Good day, and thank you for standing by. Welcome to the Euronet Worldwide Third Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, General Counsel, Adam Godderz. Please go ahead.

Thank you, and good morning, everyone, and welcome to Euronet's third quarter 2024 earnings conference call today. On today's call, we have Mike Brown, our Chairman and CEO; as well as Rick Weller, our CFO. Before we begin, I would like 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 or 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, including those 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.

Thanks, Adam. I will begin my comments on Slide 5. We delivered a record third quarter on all key consolidated financial metrics. We delivered revenue of 1.1 billion, operating income of 182 million, adjusted EBITDA of 226 million, and adjusted EPS of $3.03. Important to note, we did not include in the $3.03 adjusted EPS an additional $0.28 per share related to an investment gain. Had we included the $0.28, our adjusted EPS would have been $3.31. Leading the way for this quarter results was EFT with double-digit constant currency operating income and adjusted EBITDA growth. Money Transfer delivered constant dollar third quarter revenue growth of 10%, operating income growth of 7%, and adjusted EBITDA growth of 4% compared to the prior year third quarter. epay delivered double-digit revenue and transaction growth. Our adjusted EPS of $3.03 was up 11% compared to the prior year third quarter. When considering our first three quarters, adjusted EPS this year was 17% higher than last year. It is clear that we are on track to be at the top end of and quite possibly through the range of 10% to 15% for the full year. As I reflect on the average analyst estimate for the quarter, some might say you're in at missed earnings expectations based on analyst consensus estimates of 3.11. While I understand that point, I will tell you that through the first three quarters of the year, we are 2% higher than the high end of our annual range we provided. I would also point out that due to the continued growth of the epay and Money Transfer segments through the pandemic, we've seen somewhat of a gradual quarterly earnings mixed shift out of the third quarter with a bit more balance in the first and fourth quarters. So, as…

Thank you, Rick. And thank you, everyone, for joining us today. I'll begin my comments on Slide 10. This summer, Euronet turned 30 years old. To celebrate this milestone, we recently gathered about 300 leaders from scores of countries around the globe to take a minute and celebrate all that we have accomplished over our 30 years, which includes consistently growing year-over-year, 29 of those 30 years, the only exception being the global pandemic. We were also able to share updates across the businesses, create additional ideas on how we can continue to deliver earnings that will outperform the market for many years to come. The energy in the room was contagious. And if I were to sum it all up, my key takeaway from this event is the world is not the same following COVID, and neither are we. We did not take the COVID pandemic as an excuse or a break from moving forward. We instead invested in the business and came up with creative ways to utilize our assets and technologies to create new revenue-generating opportunities. These investments resulted in the growth of our epay and money transfer segments all through COVID. These segments now make up a larger portion of our earnings than pre-COVID, which combined with the extension of the travel season, the addition of new product verticals, entry into new markets, as well as our ability to take advantage of opportunities such as retailer promotions in our epay segment, has resulted in changes to the way our earnings are distributed throughout the year. As Rick said, while third quarter is still our largest quarter, it is not as sharp as pre-pandemic. This evolution is no different than how we've always grown the business. After we installed the first ATM in Budapest 30 years ago,…

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions]. Our first question comes from Andrew Schmidt from Citigroup. The floor is yours.

Hi, Mike. Hi, Rick. Thanks for taking my questions and I appreciate all the comments and the focus on longer-term earnings growth. It's good to reiterate that. I think part of that is just getting comfort in the sustainability of some of the trends, particularly in the EFT segment and the ATM transaction trajectory. So, if you go back to Slide 11 for a second, it's good to see the stability in the overall market, but international transactions are still down. I think you're outperforming that, but maybe you could talk about the ability to sustain same-store sales growth for international ATM transactions. And then, Mike, I think you mentioned that transactions are trending in line, international transactions are trending relatively in line with your control, but if you could put a finer point on just the relationship there, that'd be great. Thanks a lot, guys.

Okay, so as you can see by that graph in Slide 11, you're right international transactions are down, but they're only down by 0.7%. So we can call that roughly flat. I think the way we get around this, even though that we may be – that may be dropping off, call it 1% a year or something is we need to move ATMs to new markets. And that's what we're doing. We're expanding into new markets where these numbers for us are excellent because those new markets are basically, the tourists are underserved with the ability to get cash conveniently. So even though this is the worldwide numbers, we're still finding pockets and niches that give us the opportunity to outrun all this.

