Euronet Worldwide, Inc.

Q3 2021 Earnings Conference Call

10/21/2021

spk03: Greetings, and welcome to the Euronet Worldwide Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-answer question. To ask a question, you will need to press star 1 on your telephone. If any time during the conference you need to reach an operator, please press star 0. It is now my pleasure to introduce your host, Mr. Scott Clothin, General Counsel for Euronet Worldwide. Thank you. Mr. Clothin, you may begin.
spk04: Thank you. Good morning and welcome, everyone, to Euronet's quarterly results conference call. We'll present our results for the third quarter 2021 on this call. We have Mike Brown, our chairman and CEO, Rick Weller, our CFO, and Kevin Kaponecki, 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 second slide of the PowerPoint presentation we'll be making today. Statements made on this call that concern Euronet 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 such forward-looking statements as a result of a number of factors that are listed on the second slide of our presentation. Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such updates. 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?
spk05: Thank you, Scott, and thank you, everyone, for joining us today. I'll begin my comments on slide number five. I'm so glad to be here talking to you today about these exciting double digit consolidated growth rates, especially given the uncertainty of border openings, uneven vaccination efforts, and increasing virus spread due to the Delta variant, which were all in the mix throughout the quarter. As I have reflected on these results, a few key highlights stood out for me. First, we were able to achieve consolidated third quarter 2021 revenue that topped the same quarter in 2019, which is particularly impressive given that EFT is still being heavily impacted by the COVID travel restrictions. This means that the revenue from ePay and money transfer has grown significantly, supporting our view that we will emerge from the pandemic stronger than when we entered. Second, our money transfer network now has surpassed a half a million physical network locations, and our money transfer app now reaches 20 countries. Third, ePay recorded its fifth consecutive quarter of double-digit adjusted EBITDA growth, primarily from the continued strength of mobile and digital media sales through our digital distribution channels. And our EFT transactions rebounded at a very strong pace as European borders were reopened to fully vaccinated passengers from inside of Europe and select countries outside of Europe. Moreover, we have seen some elongation in the travel season due to the pent-up demand for travel after nearly 18 months without it. All of these achievements were made possible by our strong balance sheet, which has afforded us the ability to maintain our dedicated workforce, to continue to invest in our industry-leading REN payments platform, as well as our digital networks in both ePay and money transfer, and also take advantage of the strategic opportunities that have been presented to us. And while our money transfer results were a bit uneven with strong U.S. and Europe outbound growth, as well as digital transaction growth, we saw a stronger than expected negative impact from the continued COVID lockdowns in the Middle East and the Asia-Pacific region. and the continued pressure on the U.S. domestic business. Aside from those two geographies, we really continue to see very strong growth rates in our transactions and lots of good progress in money transfer, which I'm excited to tell you about in the coming slides. But first, let's go to slide number six, and we'll talk about the European travel trends and the impact on our business. This is a lot more optimistic slide than the ones I've been showing you over the last couple of quarters. Here on slide six, we have updated the graph we presented last quarter, which shows actual and projected European flight data for this year versus 2019, overlaid with our total international cash withdrawals for the same period, as well as our transaction recovery from non-EU cardholders. When we spoke to you on our second quarter earnings call this year, the EU had just decided to reopen the borders to fully vaccinated U.S. travelers. However, the status of the borders in the EU were changing every day, causing a lot of uncertainty about when, not if, but when tourists would be able to travel again. As the graph shows, flight levels immediately responded to the opening of borders, and our total international transactions responded almost as quickly. While we were very pleased to see our total international transactions return to about 70% of 19 levels, the recovery of our EFT segment profits is a bit more nuanced than that. Let me take a minute to remind you of our different transaction revenue types. As you can see in the chart on the right side, our lowest value transactions are recovering much faster than our highest value transactions. First, we have domestic interchange and domestic surcharge. These transactions recovered quickly as the in-country movement restrictions were lifted. Next, we have the international interchange, which makes up most of the recovery in the international transactions, as these are largely EU citizens traveling to different countries within the EU. So these tourists were able to travel for much of the travel season beginning in the third quarter. Then you have the transactions that apply to cardholders with non-euro bank accounts, which are our most profitable transactions. The uncertainty of border openings, the quarantine requirements, as well as the late decision to open borders to only certain travelers outside the EU caused a significant lag in the non-EU-based transactions. cross-currency transactions. These transactions only recovered to about 40-ish percent of 2019 levels. So while we were thrilled that our international transactions bounced back at similar levels to actual flight levels coming into the EU, the lackluster reopening caused a slower rebound of our cross-currency transactions, which of course are the most profitable. However, the good news is that the European borders are now generally open to most vaccinated travelers and people now have a year to plan their 2022 summer vacation. We're also starting to see certain countries in Asia starting to open their borders, which will further contribute to next year's recovery. We don't control the virus and we don't control the government actions related to the