Greetings, and welcome to the Euronet Worldwide Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mr. Jeff Newman, Executive Vice President and General Counsel for Euronet Worldwide. Thank you. Mr. Newman, you may begin.

Thank you, Sania. Good morning and welcome, everyone, to Euronet's quarterly results conference call. We will present our results for the second quarter 2016 on this call. We have Mike Brown, our CEO; Rick Weller, our CFO; Kevin Caponecchi, Executive Vice President and CEO of our epay division on the call. Before we begin, I need to make our forward-looking statements disclaimer. Statements made on this call that concern Euronet's 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 results of a number of factors, including technological developments affecting the market for the Company's products and services; technological issues associated with the operation of our complex processing systems including security breaches, changes in ATM another transaction fees and changes in laws and regulations affecting the company's business, including immigration laws and anti-money laundering regulations. These risks and other risks are described in the company's filings with the SEC or Securities and Exchange Commission, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Copies of these filings may be obtained via the SEC's EDGAR website or by contacting the Company or the SEC. Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances. The company regularly posts important information to the Investor Relations section of its website. Now, I'll turn the call over to our CFO, Rick Weller. Rick?

Thank you, Jeff, and good morning and thank you for joining us on the call today. I will begin my comments on Slide 5. Our business continues to deliver strong results with revenue of $476.9 million, operating income of $59.3 million, and adjusted EBITDA of $82.9 million. Our cash – adjusted cash EPS was $0.97 a share, a 24% year-over-year increase and $0.07 ahead of our guidance. As you saw in our press release, $0.03 of this favorability was from higher trading volumes in our HiFX segment driven by stronger than normal currency volatility stemming from the Brexit vote. In addition to the stronger Brexit driven trading up on a closer inspection of the underlying details of the quarter, you would see that our results included certain one-time items including approximately $0.04 for non-recurring VAT, and incentive compensation accruals and about $0.01 of tax benefit. If you net out the one-timers both the positive and the negative, you would see that the business performed about $0.07 a share better than expected due to favorable operating performance together with the related favorable tax jurisdiction rate mix. This stronger operating performance is in part behind our expectations for an even stronger third quarter. Next slide please. Slide 6 shows our three-year transaction trends by segment. EFT segment transaction grew 21% with increases across Europe and India consistent with the last several quarters this 21% growth reflects the substantial loss of a number of transactions from the termination of an unprofitable contract in China. This growth also includes the addition of a large volume of transactions from this 2,600 low-margin ATMs that were onboarded in India. Net of the China and India items transactions would have grown 17%. As you may have noticed we have restated the EFT transactions for the second quarter…

Thank you, Rick, and thank you to everyone who is joining today. It is a hot day in Kansas City, but we are excited about what we are about to show you. First of all, before we get to the quarter highlights, I would like to give you some additional insight into the current and future impact of the Brexit vote on our business. A number of you have asked. As you saw in our press release, for the first six months of the year, the British pound based businesses at Euronet make up approximately 7% of our consolidated revenue and approximately 2% of our consolidated operating income. As Rick mentioned, we saw a significant increase in trading in our HiFX business in the days following the vote, which contributed $0.03 of favorability to our cash EPS in the second quarter. As the Brexit process proceeds, we would expect to benefit from continued volatility in the currency. We do have licenses in the UK and other continental European countries. Depending on how exit negotiations go over the next two years, we may decide to shift our licensing matters to other countries. We do not anticipate any near-term adverse impact to our business, and in fact, we may see some near-term benefit of currency volatility remains, just as we did in the second quarter. Now on to the second-quarter results. As Rick mentioned, our business outperformed our expectations, largely from the continued strength in our EFT and money transfer segments. Let’s move on to slide number 13. I will skip the outstanding results slide of the EFT segment and I will go straight to the highlights. Slide 13. The EFT team has successfully executed their strategies to add more ATMs and more markets. This strategy has several components to deploy more…

Thank you. [Operator Instructions] And our first question comes from Mike Grondahl from Northland Capital Markets. Your line is now open.

Yes, thanks and congratulations on the quarter, guys. Mike, could you talk a little bit about your ATM placements during the quarter and for the back half of the year? And maybe, specifically, the 2700 in India, I think that’s incremental, but if you could just specify, please.

