Euronet Worldwide, Inc.

Greetings and welcome to the Euronet Worldwide Second Quarter 2022 Earnings Call. It is now my pleasure to introduce your host, Ms. Hope Gregg, Associate General Counsel for Euronet Worldwide. Ms. Gregg, you may begin.

Thank you. Good morning, everyone, and welcome to Euronet's Quarterly Results Conference Call for the Second Quarter 2022. On this call, we have Mike Brown, our Chairman and CEO, and Rick Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of our presentation we'll be making today. Statements made on this call that concern Euronet for 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. Except as may be required by law, 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 the 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 CFO, Rick Waller.

Thank you, Hope, and thank you to everyone joining us this morning. I will begin my comments on slide five. For the second quarter, we produced revenue of $843 million, operating income of $101 million, and adjusted EBITDA of $147 million. We delivered adjusted EPS of $1.73, a 226% increase from the 53 cents in the second quarter of 2021. These strong improvements include all metrics In all metrics, we're driven by revenue growth in all three segments, which includes a strong rebound in domestic and international cash withdrawal transactions in the EFT segment from the continued lifting of COVID restrictions across the globe as travel is recovered. Next slide, please. Slide six. As has been the case for the last two plus years, the strength of our balance sheet has allowed us to make investments and operate the business in a way that will continue to deliver long-term shareholder value. As you can see, we ended the second quarter with more than $1 billion in unrestricted cash and debt of $2.1 billion. The increase in cash is largely from cash generated from operations of about $75 million in the second quarter of 22, as well as short-term borrowings to fund ATM cash and certain working capital needs. which is also reflected in the increase in debt. This increase in cash is partially offset by cash paid into the ATMs in response to seasonal increases in travel trends, share repurchases of $104 million, and working capital requirements. Slide seven, please. Before I discuss each segment briefly, I'd like to draw your attention to the significance of currency change year over year. As you may have noted in the press release and on the first slide, reported GAAP revenue grew 18% year over year. But on a constant currency basis, that is, if the currency rates this second quarter were exactly the same as that of the second quarter last year, our revenue would have grown 28%. 10% more if no currency translation impacts. That's a big impact. And the majority of that change developed as the second quarter unfolded. Moreover, had it not been for currency devaluations against the U.S. dollar, we would have delivered adjusted EBITDA within the range we provided at the beginning of the quarter. So bear in mind the significance of FX changes And I'll comment on each quarter's constant currency results for the quarter on the next slide. Slide 8 now, please. The strong improvements in EFT revenue, operating income, and adjusted EBITDA were the results of increased domestic and international cash withdrawal transactions driven by improving travel trends from lifting of COVID restrictions across the globe. We added more ATMs and reactivated nearly all of our ATMs in anticipation of a strong travel recovery. On a year-over-year basis, revenue and gross profit per transaction also expanded as a result of improving international transactions, which generate more revenue and profit per transaction than domestic transactions. ePay revenue grew 2% while operating income and adjusted EBITDA declined 1% and 2%, respectively. Revenue growth was driven by continued expansion in mobile and digital branded product payments, together with continued growth of the digital distribution channel. Similar to the first quarter, the year-over-year revenue comparison was impacted by three items. the previously announced loss of a key German B2B customer in the fourth quarter last year, the India government's halting of certain digital games, and the shifting of promotional activity from the early part of 2021 year to the later part of the 2022 year. For perspective, had these three items been consistent to the prior year on a pro forma basis, EPA's gross profit and operating income would have grown 6% and 10% respectively. As we enter the third quarter, we have already started to see an increase in promotional campaigns, confirming our view that this promotional activity was just shifted to the back half of this year. Moreover, while not significant in the second quarter, we did begin to see certain trends in our more discretionarily used products that suggest inflation may have contributed a certain amount of pressure on the segment's results. Money transfer revenue grew 9%, operating income grew 3%, and adjusted EBITDA grew 2%. This growth was the result of 10% growth in U.S. outbound transactions 11% growth in international originated money transfers, which included 11% growth in both Asia and Middle East and predominantly European initiated transfers, and 37% growth in direct-to-consumer digital transactions, offset by declines in the domestic business. Operating income and adjusted EBITDA growth was lower than revenue growth from continued investments in physical and digital network expansion, higher cost to support technology, and certain new product development and advertising costs in the current period. Similar to ePay, while not significant in this third quarter, the money transfer segment began to see certain decreases in the average amount of transfers that suggest inflation may have contributed a certain amount of pressure on the segment's results. We are pleased with these strong consolidated growth rates, particularly in light of the macroeconomic headwinds we are facing across the globe. We have proven again that our fundamental business proposition is intact, and we expect to be able to continue strong growth