virus. so our field of vision is somewhat limited in what we know will play out next. What we do know from the last two travel seasons is that when the travel restrictions were lifted, people very, very quickly returned to travel, and they still withdrew cash, in fact, even more cash. Right now, the vaccination efforts continue to improve. Therapeutics are now becoming available, and people want to travel. If these factors continue in a favorable light, we anticipate that our 2022 transactions will possibly recover to between 80% and 90% of 2019 levels. The results could be better than we expect, of course, and they were here in the third quarter versus the guidance we gave you on the prior call, or they could be worse, but right now this is our best view. What I also know is that our ATM network is stronger and more far-reaching than before COVID, and this travel season once again proved that travelers are still going to use ATMs. We are excited for next year when we hope that many of these hurdles will be behind us. Now let's move to slide number seven and hit some of the EFT highlights. Here are a few highlights from our EFT segment. During the quarter, we launched merchant acquiring services at La Samaritaine, a high-end shopping mall in Paris. Urinet is now offering payment services there to more than 200 terminals within the mall. We also... We also launched cardless cash payout for BNP Paribas corporate clients in Poland, further expanding our product offering in one of our most important markets. In India, we launched ATM switching and card management services with SBC Cooperative Bank and Y Urban Cooperative Banks in India, expanding our offering with the community banks in the country. We also signed an ATM recycler agreement with Vistabank in Romania. Finally, we renewed several ATM and card agreements across Europe and India. As we continued to see the flights increase and more tourists on the ground in our countries, we invested further in our ATM network by adding more than 1,300 ATMs, and we reopened about 730 ATMs that were previously closed. We also lost about 161 outsourced ATMs, bringing our total active ATMs to 45,520. We still had about 1950 ATMs in closed status, either due to seasonal closures or because of COVID-19 lockdowns, bringing our total ATM network to 47,474. With some elongation of the travel season I mentioned earlier, we have kept more ATMs open than we historically have had as of September 30th. However, as we move through the fourth quarter and tourism starts to slow down for the winter, we will expect to seasonally close some of our ATMs like we've always done. You know from previous quarterly yearnings updates, the EFT segment has been significantly impacted by COVID, so we were pleased to see such a strong rebound in our transactions as movement restrictions were lifted from around the globe. As we have shared with you over the last 12 months or so, we believe then, and this third quarter transaction trend certainly confirms, tourism will return to and we have a strong balance sheet, so we'll be able to strengthen our network, adding more countries and adding more high-value ATMs. We are looking forward to 2022. We will be ready to reopen all of our ATMs for the entire travel season if COVID conditions continue to improve as we have seen so far this year. So now let's go on to slide number eight, and we'll talk about ePay. In this third quarter, our ePay team continues its nice, rhythmic beat, the fifth consecutive quarter of double-digit operating income growth. So how is this possible? Several years ago, excuse me, ePay disrupted the traditional content distribution market by recognizing the need to create digital distribution for items that had traditionally been distributed as a physical product, including gift cards, software, and gaming. ePay reimagined the way these things were purchased around the world by digitizing the barcode, which eliminated the need for a physical plastic gift card or a CD to install new software or a new game. In addition to the digital delivery of all types of content, ePay developed an industry-leading technology platform that could be leveraged to deliver this content to banks, mobile operators, e-commerce sites, or mobile wallets, all in addition to the traditional physical retail distribution. Today, we see a major transition in the traditional payments landscape. According to the most recent McKinsey study, over the next five years, acquirers will grow by 40% from non-acquiring revenue. For years, we have been actively positioning ePay to make these types of non-plastic alternative payments and provide our merchants more ways to make money and for consumers a more efficient way to get their products. Additionally, we have the technology in place to connect with emerging fintechs to achieve real-time payments and offer their customers more value-added products. In some cases, we are even doing two transactions in one. We are providing the content that the fintechs can offer their customers to purchase, and we are processing real-time payments of these transactions through our real-time payments engine. we know that the future embraces digital. We have superior technology and connections to mobile wallets around the world, which, combined with our leading physical retail network, places ePay in the prime position to continue to grow well into the future. This quarter, we launched several new agreements, including Microsoft Xbox subscription services with Telefonica, one of the largest mobile operators in Spain. We expanded distribution of Microsoft Office 365 to FNAC, the online store of one of France's largest retailers. We also expanded digital distribution with MediaMarkt in Poland, and mobile content distribution with Augie Bank, a Brazilian bank with more than 3 million customers. In Italy, we signed an agreement with LIS, formerly known as Lotomatica, to distribute Nike, Hellbiz Live, Airbnb, and Blizzard. And in New Zealand, we signed an agreement with BP, a large petrol station chain, to manage their gift card program. Our ePay teams continue to innovate our technology platforms, which in turn expands the services which we are able to provide to our fintech, retail, and content partners. And the fruits of their efforts show up in their earnings, where they have posted double-digit growth for the past five quarters. Good for ePay. Now let's move on to slide number nine, and we'll talk about money transfer. Our money transfer network has eclipsed 500,000 locations. I'd just like to take a step back