Greetings, and welcome to the Euronet Worldwide First Quarter 2023 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. It is now my pleasure to introduce your host, Mr. Scott Claassen, General Counsel for Euronet Worldwide. Thank you, Mr. Claassen. You may now begin.

All right. Thank you. Good morning, everyone, and welcome to Euronet's first quarter 2023 earnings conference call. On today's 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 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 these forward-looking statements as a result of a number of factors that are listed on the second slide of today's presentation. Except as may be required by law, Euronet does not intend to update these forward-looking statements and undertakes no duty to any persons to provide any update. You should avoid placing undue reliance on any forward-looking statements. 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, Scott, and good morning, and thank you to everyone who's joining us today. I will begin my comments on Slide 5. For the first quarter, we delivered revenue of $787 million, operating income of $45.6 million, adjusted EBITDA of $93 million and adjusted EPS of $0.87. These results were produced by strong double-digit growth rates driven by improvement in all three segments, but with a particularly strong contribution from high-value cash withdrawal transactions in the EFT segment as a result of the continued recovery in the travel industry. Next slide, please. Slide 6 presents a summary of our first quarter balance sheet compared to the prior quarter end. Here, you can see that we ended the quarter with approximately $1.1 billion in unrestricted cash. The decrease in cash is largely from $112 million of cash moved into our reactivated ATMs in preparation for the summer travel season together with approximately $28 million in share repurchases during the quarter. These uses of cash were partially offset by cash generated from operations together with working capital and foreign exchange rate changes of approximately $75 million. Next slide, please. Slide 7 presents our as-reported results for the quarter. When we spoke with you in February, we were seeing some strengthening of our major currencies against the U.S. dollar. As we moved through the quarter, those currencies followed several rollercoaster patterns, but the net result of the movements produced virtually no impact on our reported results versus our early February guidance. However, when comparing currencies on a year-over-year basis, we saw our more significant currency declines in the mid-single digits to lower double-digit range versus the dollar. To normalize the impact of these currency fluctuations, we have presented our results on a constant currency basis on the next slide, Slide 8. EFT…

Thank you, Rick, and thank you, everybody, who is joining us today, and I'll begin my comments on Slide number 10. Let me start by just saying that I am pleased to be talking to you about what feels like relatively a normal first quarter, first one we've had in three years, one that feels very similar to our pre-COVID narrative. We delivered strong year-over-year performance in what is our seasonally slowest quarter in all three segments, while making moves we think will position us to continue our momentum throughout the year and beyond. We continue to be encouraged by all the commentary in the news around the upcoming travel season. As Rick mentioned, we saw nice performance from our ATMs in Asia during the first quarter as COVID restrictions have now been fully lifted. In Europe, which has historically been our primary market, we continue to be optimistic about recovery. Eurocontrol recently updated their base case of flight movements in March, and they now expect 2023 to improve to within 93% of 2019 levels. And we expect our transaction recovery trend largely in line with those improvements. Further, Expedia has reported that interest for international travel from the U.S. is up triple digits from the same time last year with additional good news that the average price per ticket is down $125 for the peak months of July and August. And as you might remember, last year, that was a problem. There were fewer seats available on airplanes, and the prices were kind of through the roof. The optimism about travel, together with the good performance of our POS acquiring business and our expansion into new markets, give us some confidence that we could experience a very strong year in the EFT segment. Now let's go on to Slide…

[Operator Instructions] Our first question comes from the line of Andrew Jeffrey with Truist Securities.

Mike, the color on the APAC ATM recovery is helpful. Can you talk generally about your beyond Europe EFT expansion ambitions and just how big that TAM can be? And if we're going to be hearing more about non-Europe ATM revenue and EBITDA drivers over the next several quarters?

Yes, it's not just several quarters, but several years. It took us eight years really to develop the network that we have in Europe. And Europe was $295 million in EBITDA or something like that in 2019. So it will take us a little while to get there. But the nice thing is travelers go to places other than Europe. And our experience with both the Philippines and with Egypt before and during COVID gave us a lot of confidence about these new markets. So in the Philippines right now, Kevin is listening, we have about 850 to 900 ATMs. Now their travel season is kind of the flip of Europe. So Q1 is the tail end of their travel season, starts back again in October. So we'll see kind of a low for the next couple of quarters, just like we do in the winter season for Europe, and then it will kick back in. So we've got a lot of ATMs there. Our ATMs there in 2019 were just screamers, throwing off over twice the profit per ATM as our European ones. So we're excited. In Egypt, which I don't hardly even understand why, but even in the middle of COVID, we are profitable in that market. So people were going there. I thought all the airplanes were canceled, but they weren't. Somehow, somebody got there, and they were profitable. We also have opened up in Malaysia and in Morocco. So you'll see us in more countries this year. Each of those countries, remember, Andrew, that they're kind of a bugger to get started. I mean you've got to have sponsored banks and Central Bank approvals and lots of bureaucracy in markets that have never seen a nonbank-owned an ATM. So it takes a while to get going. But once you get going, we found that these markets, because they're primarily cash-based when it comes to travelers, are extremely lucrative for us. So we will tell you more and more. The total TAM of that wouldn't surprise me to at least equal what we have in Europe in all these other markets combined. And I haven't talked to you about South of our border, there's a lot of opportunity there that we're trying to open up as well. So I think EFT, even though at some point in time, Europe has got to get to the point where we start to cannibalize our own ATMs and start to have some kind of saturation, the rest of the world is ripe for the picking.

