Euronet Worldwide, Inc. (EEFT) Q2 2016 Earnings Report, Transcript and Summary

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 2014 and 2015, this change was made due to a data interpretation issue where we have now chosen to include these transactions in our count, while adding these transactions increased our transaction count. They made no relative difference on revenue or gross margin per transaction on a year-over-year basis. epay transactions declined 7% as a result of declines in India, North America, Brazil and the UK partially offset by growth in Poland, Australia, India, Italy and New Zealand. About half of the transaction decline in India was a result of a customer, who made a system change during the quarter and we have now seen those transactions return to our account. India gross profit expanded on a year-over-year basis despite the transaction declines, which was the result of the shift toward higher margin products. Excluding the India transaction loss, transactions would have declined by approximately 3%. Total money transfer transactions grew 24%. The growth was the result of a 27% increase in money transfers and a 3% growth in non-money transfer transactions. Money transfer growth was driven by an increase in Ria's organic business including double-digit growth in Europe, Asia-Pacific, the U.S., Walmart-2-Walmart, and HiFX as well as the full quarter benefits from the June 2015 acquisition of IME. On Slide 7, we present our results on an as reported basis. As it relates to our reported results since we gave guidance in late April rates have had held fairly constant with only a slight headwind to our cash earnings per share. We have seen a decline in currencies specifically the British pound since the Brexit vote. The decline in the British pound has been about 10% and only about 7% of our total revenue, and about 2% of our operating income comes from the UK. So for perspective, this level of FX decline on the British pound has less than a $0.01 per share impact on our annual cash EPS. On a year-over-year basis, we continue to see currencies impact our results, while the euro was favorable year-over-year by 2% other major currencies including the Australian dollar, the British pound, New Zealand dollar, Polish Zloty and Indian rupee each declined between 5% and 6%. To normalize the impact of these currency fluctuations, we have presented our results adjusted for currency on the next slide. Slide 8, EFT had another outstanding quarter. Constant currency revenue operating income and adjusted EBITDA all grew 23% or 24%. These strong double-digit growth rates are the result of an 11% increase in ATMs and 17% transaction growth adjusted for the India and China ATMs in transaction. Revenue grew at a slightly faster pace than operating income and EBITDA. However, if not for a one-time VAT related accrual operating income and adjusted EBITDA, would have grown 28% or 27% demonstrating the substantial leverage benefit of an 11% growth in ATMs. And revenue and gross margin per transaction were consistent to improving year-over-year, simply another great quarter for EFT. epay revenue declined 3%, operating income declined 1% and adjusted EBITDA was consistent on a year-over-year basis. Mobile declines in certain markets were largely offset by continued sales of non-mobile content. Operating income and adjusted EBITDA margins expanded slightly as a result of the shift towards higher margin, non-mobile content and epay posted improvements in both revenue and gross profit per transaction. All in all, the epay segment performed largely in-line with our expectation. Money Transfer delivered another strong quarter. Revenue grew 23% producing really strong double-digit 47% operating income and 42% adjusted EBITDA growth rate. This growth was driven by the transaction growth I mentioned previously as well as the increased trading from HiFX around the Brexit vote. Operating income and adjusted EBITDA margins expanded nicely during the quarter, and revenue and gross margin per transaction were consistent year over year when factoring in mix. It is important to note that all three segments posted an expansion of operating income margins, and all three segments benefited from consistent or improving margins per transaction. Overall, epay’s results were generally consistent with our expectations, while EFT and money transfer continued to deliver very strong results. Slide 9, we present our June balance sheet. Cash and debt both increased largely as a result of cash borrowed on our revolver to fund the ATMs for the seasonally higher transactions that occur in the third quarter. All-in-all, the first half of the year has exceeded our expectations, and we are well-positioned for a strong second half of the year. With that, I will turn it over to Mike.

