Greetings, and welcome to the Euronet Worldwide Third Quarter 2023 Earnings Conference Call. [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 begin.

All right. Thank you. Good morning, everyone, and welcome to Euronet's third quarter 2023 earnings conference call. 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 PowerPoint presentation we're making today. Statements made on this call that concern Euronet 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 these forward-looking statements as a result of a number of the factors that are listed on the second slide of our presentation. Listeners should avoid placing undue reliance on these forward-looking statements. Except as may be required by law, Euronet does not intend to update any forward-looking statement and undertakes no duty to any person to provide an 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'll turn the call over to our CFO, Rick Weller.

Yes. Thank you, Scott, and good morning, and thank you to everyone who is joining us today. I will begin my comments on Slide #5. For the third quarter, we produced revenues of $1 billion, the first $1 billion quarter in Euronet's history. We achieved operating income of $167 million and adjusted EBITDA of $212 million. Adjusted EPS was $2.72 compared to $2.74 for the third quarter of 2022. Excluding the effects of share repurchases and FX headwinds during the quarter, the business performed in line with our expectations. Slide 6 presents the summary of our balance sheet compared to the prior year. As you can see, we ended the quarter with more than $1 billion in unrestricted cash and $1.7 billion in debt. The decrease in cash is essentially the share repurchases and working capital changes, partially offset by cash generated from operations and cash returned from the ATM. Slide 7 shows our results on an as-reported basis. Let's go to Slide 8 and talk about our results on a constant currency basis. On Slide 8 now. As we discussed in the second quarter of 2023, we saw a divergence in our international transactions compared to the international travel recovery. Mike will provide further comments on this subject a bit later. But we are pleased to have regained some footing at the end of the quarter. To that end, EFT revenue grew 2%. Operating income and adjusted EBITDA decreased by 15% and 12%, respectively. The decreases in adjusted EBITDA and operating income were the result of decreases in our most profitable international cross-border transactions primarily driven by the decline in Croatia due to its switch from the kuna to the euro at the beginning of this year, together with the impact of inflation, which reduced European travel budgets leading…

Thank you, Rick, and thank you, everyone, for joining us today. I'll begin my comments on Slide 10. I've got a lot of comments, so please bear with me. Thank you for joining. I've got to say, it's been a bit brutal watching the decline in our share price since we spoke to you in July. I think I understand why the market reacted this way. But intellectually, it's hard for me to comprehend given our continuous earnings growth history. So I'd like to take a minute and reflect on the diversity of our earnings. When I began this business, 100% of our revenue was earned from ATM cash withdrawals. Today, these same ATM cash withdrawals only account for approximately 35% of our consolidated adjusted EBITDA. However, it feels like The Street is only focused on the 35% of earnings from our ATM dispensing business and not seen or giving us credit in the value of all of Euronet's business. This year, 65%, that's right, 65% of our adjusted EBITDA will come from product streams other than our ATM business lines such as POS acquiring, epay digital distribution, Dandelion digital money transfer, Ren and card processing. It is this diversity which, despite a difficult economic environment in Europe, allows us to deliver record revenue, record earnings and another year of double-digit growth. During a recent investor discussion, as we were discussing the state of the ATM business in Europe, one of our long-term investors told me, we are with you, Mike, but you're going to have to prove it. So over the course of the next few slides, I hope that I will be able to convince you that people are going to continue to use cash. And then I hope you will realize the value of our consolidated business.…

[Operator Instructions] Our first question is going to come from the line of Peter Heckmann with D.A. Davidson.

Lots of information today, and I think you presented a good case. In terms of how we think about -- I missed it, I'll get the transcript, but in terms of kind of the repositioning of the current ATM footprint, how are you thinking about that Europe versus Asia Pacific, maybe Northern Africa. And I guess, do you expect like wage inflation to create some normalization of withdrawal transaction activity in next year's third quarter?

So this year's inflationary pressures and so forth, were, I think, kind of a shock to people. In fact, we've got some data that shows that 1/3 of the home mortgages were adjusted with inflation this year because they don't do long mortgages. So we think that a lot of what happened this year was a bit of a shock and continued on the inflationary pressures of last year. There are some sources that we have, one of our biggest retailers expect more purchasing power next summer. So that could be good because virtually every country now has raised the wages of all of its citizens, all the unions had to force that issue like you're seeing here in the U.S. So we're kind of cautiously optimistic about more money to be -- money in people's pockets next year. But despite that, we're going to make sure that we get rid of any ATMs that aren't profitable for us in Europe. But those other places, the expansion markets outside of Europe already are profitable and getting more profitable as we get in more into their season. These guys over the -- at least our past data shows that they're over twice as profitable as our ATM locations in Europe. So we'll continue to expand into these 4 countries, which, as a reminder, are Malaysia, Philippines, Morocco and Egypt, and we have several other countries that we believe that we can open in the next year that would be a similar kind of personality you might say. So we're going to continue to do that and continue to expand. And by the way, for everybody, we will go maybe 5 or so minutes longer on this call because I talked a little long.