Next question is from Andrew Schmidt with Citi Global Markets.

I wanted to -- good to see enthusiasm about the normalized travel season. I share that enthusiasm. Given that it is kind of the first, let's call it, normalized travel season in sometime, what are you seeing, if you can comment, in terms of just the April-to-date from a high-value ATM transaction recovery perspective? And then how are you expecting that recovery to trend throughout the second to third quarter? Just curious if you could give us any sense of direction there.

Well, I think directionally, we're right there in line with Eurocontrol. Eurocontrol has an improvement every single quarter this year over the prior year, and we will probably improve every single quarter as well. And that's what's exciting. As Q1 starting off nicely, the big numbers are in Q2 and Q3. If you look at 2019, we did 70% of all of our high-value transactions in Q2 plus Q3 for the year. So Q1 is only 10%. And in '19, Q4 was 20%. So the big money and the big opportunity is coming now. It starts to ramp up right after Easter and just hit this apex in July, August. So we're pretty excited. If everything just stays on board and you can go on the Internet and find all these figures, but they're getting better and better every quarter. So we're -- I'd like to remind everybody that prior to 2019, we had 10 years of bottom line growth where our EFT division grew probably no less than about 25% a year in profit for 10 years running, and that's because we were able to expand into more and more new markets. And now we're back into the race. It's a little more difficult to get into these disparate new markets because you need licenses and so forth in each one individually where the PSD license in Europe allowed us to have one license for all, so it made it quicker. But we still -- we're pretty excited about what we should see this year. And even this year, in our very best-case scenario, we'll still be leaving probably 7% to 10% on the table for next year.

And Andrew, I would add just a PS to Mike's comments, you may recall last year, it wasn't long after our first quarter concluded that you started seeing airport problems and airline problems, just handling the onset of the volume increases in these countries. It's good to see that the reportings that are coming out now that folks are prepared for that. They had essentially the off season to kind of get their act together. And so we're seeing positive reports on the industry, if you will, being able to handle the logistics of the onset of these travelers. So hopefully, that continues to be the case as we go throughout this next couple of quarters. But again, it gives us an increased level of confidence that we'll be able to see these kind of numbers come home this year.

And to add one last thing, last year, we had kind of a half a year, pretty decent recovery, not nearly where we're going to see this year. But what was clear takeaway was that even though there is COVID and there's a lot of concern about cash-based payments versus physical cash, what we're finding for that small amount of cash that you need in Europe, because they do have POS terminals all over the place, we're still very relevant and cash is still needed.

Next question comes from Darrin Peller of Wolfe Research.

Rick, I don't know if there's any way to give us a hand with the segment-level expectations for the remainder of the year, a little bit more detail on growth expectations on a segment basis. But Mike, I also just want to help bridge one last time on the improvement in travel. If we were to bridge the puts and takes, remind us of what they are in terms of headwinds and tailwinds that gets you back to where the Eurocontrol data is because we obviously have Croatia sort of a headwind, but we have Asia reopening as a tailwind. And then would you mind just walking us through those puts and takes one more time and if you expect that to get to the [use at] 92% in '19 levels by the end of the year?