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 Euronet-owned ATMs to add banks to our shared ATM networks in countries like Romania and Poland and to add more brown label ATMs in India, and, finally, to add more products to those ATMs. This quarter we were able to deliver all of the above, and here are just a few of the highlights. In Romania, we signed a network participation agreement with OTP banks. This agreement allows OTP customers to use any of the nine network participating banks’ ATMs free of charge in Romania. This quarter, we signed an outsourcing agreement with Broker Consulting, a financial consulting firm in the Czech Republic to deploy ATMs in their branches. With the deployment of these ATMs, in addition to getting financial advice, Broker customers can withdraw and deposit cash in their branch location. In India, we signed a couple of ATM deployment deals. With Access Bank, we will deploy 1,000 new brown label ATMs over the next 18 months to two years. And with ICICI Bank, we will deploy 200 ATMs in various locations around India by the end of this year. Let’s move on to Slide 14, and it shows the highlights of some of the sales of our value-added products. We launched value-added services on IBBI ATMs in India, with Servibanca, an ATM process processor in Colombia. We continue to expand our pure commerce POS multicurrency acquiring business. This quarter launching service with three leading hotel chains in London and at leading retailers on Silk Street in Beijing. In Ukraine, we introduced the first ATM with contact list card capabilities. Customers can now withdraw funds by tapping their contact list card on a special reader on our ATMs. During the quarter, we added 794 ATMs across Europe and India, which was partially offset by a loss of 249 outsourced ATMs in Slovakia. We also reactivated another 606 ATMs for the summer travel season, bringing our total to 25,912 ATMs deployed. As you can see, we have added more than 1,300 ATMs in the first six months, so we are well on our way to our stated goal of 2000 for the full year of this year. Consistent with our strategy to approach public sector banks in India that we talked to you about last quarter, we have signed a second agreement to drive more than 2,700 ATMs with a new bank. These ATMs will come into our total count in the third and the fourth quarters of this year as we deploy them, but will not count toward our goal of deploying 2,000 ATMs for the full year. As a reminder, while these ATMs for these public sector banks in India are low margin, they will be immediately profitable and put us in a strong position to benefit from future services required by the bank. The efforts of our EFT team to sign new agreements and to add more ATMs to our network has paid off with another quarter of fantastic double-digit earnings growth. Now we can talk about epay. Let’s move on to slide number 17, please. The epay team continues to expand our non-mobile content portfolio. With continued focus on executing the strategy to expand the digital distribution of products across retailers and countries, it is our ability to deliver these products across digital channels that differentiates us from our competitors. One of our key digital distribution partners is PayPal. In this quarter, we expanded that relationship in Germany to offer Google Play and mobile top up to PayPal customers. We also added digital distribution of iTunes, Microsoft, Nintendo, Zalando, and our cadooz BestChoice vouchers through the post bank mobile app in Germany. We also continued to expand our code to content product offering. As a reminder, this offering is where a retailer can remove the box software and games from the shelves in favor of providing a digital PIN on receipt at checkout or online. This reduces production and shipping costs for the content provider and shrinkage and shelf space requirements for the retailer. This quarter, we signed an agreement to launch coded content for Xbox across Europe. Customers will be able to purchase a specific Xbox game or digital game currency at the retailer and enter the digital code they are given when they get home. We also launched a point-of-sale activation bundle with Microsoft Office and Avira AntiVirus at Media-Saturn, a leading electronics chain in Germany. This is the first time we have offered a bundle of content at an MSH store. For epay, this quarter was largely in line with our expectations as we continue to grow digital content across our channels. Now we will move on to slide number 20 and talk about money transfer. Slide 20. Our network now reaches 316,000 locations across 150 countries, a 16% year-over-year increase. We continue to expand our payout in important corridors. This quarter we launched 19 new correspondents in 21 different countries. In the Commonwealth of Independent States, the CIS, we launched payout service at more than 5,800 golden crown locations, which include Azerbaijan, Tajikistan, Kazakhstan, Uzbekistan and Kurjikstan in Belarus. In Africa, we launched payout service at Union Bank of Nigeria with more than 200 locations and with Oromia International Bank with more than 100 locations in Ethiopia. In addition to the launches, we signed agreements with 17 new correspondents, spanning 16 more countries. We also signed a significant agreement for our CIN network in Germany. This agent agreement will agent will allow customers to send Ria money transfers through more than 500 Mobilcom/debitel company-owned and franchised stores. These are high quality stores in busy areas that will be attractive and convenient for our customers in Germany. Our growth in the IME business, also referred to as our Asia-Pacific business, continued to produce strong double-digit growth rates, and we continue to be excited about the very substantial Asia-Pac money transfer market. I would also like to provide a quick update on the activities at HiFX. In addition to the team handling the spike in volume a few days after the Brexit vote, they are keeping pace with the volumes and continued with the follow-on volume, albeit at a much lower level the week following the Brexit vote. They are also ramping up our U.S. trading volume and are nearly ready for the fourth-quarter transition of XE trades from the incumbent processor to ourselves. And, finally, we continue to see XE post record achieving unique visitors and app registrations, and our Ria digital remittance business is posting a 35% transaction growth, all contributing to building a successful future in the digital arena. The money transfer team continues to deliver new high quality locations that drive nice double-digit growth across all areas of the business. Again, an outstanding quarter for money transfer. Now let’s go to slide number 21. We will wrap up the quarter. I don’t know, if any of you have met me in person, you might have heard me complain about the fact that it is tough to chase down bankers to get them to sign contracts in the third quarter. But their holiday is our holiday because it makes Q3 a seasonally very strong quarter for us in the EFT segment. So when we look at a ramp-up for the quarter, you can see that we finished our quarter nicely with adjusted cash EPS of $0.97, a 24% increase over Q2 2015, which nicely exceeded our expectations. EFT continued to deliver double-digit operating income growth as a result of ATM and POS network expansion. epay benefited from continued sales of non-mobile content, which largely offset the mobile decline. Money transfer growth resulted from double-digit expansions across the business. And contrary to conventional thinking, we benefited from the Brexit vote and don’t expect to see any near-term adverse impact on our business. Our balance sheet, as you saw, remains strong with good cash flow generation. And, finally, assuming consistent foreign currency exchange rates, we expect to achieve third-quarter adjusted cash earnings per share of $1.34, driven by better than expected results and the strength of our EFT ATM deployment in the increasingly seasonally strong third quarter, as I just mentioned. With that, we will be happy to answer questions. Operators will you please assist.

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.