and remind everyone that when we bought RIA, we were a very distant third in the money transfer industry with 42,000 locations, mostly in Latin America. We have grown that network more than 1,000% and built an account deposit network that now reaches 3.6 billion bank accounts and 416 million mobile wallet accounts. In fact, our account deposit transactions grew 31% during the quarter versus the prior year, and our account deposit volume now represents 29% of our overall cross-border principal flow. This physical network combined with our digital payout and that reach gives us the most far-reaching money transfer network in the world. And that is one of the key drivers behind our seven-fold money transfer earnings growth since the acquisition in 2007. During the quarter, we significantly expanded our wallet presence with service into five strategic wallets, GCash and PayMaya in the Philippines, IME Pay in Nepal, WePay in Trinidad and Tobago, as well as PayTM in India, which is one of the largest mobile wallets in the world. Our partnership with Paytm is groundbreaking as Paytm becomes India's first platform to accept international remittances directly into their digital wallet. I'd like to note that while Paytm has more than 330 million users, currently only 115 million of those have been fully KYC verified, so those are the only accounts we include in our digital wallet reach. We will add the other $215 million and growing into that count as they become fully verified and eligible to receive international remittances. Over the last few years, we have expanded with several post offices around the world. It's been a couple of quarters, so let me remind you that outside the U.S., these post office locations are like large retailers here in the U.S. in that they are the largest agents for money transfer in their country. And customer choice has historically been limited to just our other two money transfer competitors. We continue to disrupt this status quo. In this quarter, we expanded our post office networks with cash pickup services in four more countries including the India Post, the Vietnam Post, the Uganda Post, and the Bhutan Post. We also signed a partnership agreement with Noble Financial to transition all of its 117 agents in the U.S. to the RIA brand, platform, and network. Noble is an important brand and multi-industry conglomerate in the Liberian market and had developed a loyal following of money transfer customers in the U.S., We launched money transfer services to the 500,000 users of BNEXT, a Spanish neobank. We signed an agreement with ASIMO, a UK-based digital money transfer provider, to supplement its pay network. We also signed an agreement with Microsoft Dynamics to enable XE's payment offering with Microsoft Dynamics 365 platform. and launched an agreement with Sage Intech to enable XE's payments offering within its enterprise resource planning tool, which is used by small and medium-sized businesses. All of these agreements are examples of companies needing real-time cross-border payments for their customers and realizing that our money transfer network can provide the most efficient and cost-effective manner in which to send these transactions. We continue to work on expanding this product offering, and we look forward to sharing more news on it in the near future. Now let's go on to slide number 10, and we'll talk about our REN technology. As you reflect back to the comments from each of our three segments, you can't help but hear the significance of the role our cutting-edge technology is playing in our success. And to further underscore our technology success, I'd like to highlight here on slide 10 a couple of exciting new agreements for our REN technology. We have signed an agreement with JALIN, the National Switching System of Indonesia, which you may remember is the fourth largest population in the world. Euronet will deploy REN to modernize one of the largest switching infrastructures in Southeast Asia, replacing two competitive technology installations. When fully implemented, REN will drive approximately 43,000 ATMs in this country. This is very exciting, and this new installation of our REN technology comes on the heels of a successful project in Mozambique. Additionally, you may have read the press release announcing our signing of a REN implementation agreement with MarkerTracks. MarkerTracks is disrupting the market with its first-of-a-kind, regulatory-compliant, and cashless alternative to the traditional casino marker. With this implementation, REN is serving as a fintech enabler by powering the entire MarkerTracks solution. This is the first use of red in a non-bank setting and will be a game changer in the gaming market, where casino patrons are forecasted to spend $516 billion globally and $150 billion just in North American market alone in 2021, with significant growth expected as more states open the opportunity for online customers. Once fully implemented in the MarketTrack's cloud environment, REN will provide scalability for the growing user base in physical and online environments, as well as transaction speed for enhanced user experiences, and other key features including patron identity verifications, credit scoring, portfolio accounting, underwriting, ACH payments, and processing and more. This is an example of a fintech using REN's comprehensive suite to quickly scale to meet their growing demand. When I think about my original mission when I founded Euronet, it was to bring payment convenience to those who have not had it before. As the payment industry has rapidly evolved, so have we. And I think a quote from Gary Larkin, the chief strategy officer at Marketrack, summarizes our future the best. He said, we are also extremely excited to be the first to leverage the fintech-enabling technology of REN in a new market vertical like gaming that needs an innovative platform to support its rapid transformation to a cashless environment. That really summarizes the power of this technology, our network, and our assets. we can not only use them to further our core business, which continues to thrive, but to also position other fintechs and neobanks to rapidly expand their businesses because we have an entire suite of products, including issuing, transaction processing, settlement, compliance, reconciliation, and more, which will allow fintechs to grow and achieve their goals. And we are just starting at the starting line. Stay tuned for more exciting announcements on REN and that technology to come. With that, I will hand it over to Rick.
