Euronet Worldwide, Inc.

Greetings and welcome to the Euronet Worldwide Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. It is now my pleasure to introduce your host, Mr. Scott Claussen, General Counsel for Euronet Worldwide. Thank you. Mr. Klassen, you may begin.

Thank you. Good morning and welcome everyone to Euronet's quarterly results conference call. We'll present our results for the third 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 the first page of the PowerPoint presentation we'll make today. Statements made on this call that concern Uranus or its management's intentions, expectations, or predictions of future performance are forward-looking statements. Uranus' actual results may vary materially from those anticipated in such forward-looking statements as a result of a number of factors that are listed on the first page of our presentation. Yornet does not intend to update these forward-looking statements and undertakes no duty to any person to provide 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, Scott, and good morning, and thank you all for joining us today. I'm excited to be able to tell you that we considerably exceeded the earnings expectations that we had set in July as a result of double-digit year-over-year growth in our ePay and money transfer segments, together with better-than-expected ATM transactions, as we benefited from a much quicker return to travel than we initially anticipated. As you will see as we go through the quarterly highlights, These results are a testament to our diverse product and geographic revenue mix, our flexible and scalable technology, our strong balance sheet, and our dedicated and talented employee base who are working harder than ever to drive this business forward. There's no better example of this than our announcement yesterday that RIA is now Kroger's second money transfer provider. In EFT, we benefited from stronger than expected resiliency in ATM cash withdrawals, as we saw local and international governments ease their movement restrictions and countries open their borders to some international arrivals. In ePay, we continue to see strong sales of prepaid self-use content in both the physical retail and digital channels, as well as mobile increases in digital channels in certain markets. In fact, our digital channel transactions grew at triple-digit rates on a year-over-year basis. Finally, in money transfer, we continue to deliver strong growth rates as a result of very strong 22% growth in U.S. international outbound remittances, as well as 26% increase in international cross-border remittances, partially offset by declines in the U.S. domestic business and in Malaysia. Digital transactions initiated through our website or our mobile app also continue to accelerate delivering an exceptional 126% year-over-year growth in the third quarter. I am extremely proud of the strong double-digit earnings growth in two of our segments and the flexibility of our EFT team to enable ATMs on short notice to take advantage of the changing travel trends, which resulted in significantly better results than we expected, all of which was made possible by our strong balance sheet. Now let's move on to slide number six, and I'll give you some additional details on how we achieved this remarkable performance in the quarter. Slide six, so we've got four graphs here for us to look through. Because over half of Uranet's 2019 profits came from our EFT division, and a little over half of those profits came from travelers, we get questions about the recovery of this segment. Here on this slide, we want to give you a perspective of how responsive our ATM transactions are to the lifting of restrictions by focusing on what we have seen on our own branded ATM networks across Europe. To that end, the three most relevant questions are number one, after COVID-19, will people return to using cash in their daily lives, both while traveling and when at home? Number two, How fast do you think EFT will return to transaction and cash levels we saw in 2019? And finally, number three, are there any lessons that we can learn from 2020 that can be extrapolated to 2021 and beyond? So first, I will try to answer the question on domestic transactions. Certainly in March through May, we saw virtually every country in Europe establish very tight domestic lockdowns. Bars, restaurants, businesses, and offices were closed, and even leaving one's home or apartment could be met with police questioning. As you can see in the first graph, graph number one, even without a cure for COVID-19, we saw domestic transactions come back very quickly once the shelter-in-place restrictions were lifted. This did vary by country, ranging from 85 to 95 percent of last year's transactions. Thank you for joining us. Thank you for joining us. To answer the rest of the questions, let me remind you of the timetable associated with various cross-border changes. Through April, May, and even into June, virtually all European countries had closed their borders to all other countries around the world. Surprisingly, on June 15, the EU agreed on opening their borders to one another beginning July 1st. Thank you for joining us. Accordingly, that part of our transactions will be dependent upon borders being fully open. What we found was that with such short notice periods, vacationers were more apt to travel by car to their holiday destination, and as you can see in the graph number two, beginning on July 1, there was a steady increase in transactions through August, resulting in about 50% of 2019's transactions. As September came