And our next question is going to come from the line of Andrew Schmidt with Citi Global Markets.

Really appreciate all the work that went into this. A lot of stuff here. I wanted to go to Slide 10 in which you talked about the adjusted EBITDA by segment. Fully understanding the simplicity that you're trying to put in. I do think it's important to kind of talk about relative growth rates here, just as you think about the long term. And it's good to see the EFT other breakout, which I think contains your digital initiatives. But how should we think about just the growth of the EFT other more digital items versus the growth of EFT ATMs over the longer term from an adjusted EBITDA perspective. I think that might be helpful for folks.

Well, as we've said -- first of all, we're not going to like to dissect ourselves and give a number for each. But as we've said in the past, these other digital endeavors are really growing fast. So they're going to -- this 12 and 35, if you fast forward that, it's going to be a different couple of numbers. Because you just -- as we mentioned just in this call, we've watched our POS acquiring business, double its profit over the last 18 to 24 months. So -- but that's just one little segment. We're just going to hold people to the thought that as a combined entity, that's the key. We get money from all different directions. As a combined entity, we expect to grow 10% to 15% compounded growth rate year-over-year.

Yes. And I would just also add that, that smaller wedge in the EFT segment, remember, scarcely 5 years ago, that wasn't in there.

In 2019, it wasn’t even there.

And so I think that really kind of speaks to the fact that, that piece we would expect is probably going to have a more accelerated growth there. But I think it's also reflective of how we've continued to diversify the business and put a lot more of the digital processing in the framework. So again, just recognize that 5 years ago, that piece was not an element on the page.

And in 2019, the EFT business was just basically all ATMs in Europe and it contributed 58% of our EBITDA in 2019. So a big tick.

And our next question is going to come from the line of Chris Kennedy with William Blair.

Just a follow-up on that last one. If you look at the EFT business and how that business has -- the business mix has changed over time, can you talk about margin profile for the EFT segment going forward?

Yes. Well, as we said, we're going to refrain from getting 8 different data points out there to be measured by. But certainly, with respect to comparisons against today's numbers, we would expect that to improve because, as Mike said, we're taking a look at the profitability of every one of our ATMs with some new transactional data. We've already identified a big pile of costs that we'll take out of the picture. And these other digital products will have very high margins on them. So that will continue to expand that. So certainly, against the numbers we see today, I would expect to see that those will be expanding. But I don't want to start putting another number out there to be measure it against. Because all the detailed measuring really is kind of eclipsing the fundamental contribution, and I think you look at that chart there is why is it that the S&P for 7% growth gets a more than 2x value than we are. The production of the money that we make year in and year out is just simply not valued, and we believe maybe part of it is that you deliver on 7 items, you miss on 1 and the market wants to beat you up. So I appreciate your question, but we're going to try to be pretty consistent on really focusing on our earnings and cash production here.

Our next question is going to come from the line of Darrin Peller with Wolfe Research.

It's obviously good to see the data you showed on the card usage, international card usage trending in the right way. I guess I was just a little bit surprised we're not seeing the transaction growth rates pick up to the same degree. The ATM transaction growth follows suit yet. Maybe it's just early. So I'd love to hear a little more thoughts on what you think the disconnect could be there? But second part of that question, just Piraeus versus the core ATM transactions, what we should expect? And then lastly, when you think of guidance -- this is all the same question basically. So it shouldn't take too long. When you think of guidance, again, the transaction with an ATM, I mean you can get to your 10% to 15% just given how much cash you generate, right, buying back stock, et cetera. But when I think about the embedded opportunity on transaction growth, do you guys have a lot there, do you expect that to be strong and embedded or is that really not built in?

Well, first of all, we just saw -- when you look at the -- when the transactions occur in a given quarter like Q3, the bulk of them come in July and August and well less of them come in September and then less in October. And we saw that kick up in September. So it's just too early to see that make its way through the entire quarter. So that's why you don't see so much this quarter. It's just a timing kind of thing. And so I think that was your first question. I'm trying to remember what your second question was. Rick, do you remember?

I'm just trying to think about next year, you guys are giving us a 10% to 15% guide on EPS. I would think there should be a lot of levers to get there without even transactions....

And we think we're even taking the negative FX headwinds plus the share repurchases, plus what everybody else has on their page right now, looks like we're at the upper end of that range. But I want to tell you, that's our range. And that's all we'll say. But our goal will be, do better than that. I mean, everybody in our company is focused. We really love the fact that from 2010 to 2019, for 10 years in a row, we never grew at less than a 20% growth rate over prior year. Those were the good times. We'd love to have those back, but we're just giving everybody a guidance now of 10% to 15%. And when we beat it, then we'll all be happy.

And our next question is going to come from the line of Andrew Jeffrey with Truist Securities.