Yes. Well, let's see, let's start with kind of puts and takes. I think if we reflect back to principally the 2019 era, there's probably three or four that principally come to mind here. First one would be Russian travelers, okay? We don't expect that they're going to come back because of the conflict in the Ukraine and the sanctions that are there. So that's a piece that we'll just have to grow over. The next one then is really the knock-on effects of the Ukrainian impact. And we have seen that it had put pressure on transactions in what I'd call the border countries. The -- I guess the good news about that is those aren't our real -- our heaviest countries out there. The heaviest countries when it comes to the tourism are your standard European travel countries, the U.K., the France, the Germany, the Italy, the Greece, the Spain, the Portugal, and I would say also the Croatia, okay? And so again, as Mike said, we're seeing very consistent recovery in line with what our recovery numbers are versus the Eurocontrol. Kind of as a reminder, going back to 2020, on the onset of COVID, we look to see if there were -- if there was third-party data that we could look to, to try to track what we should expect to see in terms of our recovery. And what we found is that while it's not a perfect match, it's very -- it has good correlation. We could find that correlation prior to 2019. And so we look to see if that correlation would hold up after that. And if you draw the lines on a sheet of paper, you can see that they do. So we continue to find that our recovery is in lockstep…

And just to remind everybody, too, on just the things that Rick mentioned that we really didn't have in 2019, and that was Ren and also our acquiring business. Our acquiring business on a run rate probably grew 50% last year from when we bought it for the prior year run rate. That's going to have some good growth this year as well. Ren wasn't available then. It's been almost doubling its revenue every year since we started. So we've got new endeavors that just add that much more momentum to our, you might call it, business as usual. So that's what puts us in a really good mood as we move forward. And don't forget that last year, we threw off roughly $100 million in EBITDA more than we did in '19 when you add up the results of epay and Money Transfer. So they -- through COVID, they continue to grow very, very well. And so as we walk into this year, it's going to be a little bit different distribution where those two segments are going to take a higher percentage of the total than they did in '19 where we are mostly driven by the EFT segment and these high-value transactions. So I like having that -- your business comes from a lots of different places.

Our next question comes from Pete Heckmann with D.A. Davidson.

This is Alli calling in for Pete Heckmann. We're wondering if you're seeing any change in the opt-in rate for the dynamic currency conversion on your ATMs in Europe relative to 2019.

No, we have not seen a change really in that opt-in rate for a long, long time.

I mean for the -- broader point is we haven't seen a change in consumer behavior. As Mike said, people continue to take out cash. We did see that they took out more cash following the COVID thing. So consumer behavior has remained very consistent.

Our next question comes from Mike Grondahl of Northland Securities.

Can you talk a little bit about the drivers that get the Money Transfer business from sort of 1% adjusted EBITDA margin growth in the first quarter to sort of double digits for the whole year? Like what's going to happen there that drives that higher margin?

Okay. So there's a couple of things. First of all, you have a lot of overhead. So when you have lower transactions, much like EFT in the first quarter versus the third quarter, you've got all your overhead. So when you're doing more transactions, you're going to get more to float as you're going to get a better margin in that particular quarter. So just as we grow, as we see the seasonality of that business, that would be helpful. The second thing is, we are watching our expenses very carefully. And we should see our growth start to outpace those expenses as we move through the year as we still see good growth in the revenue line. And so I'd say another thing, too, our digital business continues to be a bigger and bigger piece of that business. I mean you saw that we saw 38% growth in direct-to-consumer, consumer-to-consumer money transfer, digital money transfers. Xe is screaming as well. Those -- both of those cost us a little bit less per transaction to do because you don't have an agent involved. So we have a little bit better margins on those. So when you kind of add it all up, we see just plain revenue growth, trying to sit down hard on expenses, combined with seasonality are probably the biggest things.

Our next question comes from Ken Suchoski of Autonomous Research.

I just wanted to ask about the Money Transfer business. When we look at that revenue per transaction in that segment, the year-over-year growth was a little bit worse this quarter versus last on a constant currency basis. So could you talk about what's driving that? And I know there's some competitors putting promotional pricing into the market. So I'm just curious if you're seeing any of that? And I guess how are you responding to that activity?

First of all, you've got to understand the Money Transfer business has been and probably will always be a bit of a street fight when it comes to pricing. We've had competitors, they try -- they have promotional activity in a given quarter for -- or maybe a given corridor for a month or two months and then they fall off of that and go to the next corridor. So we see that all the time. There is really nothing new on the competitive front. People keep asking us that because one of our bigger competitors keeps talking about that, but we don't really see much of an impact at all. And because across the patch, we pay into 160 different countries. So we've got lots of corridor pairs like somebody might have a promotional activity from the U.S. to India. And then this month and the next month, it might be Italy to Romania. So there's always these things going on. We counter those as we need to, and we do a pretty good job of it. So competition really is not the issue that bothers me. I just want to make sure that we keep everybody fully employed. When you really get down to it, if you have a huge recession like we had in 2009, that was really the only thing that really negatively affected our Money Transfer business because there were less people employed, less people work in construction, et cetera. We don't have any of that. We are still in a world where we can't get enough labor. They make up that labor with immigrants, that's great for us.

Our next question comes from Rayna Kumar of UBS.