spk06: Good morning. Thank you, everyone, for joining. I will begin my comments on the balance sheet on slide 12. As Mike mentioned, we were able to achieve third quarter 2021 results consolidated revenue above 2019 levels. The mix of revenue has changed, but to achieve more than 2019 levels while still in the midst of this pandemic was only possible because of the strength of our balance sheet, which allowed us to invest in our digital and physical networks and take advantage of opportunities. As you can see, we ended the quarter with more than $1 billion in cash. The sequential increase is the result of cash generated from operations during the quarter of nearly $120 million. ATM cash increased in line with borrowings on the revolving credit facility to fund the seasonally higher ATM cash needs for the peak travel season. Next slide, please. I'm on slide 13. For the third quarter, we achieved revenue of $816 million. or a 104% over the third quarter 2019 revenue, with one segment still significantly impacted by COVID-related restrictions. Now, that's impressive. We also achieved operating income of $114 million and adjusted EBITDA of 155. Those better-than-expected consolidated growth rates were the result of outperformance of our EFT segment, where we saw international transactions rebound at a faster pace than expected as borders were partially reopened to fully vaccinated individuals, those with a negative COVID test, or the COVID-recovered travelers. We delivered adjusted EPS of $1.77, a 58% increase over the $1.12 in the third quarter last year. Next slide, please. Slide 14 shows our three-year transaction trends by segment. EFT transactions grew 29% as a result of more domestic and international cash withdrawal transactions, together with a continued benefit of a significant volume increase in low-value point-of-sale transactions in Europe and low-value payment processing transactions from an Asia-Pacific customer's bank wallet and e-commerce site. E-pay transactions grew 23%, driven by continued strength in mobile pop-up and digital media content distributed through digital channels. Money transfer transactions grew a net of 10%, including 18% growth in both the US outbound and European outbound transactions, and 58% growth in direct-to-consumer digital transactions. This growth was partially offset by declines in the domestic business and a 32% decline in transactions from the Middle East and Asia due to strict government-mandated lockdowns, which remained in place throughout the quarter. On slide 15, we present our results on an as-reported basis. Year over year, nearly all the currencies in the major markets where we operate increased in the low to mid-single-digit range. Overall, about a 1% or less impact on our consolidated results. To normalize the impact of currency fluctuations, we have presented our results on a constant currency basis on the next slide. I'm on slide 16 now. EFT revenue grew 56%, operating income grew 908%, and adjusted EBITDA grew 207% as a result of increased domestic and international cash withdrawal transactions benefiting from the partial lifting of travel restrictions across Europe and new ATM deployments as we continue to prepare for the full travel recovery. ePay revenue grew 19%, operating income grew 17%, and adjusted EBITDA grew 16% from increased digital distribution of digital media and mobile content. The lower growth rates in operating income and adjusted EBITDA reflecting investment in our teams and technology to expand our market-leading digital distribution platform. Overall, a nicely balanced quarter for ePay. Money transfer revenue grew 8% from the strength of 18% growth in both the U.S. and European outbound transactions, as well as 58% growth in direct-to-consumer digital transactions. Revenue growth was offset by weakness in the domestic business and larger than expected declines in the Middle East and Asia Pacific transactions. These factors, together with the FX rate volatility benefits realized in the third quarter last year, higher compensation costs and investments in our network and new products in the third quarter of this year contributed to the adjusted operating income and adjusted EBITDA declines of 23% and 20% respectively. While we always see pockets of price pressure, when setting aside the FX volatility rate benefits we realized in the third quarter last year, our money transfer segment saw relatively consistent revenue and gross profits per transaction when looking at it year over year. Moreover, when looking at sequential quarterly results, here, too, we saw relatively consistent revenue and gross profits per transaction. Now, shifting gears a bit, with regard to looking ahead, as we provided in the press release, our best insight into the fourth quarter would yield revenue relatively in line with the third quarter, producing adjusted EBITDA in the range of $120 to $130 million. Moreover, with the results of our seasonally strongest third quarter in the history books, we began to think about what next year might look like. As Mike mentioned earlier, based on the tourism, of this third quarter together with continued increases in vaccination rates across the globe, new therapeutics being introduced, and fewer border restrictions. It appears to us we could see 2022 tourism transactions break through 80% of 2019 levels, maybe higher. If we see that level of travel tourism recovery, together with the excellent growth we've seen from our e-pay and money transfer businesses, we could see 2022 revenue approximately 30% higher than our 2019 revenue, producing earnings similar to those of 2019. fully recognizing that we are not expecting a full recovery of our most profitable cross-currency transactions next year. So as I draw my comments to a close, I think it's worth repeating that this was a great quarter for Uranet, where we delivered revenue above pre-COVID 2019 levels, signed and launched several new agreements, expanded our technology to new countries and new verticals, and continued to grow our digital distribution and networks. With that, I'll hand it back to Mike to close out the quarter.
