Greetings and welcome to the Euronet Worldwide First Quarter 2024 Earnings 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.

Thank you. Good morning, everyone, and welcome to Euronet's First Quarter 2024 Earnings Conference Call. On the call today, 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 will 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 our presentation. 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 thank you to everyone joining us today. I will begin my comments on Slide 5. For the first quarter, we delivered revenue of $857 million, adjusted operating income of $63 million (sic) [ $64 million ], adjusted EBITDA of $109 million, a record first quarter across all 3 metrics. These results were made possible by contributions from each of the segments, but with a particularly strong earnings contribution from the EEFT segment due to an increase in the international transactions, growth of our merchant services business and strategic investments in new markets that delivered double-digit growth over the prior year. We are very pleased that the business delivered a record-breaking first quarter adjusted EPS of $1.28, a 47% increase over the prior year of $0.87. We were able to deliver this strong earnings growth due to our continued focus on expanding the business in new and existing markets, adding more products, and continued investments in our industry-leading technology across all 3 segments. Moreover, we are pleased that we were able to deliver results, which exceeded analyst expectations, consensus expectations for both revenue and adjusted EPS in the first quarter following our change from quarterly to annual adjusted EPS guidance. And before someone says the favorable earnings all came from taxes, I would like to point out that approximately $4.5 million or approximately $0.10 per share benefit was realized from the resolution of tax matters, and $3 million or approximately $0.05 per share from the recovery of a duty fee paid last year. Excluding these benefits from the $1.28 per share, pro forma adjusted EPS of $1.13 nicely exceeded consensus estimates. The pro forma $1.13 per share represents a 30% growth over the first quarter last year. This favorable pro forma $1.13 per share compared…

Thank you, Rick, and thank you, everyone, for joining us today. I'll begin my comments on Slide #10. Before I discuss the quarter, I wanted to talk about the state of our business. As you can see from the slide at the left, our revenue and earnings trends reflect double-digit adjusted EBITDA growth over the past 3 years, not much different than our 10- to 20-year compounded annual growth rate. Both you and I struggled through the past COVID years. COVID is behind us. Let's leave it there and focus on the future. And what about the future? We shared with you our confidence in growing our earnings 10% to 15% per year, similar to our trailing 10- and 20-year results. And with such a strong start to the year, I can't help but be more and more confident with our expectations about our growth. Also note the directional movement of the red portions of the lines in the chart. The trend of the past 3 years looks a lot like the trends for the 3 years prior to COVID. I believe these trends speak directly to the consistency of our year-over-year results. We are focused on growth powered by our best-in-class Ren technology platform, supporting innovative product development and our world-leading cross-border Dandelion payments network. We are busy entering into new markets, expanding our merchant services business, expanding our digital offerings and growing our network. And as you can see, this strategy is working. As we have continued to grow, we are very excited about the future. Business is good. So let's dig into those first quarter results. I'm excited that we delivered a record first quarter across all consolidated financial metrics, highlighted by adjusted EPS of $1.28, a 47% increase compared to $0.87 last year. As Rick mentioned,…

[Operator Instructions] The first question I have today is coming from Andrew Schmidt of Citi Global Markets.

This is David [indiscernible] on for Andrew Schmidt. Regarding the epay segment, you mentioned inflationary pressures impacting the margin. Where did you see the inflation specifically? And are there other offsets on a go-forward basis?

Yes. With the inflation, we've seen kind of around the globe, I would say we saw more of it in the European markets where obviously you may know that epay has more of its business. So from our standpoint, it was a little bit more concentrated in that part of the world. But again, I don't think we've seen a corner of the earth that's not been impacted by inflation following the impacts brought about by COVID. But your second part of the question, I didn't quite follow. So maybe you can ask that again.

Are there any ways to improve the margin on a go-forward basis to offset these inflationary impacts -- kind of the low watermark here?

Yes. I mean a couple of things that most easily come into that is, and as we mentioned in here, geographical expansion and product expansion. And as we pointed out in here, some of our own proprietary products gives us the ability to have a little better margins than what we have on other product that we distribute for customers. So that's where I would see that we're going to have the ability to get back into that earnings growth mode, scale and geographical expansion, which will contribute to that scale, and then some additional product that has some enhanced margin on it.

Understood. And then within EFT, how much more runway is there to optimize the network?

Listen, with EFT, we're always calling our lower-performing ATMs and trying to put them in better locations. So you get a combination of that, that we do kind of every day. And then also as we add new ATMs into new markets, then you get that benefit as well. So there is some, certainly.