And I would add to that, I would say that we have an unequalled ATM network in Europe. And as you can see in this chart, the domestic transactions are largely hanging in there, actually even going up a little bit. And we offer to banks an opportunity to use our network of ATMs to serve their customers. And as banks are closing down ATMs, closing down branches, as banks are being challenged by the competitive nature of internet-based kind of banks, this becomes a very important kind of asset to them. And so we've continued to add network participation agreements to our business. We see more and more opportunity there. So again since -- hopefully what this graph really illustrates is, as Mike said, we do anticipate that there will be some drift down in cash transactions, but it's not falling off. And we're getting a bigger part of that pie by having, like I say an unequalled network in Europe.

And just to put a point on what Rick just said, branches are closing like crazy over the last five years, 25% of all the branches in Europe have shuttered with them when an ATM. So those same ATMs could easily have acquired a transaction from one of these tourists. So what we're saying here is that the pie is roughly flat, but we've got less competition for that next transaction. And I think that's going to continue to happen. Now, this is Europe. When you go to the emerging markets, people - places like the Philippines, Morocco, Egypt and so forth that we're in, those markets are way, way underserved. They just don't have the branch network and the ATM infrastructure that are needed. So we can really kind of that these are just booths for us.

Got it, appreciate that. And then just maybe just squeeze one more in on the money transfer segment. Others have called out weakness in U.S. to Mexico, U.S. to LATAM. It doesn't seem like you're seeing that. Part of that may be share gains. A lot of it might be share gains, but if you could just talk about what you're seeing in terms of U.S. to LATAM, whether there's any impact from migration or other factors, that'd be great. And maybe a little more with driving the outperformance there?

That may be happening, Andrew, but it's hard for us to tell because we're growing market share. We're growing our transactions over four times faster than the whole market. So somewhere in there, maybe it's weaker to this market or that, but overall we continue to gain share. And so we really haven't felt it very much. Adding the strategic partners like PLS is certainly helpful as well. We can - with the exception of a Walmart transaction, that are cash to cash, that have kind of been falling off since COVID. You take that out of the equation and we've got a screaming money transfer business.

Got it. Thanks a lot, Mike. Appreciate the comments.

Sure. Thank you.

Thank you for the question. Our next question comes from Gus Gala of Monness, Crespi, Hardt & Co. The floor is yours.

Hi, Mike. Hi, Rick. I hope everything's going well. Thank you for taking our question. I wanted to talk again about the incremental margins in the EFT. The last three quarters have been about 49%. One prior to that was 30%-ish. And then you take into consideration the comments on the fee structure change in the APMs. I think there's probably more ahead than in the rear view. And then the scaling you're doing in merchant, it sounds like you're still early in entering some of the newer geographies. Can you just help us think about how that old bogey in the high 30% range might have evolved higher or do you still think it' capped around there? Thanks.

Well, I'll just comment on that briefly. Mike can talk a little bit more about expansion across other markets and that. But yeah, look, we've come through the - we came through the period of COVID having a pretty big impact in this. I've said before is I don't think that we will get back to a margin structure or level that we had pre-COVID principally because of the significance of the cost increases that happened over the last four or five years. And as we've said, we do find some opportunities where we can add some other access fees and maybe we'll see a little bit more momentum going on interchange rate increases. I mean, net-net, we kind of feel that the momentum is moving in our direction on interchange rate increases. There's a lot of discussions going on in several continents on that particular subject. So I don't think I would get at this point more bullish on driving that margin structure higher. Typically you'll find that - that merchant services businesses can be a little less on the margin side, but as we grow that incrementally, it'll add more into the picture. So, I wouldn't get out over our skis on it here. I think we've got great volume opportunities. We will continue to expand our margins as we look to next year. We expect that our operating profits will expand faster than our revenues. So that'll contribute to it, but I wouldn't get the Excel math wound up too tight.

And Gus, if you just think about it, we mentioned in an earlier call that our EBITDA margins in merchant acquiring which is basically tripled in the last two and a half years are about 25%. So that's lower than those pre-COVID margins for the segment. So that's the huge growth that we see in merchant acquiring tends to hold the margins for the segment down a little bit too. And with respect to your question about expansion, so we are now expanding what we've done in Greece has just been a killer. I mean, we just continue to gain market share, gain new retailers and merchants. We have additional products and a value prop that's better than our competition there. So it's really done well. And so our thought was okay, let's take this, let's translate it into new markets. Let's go into three markets and we're targeting Italy, Spain and Portugal. We've hired up those sales teams. They're now beginning to sell. So we're really on the nascent side of this, but we're very excited because a lot of these merchants in Greece look just like the Mediterranean focus merchants in Italy, Portugal and Spain. So you haven't seen anything, but maybe a little bit of extra cost, but hopefully we'll see some bottom line results of this over the next year.

