Euronet Worldwide, Inc.

Greetings and welcome to the Euronet Worldwide First Quarter 2020 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this time, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. It's my pleasure to introduce your host, Mr. Desmond Acosta, Deputy General Counsel for Euronet Worldwide. Mr. Acosta, you may begin.

Thank you. Good morning and welcome everyone to Euronet's quarterly results conference call. We'll present our results for the first quarter 2020 on this call. We have Mike Brown, our Chairman and CEO, Rick Weller, our CFO, and Kevin Caponecchi, the CEO of our ePay division on the call. Before we begin, I need to call your attention to the forward-looking statements disclaimer on page two of the PowerPoint presentation we'll be giving 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 from those anticipated in such forward-looking statements as a result of a number of factors that are listed on page two of our presentation. Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances. 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 CEO, Mike Brown.

Mike. Thank you, Desmond, and thank you, everybody, for joining us today. We hope that you, your families, and your friends are safe and well. I'll begin my comments on slide number five. Two months ago, Euronet was poised to deliver another year of double-digit revenue and earnings growth, to add another 4,500 ATMs in new and existing geographies to its fleet of 50,000, to continue to grow its digital presence in both e-pay and money transfer, and to continue to grow its brick-and-mortar transfer business two to three times faster than the market. We were also fielding additional inquiries on our leading-edge technology delivered through our REN platform, and we were well-capitalized to accomplish all these initiatives with over a billion dollars of cash in the bank or in our ATMs, together with $950 million of availability on our revolving credit facility. And then, as you know, the world changed. It was hit by the COVID-19 pandemic. Borders were closed, shelter-in-place orders were issued, airports, restaurants, and businesses closed, stadiums and churches closed, local events are canceled, and millions of people across the globe were put on unemployment rolls. It was almost as if the world changed overnight. Now, many companies are just trying to survive. A recent study pointed out that more than two-thirds of businesses have been adversely impacted, uronet being one of them. So while we are one of the many businesses impacted by the virus, we are one of the fortunate ones. We continue to have a very strong balance sheet with more than a billion dollars of cash and no significant debt service obligations for another five years. To put it in perspective, we could cover several years of payroll with the cash that we have. Because we are well capitalized with significant liquidity, we don't have to fight to survive. We can and are focusing on expanding our market share, product lines, geographical markets, and technological superiority. In looking forward, while we will work diligently to make the most out of this year, We are squarely focused on a post-COVID world when we'll come out of the gate swinging. In reflecting on the future, like Jim Cramer said on CNBC the other day about earnings guidance amid COVID-19, he said that, I think that, like many people, we don't know what the future is, and it's amazing that anyone gives you a forecast. Rick and I will focus on three areas that we believe investors most likely want to understand. First, how are we going to get through this? Second, when is it going to end? And third, what is it going to look like when things are back to normal or maybe a new normal? So let's start with how we are getting through this. A couple of months ago, our first thoughts were ensuring the health and safety of our nearly 8,000 employees. As a result of our previous investments in our global network, including all the right preparations to ensure cybersecurity and remote access, together with exceptional contributions from our employees, we were able to transition virtually all of our employees to remote work-at-home arrangements in about a week, all while ensuring that our service was not interrupted for our customers. And remember, Euronet started as an international multi-country business. So conference calling, video calls, file sharing, and cloud computing are just part of the way that we do business every day. It didn't require us to adopt new forms of operation. We have also been drawing on our experiences from 2008 financial crisis to use this time to improve our market positioning in all three of our segments. During the 2008 crisis, we focused on expanding geographies, products, and distribution channels for each of our three segments. We introduced new products and solutions, and we continued to invest in our technology. In fact, our market-leading EFTS ATM management software that gives us such a competitive edge was coded during those times. That's when we made the investments. We chose to keep our employee workforce today, and in fact, I mean, back in 2008, and in fact, back then, we hired 400 to 500 more employees in 2008 and 2009 to attack the market. We had a good balance sheet, which even the rating agencies recognized, and they upgraded us back then. We emerged a stronger, more diversified company with expanded market shares, and we plan to do much of the same in this crisis. We are financially conservative, as you all know. We have a much stronger balance sheet now than we did back then, with more than $1.2 billion in cash. We have had compounded earnings growth of over 20% for six years running, and we added to our treasury, and we capitalized our business with low-cost, long-term, fixed-rate debt that has no maturities for five years. So we are fortunate that we'll get through this. As I heard it said a long time ago, you make your own luck. Well, we will continue to make our own luck. We are actively working to ensure we are fiscally conservative during these challenging times. We have implemented a cost reduction plan to save $130 million in SG&A and third-party costs, 80% of which has already been identified and is being executed. and all of these expense reductions are being made without any impact to our future growth potential. For example, we have extended our ATM winterization program to include more than 8,500 ATMs, cutting our operating expense considerably. It is unlikely that we will install the 4,500 ATMs we planned in 2020 due to the government-mandated lockdown orders in most countries. You see, installation of new ATMs generally isn't considered an essential service, but when countries, states, and cities begin to restart the economy, we will accelerate our deployment plans as quickly as possible. We'll be ready because we have ATM sites ready to go, and as I said earlier, it is our desire and plan to keep all of our employees. We have not initiated any employee or salary cuts to date, and we have communicated to all of our employees that it is our intention not to cut salaries or lay off employees. We believe that this will allow our associates to focus on growing our business while working from home rather than worrying about how to pay their bills. And trust me, we are keeping them busy. Our employees are actively adding new products and solutions including our RENREV real-time payment product for central banks wanting real-time payment solutions. We will continue to expand geographies and channels as well as further diversify our business into old and new business lines. For example, the acquisition of U.S.