Our next question is coming from Mike Grondahl of Northland Capital Markets.

Two quick questions. Any update on surcharge or interchange? And then secondly, what were the total ATMs redeployed in 4Q and 1Q? And what effect do you think that had in the quarter? Can you monetize or quantify that?

There was about 2,000 across those 2 quarters, right? Yes, all together. So I don't have the exact numbers to quantify them. But if you think about it for a minute, if you're taking out an ATM that's losing money, you'll see your revenue go down, but you'll also see your profits go up. So that's kind of what's been happening over the last 2 quarters.

Got it. Then I don't know, what are you guys seeing with surcharge or interchange across?

Oh, yes, you asked that question. There is a lot of action going on, but nothing has happened yet. But as we talk to the regulators in various markets, all we can say is where it sits today will not be what it looks like in a year from now. So -- but you just don't know when these regulators are going to pop. So we'll just say we're just going to be conservative and not work that into our guidance at this point. But we -- rest assured, you're going to see both surcharges added and interchanges go up over the next year or 2.

And if you just think about it, and we've made a comment here a couple of times about how inflation has impacted our business, and you've heard that on many, many other companies that you've talked to. All of the banks out there are challenged with the exact same thing. And unlike even in the acquiring world where you get a percentage of the transaction, as inflation goes up in the ATM world, you're not going to get an increase. That interchange remains the same. And so these banks have been very challenged by the rising costs. And there's been studies produced that show that the interchange does not cover the cost. So you're seeing more and more activity in the market where the banks are saying, we simply can't provide a service like this and continuing to take the losses on it. So more and more discussion going. We'll see -- and I'm reasonably certain we'll see some benefit from that, but momentum moving in our direction.

Yes, just over the last 2 years, we've seen about 5 different examples in different countries. So we'll get more.

That would be great. The margin on those increases will be pretty high. So?

Yes. I mean the margin on the increase is almost 100%. So yes, it's big.

And our next question will be coming from Cris Kennedy of William Blair.

You gave a great update on these ATMs in Philippines. Can you just talk about the opportunity to expand your tourist-focused ATMs outside of Europe?

That's -- I mean, I won't say that's our holy grail, but that certainly is a high focus item for us. With a little luck, this year, we might add 2, 3, 4 more countries. We're targeting more in Southeast Asia. We're still targeting a couple more in North Africa. And of course, virtually everybody south of our border. There's little tourist places in almost every country south of the United States. We've just lit up our first country, which was Mexico last quarter, and that's just the beginning of several places that we're trying to go into. So it's -- I would imagine that you look at our huge estate of 35,000 tourist-focused ATMs in Europe. We only have a couple of thousand outside of Europe. Over the next 5 to 10 years, the numbers outside of Europe could equal Europe. So we'll just have to see what happens. But -- the reason I can't just say we're going to just jump into them all instantly is in Europe, remember, we had the Payment Services Directive, a law that was passed by the EU that allowed a single regulator to regulate your expansion into every one of the EU countries. And we don't have that when we expand through the rest of the world. So we've got to approach every country individually. It's the pain. We've got to get the Central Bank to allow us as a nonbank to own an ATM and et cetera. So it just takes some time, but we've done that now in 4, 5 countries, and we hope to do it in many more.

Great. And then just a follow-up on Ren. Most of the business has been outside of the U.S. Can you just talk about kind of the opportunities to work with U.S. financial institutions?

Well, there are some opportunities. We're in discussions with several of them right now. But a deal is not a deal until it's signed and delivered. So we're not announcing until we get one. But we're certainly going after it, and it's the success of Ren outside -- it took a while, but the success of Ren outside the U.S. is now starting to bleed into the U.S.

And I would add to that is that we've been very encouraged by what these very large banks have told us about the quality of our technology and the challenges that they are grappling with, with respect to their historical legacy old, outdated technology. So we'll -- like Mike said, we'll wait until we've got something signed to announce, but we're very encouraged by the reception that we've gotten so far.

Yes. Those legacy payment stacks are very legacy. I mean, they're architected 20 to 40 years ago, that makes it a challenge for banks to deal with things like wallets and QR codes and all the modern banking challenges, account-based transactions and so forth. So the need is great.

And the next question is coming from Gus Gala of Monness, Crespi, Hardt & Company.

Could you help me a little bit unpack the drivers of that big 60% incremental EBITDA margin this quarter in EFT -- just -- yes, that will be my first one. I have a follow-up.