Mike, could you discuss your M&A pipeline and what deals interest you the most at this time? And quickly, Rick, if you can just give us the underlying FX assumptions embedded in your financial guidance.

Okay. So as you know, we're always looking at acquisitions. And we're looking at two or three right now. None of them particularly large, but we're -- we probably start through 30 to 40 acquisitions a year, and maybe we do one or two. So we still have a pipeline. We're still looking at them. We're not going to do an acquisition just to make my numbers look good for a quarter. We want an acquisition that will continue to grow and keep pace with the growth of the rest of the Company. So it's just hard to find those, but we're looking. The reality of the financial sector right now is some of the prices are coming down, so that's good. And some other of these high-flyers are running out of money, so that's good, too. But we don't have anything pending for next week, that's for sure. And then, I'll let Rick to answer on the FX.

I would say, too, Rayna, we always have something on the operating table. It's a matter of whether it makes it.

Sometimes we lose the pace.

The -- I would add also that we do have things that we're looking at in each of our three segments. So there's things out there. And the easy part is to have them on the table. The hard part is getting through them and see if they make sense. As it relates to FX assumptions, generally, it's about the average of the last week. So we take a look at what the currency numbers are looking like. And I would tell you that there's not a whole lot of difference right now. There might be just some slight favorableness on a couple of currencies. We see a little bit of headwind on a couple of other currencies. But I would say, for the most part, it looks like the currencies will be reasonably in line with what we had here even in the first quarter. But we always take just what the most recent FX rates are, and we assume that they will remain flat through the rest of the quarter.

Our next question comes from Cris Kennedy of William Blair.

Mike, you mentioned that you're pleased with the performance of the merchant acquiring business in Greece. Can you talk a little bit more about the strategy and what's driving the growth?

Well, for one thing is when you just look at the Greek market, virtually all the POS acquiring was owned by four or five of the largest banks. And I really like competing with banks because they're risk-averse and they're more conservative, we're nimble and aggressive. And so it's just -- there's just more -- there's better products to offer to those customers and more ways to win. And so that's why we're doing better. Just the 365 pay-as-you-go every night feature that we added is something that nobody else has in Greece, where somebody can have access to the funds that they sold today, tomorrow instead of waiting until it ends up in their account two or three days later or wait even more if it's over a weekend. So we will continue to innovate there, and we'll continue to expand that to multiple markets. That's the nice thing, we're not doing just pure acquiring. We can sell epay products there. We're going to turn some of those sites into money transfer agents as well, so we can cross-sell our other products. So just in generally, that thing, it grew like crazy last year. And this year, it's going to grow very well, too. So it's going to be a bigger and bigger piece of our business as we go forward. Really proud of those guys.

Our next question comes from David Togut, Evercore ISI.

I apologize if this was asked earlier as I just joined late from another call. But Rick, did you call out your 2023 EFT margin outlook?

I didn't. That hadn't been brought up. But I guess to give you a little bit of history here, in 2019, our EFT operating margin was around 33%, okay? And since then, what we've seen is we've seen a more -- a shift towards more of our owned ATMs. And in those owned ATMs, we make more profit per ATM, but we don't make as much margin per ATM. The second thing is we're clearly not at the '19 travel recovery level. So that going from something less to 100 of -- something less than 100% to 400%, all that will be very enhancing to the bottom line. And then finally, we've seen a fair bit of inflation come into the cost structure, whether it would be on headcount side or third-party delivery, principally things like ATM maintenance and cash delivery. So with all that being said, we don't anticipate that we'll be at a 33% level. On POS acquiring coming into our business, which is a lighter than 33% margin. So those four things really kind of would -- on a long-term basis, I would anticipate that our margins will come back to being something in, let's call it, the kind of high 20s, okay? As it relates to this year, I would expect that we would be somewhere in the mid-20s kind of range, okay? And again, we'll see how that shapes out. But that's kind of what we would anticipate this year would be kind of in that kind of mid-20s range.

And I think that at the end of the day, what we're just trying to do is deliver more EPS. And with more ATMs, more markets, even if it's a little bit less margin for all the reasons that the EFT Segment has actually kind of evolved into, we're still very excited. And I think that as I -- that will be the last question. And I think as I leave you guys and gals, I just want to say that I think our company is kind of bucking the trend of Wall Street right now. I mean we're looking at big growth this year, bringing ourselves back into the profitability -- in excess of the profitability we've ever had. And so I kind of like that we're going to buck the trend. We're going to do well this year, and we're going to do well next year because we've got all the things lined up to do so. So with that, I want to thank everybody for taking the time with us, and we'll look forward to talking to you in about 90 days.

Thank you, everyone, for your participation in today's conference. This does conclude the program, and you may now disconnect.