Euronet Worldwide, Inc.

Greetings and welcome to the Euronet Worldwide First Quarter 2021 Earnings Conference Call. At this time, our 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'll 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. Claussen, 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 of 2021 on this call. We have Mike Brown, our chairman and CEO, Rick Weller, our CFO, and Kevin Kapaniecki, the CEO of our EPA division, on the call. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we'll be making today. Statements made on this call that concern Uranet or its management's intentions, expectations, or predictions of future performance are forward-looking statements. Uranet's 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 second slide of our presentation. Uranet does not intend to update these forward-looking statements and undertakes no duty to any person to provide such a statement 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 we'll turn the call over to our CEO, Mike Brown. Mike?

Thank you, Scott, and good morning, and thank you, everyone, who is joining us today. I'll begin my comments on slide number five. Well, I'm excited to be here this morning to talk to you about some pretty spectacular results despite the backdrop of the ongoing COVID pandemic. At this time last year, we were sitting here talking to you about border closings and lockdowns in countries all around the globe with a lot of uncertainty as to where things were going to go. We were pleased today to be updating you on two of our segments who have delivered exceptional double-digit adjusted EBITDA growth in three quarters since the call a year ago. And we are finally able to discuss border openings and things returning to something closer to normal, albeit unevenly, with India still shut down amid rising cases there, slower reopenings in Europe, and faster in the U.S. As you read in our press release, our e-pay and money transfer segments produced extremely strong double-digit, year-over-year adjusted EBITDA growth in the first quarter. These exceptional results were made possible by our historical focus on building our physical networks with leading retailers and banks around the globe, as well as the investments we have made to develop our leading-edge technology, which enabled us to accelerate our digital growth plan to meet our customers' needs in the midst of the pandemic. Our more than 125% and more than 80% year-over-year digital transaction growth in money transfer and ePay, respectively, is evidence of our success in selling our products through digital channels. And, of course, none of this would have been possible without our strong balance sheet, which has not only sustained us, but allowed us to continue to invest in our mission to connect the world one transaction at a time. While we were happy to see EFP transaction growth turn positive year over year as we lapped the initial COVID lockdowns of 2020, the growth rates were still well below 2019 levels as much of Europe went into another lockdown phase in the first quarter. Had it not been for these reimposed restrictions, which restrained or constrained the more valuable cross-border transactions, we would have seen a stronger adjusted EBITDA result for the first quarter. Despite the reimposed restrictions later in the first quarter, we are seeing more and more headlines coming out of Europe about border openings for both European and non-European citizens, which contribute to our more cautiously optimistic yet conservative view on the second quarter. Moreover, as vaccinations increase, restrictions relax, and borders open, travelers will be anxious to go on that special trip, which leads us to anticipate that our EFT segment will be operating at a higher capacity as we approach the seasonally strong third quarter. Next slide, please. Many of the questions we have been answering recently revolve around what expectations should be for EFT in 2021. So here on slide six, we've provided a few data points to help you frame expectations for EFT as the year unfolds. After a year of talking about travel restrictions and border closing, it's sure nice to be sitting here talking to you about countries lifting these restrictions. Just last weekend, the President of the European Commission updated their policy to allow tourists with proof of vaccination into all 27 EU countries, which would include all vaccinated Americans. However, many European countries depend heavily on the economic impact of tourist travel, so they are not waiting on the European Commission to finalize this deal. They have already created bilateral agreements with other European countries and have made their own rules about opening their borders. Some countries, like Croatia, have already opened their borders to both European and non-European tourists, while many others, including Greece, Italy, France, and Serbia, have announced the reopening of their borders to tourists in mid-May. The opening of borders to countries outside of Europe is noteworthy for our EFT business. As you may remember, last year in the third quarter, as soon as the European countries began opening their borders to other European citizens, travel immediately resumed and we saw a corresponding increase in transactions on our ATMs. However, about a fourth of our 2019 tourist transactions came from non-European countries, like the U.S., which were not allowed into the EU last year. So with the reopening of borders for non-EU citizens, we are hopeful to regain some portion of those transactions. Research from the European Travel Commission makes us hopeful that we can expect the same response from travelers this year. The survey indicated that 56% of the respondents planned to take a trip by the end of August, with about half of those respondents planning to travel outside of their home country. Moreover, according to the UN World Tourism Organization, actual flight and hotel bookings through March are trending ahead of previously forecasted levels, with large spikes seen at the beginning of 2021, which we have presented in the graph on the right side. Finally, and