Greetings, and welcome to the Euronet Worldwide Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [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.

Thank you. Good morning, everyone, and welcome to Euronet's fourth quarter and full year 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 follow-up or it's 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. Except as may be required by law, Euronet does not intend to update these forward-looking statement and undertakes no duty to any person to provide an update. You should avoid placing undue reliance on these 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. Good morning, and I would like to thank everyone for joining us today. I will begin my comments on slide five. For the fourth quarter, we produced revenue of $957 million, operating income of $97 million, adjusted operating income of $100 million, and adjusted EBITDA of $147 million. These results were made possible by contributions from all three segments. Adjusted EPS was $1.88 per share compared to $1.39 in the fourth quarter of 2022 and ahead of the $1.75 guidance we provided for the quarter. We exceeded our guidance by better than expected performance across the business, good expense management, lower than expected tax rates, and improved FX rates against the U.S. dollar. We'd also like to call out that adjusted operating income, adjusted EBITDA, and adjusted EPS excluded a $2.5 million non-cash purchase accounting charge. Next slide, please. Slide six shows our results on an as-reported basis. On a year-over-year basis, we saw our most significant currencies increase at mid-single to low-double-digit rates, with a few exceptions, like the Egyptian pound, which declined 26%, and the Pakistan rupee, which declined 21%. To normalize the impacts of these currency changes, we have presented our results adjusted for currency on the next slide. Here on slide seven, we show our results adjusted for currency fluctuations. Before I jump into each segment, I want to reflect on the strength of our three segments, which produced another record consolidated revenue quarter and strong earnings growth across all three segments. EFT revenue grew 9%, while adjusted operating income grew 53%, and adjusted EBITDA grew 21%. This strong growth was the result of an increase in international withdrawal transactions, combined with the continued strong performance from our merchants acquiring business, where profits have doubled over the past two years. EFT margins improved…

Thanks, Rick, and thank you, everybody, for joining us today. I'll begin my comments on slide 15 as Rick said. Well, let me just start out and say, wow, what a quarter. We delivered fourth quarter earnings ahead of our expectations, which you may recall was nicely ahead of the consensus expectations back in October. These results were driven by better than expected improvement in international cash withdrawals, solid growth in our core e-Pay business, and diligent expense management in both EFT and money transfer. The record fourth quarter results are a true testament to the product and geographic diversity of our business, together with the attention of our management around the world. As we shared with you in the third quarter, nearly two-thirds of our earnings are generated from non-ATM-related businesses. Throughout our nearly 30-year history, we have focused on developing a network of access points, products, and solutions that are secure, easy to use, and enable customers to send and receive payments and access their money using their preferred methods. This unique combination of our network, our product portfolio, technical solutions, and geographic footprint differentiates us from our competition and allows us to weather even the most challenging economic shifts. As I reflect on 2023 and look forward to 2024, I do so with great optimism. Back last summer, the market was ready to write the obituary on cash and, in turn, the entire EFT segment of our business. We believe the recovery of international card usage on our ATMs in the latter part of the third quarter and its continuation into the fourth quarter, together with the third-party published data, has put that subject to rest. And I can look forward to growth across all three segments in 2024 because of the momentum we gained in the…

Thank you. And at this time, we'll conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Pete Heckmann from D.A. Davidson. Your line is open.

Hey, good morning, everyone. Thanks for taking the questions. In terms of your ATM footprint review, you talked about 3,000 to 3,500 deployments in 2024 was your target. I guess, what are you thinking as a net number in terms of what additional units -- I guess, -- does that include units that are removed and then redeployed or I'm trying to think about how many...

So kind of how we look at it is we see 3,000 to 3,500 new opportunities for new sites for ATM, and then we will also continue to call our network. Remember, we didn't until just recently get back to -- you might say, the travel volume that we had in 2019. So we were a little bit hesitant to just take out tons of ATMs before we knew how many travellers would really be there and if the sites are still good based upon travel changes and so forth. So we took out those ATMs, a bit over 1,000 ATMs in the fourth quarter. We'll probably take out another 1,000, maybe even two -- somewhere between 1,002 this year. But outside of that, we will place 3,000 to 3,500 new ones.