upon Europe, more COVID-related restrictions were added, and that number fell to about 30% of 2019 levels. Being that three-quarters of all 2019 uranet-owned ATM European transactions were from cardholders within Europe, this shows amazing resilience. Here in graph number three, we see countries in which air travel brings in most of the tourists. Bear in mind that flying requires advanced reservations, more preparation and travel surety as well. Accordingly, we were pleasantly surprised to see these levels reach about 20% of 2019 volumes. Finally, in graph number four, you can see the international transactions indexed with European international flights. On a real-time basis, you can see that our international transactions outpaced but roughly correlate to flight information. This serves as another data point to demonstrate the desire travelers have to withdraw cash and use cash when they travel abroad. So what is our conclusion? Unfortunately, I can tell you that none of us know exactly what 2021 will bring. But what is empirically clear is that people in large numbers are ready to go on holiday, even right now, if the governments only would lift their travel restrictions and open their borders, both for European and for foreign passports. It is also a message to governments on how much thoughtful planning is essential to ensure a full recovery. The economic disadvantage to Europe is huge, so we are cautiously optimistic that in 2021, it could be a good year for EFT, assuming governments heed this past summer as a guide to opening their borders for those who are anxious to go on holiday. Now let's go on to slide number seven. and we'll discuss some of the recent EFT highlights. Okay, slide number seven. Just this week, we launched a new IAD network in Egypt, the fourth country outside of Europe, where we have deployed EURONET branded ATMs. Prior to COVID, when asked if we were able to continue to deploy 4,000-plus ATMs a year, I always answered yes with the belief that the opportunity outside of Europe is just as big or bigger than the opportunities in Europe. We maintain this belief and have not stopped pushing forward to be ready for the post-COVID world with new ATMs in new markets. In Europe, we launched a new initiative that we are calling ATM for the Community, which aligns with our mission to bring payment convenience to everyone. Despite the reports that cash is becoming extinct, it is estimated that cash still accounts for 60% of the transactions used across Europe. With this initiative, we are working with leaders in communities across several countries, primarily in more rural areas, to ensure that their citizens have convenient, secure access to cash as these communities have been impacted the most by Europeans' continuing trend of bank branch and ATM closures. We also launched a managed services agreement with IDFC First Bank, a leading private sector bank in India, and we used our technology to launch digital banking services for ING Bank in the Philippines. In Spain, we signed an ATM network participation agreement with Kahamar Bank, whereby Kahamar Bank customers can now use Euronet-branded ATMs under similar terms as their own bank's ATMs. These agreements reflect the value of our ubiquitous ATM network, which allows customers to access their money wherever they are. This is also a strategic advantage for Urinet, as we are the only player in the market with ATMs across all of Europe. We also launched acceptance of postcards on our Euronet-branded ATM networks in Denmark, Sweden, Switzerland, Romania, and the UK. And we launched ATM POS and card management outsourcing for ABI Bank in Albania. Finally, we ended the quarter with 43,956 active ATMs. This sequential increase includes a reactivation of 3,800 ATMs that were closed at the end of June. to capture the increase in ATM transactions as movement restrictions were lifted and 444 new ATM deployments were across the business. These were offset by the removal of about 1,300 outsourcing ATMs and 563 low margin ATMs, which were removed due to the acquisitions by larger banks and the desire to insource ATM operations. It's important to note Thank you for joining us. In summary, there's no doubt that COVID has had a profound impact on our EFT segment results, but the resiliency of our ATM transactions as restrictions were lifted, together with our ability to continue to launch new markets, diversify our product portfolio, and sign new agreements, underscore the health of our core EFT business and that the post-COVID growth prospects for this segment remain intact. Now we'll move on to slide number eight, and we'll talk about ePay. It's worth repeating that I'm thrilled with ePay's double-digit earnings growth in the quarter, driven by continued growth trends in digital media content and expansion of mobile content in certain markets. This growth came from continued strength in our physical retail network, as well as triple-digit transaction growth in the digital channels. Thank you for joining us. As you can see in our transaction count, we continue to see tremendous growth in transactions through Amazon Pay. This quarter, we have furthered this partnership by adding two billers of bottled gas, a key cooking utility in India. We now have all three billers providing bottled gas in India and are processing 30,000 transactions a day through Amazon Pay just in this one category. During the quarter, we also added credit card bill payment services, and Google Play Recharge Codes with the Amazon Pay Wallet. And are seeing nice transaction adoption in these other new