Euronet Worldwide, Inc.

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.

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?

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.