Okay. Okay. And then I just wanted to ask, I don't -- I wouldn't assume this is a super significant exposure. But I'm sure you've seen what's going on with Paytm in India. And I guess, what is your read on that? What would be your exposure to Paytm? And is it your impression that to the extent the regulators shut that down, that consumers would just move to one of the other global wallets?

That's exactly what would happen, if it happened, but I do kind of find it hard to believe, they're so frigging large that they would be shut down. So -- but the deal is we have every single wallet in India. And so you just see the volumes move across.

Makes sense. All right.

And a little aside from the people that I talked to, a whole lot of people in India have more than one wallet already on their phone. So it wouldn't even be that big a challenge shift.

That makes sense.

Our next question will come from the line of Darrin Peller from Wolfe Research. Your line is open.

Hey, guys. You know, travel seems to be driving still about a third of EBITDA when we look at the numbers. And Mike, when looking out a few years, this is a little bit of a bigger picture question, but just considering the growth drivers, many of which you went through are a little less cyclical or less tied to travel perhaps. If you could just give us a sense of what you would expect the mix to look like? When you think of EFT also growing still or resuming growth at a rate that's pretty healthy, what kind of contribution do you think the business is going to see from travel related in a couple of years? And to the best of your knowledge, I mean, EFT is also going to grow well, I would imagine. So maybe if you factor that into?

Well, it's hard to know which one of our segments will grow the fat past us and once you get to steady state. But what is real is that this year, we're going to finally get to the point where we kind of got our full legs underneath this with respect to travel and spend. And so once that's there, I mean you just look at the opportunities we have in EFT, it will be a fast grower. And so the three divisions and the other opportunities with REN and Dandelion are all are all fighting to try to keep up. I mean it's going to be a healthy race to see who grows the fastest, but we're really excited about every one of our endeavour.

Darrin, I would add that if you look at our history, all of our businesses have consistent, very good, strong growth rates, either at or near double-digit growth rates. We don't have a bias for growth. We have a culture for growth. And so when we take a look at what the opportunities are around the world, we see continued expansion for all three of our segments. So while we might see some different rates of growth out of each of the segments as we execute our plans, we've got a very consistent history of double-digit or near double-digit growth from all three segments. And we see that the opportunities to continue that around the world remain as attractive, if not more attractive as we go forward.

Okay. I'm just trying to figure out the cyclicality of the business going How do we approach this?.

Well, you know, I... Yeah, go ahead. So, cyclicality, So stick with we really... when you look at seasonal cyclicality. We're always going to have that because travelers mostly traveling Q2 and Q3. But with respect to kind of the macro changes, now that we're getting travelled back, I don't think we're going to see cyclicality after that. As Rick said, all three segments have histories of very strong growth -- and that's why we're kind of looking for now that we -- like I said, we got the travel stuff strengthened out. We're really excited that where we are. Remember, in 2019, 58% of our EBITDA was in the EFT segment. It was all ATMs, okay? And now it's all -- we've got diversity as our key -- and now that's just a third of our business, while the other businesses have grown markedly over the last several years. So that's what gives us the optimism.

Mike, what percentage of your new ATM deployments are going to be outside of Europe? And I mean, I know we saw the Belgium and Mexico additions also if you can help us size impacts or deployment time lines there?

Yes, probably half or so.

Okay. Good. So it truly is, I mean, getting a lot more diverse. And a lot of that is Asia also, the APAC areas you had started?

Asia, North Africa and now south of our border. And I'd like to remind you those ATMs that we're putting outside of Europe are probably twice as profitable as the ones in Europe. And the reason is, is because there's card access or acceptance all over Europe for most all of your spend. You just need a little bit of cash to get buy in Europe. You don't need a lot -- but in these other markets, they're primarily cash-based markets. So good luck having lunch with a card. You've got to go -- you've got to use cash. And so that's why those ATMs are so much busier.