Okay. So we have done about 1,300 ATMs net of the low margin ATMs that we do and that driving contract in India. Remember, we had 2,600. Well, we signed another deal to do 2,700 more, but we don’t include 2,700 in our goal of 2,000 for the year. So that will be another sector bank, another lower margin deal, but profitable from the get-go, and it provides us with a great opportunity to sell them more products in the future. But, with respect to what we intend to do through the end of the year, obviously we had a goal of 2,000. We are well over halfway there halfway through the year, and we continue to be aggressive in putting out more ATMs. We know how to find them. We have been doing this for 22 years. We have more empirical data with more countries with more ATMs than any company on the planet, and we are going to continue to be aggressive and put out more ATMs.

Got it. Yes. A top line above 20% growth, pretty impressive there. Could you go into the growth drivers of the money transfer business a little bit more? We saw 22% top line, but is there any way to kind of break that out between core Walmart the acquisitions, just to kind of help us understand the building blocks of that growth?

Well. You know, I mean, much like last quarter, it is really across the board. We did have the $0.03 of favorability that we got out of the Brexit volatility, the week or so – or maybe even less than a week, right after the Brexit vote with HiFX. But when you look at the rest of it, the rest of money transfer continues to grow, as Rick said in his comments, just across the board.

Mike, I would even add that, while we say that we got $0.03 of benefit from the Brexit, it is also fair to note that we saw lighter than expected volumes prior to the Brexit vote because people are a little apprehensive about doing things. So yes, we got $0.03 there, but in the grand scheme of things, it may not have been quite $0.03 against the total business because people need to make transfers. They make these business transfers as a routine part of their business, and so sometimes they may kind of withhold making those transfers, and then other times they may accelerate it. So, again, it was just nice consistent volume across all pieces of our money transfer business.

And with respect to the third quarter, we don’t have much at all for additional kind of a bump due to the Brexit. I mean, our volumes are a little bit higher than they were, before, but when we gave our guidance for Q3, that is factoring in $0.01 or less a share for additional Brexit kind of follow-on.

$0.01 or less. Got it. Okay, Okay. Hey, thanks, guys, and congratulations. I’ll jump back in queue.

Thank you. And our next question comes from Peter Heckmann from Avondale Partners. Your line is now open.

Good morning, gentlemen. Nice results. Rick, I just wanted to follow-up. You talked about, I think, three one-timers or three things that stuck out. Did I write down correctly that those three items netted out to zero?

No, those three netted to about $0.04 a share.

Can we go through them again? I have a $0.03 benefit from FX volatility, a $0.01 benefit from VAT.

If you net the $0.03 of volatility out of there, that would have been about breakeven.

And be careful. When we use the term FX volatility, that usually has to do with the translation pricing of the U.S. dollar to the foreign currencies in our banks. So it really was the FX volatility that – in our HiFX business that really caused more trades to happen.

Okay. Okay. And the hit from higher VAT accruals was roughly $0.04.

And kind of an incremental incentive comp kind of catching up because of the higher results there.

Okay, okay. Good, great. And then, the tax rate looked a little bit lower in the second quarter. How should we think about – I know it is a little bit of a moving target with all your different jurisdictions, but what type of tax rate is implied in your third-quarter guidance?

You know what, I would say it is kind of in the mid-20s% to slightly inside of mid-20s, Pete.

Great. That’s helpful. And then, just lastly, before I get into queue, just kind of looking at constant currency, organic growth, and money transfer, it looks like it is still running to me midteens when we take out the acquisitions, and is that roughly?

Fairly accurate Pete.

Perfect. I’ll get back in the queue. Thanks.

Very good.

Thank you. And our next question comes from Rayna Kumar from Evercore ISI. Your line is now open.

Good morning. Can you update us on the progress of your Walmart money transfer pilot in Chile and your overall talks in Walmart for a larger cross-border deal?

Yes. I haven’t had an update on that from my staff in about four weeks. But the last I heard, we had the one that we went live with. We were trying to get two more approved, and our goal is to have about – I think it was six or seven more – six or seven of them in by the end of the year. But that is the last I heard. The goal would be to put one in as many of their locations as possible, but we have got to make sure that our pilots run smoothly. We have got everything worked out. The nice thing is, you do your money transfer and you pay for it at the checkout, so it is perfect for Walmart. It gets around some of their labor challenges, and we will just have to see how, as we spread it across the country how well it does and with the hopes of doing more and more of it.

Understood. And a second follow-up. What is the potential for ATM interchange increases across Europe this year, and how would you quantify such benefit to your earnings?