-based ATM outsourcing provider, Dolphin, to go after the large and attractive U.S. outsourcing opportunities. And finally, we will conserve our balance sheet to ensure that we are here to grow for the long term. Next slide, please. Slide number six. Next, you're probably wondering when this crisis will end. Well, up to. We're ready. So while we don't know when it will end, what we do know is that it will end. Three weeks ago, all we read about was country or state or city closings or extensions of closings. Now we are beginning to see promising signs that city and country governments around the world begin to implement plans to reopen their economies. and we are also hearing more and more news circulating regarding promising treatments and emerging progress on a vaccine. So we believe at some point the world will return to normal, or at least a new normal. And what does that mean for our business? Well, let me pose for you a few questions that we ask ourselves. Do you believe that people will quit taking vacations? Do you believe that immigration will stop? Do you believe that people will stop buying self-entertainment? Do you believe that the use of cash will cease? Well, we believe that people will continue to take vacations. In fact, a survey of 11 countries from the International Air Transport Association shows that once restrictions are lifted, more than 50% of the respondents either don't plan to wait to travel or only plan to wait for a month or two. Similarly, a recent survey of Americans by the New York Post indicated that nearly half of Americans plan to travel immediately after the restrictions are lifted. We believe that people will continue to immigrate across the globe to seek better opportunities for their families as well. We believe that people will continue to play games and watch Netflix. And we believe cash will continue to coexist alongside plastic and digital payment methods for a very long time. The crisis will end, and we believe that each of our three core businesses will still be there when it does end. As we look across our business, we believe that the ePay segment will be the first to achieve full recovery. The content we sell in ePay is largely for self-use. We have seen good sales of this content during the pandemic, and we believe people will continue to to buy gaming products, software, and video streaming for everyday use. We believe the money transfer recovery will lag a little because there are so many people temporarily unemployed around the globe. You may have seen the World Bank report that predicts that money remittances will decline by 20% in 2020, and you may be wondering how that will impact our business. We believe that it will take some time for us to get through the unemployment But we have a very strong track record of growing two to three times faster than the market and faster than any of our competition, and we believe that will continue. As people regain employment, their first thoughts will be to continue to be with their families and their families will be. In fact, many of our customers make great sacrifices to support their family in their home country. Thank you for joining us. Thank you for joining us. We will be ready to take advantage of transactions if they occur throughout this year, but in reality we are operating our business with the assumption that travel and international tourism won't pick up to meaningful levels until 2021. Even then, we believe that it's logical to assume that there will be some negative halo effect of the coronavirus, so tourism levels in 2021 will likely not be equal to 2019. Will they be 70%, 80%, 90%? Will there be a pent-up demand from missed business trips and missed vacations this year? Will a vaccine be developed? No one knows for sure, but we would expect it to be somewhere in the 80% to 85% levels of 2019 next year. We're not forecasting here, just offering our view of what may be likely to happen. which leads us to what we think the business will look like post-COVID. Let's move on to slide number seven. Much like 2008, we are preparing our business to be stronger and more competitive as we emerge from these unprecedented times. In each of our three segments, we believe that the total available market may be temporarily smaller, Thanks to our financial strength, we will be able to grab a bigger share of this market, a bigger piece of the pie. In EFT, we are continuing to expand our footprint in existing and new geographies. We are identifying new sites that are being abandoned by our competitors who will not make it through this pandemic. And in the next few months, we will have the operations set up and ready to go in five new markets. so that when we are able to install ATMs and when travel and tourism resumes, we will be ready to go. And we are diversifying our business. Over the last year or so, we have told you about our increased outsourcing pipeline. This part of our business, which you may remember, makes up 50% of our ATM base and has generally been unaffected by this pandemic as our revenues are less traffic-dependent. In 2019, we added 3,600 outsourcing ATMs through organic expansion and the acquisition of U.S.