Our next question will come from the line of Andrew Jeffrey from Truist Securities. Your line is open

Hi. Good morning, guys. Appreciate you taking the question. Mike, I appreciate you taking the question. Mike, I wanted to ask you about Money Transfer. That's pretty impressive agent growth. So I guess just starting out, is Ria Euronet now the largest agent network in the world, just want to kind of level set?

We believe so, yes. And when you look at -- well, I don't know if you call it agent growth, we'll just say point growth because we have agents on the send side and then we have others -- and then we have payout correspondence on the other side. And including with those -- in addition to the correspondence, which were typically like banks or big retailers in some of these markets, we now have bank accounts directly, where people don't have to walk in, that just drops into their bank account directly, and we've got 4 billion of those. But the new distribution channel are wallet. Because in the developing world, everybody's got a wallet now. And so we can drop money directly into 2 billion wallet. And that is an advantage that we have that nobody has.

Yes. And that sort of dovetails on my next question, which is your digital growth strategy and the success you seem to be having, is the 20% digital transaction growth at baseline from which you'd expect to grow such that you're going to see or we should expect segment revenue growth to accelerate over time? Or do you feel pretty good about sort of generally you are around 10%, high single digits?

I think we're going to get growth out of both of them. I don't know which one is going to grow the funding. Well, right now, the digital is growing faster and they'll probably continue to do so. And I think one of the reasons that we're having a really good success with our digital growth strategy is because of our digital payout. We told you those numbers of how well we're paying out into bank accounts and wallets.

Okay. And one last one, if I might sneak it in. Just with regard to REN. Is sort of the -- what appears to be an accelerating shift to open banking and RTP globally going to reach a tipping point such that you think that REN growth accelerates? Or is it going to be sort of a more steady or linear compounding?

No, no, no. It's -- we've already got the beginning of the hyperbolic curve because when you think about it, we've got a new -- we had a new technology that we released three years ago. Nobody on the planet had it. And so we had to get those early adopters in there. And we got the early adopters who are all in Asia because the Asian banks were more progressive and they were also threatened by the wallets at the time, okay? They wanted to stay relevant to their customers. So they were the early adopters. We then became -- once you get a couple of those, then the next ones come and the next ones come. And the fact of the matter is their legacy platforms can't support the kind of solutions that customers are acting. In other words, their legacy platforms don't talk wallet. And so once we established ourselves in Asia, then we took that same product, and we went to South America, and we've been going now to North America as well. And finally, things are happening. I mean you just last July, as you know, FedNow was launched. It was an RTP network in the United States. It's running roughly 10 years behind India. But finally, we're getting our act together. So more and more people are going to be wanting to do account-based real-time payments. And this idea of just card-based payments is going to be very fast day and 10 years from now.

Our next question will come from the line of Charles Nabhan from Stephens. Your line is open.

Good morning, and thank you for taking my question. I wanted to double-click on the non-ATM piece of EFT. If I look at one of your disclosures, it looks like 13% of EBITDA is driven by that non-ATM piece. And if I recall, roughly 20% to 25% of revenue within that segment is generated through those sources. So I guess, first, my question is if you could speak to any trends you're seeing within Piraeus. I know you talked about some expansion last quarter. And then secondly, if my math is correct, I'm coming up with a margin somewhere north of 30 and I wanted to confirm my math is at least somewhat in the ballpark because if I'm thinking about it correctly, that could be a nice tailwind to margins with an EFT going forward?

Okay. So we've got several things that are happening. So within EFT, so the components are, of course, ATM and that would be mostly our independent ATM deployment. Second would be the outsourcing deals that we have, and that's all in that ATM piece. And then the other part of EFT is going to be REN and acquiring. Acquiring got roughly 25% margins, when we install REN, that's probably got 60% to 80% margins depending on when how that works. And then the ATMs themselves are probably -- they have been as high as a 30% margin, a 33% margin there, a little bit lower now because we don't have quite the productivity that we had in 2019 before the travel crisis, but that's coming back. So when you blend it all together, I think we could approach 30%, but depending on how fast our business grows and acquiring, a 25% it might hold it down a little bit. Rick just looked at all his numbers, so he'll give you -- he'll give you three significant digits on that answer.