spk05: Thanks, Rick. I'd like to close by emphasizing that all these highlights were accompanied by a very strong set of financial results, which show that Uranet's emergence is not only as a leading fintech, but it further demonstrates our rapid evolvement into becoming a FinTech enabler. We have been able to transform ourselves because RAD, our modern, flexible, and powerful technology, together with our global reach and our strong portfolio of assets. We have built the most powerful and broad-reaching money transfer network in the world. It appears that travelers are coming back We expect this to continue as vaccination rates continue to improve and as therapeutics come to the market now and because economies need travelers. And ePay continues to develop digital distribution and merchant solutions that can directly compete with acquirers today. We have a lot to be proud of and even more to be excited about. With this quarter now closed, I look forward to telling you more next quarter. And finally, as we alluded to in the second quarter investor update call, we continue to make great progress in introducing new ways to leverage our collective existing assets into new B2B product offerings. We're crossing the T's and dotting the I's, so I hope to be talking to you more about some exciting things in the near future. Stay tuned. With that, we'll be happy to answer your questions. Operator, will you please assist?
spk03: Thank you very much. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Again, that's star, then the number 1 on your telephone keypad to ask a question. Your first question comes from the line of Andrew Schmidt from Citi. Your line is open.
spk02: Hey, Mike. Hey, Rick. Thanks for taking my questions. Good to see the step up in earnings power here and the significant expansion use cases across the platform. It's good to see. I just want to start off with just a clarification question. Rick, I think you mentioned the expectation, at least right now on a preliminary basis, understanding it's still a little bit early, that 2022 earnings would be similar to 2019. Are you referring to adjusted EBITDA, operating income, net income? Just a quick clarification there to start off.
spk06: I was really kind of going down to the adjusted cash EPS number, Andrew, kind of to, you know, rattle it all the way down the income statement. Perfect. Super helpful.
spk02: And then when we talk about 80% to 90% of transactions recovered versus 2019 in EFT, How does that translate to EBITDA? Because I know there's some mixed assumptions need to be made in terms of domestic versus cross-border and other products in that segment. So what's the right way to think about that in terms of translating EBITDA as a percentage of 2019 basis?
spk05: Well, I'll let Rick get right down to the nuts and bolts, but the reality is our most profitable transactions are cross-currency transactions, right? And so when you saw that are cross-currency international travelers. So anybody like going into Europe from outside of Europe is a cross-currency guy, right? And those are our most profitable transactions, but those only recovered this year 40%. when we saw our intra-European recovery in the neighborhood of 60%, 70%, and 80%, depending on if they're domestic or international. So those are really profitable transactions. That's the only difference, really, if you get down to it, between 2019 and this last quarter. So if we can get more people to go on overseas flights, we'll really be cooking next year.
spk06: You know, to kind of add to Mike's comments, it gets to be some rather, let's just call it involved or complicated math to, let's say, more fully answer your question. But from a really macro perspective, I think as we've shared with folks before, the richness of these transactions come into our P&L at about a, let's call it roughly an 80% margin rate. And so you can see that if we can move the needle a bit on the volume of these transactions, and certainly you could see in our third quarter results that as these transactions come in better than expected, they contribute nicely to the bottom line. And if you kind of do a little bit of macro kind of math and looking at that next year number and kind of seeing where our ePay and money transfer business has grown, you can see that that kind of margin leverage comes through on EFT to be able to get us to a 19 earnings kind of level. So I guess in summary, I would be with the view that the way you should think about it is as we see those transactions come through, they're going to come through at some very rich margin levels and really nicely contribute to that bottom line.
spk02: Very helpful. And then it's great to have an EPS baseline out there for 2022. But it's obviously still a little bit early. So I would imagine that you'd probably bake a good level of conservatism in here. It just makes sense to be prudent. But if you could just sort of clarify that a little bit. Is there a level of conservatism that's baked in here? just because we are, you know, we're not even in 2022.