Well, I would kind of wish somebody would give me that answer. It is still kind of a work in progress. As we have mentioned, nothing has really changed since our last call. We have Austria and Spain, and both said that you can do it, but they are both kind of grappling with that fact and how to implement. And so it is hard for me to quantify this at this point in time. We haven’t really changed our philosophy, our strategy to go after those sites as opposed to the normal sites that we go after and our normal criteria. But as that stuff starts to solidify, we will go after it, and then we will give you updates in the following quarters. But, really, Rayna, I wish I knew a little bit more. Europe is what Europe is, and things don’t move really quick, particularly with bankers and particularly in the second and third quarters.

Thank you.

Thank you. And our next question comes from Chris Shutler from William Blair. Your line is now open.

Hey guys, good morning.

Good morning, Chris.

Maybe first in epay, Mike, could you just give us the percentage of gross profit in the quarter that came from non-mobile? And I guess I am just wondering, also, how far along you guys think that you are in the process of rolling out content in all the different countries? If you look at the presentation slide, obviously a ton of activity in the quarter. But…

Yes, but there is also – I will let Kevin answer the second half of the thing, but we are at about – a little over 50% of our gross margin is generated in non-mobile. And with respect to how we are faring with respect to how deep we are with the products and the countries, I will let Kevin answer, please.

Sure. Obviously, based on the kind of the repeated story that we keep telling, the goal of epay is to out run – continue to out run the declines that we see in mobile and various markets. And, as I have said on previous calls, the challenge we have in mobile is the mobile operators competing with each other and giving – continuing to give the consumer more for less. And by giving the consumer more for less, that has a negative impact, obviously, on our volume. So with respect to nonmobile, which is your question, internally we talk about the three mores. We need more product across more retailers and markets across more channels. In the earnings call, we talked about one of those channels is particularly important to us, is the digital channel, basically converting the traditional gift card that is sold at maybe an end cap and treating it as a digital product that can be acquired digitally. That is very important for us in our markets because, as we have also said repeatedly, in our markets, a gift card is really a self use card. So consumers buy these products for their own consumption. So the ability to deliver and make the product easily available will drive additional sell-through, especially when it is for self use. Our focus is on further expanding the digitization of content. We have talked to you a lot about how we are doing that in the software sector, and we are now doing it in the gaming sector.

Okay. Got it. Thank you. And then, in EFT, just one quick question there. The outsourced ATMs that were terminated in the quarter the 249 – what exactly happened there? I don’t think I caught it.

Well, I mean, that was – it was one of the banks just decided to – I think they did this internally – and so it is a bank that we have, I think, about five or six contracts with. That contract would have ended up being unprofitable for us, so we decided to let them terminate that while we extended several of their others.

Got it. Okay. And then, lastly, a money transfer with XE and IME with those two acquisitions last year, now coming close to lapping those. Can you just give us an update on the performance, how they have trended relative to your expectations? Maybe give us a sense of how quickly they are growing so whatever growth…

So IME has been doing just great, and we have been saying that every quarter since we brought those guys on. So they have been definitely within and actually exceeded our expectations so that has been great. With respect to XE, it is right there on plan with where we expected it to be because the big bump is going to come in the fall of this year in the fourth quarter where we will get the bump of being able to take their XE trade calls, and instead of routing them to a competitor of ours for commissions, where we only receive like 20% or 25% of the commission, we will route them to HiFX and to ourselves so that we get the full amount of commission. So you really won’t see that bump until the fourth quarter – sometime in the fourth quarter. So by next year, that is going to be really a 2017 big bump.

All right. Thanks, guys.

Thank you. And our next question comes from Matt O’Neill from Autonomous Research. Your line is now open. Matt O’Neill: Yes, thanks. Just confirm volume on the XE discussion, the roll off from the competitor is happening sort of right now. Actually you won’t [indiscernible].

No, no, no, no, no. It’s like a big bang. Matt O’Neill: Okay.

Yes and it is going to be coming in mid of fourth quarter. Matt O’Neill: Mid-fourth, okay.

And so what we are doing right now, is doing all the IT work behind that, make sure that the customer journey is uninterrupted and seamless as possible. And so we are working kind of around-the-clock right now to make sure we get that done. Matt O’Neill: Got it. And could you guys give us any help on the tax rate, just thinking about through the end of the year and maybe going forward?

Yes. I think, as I mentioned to Mr. Heckmann there earliers, is kind of in the mid-20s to inside of mid-20s there. Matt O’Neill: Okay. Thank you.

Thank you. And our next question comes from Jason Deleeuw from Piper Jaffray. Your line is now open.