Yes. And yes, your number is roughly right there. It is approaching 30% for the year. Our best margin years were back in 2019. So I think as we see the travel recovery, continue into '24. And as Mike said in his comments that we've seen some pricing opportunities on the interchange and possible surcharge front, we've seen some actual -- some results, some announcements in '23. We anticipate maybe some more in '24. So all of that will just further support continued margin expansion in that business. .

Got it. If I could sneak in a quick follow-up. It's nice to see the margin expansion within money transfer, especially considering your -- the way you're expanding the network. I wanted to drill into that a little bit and just get a better understanding of what specifically is driving that expansion? Is it a mix shift within the business? Or is it just simply scale on your existing network? Any commentary around that would be helpful?

So remember, as we grow, we have about a 35% incremental EBITDA margin on that next transaction. So obviously, as you have more volume, it's going to average you up. And we're just doing, as we mentioned, too, on the digital side, we're being -- we've got kind of a new approach to our digital marketing that's making it more effective. So kind of everything added together, I would say.

Our next question will come from the line of Mike Grondahl from Northland Cpital Securities. Your line is open.

Hey, guys. Hey, good morning. Hey, first thing, the 1,300 ATMs redeployed in 4Q and then 1,500 roughly at your midpoint in 2024. Could you give us a little bit of color like -- are they all unprofitable? Or is this like what you just call it the bottom 5%, -- just looking for a little color kind of what the cut-off is there? And then second, maybe for Rick, what was the benefit from FX and tax rate kind of compared to your $1.75 guidance in the quarter?

Well, let's see for the ATMs, which essentially what we're seeing is these are ATMs that are not meeting our return expectations, okay? And they range from nearly breakeven to losing money. So at the end of the day, if we've got an ATM that's already on site and it's producing an incremental profit, we're not going to be motivated to want to take it out. But if it's not producing profit, then it makes sense for us to remove it. And as Mike said, over the period that we've kind of been looking to see the recovery of travel from COVID, we were a little less aggressive on taking out a machine because we didn't really have a good visibility as to what that exact traffic would look like. So we think that we're approaching that, and it just makes good management sense. But net-net, these are nonperforming machines as opposed to let's call them light performing machines. . And then with respect to the benefit from tax or FX, we exceeded our earnings guidance by about, what, $0.13 a share. I would tell you, roughly half of that was from tax and then the other half was kind of split evenly between FX and operations.

Our next question will come from the line of Ken Suchoski from Autonomous Research. Your line is open.

Hey, good morning. Thanks for taking the question. I just wanted to ask about the incremental EBIT margins in the EFT segment. I mean, how should we think about those just given the mix of business and how that's changing, 2023, I think, had a kind of a mid-teens incremental EBIT margin versus something much higher historically, you have the non-ATM bucket scaling in EFT. So some moving parts there. So any way to think about sort of the incremental margins in that segment moving forward would be very helpful?

Yes. Well, as I mentioned earlier though, we anticipate that they will continue to improve. As we said last quarter, we're going to hold off in giving a whole series of exact details. I think, hopefully, you can appreciate that producing an earnings growth in the quarter that was a 30-plus percent year-over-year number and our full year number of 15% is that we're going to have ebb and flows throughout the segments. But we consistently produce these very strong double-digit growth numbers. But more specifically in that EFT segment, we will continue to see those margins expand. Again, as I said earlier, because of travel recovery, which is going to bring those more high-margin transactions. As Mike said earlier, as we go outside of the European markets where we've seen very good response -- very good returns on these ATMs. That should be very helpful. And then again, we're seeing some rate increases on the interchange and surcharge front. So -- and all that together with just good expense management. So we'll improve the profits because of ATM profit management pairing out the lesser performer one, some rate increases, some geographical expansion, some travel recovery, all signs point to improving margins. We will refrain on telling you what that number is. Again, we want to focus on the earnings of the consolidation as opposed to any one particular part.