categories as well. Our technology has allowed us to further expand our mobile distribution in Brazil. This quarter we added mobile distribution services to the ItaoCard app, the mobile app of Itao Bank, Brazil's largest private sector bank with over 50 million accounts. Additionally, we further expanded our mobile distribution in the U.S. through the acquisition of the coveted contract with AT&T, allowing ePay to activate and distribute their prepaid mobile airtime. And finally, our technology also allowed us to expand our long-standing distribution agreement with Microsoft. ePay will now manage the monthly recurring billing between Microsoft and select telecommunications retailers for the sale of Xbox Game Pass Ultimate and Xbox All Access subscriptions worldwide. This is ePay's first gaming subscription service and the first gaming bundle distribution agreement with Microsoft. Our ePay segment may provide the most evident example of how powerful our technology suite is, continuing to attract customers from both new and long-time customers. Our pipeline of new launches remains robust, which we expect to drive similar year-over-year growth rates in the fourth quarter as we saw in the third quarter. Now let's talk about money transfer in slide number nine. Slide 9. I couldn't be more excited to talk to you about money transfer on the heels of the last couple of days of announcements, including Kroger, which has expanded its financial services marketplace and has selected REIA as its second provider of money transfer services inside approximately 2,000 Kroger locations here in the U.S. You may remember last year that ePay implemented a new customer service solution for Kroger, which greatly reduced the complexity of financial transactions for Kroger's staff and the transaction time required of Kroger's customers. Well, we've wanted to partner with Kroger since we acquired REIA in 2007, and the success of ePay's SaaS solution Demonstrated to Kroger are superior technical capabilities, which combined with REIA's secure, affordable product offering and unyielding commitment to compliance led Kroger to choose REIA through a competitive RFP process. We are very excited to work with Kroger to provide their customers with the REIA money transfer experience. The service will be live inside Kroger stores in the next couple of weeks. and is a significant addition to our U.S. money transfer network. This is a remarkable accomplishment achieved by teams from both our ePay and money transfer segments. We also signed an agreement with Fiestamart, a large Texas-based grocery store chain, to offer RIA's money transfer service and Fiestamart's in-store customer service centers across Texas. This agreement builds upon a 10-year retail model partnership RIA has had with Bodega Latina, which owns both Fiesta Mart and in Texas, and also El Super branded stores in California, and this was another competitive win for RIA. We look forward to helping Bodega Latina build similar customer push traffic, transaction volumes, and growth rates at Fiesta Mart, that we've been able to achieve in L-Super over the last decade. We continue to expand upon our success of adding post offices Thank you for joining us. and this, together with the Kroger Agreement, are two more data points that highlight that large retailers and post offices are opting for growth and responding to their customers' preferences for choice and competitive pricing. This quarter, we added both spend and payout services for the Post of Serbia, which has more than 1,300 locations across the country, and we launched payout services at more than 250 Jordan Post branches. We also signed agreements with the Indonesian Post and the Madova Post, which we expect to launch in the coming months. Aside from the post offices, we added MMBL in Sri Lanka, which has been exclusive with one of our competitors for nearly 25 years. We also added Asia Commercial Bank in Vietnam, Lulu Exchange in Kuwait, and several others. In addition to this physical distribution expansion, we also launched payout services to M-Peso wallets in Mozambique through Z-Pay, as well as Airtel wallets in Malawi, Rwanda, and Tanzania through our recently announced partnership with Boots. With these countries, our mobile wallet network provides access to 160 million users across 17 countries. Another exciting agreement RIA launched during the quarter is a digital money transfer service partnership with French neobank, Nickel. Along with its online money transfer platform partner, Moneystap, RIA will offer digital capabilities and its network to customers of both companies wishing to send money abroad. I would like to put our strong money transfer growth numbers into some kind of a perspective. REIA has about 5% market share of the roughly 700 plus billion dollar international family remittance market. By our estimate, roughly 25% of this market is acquired digitally. Of the 75% remaining, all through bricks and mortar agents, Rhea has almost six of those 75% with our agent revenue growth in the mid-20% range compared to last year. We are positioned for total market share a heck of a lot bigger. This brick-and-mortar business is performing extremely well, perhaps arguably better than any pre-COVID quarter that we've had in years. We are growing roughly five times as fast as the World Bank says the market is growing. and that is not even including our 126% year-over-year digital growth in the third quarter. And all of this, by the way, is without Kroger, without Fiesta. I apologize. Operator, would you just tell me if I'm still on the line?