rates. Now that I've covered the highlights for the quarter and pointed out the significance of FX translation on the quarter, let me turn my focus to the future. To start that discussion, let's go to slide nine to see what happened to FX rates over the last 18 months. As I previously mentioned, FX rates changed a lot. In fact, the single largest item in our list of changes. To that end, we prepared this chart to illustrate what happened to these three of our top currencies, the euro, the pound, and the Aussie dollar. You can see the drift in these currencies over the illustrated 18 months, but make note of the acceleration of the drift over the last three months. A lot has unfolded over the last three months. And I'm not sure there's not more ahead. But in early April, we all thought the Russian invasion of Ukraine would be short term. As we have seen, Ukraine has been resilient and Russia has not pulled out. As a result, we've seen adverse impacts on energy supply and ag and grain supply, which has had a knock-on effect on currency values. Moreover, the protracted invasion has led to direct impacts on our business within Ukraine, in Ukrainian border countries, and Russian sanctions. I'm not going to attempt to analyze all the factors that go with FX rates, but as this graph points out, when the currency is weakened to the US dollar, it shows up in translating foreign currency results into U.S. dollars for our reported financials. Now that I've discussed FX rates, let's go to slide number 10, and I'll take you through several items influencing our expectations for the rest of 2022. I'm on slide 10 now. As we have looked at our expectations for the rest of 2022, we see several items that have had a significant impact on our expectations, especially against the expectation to produce earnings in 2022 similar to 2019, which produced adjusted earnings per share of $7.01. That's code for $7 a share. With that in mind, I'd like to take you through several factors which influenced our estimates in arriving at our updated earnings expectation range of $6.30 to $6.40 for adjusted earnings per share. On this chart, we've illustrated the discrete impacts on adjusted earnings per share for several items starting with $7 per share and working our way across to $6.35. I won't cover each in great detail, but hit on the more significant points. First, benefit of share repurchases. Since we announced our outlook for the full year earnings in October of 21, we repurchased approximately 3 million shares for approximately $400 million, which benefit 2022 EPS by approximately 35 cents a share. We've updated our tax estimate based on the mix of our business across the many jurisdictions we operate. About a 2% to 3% rate decrease will benefit us by approximately $0.32 a share. Third, we've reflected a 1% tempering of revenue growth in the second half of the year for both ePay and money transfer to account for possible inflationary impacts on consumer transactions. This is a hard one to peg, but reflects the consideration of an impact on our business. Fourth, the invasion of Ukraine has had an approximate 10 cent impact ranging from closing ATMs in the Ukraine to curtailment of additional tourism focused ATMs in the Ukraine to lighter travel patterns to Ukrainian border countries, to sanctions imposed on Russian flights to Europe, to card schemes exiting card business in Russia. Fifth, travel industry inefficiency impacts. As you know, we previously estimated that our high value transactions, primarily the DCC transactions, would come in in the low 70% range. In fact, through May, we were pleased to see transactions posted nice recoveries similar to 2019, nice recoveries in relationship to 2019 levels, supporting our confidence of a robust recovery. Then in June, we started to see it flatten out, and towards the end of June, reverse trend. Now that we're witnessing tourism disruption in airports, hotels, restaurants, et cetera, that has led to capacity capping, we have adjusted our expectations to be in the mid to high 60s, which ultimately amounts to approximately 20 cents per share. Six, interest rates have gone up dramatically since October 21st. And as you all know, the Fed has quickened its pace and raised the rate to help manage inflation. These higher rates account for about 14 cents a share. Seven, more revolver borrowings. We've increased the use of our revolver to pay for the Piraeus card business, as well as the repurchase of shares. We expect the borrowings to relax as we generate additional free cash flows, but this accounts for approximately $0.08 a share. A, cost of inflation on operations. This one, too, is hard to peg. One might question what really constitutes greater competition for workforce versus inflation. They likely run together, but we made an estimate. It could be a bit light at $0.23 a share. Finally, ninth, FX. I've already covered it, but you can see here it has adversely impacted full-year EPS by approximately 51 cents a share. In summary, when affirming our expectations last quarter, we knew of some share repurchase benefits, some increased interest costs, some tax benefits, some FX pressure, which for the most part canceled each other out. But now, this quarter, we've seen FX accelerate its slide. The Fed get much more aggressive on interest rates to fight inflation, and the impacts of the disruption in the travel industry compounded by the lingering impacts of the invasion in Ukraine. We felt it appropriate to give you our refreshed outlook and a better understanding of how we get there. If you boil down all these items you can see that the real business impacting items, such as travel disruption, interest, taxes, essentially offset each other, leaving FX. Or said differently, if FX didn't change, our outlook for the year would not have changed. I know there are a lot of moving parts, but I hope this helps reconcile our expectations. Please bear in mind that if currencies move lower, interest rates move higher or faster, or travel disruption becomes more of an issue, these estimates will necessarily change. Thank you, and with that, I'll turn it over to Mike.