Yes, thanks guys. You have actually got Eric Robinson on for Jason. Just a quick one. On just kind of the other segments following Brexit, have you seen any other impact there, maybe on volumes and any payer on your ATM transactions even outside of the UK?

Not even – well, even with epay volumes in the UK, no. We have seen absolutely no impact in our business at all, at all. With the exception, we have made a little bit of extra money during the currency volatility stage with HiFX. And, by the way, that is the way HiFX kind of makes its nuts sometimes. We have seen – we saw a lot of currency volatility before the Scottish exit vote about a year ago and made a little bit of extra money there in that quarter. So we’d like when things get volatile.

Got it, got it. And then, just on – again, on the EFT segment, is there any update on surcharging in other European countries? I believe the question was asked on the interchange earlier.

Surcharging? Yes, yes. That was asked before. There are two countries who have said that they would allow surcharges, and that is Austria and Spain. But the implementation of doing it in those countries is still a little rocky, so we are not quite sure what is going to happen between the regulators and their consumer protection people and so forth. So both these markets, it is new that surcharge comes into the market, so there is some people who would prefer to just have everything for free, and so that just makes it a little bit dicey politically.

Understood. All right. And then, just double checking here. Were there any share repurchases in the second quarter?

No.

No, none.

Okay, all right. Thank you, guys. Great job.

All right, thank you.

Thank you.

Thank you. And our next question comes from Josh Elving from Felt and Company. Your line is now open.

Hey, good morning.

Good morning, Josh.

Had a question. I just wanted to follow-up. I know you guys had talked a little bit about HiFX. What was it that drove the outperformance there? Was it more an increase in transaction volume, or was it more from kind of spreads widening due to volatility?

It was volume, Josh. And, as I may have commented a little bit earlier there, that principally what we do in that business is we complete transactions for small-to medium-sized businesses or, let’s call it, high net worth individuals. So people have a need for making a payment in another currency, and sometimes they may hold back on making of that payment if they think that the rates are not favorable to them or they may accelerate that. And what we have also seen in that business is a level of acceleration in periods of uncertainty. So, in this case here, following the Brexit vote, there was a great deal of uncertainty that would happen, and we saw a lot of people complete payments there. So it was volume. We didn’t widen our spreads during that process. But we saw just a lot more trades come across the ticker. And, as Mike said in his comments, we saw a very substantial spike during the week following the Brexit, and then after that, that started trailing down. We have seen a little bit of higher than normal activity for the first part of the month of July, but we would expect to see that kind of come back into normal trading profiles.

Okay. That sounds great. Mike, in the past, you have talked a little bit about how you guys track a lot of data throughout Europe with regards to travel trends, et cetera. Have you seen any significant changes in your outlook for people moving around Europe in the wake of – I suppose it is more recent, but some of the unrest in various parts of continental Europe?

Yes. So what we have seen there is – you know, with the disruption in the Middle East, first of all, you have got to understand that probably 80% of the travelers to Europe – maybe 90% of the travelers to Europe are European, okay. And then, for the Europeans to go out of their country, they might – I mean, out of the EU or out of Europe, they might go to other warm places for the summer, and this might be Sharm el-Sheikh in Egypt. This might be Turkey because it is a little less expensive than the EU, et cetera. And – or northern Africa. And what we tend to see is that they are not going that far. They stop with Greece. And no sense going the other 60 miles when there is kind of risk and bombings and everything else. So we will find out later, but the early estimate is that Greece travel is up this year. And so probably we will end up with a little bit more in country or you call it in European travel, rather them leaving, but we will find out the exact numbers later.

Okay.

And I would just add to that, is that, as Mike said, it is a little bit of shifting because you might have people go to one destination during some more favorable times and maybe avoid a destination like possibly Turkey during some a little bit more unsettled times. And so just like last year where we happened to see a little less travel go in to Greece, we happen to see a little bit more go over to some of the eastern sides like in Croatia and stuff like that. So on balance, so far, we have not seen any kind of disruption in our total transactions, but we have seen a little bit of movement from one place to the other. As Mike said, a little stronger numbers coming out of Greece because it is a little bit more settled this year, but we have not seen anything negative show up in our total transaction volumes.

Okay. Great. And then, I guess, final question, I know your cash balance is a little bit higher; you took on a little bit more debt to fill some of your ATMs during the busy season. As that busy season comes and goes and you continue to generate cash, I would assume some of the uses of cash as we get into the later part of the year reduce debt again. But are you seeing – how is your acquisition pipeline? What are your thoughts about where the stock is? Maybe an outlook for your use of capital.