spk05: Well, we have to, Andrew, because we just, we don't know, and we do know that when Americans want to travel abroad, it takes a lot more thought, preparation, and kind of oomph to do that than if you're just, you know, flying within Europe, you know, and it's a lot easier for us to go to New York than it is you know, for us to go to Rome. So we bake that in there. We don't know. It could be better. You know, all of us are going to watch the tracker on how many cross, you know, ocean reservations are being made, but that will change things markedly. And if you look at, you know, the average revenue per transaction of anything that is a cross currency, you know, we probably make, you know, we make about a, a little over a dollar on an international interchange transaction. We might make $2 or $3 on a surcharge transaction. But when we get to make a spread on foreign currency, I mean, those transactions could be $5 to $10. So you can see it doesn't take too many of those transactions to really pop the top off.
spk02: Right. So it sounds like it's more prudent expectations about NICs. in 2022. It's all about mix. It's 100% about mix. Exactly. Absolutely. Perfect. Well, thanks a lot, guys. It's great to see the progress here. I'll jump back in the queue, but thanks for recording the results. Thanks a lot.
spk03: Next question. Yes, your next question is from Andrew Jeffrey. Your line is open.
spk09: Hi. Good morning. Appreciate you taking the question. Mike, a question on money transfer and a question on ePay. Can you talk a little bit about the investments you're making in the money transfer segment and how you think you're going to be able to monetize these connected wallets and connected bank accounts? I think you gave us a little color on the volume that's going into bank accounts, but can you talk about, I guess, one, specifically where you're investing, and two, whether or not you think monetization of some of these digital accounts and deposit, account deposit in particular, money transfer can drive yield and drive growth.
spk05: Well, I mean, you saw our numbers just over this last quarter where, you know, our account deposit transactions grew 31% during the quarter versus prior year and account deposit volume now represents almost 30% of our total volume. So what that's telling you is this huge asset that we have with basically 4 billion digital ways to drop money into an account or a wallet has accelerated our growth. And you've seen also the huge growth in our direct acquired app money transfer transactions as well. So the deal is, If you want to grow into the future, everybody goes digital, digital, digital, but you've got to have the endpoints. And that's our magic right now is we continue to build out those endpoints both for consumers – And in the future, we've been mentioning this before, where we intend to repurpose those for B2B kinds of transactions, because that market is many, many times bigger than the family remittance market. So having this head start, having the world's leader lead in that area is going to be an asset, and that's worth making investments in.
spk06: Andrew, I would go on to elaborate on some of the technology comments Mike made, is that We have built a wonderful platform of technology that is easy to connect to. And no different than some of the FinTech players that we mentioned that we've signed agreements with is there's lots of folks out there building things in the garage, so to speak, on ways to meet customer needs, more efficient, eloquent ways to get to the customers. And when they do that, they then need to make payments around the world. That's at least some of their opportunity. And we've got the best network in the world. The other important part about it is not just the ease of integrating to our technology, is that we cover all the payment mean. It's not just that you can send it to a card account or you can send it to a bank account. We can send it to wallet accounts. You can pick it up in cash. We could put it into crypto if we want to, okay? We can move the money any way that somebody wants to be able to receive it, and we can get it to damn near anyone in the world. I mean, there's a little bit of the few corners of the world that you can't, but we've got truly the most impressive network. So how we monetize it is a combination of several of those things, and it really starts with our technology being able to integrate into that technology, which then opens up and exposes the opportunity for all of our assets to be taken advantage of.
spk05: I mean, we really like the fact that a lot of companies are out there, very well-funded, attracting customers with their, you might call it their mousetraps, to, you know, to attract customers and do transactions. But all of them need a payment methodology. And we handle the whole thing, soup to nuts. you know, compliance and everything. And then, remember, on our REN technology, we're putting our REN tech into both banks and central banks to do real-time payments. So as the world moves towards RTP systems, I mean, who's got the expertise? We do. We're installing that stuff right now in that piece of the business. That is one big advantage we have in our company, that we're not just a money transfer company, we're a technology company and that we're, you know, enabling people to do that. So, you know, these things really work hand in glove and give us just an edge over everybody else.
spk08: Okay, that's helpful. And I guess to put a finer point on it, should we expect to see all that translate into better yield, Rick?
spk09: I mean, I guess that's one of the questions we get when we think about the tension between, you know, traditional companies or legacy money transfers to cash to cash versus digital. I mean, do we start to tip over to better unit economics at some point here?
