Euronet Worldwide, Inc.

Greetings, and welcome to the Euronet Worldwide Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce your host, Mr. Scott Klassen, General Counsel for Euronet Worldwide. Thank you, Mr. Klassen. You may begin.

All right. Thank you. Good morning, everyone, and welcome to Euronet's second quarter 2023 earnings conference call. 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 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 these 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, URNET does not intend to update these forward-looking statements and undertakes no duty to any person to provide any update. You should avoid placing any undue reliance on any of these forward-looking statements. 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 CFO, Rick Weller.

Thank you, Scott. Good morning, and thank you to everyone who's joining us today. I will begin my comments on slide five. For the second quarter, we produced revenue of $939 million, operating income of $122 million, adjusted operating income of 120 million and adjusted EBITDA of 166 million. Excluded from the adjusted operating income, adjusted EBITDA, and adjusted EPS is a non-cash gain recorded in the EFT segment. Adjusted EPS was $2.03, a 17% increase from $1.73 in the second quarter of 2022. These results produced a record second quarter and strong double-digit growth rates driven by improvements in all three segments. Slide six presents the summary of our balance sheet compared to the prior quarter. As you can see, we ended the second quarter with more than $1.1 billion in unrestricted cash and debt of $1.8 billion. The increase in cash is largely due to cash generated from operations of $92 million in the second quarter of 2023, as well as short-term borrowings to fund seasonal ATM cash requirements. Slide 7 shows our as-reported results for the second quarter. When comparing FX rates on a year-over-year basis, we saw virtually no currency translation impact over the same quarter of last year. I'll go into more detail on each segment's constant currency results for the quarter in the next slide. Next slide, please. I'm now on slide eight. As I just mentioned, FX rates were virtually the same year over year. Before I jump into each segment, I think it's important to point out the business expanded margins across all three segments, reflecting our focus on expenses and leveraging our costs. EFT revenue grew 13%, while operating income and an adjusted EBITDA grew 21% and 12% respectively. The strong improvements in EFT year-over-year were the result of increased cash withdrawal transactions driven by continued travel recovery trends and good performance of our POS acquiring business. The segment expanded operating margins by more than 100 basis points year over year. As we have discussed in prior quarters over the last three years, our international transactions have generally recovered consistently with the recovery of international travel. Beginning in the latter part of the quarter, we began to see a divergence from the recovery of international travel leading to a flattening of our international transaction growth year over year. We'll discuss this trend in more detail later in the presentation. ePay revenue grew 15% while operating income and adjusted EBITDA grew 11% and 10% respectively. Revenue growth was driven by continued expansion in mobile and digital branded payments combined with sustained growth of our digital distribution channel and a strong quarter for promotional activity. Transactions decreased compared to prior year due to declines in low margin transactions in India. These India transactions are low value and as such have a large impact on transaction count, but a relatively insignificant impact on gross profit. Margins in ePay remained relatively constant year over year. Money transfer revenue grew 7% with operating income and adjusted EBITDA growing 15% and 12% respectively. This growth was the result of 11% growth in U.S. outbound transactions, 11% growth in transfers initiated largely in Europe, and 12% growth in transfers initiated in the Middle East and Asia, and 30% growth in XE transactions, partially offset by a 17% decline in U.S. domestic business. These transaction growth rates include 28% growth in direct-to-consumer digital transactions, transaction growth outpaced revenue growth largely due to mixed shifts, principally in the XE business, which has benefited from strong growth in transactions, but at a lower amount sent per transaction. The money transfer segment margins improved quite nicely through effective expense management, cost leverage, and an improvement in gross profit per transaction, despite seeing average send amounts per transaction come in by approximately 3%. Before I wrap up my comments, I'd like to give you more insight into our third quarter guidance and our outlook for the full year. First, we continue to expect money transfer to deliver double-digit growth in the third quarter and the full year with improving margins. In EFT, where Mike will elaborate in more detail, we are seeing the impacts of inflation and rising travel costs leaving consumers with fewer funds for discretionary tourism spending. Moreover, we anticipate this trend to continue into the third quarter. And as a result, we expect third quarter revenue for EFT to be similar to somewhat better than prior year. But operating income will be constrained due to operating more ATMs together with higher inflation-driven ATM operating costs. Finally, in ePay, as we discussed in prior quarters, our promotional activities can create uneven quarterly results. In the third quarter last year, we had strong promotional activity creating a tough comparison as we head into this year's third quarter. When we last provided an update for ePay, we had anticipated that the Indian government would remove its ban on the two most popular games in the Google Play Store. In May, the Indian authorities granted permission to resume operations of one of the games. Sales doubled in the first few days of the relaunch, but failed to achieve pre-ban levels. And as of today, Free Fire remains banned in India. Additionally, We have learned that the game content providers have plans to release fewer new game titles in the second half of the year, and consumers are buying older games in order to spend less money, which is driving lower sales expectations. When taking into consideration what we see in the current trends, mostly the economic impact of inflation on our EFT segment, which is impacting customer cash withdrawals, we expect third quarter adjusted EPS to be approximately $2.70 per share. And while we are now expecting a lighter third quarter than we would have expected three months ago, we continue to expect to deliver year-over-year adjusted EPS growth but now at the lower level of low to mid-teens. In closing, we are proud of the double-digit revenue growth in the second quarter, which made possible a 17% growth in earnings. And we will be highly focused on finding opportunities to overcome the inflationary pressures we are seeing in the EFT segment. With that, I'll turn it over to Mike.