maybe the most encouraging, in their March update, the European Organization for Safety of Air Navigation, commonly known as Eurocontrol, updated various scenarios on travel data which they had originally forecast in January of 2021. We have included this graph on the left of the slide. The green line is their travel forecast which assumes that borders begin reopening in June. The red line assumes a later September reopening. The blue line is the actual data through March of 2021. As you can see, the actual data is ahead of their forecast, indicating that people are ready and willing to travel as soon as the borders reopen. I will note that things are changing rapidly across Europe. With vaccine distribution expanding, there is an eagerness to travel. And certainly the economic benefit, together with the immediate transaction gains we saw in our ATMs last year in Q3 when certain borders reopened, we are hopeful that we will see meaningful earnings contribution out of the EFT segment in 2021. So now let's move on to slide seven, and we'll talk about the segment-specific highlights beginning with EFT. Slide 7. As we announced in March, we have agreed to purchase Piraeus Bank's merchant acquiring business in Greece. This will expand our omni-channel payment strategy in one of the largest markets with a trusted partner. We continue to target a late 2021 closing and expect to see the economic benefits of this acquisition beginning next year. Also, during the quarter, we signed an agreement with the Bank of the Philippine Islands, BPI, to take over 300 of their existing ATMs. This is an important milestone. BPI is the first Filipino bank to turn over their ATMs to a third-party processor. Given their strong market reputation, we're confident that other banks will follow in leveraging Uranet's leading-edge technology and solutions. Last quarter, we told you about eight new network participation agreements with Spanish banks. where their cardholders can access cash from their accounts using thousands of urinate ATMs across the country. This quarter, we expanded upon that success and signed network participation agreements with four additional banks in Spain, bringing the total number of banks we have added to our network to 12 in just the last two quarters. This is a testament to the value Bank C in providing their cardholders with convenient access to cash and their recognition that URINET's network is the largest and most efficient way to accomplish this goal. Finally, as you may have noticed in our press release, we have provided an additional data point around our ATMs. In addition to ATMs that were active at the end of the quarter, we've added the total ATMs that we've installed to give you a better idea of the status of our entire ATM estate. During the quarter, we added 340 new Urinet-owned ATMs and temporarily closed almost 1,000 to save costs. with increasing lockdowns across Europe. Well, we lost about 346 ATMs, mainly in Pakistan, where the provider decided to move the processing in-house. And as you can see, our total estate remains stable, with a number of new deployed ATMs offsetting the net loss to Pakistan for those outsourcing ATMs. At the end of the day, in a normal year, we have an estate of over 45,000 ATMs, ready for the tourist season with open borders. We have continued to invest in our EFT business despite the impact of COVID that it's had on our business. Our people are ready and as travel resumes, we will reopen our ATMs and expect a much better second half of 2021. So let's now move on to slide eight and we'll talk about ePay. Slide eight, I just have to repeat that our ePay results were just outstanding, and I'd like to pause and highlight how we achieved them. For years, ePay has focused on three areas to expand and grow the business. First, expanding content distribution. This started with the move from solely distributing mobile content to adding digital media content with the launch of iTunes and adding brands like Google and Sony and Microsoft, among others. to hundreds of brand partners, which we now sell through our network. Second, we leveraged our leading-edge technology to develop new solutions to both help our retail and brand partners improve the distribution of these products. And finally, we expanded the channels in which all of our content is sold from solely physical retail to distribution through online stores, mobile apps, mobile operators, bank accounts, and mobile wallets. The results are not an accident. They are a result of years of hard work and dedication to serving our brand and retail partners in the best, most efficient ways possible. During the first quarter, we continued to expand our presence in both our leading physical retail channels and our digital channels. This quarter, we partnered with Microsoft to launch their end-user fulfillment platform, in 50 countries around the world. For Microsoft Office, they are transitioning away from a discount promotion called Save Now to an added value program called Extra Time. ePay is providing the global technology backbone behind this innovative new customer proposition. We also launched content distribution with FameHype, a white-label platform for game influencers via digital channels in 14 countries. In India, we continue to successfully enter digital channels by launching Google Play Recharge code distribution through Flipkart, India's largest e-commerce platform. Finally, in the Philippines, we launched Netflix distribution through Shopee, a large online marketplace with a presence across Southeast Asia, and through TouchPay, a kiosk outlet with 2,500 points of sale in the country. It was another outstanding quarter for ePay, and with a strong pipeline of new distribution agreements, we expect to see continued growth from ePay. Now let's move on to slide number nine, and we'll talk about money transfers. Holy smokes, have you seen these results? Wow. I mean, we saw international outbound transaction growth of 27% in the quarter. This is compared to a decline of 7% as projected by the World Bank. That is just stunning growth. And you might be asking how we got here. I'll