-based Dolphin Debit. We have been fielding more and more calls for these services as the banks have felt the pressures of the pandemic. The U.S. is a huge market, and only 6% of the bank and credit union-owned ATMs are outsourced. The acquisition of Dolphin Debit expands Uranet's market-leading technology to the United States and makes available to these banks and credit unions more modern banking options with no investment. Finally, in EFT, we continue to see countries invest in their payment infrastructure to keep up with the changing payments landscape. With our RAN and REV technology, we are well-positioned to provide these needed solutions to For payment modernization. And in fact, our phones have been ringing. There is a lot going on out there, and I am confident we'll see some success here, even in the midst of the crisis. In ePay, through COVID, we have seen new users of gaming and streaming services, and we predict that these users will continue to buy content following the pandemic. Thank you for joining us. Finally, in ePay, much like EFT, we are beginning to see indications that some of our smaller competitors may not be financially strong enough to make it. So we are making sure that we are positioned to step in and ensure those customers' needs are met. In money transfer, the largest piece of our business is cash-based consumers sending money to loved ones in cash-based economies. So we are confident in the industry. Leading up to and accelerating during this pandemic, we have invested into our digital platform and expect to launch our REIA Money Transfer mobile app in 19 new markets in the second quarter. This will ensure the convenience of self-service transfers to our customers from their living rooms and during the stay-at-home orders, but also to ensure that we are well-positioned for the future for customers who prefer digital payment options. Over the last year, we told you that approximately 70% of the global remittance market is comprised by smaller independent competitors or not addressed. During these times, many of those smaller competitors without an adequate balance sheet and without industry-compliant programs may not make it, and we're working to make sure that we're in a position to win their volume. Over the years, we have continued to diversify our business into large retail. Six years ago, we entered large retail with Walmart and have continued to expand our relationship and product offering within the Walmart stores. We are pleased to announce that we recently renewed the Walmart to Walmart domestic and the Walmart to World international agreements for another three years. and we look forward to working with Walmart to continue to offer these exceptional products to Walmart's customers. We have furthered our large chain offering by expanding to two new agreements with post offices in Europe. Unlike here in the U.S., where a large portion of remittances are made at grocery stores or pharmacies, in Europe, the largest portion of remittances are made through their national post offices. The post offices have historically been dominated by our larger competitors, but they are beginning to prefer our value proposition, our pricing, our customer service, and financial strength for both them and their customers. Just this month, during the height of COVID and the spread of the lockdowns, we launched our service with Bank 99 in the Austria Post. This follows our February launch, of BPOS, which is the Belgian post office. And here again, our balance sheet strength is helpful as these large players look to stability for long-term business benefits. So in summary, we are in all the right places for customers when they want to send money, be it the small independent, the large retailer online, and in more and more places around the world. Now let's go to slide number eight, and I'll give you a little update on our technologies. Our leading-edge technology has really been the driver behind our business continuing to operate as close to normal as possible in our crisis environment here. We were able to service our customers with no downtime and even deliver new products and services to help customers meet the regulatory demands of them, which were required due to the COVID-19 pandemic. and the pandemic has given us time to dedicate significant resources and development time to new opportunities. During the quarter, we continue to remain on track with our deliverables to install a REN solution for the Bank of Mozambique. We would expect the second quarter to be largely user acceptance testing before we take it live a little bit later in the year. We also continue to use our REV technology to bridge the gap between physical and digital banking services. As digital banks continue to grow around the world, we have found that in a relatively short period of time, Uranet can provide the bank with a full suite of payment services through API connections to our REV processing platform. We can then provide the bank with access to Uranet's ATMs for cash withdrawals, content from our ePay product portfolio and white labeling of our XE International Payment Services. We have already signed three of these digital banks and have interest from several others. Let's take a minute now, though, to talk about our real-time payment capabilities. This is kind of a new one. Real-time payments combines funds availability, settlement finality, instant confirmation, and integrated information flows, all in a payment made in seconds. This benefits end consumers with instant gratification from the account-based person-to-person transactions. And this benefits businesses, large and small, by allowing merchants to request payments directly from customers with instant settlement of funds. The popularity of this trend is putting pressure on governments and regulators around the world to innovate and introduce new real-time payments infrastructure within their countries. This new payments landscape allows both banks and non-banks alike to participate in creating new and exciting payment innovations we've never witnessed before. Think of it as parallel to the card payment infrastructure that has evolved over the last 40 years. But the big difference is that RTP, real-time payments, allows more participants and it plugs directly into the bank accounts of consumers and businesses, resulting in lower fees. and many more. Additionally, it includes modern design features like adaptive routing, two-factor authentication, and microservices architecture that I have spoken about previously. In summary, with the REN Foundation, Euronet is uniquely positioned to participate in the modernization of legacy payment infrastructure along with the trend towards real-time payments in virtually every country around the world. As I conclude, I'd like to reiterate our confidence in our business. While COVID-19 may delay us in delivering the double-digit annual results we have consistently delivered, we will return. Our strong financial position with plenty of cash, our exceptional employees, careful expense management and balance sheet conservation, as well as our leading-edge technology give us great confidence that we'll get through this. We are using this time to prepare our business for a post-COVID world, and we believe that we have a lot to look forward to across each of our business segments as we move into 2021. And these continued efforts to advance our business and take market share from our competitors in each segment will leave us better positioned to deliver long-term double-digit growth rates. With that, I'll hand it over to Rick.