spk06: Yes, because I mean, as Mike said, as you focus on B2B and you move up that, that market, it's, They get to be bigger transactions. The cost, you know, our cost to terminate one of those transactions is rather small. And so there's opportunity where if you take a look at what the, let's say, just average achievement on on sending money, and I'm not talking about per se remittance money, but moving money around the world is in excess of 1% of the money moved. So you can easily now start seeing that if you move a $10,000 or a $20,000 or a $50,000 transaction, and you've got 1% or even a half a percent, those are nice transactions. So yes, it really does contribute to the ability to leverage the bottom line margins for this business. All right. Thanks. Appreciate that, guys.
spk03: We have a question from Darren. The line is open.
spk07: Thanks, guys.
spk05: I didn't hear what your name was. Who is this?
spk07: Hey, it's Darren. Oh, Darren. Okay. Hi, Darren. Hey, Mike. Guys, when we look at the normalized potential of the business now, so you've talked about the magnitude of improvement we've seen in e-pay and money transfer through the last one and a half, two years. Just give us a sense of what you think based on the different trends around challenger banks requiring more and banks pushing back on needing more, opening up surcharging rules, new governments. What would you say in a normal world is the size of the EFT business versus 2019 from a revenue and profitability standpoint. Because we can figure out, we can see the acceleration on the money transfer and the e-pay sides of the business. I'm curious what a normal-sized business could look like for you if, you know, one day... Well, take a look.
spk05: I mean, it's taken us about eight years to build out Europe. And you saw the profits that Europe generated in 2019, you know, for... doing those kind of transactions, and maybe that was around $300 million in EBITDA. Well, now that Visa has changed its rules and allowed us to accept similar kinds of transactions, not just like we do in Europe, but everywhere in the world where there's a Visa card, a MasterCard card, I mean, the whole rest of the world is our oyster. Wherever there's a tourist on this planet, I should go after them, you know. Give me some sand and a beach and I'll be there. So as I look at this, you know, there could be every bit of, you know, another 300 million or more out there to go after. And we're just beginning to do that. We're live with just one country in Southeast Asia right now that we'll be announcing at some point in time. We had 150 ATMs there before COVID-19. hit and they were extremely profitable ATMs. So we know that we've got something that works. We'll be announcing other countries in the coming quarters. And so our challenge is just get ourselves expanded. We've got licenses in these countries. We know how to manage all the sub pieces of delivering the money to the ATMs and reconciling and all that. So It's big. That's probably, people keep saying, well, how long will it take you to get back to 19 levels? You know, we'll get there. The question is, you know, what are you going to look like in 2022 or 2023 or 2024 or 5 when maybe we're twice that big?
spk01: And we've invested in those markets.
spk05: And we continue to invest, yes. Had we not, you know, we were actually on this whole idea long before, you know, two years before Visa even started to change its rules because we felt like they were going to have to. So as they change, we're now getting the licenses in some of these new markets, and they'll be very lucrative for us.
spk07: Yeah. Yeah. You know, when we think about the e-pay and money transfer seconds being somewhere around 40% or maybe more than that, you know, higher than 19 levels already, trending that way at least for 22. Again, the EFT side of the business is kind of the question given the profitability level there. And so, you know, if we were to normalize, I remember estimates were expected to be somewhere around 20% higher for 2022 pre-COVID than the street estimates are now, and probably 30% higher than what you just said if it's similar to 19%. So I guess the bottom line question is do you envision a normal scenario and can you move fast enough on all the redeployment on ATMs to make that happen if we get real resurgence on travel?
spk05: Oh, absolutely. In fact, they're already there. The ATM, we've added more ATMs than we had in 2019. All we've got to do is turn them on. Now, some of the ones that we've got closed, they're just not cashed. They're cashed out, you know, but they're technically live and we can respond quickly. Not quite instantly, but pretty darn fast.
spk06: Got it. When you say normal, it's always hard to compare what normal is. But if you look at our 2019 revenue numbers for the EFT segment, and using your assumption or your stated assumption of if we get back to travel at the same levels. Well, I would tell you that if we were at same travel levels as 2019, no restrictions, full movement of people, that we would, with our current set of assets, it's quite likely that our revenue numbers would exceed 2019 numbers for EFT because we have taken some, let's call them some of these outsourced ATMs that were brought back in-house because of some acquisition. Those went out, and we've continued to replace them with our own ATMs. and opening up in new countries that we have seen spectacular results out of. So my sense is that if we had no travel restrictions, as you said, and it was back to business as normal, our number for revenue on that EFT segment would exceed 19's number.
spk07: Okay. My last quick follow-up, a little more pointed on the money transfer segment, given the volatility it's had in the last couple of days on competition concerns and pricing. So to be clear, I mean, you have Wise out there lowering price, and you have Facebook and others trying new things with lower price alternatives potentially. And so you guys are already generally lower. Do you consider yourself already generally lower priced than others in the industry and lower margin and higher commission payout? I'm curious how you think you'd stack up in a world where some competitors have to lower.