Well, okay. So it's -- the 2 things we mentioned before. It's better transactions, and it's also rationalizing nonperforming ATMs. If you think about it for a second, it cost us x amount to run this ATM every month. We'll just make up a number, call it, $1,000. So you need enough transactions to cover that $1,000 before you get to breakeven. But every transaction after that has 90% margin attached to it. So that's the point. Once you get your quantity up and you cover the nut of your network, then all that starts to fall to the bottom line, and that's kind of what you're seeing. And so that's it. And then -- so it's more transactions plus it's the optimization of getting rid of ATMs that are not profitable.

Great. I appreciate the color. And my next one is on Money Transfer. Could you talk a little bit about the evolution of digital -- profitability of digital segment? I mean, is the opportunity here for further margin expansion just from continuing to drive more remittances ending in a digital receive? Does that makes sense?

Yes. Okay. Well, that's an interesting -- so there's 2 parts to it. When you say digital, it's the send and receive. So when we pay out into cash where somebody walks up to the branch of a bank or something to pick up their money, that bank gets, call it, $3, maybe $3.50 from us to do that for us to allow that customer to walk in its doors and do the transaction. If I pay out into a bank account or into a wallet account, it only costs like $0.50. So margins tend to be higher, the higher percentage of the transactions that are paid out digitally. Then on the flip side, so as that grows, that's growing 31% even though our transactions are just growing like 10% or whatever the number is. So that's good. And the other piece of this is, just more transactions into more countries. It's the send side. It costs -- because I don't have to pay part of the customer's fee to the agent, a digitally acquired transaction has slightly better margins than a physically acquired transaction.

And our next question is coming from Charles Nabhan of Stephens.

I wanted to start with the Money Transfer segment, and I was hoping you could give us a little color around specifically what geographies are driving some of the strength in cross-border? And on the flip side, I know intra-U.S. has been weak for some time. But I'm wondering, are you seeing any deceleration or a slowdown in the decline within that business at all?

In answer to that last question, absolutely. Our decline is now roughly 10%, when it used to be roughly 20%. So it's declining slower, but there's also a smaller piece. So remember what this was -- the specific U.S. to U.S. business was called Walmart to Walmart. It was where people could bring their cash into a Walmart location, and it could pop out in another Walmart location. So that's -- with the advent of things like Venmo and Cash App and all these other digital methodologies to send money, that has really taken a bite out of what Walmart can do with the Walmart to Walmart cash-to-cash business. So that's why it's continued to go down. The nice thing is all our international business is up, and thus, this cash-to-cash business becomes a smaller and smaller piece of our total.

And remember that movement to an alternative form was really accelerated in the COVID period when you didn't have people at the customer service counters. People were restricted from going in buildings. There was closings of stores and stuff like that. So it kind of had a unique set of circumstances to it. But -- as Mike said, the rate of decline is tapering off and the absolute amount by which it's declining against is obviously lower than it was.

Got it. And on the cross-border piece, anything you could say on the -- where you're seeing strengths geographically?

Yes. That's been pretty consistent and pretty strong in virtually all our geographies. We don't have a bad geography right now.

Got it. And as a follow-up, I wanted to drill into some of the initiatives you have in place within epay that you had alluded to, Mike. Is there anything you could say about specific products or what's on your product road map within that business? And how we should think about KPIs as well as the timing of contribution from some of the initiatives you have in place within epay. Clearly, you have a strong history of repositioning that segment. And I think -- I would like to understand what's next and what the next evolution of epay would look like?

Okay. Well, we have Kevin Caponecchi, our CEO of the epay segment. So I'll let this be the last question, but I'll let Kevin give a shot for the answer.

Yes. So historically, we've always distributed what we referred to as third-party content, whether that's a mobile top up or whether that's a Google Play credit. It's not our product. It's a product owned by another brand. And Rick and Mike went through the whole transformation of epay over the last several years, where we've continued to change the product mix. Looking forward, our goal is to introduce more products, as Rick mentioned, that are epay branded, that have a higher margin. And those products take on different form factors. The second thing we're looking at introducing is more solutions. We referenced Skylight in the earnings call, and we introduced Conductor platform in the earnings call. Those are both solutions for both our retail partners and our brand partners. So looking forward, we think there will be a -- we were driving a shift mix from third-party content to products and solutions that are owned by epay that will have higher margins.

All right. Thanks, everybody. We'll look forward to talking to you in about 90 days. Thank you.

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