tell you it's been through a lot of hard work to grow our network and provide the most reliable, convenient, and safe money transfer service for our customers. Our retail network now reaches 475,000 locations across 159 countries, and we are connected to approximately 3.6 billion bank accounts essential for digital money transfer delivery. During the quarter, we launched 13 new correspondence in 13 countries, including service with PetNet in the Philippines with over 200 branches. We also expanded our presence in Israel by launching the RIA service at WIC WorldCom, and we signed 17 new correspondent agreements across 15 countries that will join our network in the coming quarters. We continue to see exceptional growth in our digital initiatives, highlighted by direct-to-consumer transaction growth this quarter of more than 125% year-over-year. This was made possible by the geographic expansion of our digital presence via our mobile app and reamoneytransfer.com from availability in nine countries at the beginning of 2020 to 22 countries at the end of this first quarter, with more countries being launched in the coming months. During the quarter, we launched our app in Lithuania and launched a partnership with BreadBank in France to pay pensions to French expats. Our bank deposit network continues to grow with transactions and volume growth of 48% and 57% year over year, respectively. Let me repeat that. Transactions grew 48% and volume grew 57% year over year. That is just remarkable. I'd like to take a moment here to explain to you why these numbers are more impressive and important than they may even appear here. For years, Rio was chasing our competitors whose physical networks were much larger than ours. While we have clearly been successful in growing that network, we have simultaneously been building direct connections with our correspondent bank partners to allow for bank deposits, and we can now deposit cash into approximately 3.6 billion bank accounts worldwide. This is important to note because as we have gone through the COVID season, we have seen volume begin to shift from cash pickup to bank deposit, and RIA was ready for the shift. This is not a network that you can build overnight and requires technical integration to connect these banks. RIA has, by far, the most advanced bank deposit network in the world. With the COVID closures, we saw customer bank account openings and mobile wallet adoption accelerate in the lesser developed countries, and we were best positioned to capitalize and win this volume. As we wrap up our discussion on money transfer, I'd like to point out that these results aren't just from three months of work or investment, but rather years of hard work and investment on multiple fronts. We have built our retail network in both the independent and large retail chains to become the second largest in the world, and we can reach approximately 3.6 billion bank accounts for the digital money transfer. making us number one in the world for that. We have invested in our brand. We've made significant investments in our compliance, invested in our digital money transfer service, and expanded to more countries. All of this has built momentum, which has resulted in double-digit growth for the last three quarters. And with our momentum accelerating, our network growing, and our increasing brand recognition, If we can keep the current rate of growth, we'll continue to outpace the market by a significant measure. Overall, it was another successful quarter for Uranet. So let's go on now to slide number 10, and I'll share with you some REN successes. Slide 10. The first is an agreement with Standard Charter Bank, known as SCB, a British multinational banking and financial services company, which is headquartered in London but with a very strong presence in Asia, the Middle East, and Africa. With a transformation to digital services inevitable, SCB is launching Nexus, a new banking-as-a-service solution under which they will provide their banking license and balance sheet to leading consumer-facing digital platforms to enable convenient access to financial services to millions of new tech-savvy customers. SCB has selected Uranet's REN technology as their payment stack to be offered as part of this banking as a service model. The first country involves Indonesia, where we are helping the bank connect to leading e-commerce marketplaces in the country to offer financial products and payment solutions. This is one of several projects in which SCB is leveraging Uranet's REN technology as part of their digitization. digitalization and platform modernization strategy. Second, as we have told you on previous calls, we believe real-time payments has the potential for revolutionizing payments for customers, merchants, and corporates, and our REN technology is ready to support banks and central banks as they investigate how to participate in this new trend. To that end, Uranet's REN Connect solution, a derivative of our REN ecosystem, allows banks to connect to domestic real-time payment schemes. Additionally, banks can accelerate innovation and deliver enhanced customer experience using our digital overlay services. The bank can deploy these new services on their mobile banking application to provide FinTech-like instant payment experience to their customers. So in the real-time payment space, this quarter we signed a deal with one of the largest banks in the Philippines, Bank of the Philippine Islands, to enable them to connect to the real-time payment scheme of the Philippines called Instapay. Under this project, we will enable BPI to offer both person-to-person and person-to-merchant payments in real-time using Uranet's RAN Connect solution with our overlay solutions. We are excited about these technology developments and look forward to telling you about more in the coming quarters. As you can see, the years that we have spent investing in our retail channels and in developing our technology are delivering real results across our business and opening the door to many new opportunities to accelerate our growth potential. With that, I'll hand it over to Rick.