Thank you. That's super helpful. And if I can squeeze one more in, digging into epay, just wanted to understand what are some of the investments that are being done there? And just kind of maybe help us think of what was the list, I don't know, last big game cycle, I don't know, GTA 5 or some big Modern Warfare title release. Thank you.

Sure. Yes, this is Kevin. So with regard to investment, we're just like the other divisions, we're trying to diversify the epay business away from a reliance on purely what we call third party content, like iTunes and Google Play and Xbox and those products. And we're trying to introduce epay products. Some examples of that would be a gift card we launched in the UK called YouTube's and a gift card we launched in New Zealand called Prezzee. So we're spending money on basically developing these products and bringing them to market. Additionally, we're working on diversifying epay into being a solution provider. So we've developed a fraud product and a compliance product that we're launching into the market. We've developed a closed loop gift card issuing platform that we're launching into the market. So it's been a year, like Mike said, through COVID, we started these projects about two years ago. We've been developing them and you'll see us rolling these products out in a larger way over the next 24 months. With regard to your question about Grand Theft Auto, it's always hard to predict the announcement that we typically will sell that content through a platform like Google Play or Xbox or Sony or Apple. This is the first time we've done a direct deal with a publisher. So we'll be able to sell Grand Theft Auto directly to the consumer. Obviously, the margins in that are going to be better than if we sell through a platform. At this point, I wouldn't be able to comment on what the lift is. But obviously, since we highlighted it in the script, we were excited about its potential.

Great. Appreciate all the color.

All right. Thank you, Gus.

Thank you for your question. Our next question comes from Peter Heckmann from DA Davidson. The floor is yours.

Hi. Good morning, everyone. Thanks for taking the question. Rick, I think it was Rick, did I hear you right? You're thinking that epay can generate about 8% to 10% growth in EBIT for the full year, and then that would be aided by the heavier promotional activity in the fourth quarter. Did I hear that correctly?

Yes, sir.

Okay. In terms of the relative pacing of these promotional campaigns, it looks like you're much more concentrated this year in the fourth quarter, but then even then, the ones that you expect look like they could be incrementally more significant. So it certainly looks like that on a year-over-year basis, the fourth quarter is going to be a bit of a banger on the prepaid side. And then, probably hard to tell at this point, but for 2025, should we model it reverting back to kind of a more normal seasonality?

Well, yes, there's probably a little bit more like that as we said, sometimes they can be a little bit irregular. Last year, we were a little lighter in the fourth quarter on promotional stuff. This year, the campaigns are lining up to look really pretty strong. I wouldn't count fourth quarter next year out, okay? I mean, because it really is dependent upon what our customers want to do. It's kind of hard at this time to really predict what some of their activities might be. So, it might be prudent to model it a little bit, as you said, a little bit flattish, if you will, or something like that, or not as much of the robust year-over-year number. So, I would caution you to not count it out. We'll be working hard to do those kinds of things for customers. But I think you're looking at it generally right, Pete.

Yes, Pete, I mean, the reality is these things are done by our customers, and it's very lumpy. You've seen that over the last four or five years. Sometimes they hit in Q2, sometimes in Q3. This year, most of it was in Q4. And so, it's going to be lumpy. You've got this baseline epay business that's growing, actually not bad at all. And then you add these lumpy promotions on here, which could add, three, four, five million dollars with a margin in a quarter, and it just makes everything lumpy.

And that's, you know, Pete, you raise an interesting point here, because it's, the kind of business that it's great, profitable business. It's right in line with what we do. We really help these, help the merchant in their value proposition. It does cause our quarter-to-quarter numbers sometimes to be a little irregular. But again, when we take a look at what that business has done, just like I said, going through the pandemic, our epay business and our money transfer business continue to grow. So we're always looking for ways to make that a little bit more consistent. But I think it's fair to look at that more on an annual basis rather than necessarily quarterly. And that's part of what we do to try to manage that as much as we can to have less volatility between quarters. But just the nature of the product, we'll have a little bit of that.

I understand. Okay. And then just as a follow-up, if I can, on the PLS financial, you call it out as strategic. And, just based on number of locations, it doesn't sound super significant compared to the base of 600,000 current locations. But is there something about PLS in terms of the volume of money transfer they do? And then I can't remember if it was in the press release or not, but was this something where you broke exclusivity and now you're another one of the remittance vendors or is this something where you've got an exclusive?

So, we do have an exclusive. We replaced an exclusive of one of our competitors there. When you look at 200 locations versus call it 600,000 or whatever, you've got to remember that 600,000 number is all the locations that we can send or receive from. But the reality is most of the send probably comes through 50,000 locations, something like that. And out of those, the remaining 550,000 are bank branches that could send, but basically mostly it's for cash pickup in these emerging markets. And these guys are big. They do huge volumes. They're probably the either the biggest or the second biggest check cashier in America. So, they just get lots and lots of volume.