Well, I think it is not going to change at all from the last three or four or five years. I mean, we will produce probably $200 million-plus in cash this year, and we will use that cash either to fund acquisitions or to do stock buybacks if the market doesn’t treat us very well or if we think that it is a good deal to buy back stock. We are keeping our eye open for acquisitions. We probably look at 40 acquisitions a year, 40 to 50. We probably do at least some kind of due diligence. But you have got to have all the right pieces in place to make sure that these acquisitions continue to grow at the pace our Company is growing after the fact. So finding the right acquisition is a tough one, but we are always looking, and the nice thing is we have got the capacity. We have got a checkbook. We are just looking for the opportunity.

Great. Thank you.

Thank you.

Thank you. [Operator Instructions]. And our next question comes from Tim Willi from Wells Fargo. Your line is now open.

Yes. Thank you and good morning. Two questions on epay. I apologize if some of this was hit in the prepared comments. I jumped on late. But could you talk about, I guess, in the non-telephony during the early part of Q&A, you referenced, I think, gaming and software as important parts of the digital strategy. I’m just curious, overall, digital or physical, are there any segments that you view as a new opportunity? I know you had to do some stuff around transportation and logistics. We don’t hear about that one as much. Sort of curious how that one is progressing or if there are just any new categories that you think you can open up that maybe aren’t really a part of the story now but could be two to three years down the road?

Yes, Tim. This is Kevin. So the transportation projects, we haven’t mentioned them, but they are going well, especially the one in Australia. We are working on a few others that will roll out in the coming set of quarters. In terms of new categories, we are always looking at new categories. We have got a couple of things in the pipeline that we are working. Wallets is an area that we are particularly focused on because of our strength in digital. The definition of a wallet can be pretty much anything that you can imagine. But the distribution of content through wallets and the loading of wallets, typically the source of funds in a wallet is a credit card. But, as you expand to markets outside the United States where credit cards are less prevalent, there is a need to load wallets with cash. Obviously, with our broad network of cash load locations across Europe, that is a potential opportunity for us. So Tim, without sort of spilling the beans, I would tell you that we are obviously focused on continuing to try to offset the decline in mobile through growth in other initiatives.

Great. And then my follow-up question was, Mike, just what are your thoughts on the three channels or the three businesses working together in terms of distribution of product sets, et cetera. I mean I know you have examples here or there or ATM and epay work or money transfer through ATM. I’m just sort of curious, if you give us sort of a state of the union, I guess, around the three different businesses working together how you feel about that on a go forward.

Rick we are still real happy with it. I mean, I mentioned in the last quarter this WIZZ Air Travel Card by one of the discount – kind of a Southwest airline of Central Europe. And here we have a travel card that can be loaded at our epay location. It has five different currency buckets. You can move currency from one to the other, depending on which country you are in so that you do local kind of transactions in local market. We do that using the, we will call it the money transfer and currency trading expertise we get with money transfer, and all the technology behind it is all EFT related. So we will do more and more things like that. And, also, in Asia Pac, we see epay, Money Transfer, and EFT working very closely, particularly epay and EFT. They are almost like the same unit in India, for example. So we are going to continue doing it. It is great to have this content. It is great to have these additional things to sell to banks that they can’t get otherwise from typical kind of banking suppliers. And so we will just – kind of more of the same.

I mean, I would add to that, Tim, too, that with a lot of the things that we see as emerging opportunities in the epay channel, there is a kind of an interesting crossover between the distribution of the product and the regulatory requirements around AML and transferring of money. And we have the unique combination of those two assets together that we can help bring some really superior solutions to people in the market. So we are really leveraging that kind of asset and talent within our business, and we will see what that produces in terms of more and more opportunity. And as Kevin said, we wouldn’t spill the beans on it, but there are some exciting things that we have on the drawing board that is made possible only because of the assets that we happen to have across those two divisions.

Yes, the money transfer’s whole compliance regime is immensely helpful to the other two businesses.

Sounds great. That’s all I have. Thanks very much.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Mike Brown, CEO for any further remarks.

I don’t have any further remarks other than to say thank you for everybody who has joined us on this hot summer day, and we will look forward to talking to you next quarter. Thank you very much.

Ladies and gentlemen, thank you for participating in today’s conference. This conclude today’s program. You may all disconnect. Everyone, have a great day.