Yes. Okay. That's helpful, Rick. And for my follow-up, I just want to ask about money transfer. You mentioned an increase in marketing efforts in certain geographies. I was just wondering if you could talk about what you're seeing from a competitive standpoint because some of your competitors are being aggressive with promotional activity in the market. And I was hoping you could talk about how retention rates and customer acquisition costs are trending. I think you mentioned some strong digital customer acquisition in recent months. So any thoughts on customer acquisition cost trends for new customers would be helpful.

Okay. So with respect to money transfer, I mean, you got to understand, there are probably 10,000 money transfer companies in the world, okay? And you know the names of a handful, okay? So as an industry, this is a bare knuckle street bite every single day, maybe a nice side. okay? So competition really hasn't changed. There are some of our competitors are saying they're going to be more aggressive here or there. We've seen little instances of that in one market or another for shorter periods of time. We don't see, in general, it's much more competitive than it ever was. We do see, as I mentioned in previous calls, that just the inflationary pressures that we've seen in the United States and we see abroad have actually brought down the average amount sent per transaction. And remember, we make an FX spread on this. And so if maybe our average FX spread is 0.6%. And instead of -- and on average, our spend amount is down, call it, $20. That cost us $0.12 a transaction, which is pure margin. . So that's where we've seen the pressure, not necessarily because of competitiveness, but just because the reality is these immigrates who have got mostly blue-collar jobs working hard, gas on their truck costs more than it did a year ago. Groceries cost more. They just spent a little bit less back to their mom, but they still send it every month. So that's kind of what we've seen. We've got one more question, operator, and then we're going to be at the top of the hour. So we're already there, but...

And our next question comes from the line of Andrew Schmidt from Citi Global Market. The floor is open.

Hey, good morning. Thanks for squeezing me in. This is David Wielizinski on for Andrew Schmidt. What drove the reaccelerating money transfer transaction trends quarter-to-quarter in APAC and Middle East originated transfers?

I think it's just the general economics there. And -- which is probably most of it.

And we had some -- you may recall in the third quarter, we talked about some FX movements in Pakistan that were irregular that drove the transactions from above the table to below the table in the black market. We saw that kind of rightsize itself. So that helped a little bit. But then as Mike says, it's just kind of standard marketing activity out there. But that Pakistan was only the only real call out in there.

If I could just squeeze in a follow-up here. Regarding the EFT segment price increases, I'm wondering if you could provide more color on the opportunity there?

Well, it's just what we said before, over last year, there were four countries that either improved interchange or allowed surcharge that were not allowed in the prior year. There are a number of countries discussing both of these issues right now. So if any of them -- we never know when they're going to come to a head. But when they do, you get the automatic step function in profit when they do. So that's what we're looking at.

And let's take a look at the dynamics of this structure in payments world out there. Interchange is at fixed rate kind of a thing as our surcharges in many respects. But look what's happened with the inflationary costs over the last few years, rents up, cash delivery is up, maintenance is up, labor costs are up. If the numbers on the cost side are up across the board, yet we can't just go out and raise the interchange rate. So it's not just us, but banks around the world are feeling this very significantly, and there's a lot of discussions underway on how the banks are going to improve that revenue stream to be able to cover the cost. And so as those discussions take place, we've seen that kind of creep into the picture more and more over the last few years. And those discussions are live and well, we expect that they will continue. So there has to be some rate improvement just to cover the increased costs over the last few years.

Point is, it isn't just us who wishes these numbers to go up. We're actually in conjunction with the banks as far as our thought process. But with that, I think we're going to end our call today, I want to thank everybody for your time on the call, and I look forward to talking to you next quarter. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.