Yes, and I think the other way to think about this business is they are focused on that segment of customer. You know, most of our agents are independent agents. Money Transfers is kind of like an add on product. It's another thing that they do out of their store. In, you know, the PLS model, they are catering to this segment of customers that cash checks and money orders and money transfers. They essentially are the bank teller for that group of customers. And so the concentration of business they do is so much more significant than let's just call it your traditional bodega kind of agent.

Peter, if you walk into one of those places, which I suggest you do if you're out and about. I mean, what you'll see is some are probably between four and six teller windows with ropes to control the crowds as they line up to go to. I mean, they're busy stores.

A very well organized operation, very focused on being customer centric. I mean, they're in the business to make sure that that customer has a wonderful experience when they come through the process. They're an impressive organization.

Okay, great. Good call. Thank you.

Thank you for your question. Our next question comes from Cris Kennedy of William Blair. The floor is yours.

Good morning. Thanks for taking the question. Can you talk a little bit or frame the opportunity around the domestic access fee in Europe, expanding into 10 countries, just any way to think about the opportunity there?

Well, Cris, you may know me well enough now, that I'm probably not going to start jotting a bunch of numbers out. I think the real message when you read it behind here is that and most of these countries that we mentioned here happen to be smaller type of countries and so we're just starting to see the momentum build. I think the bigger message is the movement in the industry here. As I've said before, we've gone years. I mean, I'll take a Poland, for example, in 2010, Poland dropped the interchange rate by 60% to roughly $0.30 a transaction. There was a recent study done by the University of Warsaw there that says the cost of doing a transaction is about $0.80. And so, banks simply cannot afford to be making $0.30 and to be spending $0.80. And they're making that known. And so there we're starting to see things break open that the arguments are being made that this fixed price structure doesn't work well. And that's leading to the shutdown of ATMs and the inconvenience of cash availability to customers. You're starting to see discussions now go on around measures taken to ensure that ATMs are available in marketplaces for customers. So, what I think our bigger message here, is the direction. We are seeing a positive direction on making either access fees available or increases in interchange. And what that means to us is, a, as Mike said, we're getting a bigger piece of the pie because banks branches are closing. And b, we're going to have the ability to make more profit per transaction. So, I don't want to author a number in this discussion, but to say that it just gives us more and more confidence that we will continue to see growth and profits come out of this business. There was a question asked earlier about the margins in this business. We think that those margins will continue to go up. And this is exactly one of the reasons that give us that kind of confidence.

Understood. Thank you for that. And then if you can just talk quickly about the digital money transfer business, it's growing like a weed. You're investing a lot in the marketing to drive that growth. Any way to think about the customer profile of that business? How sticky are those customers, unit economics, anything like that? Thank you.

Okay, so a couple of things on this. So remember, the customer profile is different than the general profile for people who do family remittance. Obviously, to do a digital transaction, you've got to have a bank account because you have to pay for the thing. Everything happens either at your computer, probably off your phone. So, you've got to have a bank account. And with respect to stickiness, they seem to be sticky. We're looking at some of the people that that started with us five or six years ago are still doing transactions. So we're measuring those cohorts and so forth. But when you look at the number, we had, 56% growth in new customers this quarter. And that's killer. So we keep bringing in new customers. Now, listen, no matter what I say or any of my competitors say, a lot of people who do these transactions are kind of one and done guys. But the key is for the other group of people, maybe it's half or two thirds of them. If you can catch them for the next 18 months to 60 months, you've got an annuity stream that is excellent. So far, all our math is hanging together and they're very profitable for us. Now, some people will also tell you that the profit on a digital transaction is so much more than a bricks and mortar transaction. We're kind of the independent bricks and mortar king. So we know both sides. We have to pay that agent about 45% of the customer fee, which you don't have to pay if you acquire that transaction digitally. However, you do have to pay for that digital marketing. Like we mentioned, we were up 2 million bucks this year over the same quarter last year. But as we do the full accounting on it, we find that the digital transactions that we acquire are slightly more profitable than the bricks and mortar transactions. But at the end of the day, one of the things that you're wondering, why are we growing four times faster than the frigging market? Why are we number two going after number one? It's because we have both. We have the best independent channel distribution in the world for bricks and mortar. And we've got a great digital product.

Very clear. Thanks for taking the questions.

Operator, I think we're out of time now. So I would like to thank everybody for taking their time on the call. Happy to talk to you in about, well, a little more than 90 days. Thank you.

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