spk05: Well, first of all, you've got to remember, this is a dog-eat-dog business, this family remittance business. We are out there competing every day on every street corner and on the digital side, you know. You know, so that doesn't really bother us. And actually, if you take a look at our numbers and you kind of dig deep into our numbers, there's been some kind of squirrely things that have happened because of COVID, and we had a lot of good currency volatility last year that – But as Rick said in his early part of this discussion, the reality is we haven't really felt much pricing pressure. So this idea that all of a sudden, you know, we're under the gun on pricing, I don't think is accurate.
spk06: Yeah, I mean, you know, as we said, we see pockets of pricing pressure all the time. I mean, this is a competitive world, and we operate around the globe. So there's always going to be someone that's offering something for free or something else like that, and we have to respond to that. And, you know, and our response comes in different markets, ways we deliver the products. When Mike mentioned that we're doing nearly a third of our businesses paid out to bank accounts now, you know, that's a more efficient way to pay out and gives us some better economics on that type of stuff. And so since 2007, we've been out there and competing. And we've always generally been a better value play than the bigger guys in the market out there. So, you know, we've kind of, let's say, already been at a more competitive point. As you know, and I've not yet found a business that can survive with just giving all of its product away free. Somewhere you have to be able to make money. We've often seen where new entrants will come in at a very, very compelling free offer. But at some point, reality has to set in, and you've got to be able to make money in this business because there's cost of compliance. You know, maybe some of these folks aren't doing compliance, right? It's cost of compliance. It's cost of building out a network. It's cost of competing every day. So, you know, we see it out there, but we respond to it every day.
spk05: And let's not forget, even just looking at the family remittance market, we have about 5.5%, 6% of that. So, you know, we look at it as there's 94% to go. We've got a big market out there, you know. And we'll take one more question, I think, operator, before we're going to have to end it. Okay. Okay.
spk03: Your last question is from Mike Rundle with Norton Securities. Your line is open.
spk10: Hey, guys. Congrats on Jolin and marker tracks. Could you kind of help us understand the revenue model a little bit there, like per ATM or per transaction? How do you envision that working?
spk01: Yeah, so this is Kevin. So we've got two revenue models associated with RINN. One is a traditional software license model, and the other is a transaction revenue share model. In the case of Jolin, it's more the traditional software license model. In the case of Marketrax, it is a revenue share related to transactions.
spk10: Got it. Got it. That's helpful.
spk05: You know, in a lot of our installations, you know, we kind of want to, especially into these places that are putting in real-time payments or connecting the real-time payment engines, we're a little bit more transaction-based than software-based because the transactions are low. We can kind of – the expense can grow along with the asset.
spk01: Yeah, a lot of the fintechs we're working with, Mike, prefer – a transaction base because they want to preserve the capital. So we're finding a lot of great opportunities to get them in low with a transaction model and then share in the profitability. As they grow, we get to grow, which we really like because we believe in the partners that we're picking with regards to providing the technology stack.
spk06: I mean, on average, we would say that our bias is always going to be toward transaction-based because we also think that it's very lined up with the partners we're dealing with. We're kind of going into it with more skin in the game, more risk-taking, if you will, at the beginning of the transaction because we're not walking out of there with a big software fee. And then we benefit on the growth of it. So I think that our interests are more aligned with the partners when we have a transactional-based process, and it certainly helps them get into the business easier if they don't have to write a big check and, as Kevin said, use a lot of pricey capital to be able to get the business going.
spk01: The market tracks thing, you know, we put out a press release about it a week or so ago, and then Mike referenced it in the review. We're particularly excited about that because they're playing in such a large market, hundreds of billions of dollars. That market hasn't changed in decades, and there's a push to try to move to cashless. And in our opinion, these Market Tracks guys have got a great vision for the industry and where it's going, and we couldn't be more thrilled to be part of it and act as their technology service provider. I think that's got a lot of potential.
spk10: Got it. And just lastly, as a follow-up with MarketTracks, do you guys know how many casinos your product is in and what that rollout might look like?
spk01: We do. We're not at liberty to discuss it, but I'll tell you, Mike, the list is greater than our ability to implement.
spk10: Got it. That's helpful. Thanks, guys.
spk01: The sales pipeline is extremely strong, and we're having to pick and choose because there's more opportunities to deploy than we have the capability right now to deploy into.
spk10: Good to hear. Thanks, guys.
spk01: Excellent.
spk05: All right. Well, with that last question, I would like to thank everybody once again for joining us on the call today. We'll look forward to giving you an update in another 90 or so days. Thank you very much.
spk03: This concludes today's conference call. Thank you for joining. You may now disconnect.
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