth quarter.

Operator, I think that's the last question for the day, so you can kind of close this down. Thank you, everybody, for joining us. Really appreciate it.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.