Appreciate the attempt to simplify everything. I think that makes a ton of sense. Mike, I want to shift gears a little bit and ask you about Money Transfer. You've done a really nice job building out the agent network and you mentioned the growth in deposits into connected accounts. Can you talk a little bit about the slowdown we've seen in the last 12 months in your digital transaction growth and whether that's just sort of law of large numbers or normalization? And how you position yourself versus some of the digital-only competition in the market that has maintained significantly faster digital growth and kind of just how you think about the competitive positioning of the business overall, I guess?

I think we've done a pretty good job, but it has slowed a little bit, and we're taking a harder look at that on the ways that we might be able to accelerate that. But we've also heard through -- and you'll probably see this start to bear out over the next quarter or two, there is some slowdown everywhere. I mean the reality is of the $800 billion family remittance market, only about 35% of it is done digitally. So that's it. Most people come to a new country and they're kind of cash-based citizens or workers just like they were in their old country. So that's one of the assets that we have as we're both bricks and mortar and digital. And so if you've got 35% of the market is digital, at some point in time after all this market share gets acquired, you start to bang up against the ceiling. And I think you'll see us and others probably do that. But we've got some new tricks up our sleeve that we hope will reaccelerate that as we go forward.

Our next question is going to come from the line of Mike Grondahl with Northland Securities.

Thanks for all the data on the ATM business. You talked about redeploying some of that ATM fleet and $20 million of cost saves next year. Roughly, are you talking 1,500 ATMs that need to be moved, 3,000? Just trying to get a feel for how many you've identified or what you think you need to move.

Well, there's over 1,000, but we'll just have to see what the final numbers are. And we need to take into consideration there are some other changes in the works, Mike. For example, some countries are considering raising their domestic interchange fees. Other countries are thinking about doing surcharge. So you don't want to be -- you don't want to pull an ATM that's making a little bit of money, that could make a lot of money with those changes. So we're going to be careful, but we have already identified some ATM. I think at the end of the day, we just want EFT's profits to grow. And I think that's more important to you than how many ATMs we have out there.

Our next question is going to come from the line of Ken Suchoski with Autonomous Research.

The high-value transactions obviously had a nice rebound in September, and it sounds like some of this is just European travelers delaying their summer vacation from June, July to a less costly September. So I guess, is the expectation that you had this kind of jump this pop and that from here, you have a slower recovery because I'm not sure if people are taking their summer trip in the fourth quarter. And then I guess, more broadly, like what gives you the confidence that this isn't just another headshake and that you're going to track your own control trends more closely going forward?

Well, I think the most obvious thing is you look at people other than Europeans, and we beat the number every month this year. So anybody traveling to Europe from outside is using ATMs more than they ever have. You're right. Our challenge right now is the economics within Europe. And so the question is, how do you beat it? I think you beat it by continuing to expand into virgin territory. Certainly, these new markets outside of Europe are just killer markets. I mean, they just make lots of money, where we'll continue to do that. And that gives us -- and then we will find any of those ATMs that we believe are not profitable enough, we'll take those out and use them instead of buying new CapEx machines and put them into the spots that we have. We have several markets in Europe, for instance, that we're opening up or starting to expand within, for example, France and Belgium and Albania that are three -- France is not a new market for us. The other two are but it's well underserved. We mentioned that we got that contract in France for 150 ATM. There are more tourists that come to France than to any other country in the world. So there are still spots that we believe that we can make money, and that's where we're going to redeploy these ATMs that we pull out.

And our last question is going to come from the line of Charles Nabhan with Stephens.

Most of my questions have been asked already, but I wanted to get your perspective on capital allocation. You got about $1 billion in cash on hand and you've been pretty active buying back shares, but M&A has also been a small part of the strategy, and I think you did the Philippines deal last year. So I'm curious how you're thinking about that balance going forward if the redeployment of ATM strategy changes anything with respect to going out and acquiring ATMs like you've done in the past?

Actually really nothing will have changed. My preference is always an acquisition. You saw what we did with the Piraeus Bank merchant acquiring business that's now called EMF, Euronet merchant acquiring that maybe has basically doubled its profits in less than two years. Those are the gifts that keep on giving. So we really love that kind of thing. We will look at purchasing -- repurchasing shares as the market is treating us poorly like we did in this last quarter. But really, whether you're pulling them out -- so let's say these ATMs cost $11,000 each, we used to buy, call it, 3,000 to 3,500. So that's like $40 million in CapEx. We will, if maybe we only need to spend half of that this coming year, and it does give us more cash, but it's not enough really to move the needle. So we will just continue down our same path as we have in the past and that we're actually very actively evaluating a number of companies right now that could be acquisition candidates. But we're pretty tough when we look at these things. We do thorough due diligence and a lot of times find skeletons in the closet, so we have to walk away. But we're always looking at -- I mean we're deal people. We love deals. So if I can do that, I will. But we'll just have to see what pops up.

And thank you, everybody, for taking your time with us today. I really appreciate it. I look forward to talking to you after Q4 is complete. Thank you very much.

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