Greetings and welcome to the Euronet Worldwide Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session at this time. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] 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, Chris. Good morning and welcome everyone to Euronet’s quarterly results conference call. We will present our results for the fourth quarter and full year of 2019 on this call. We have Mike Brown, our Chairman and CEO; Rick Weller, our CFO; and Kevin Caponecchi, The CEO of epay Division on the call. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the first page of the PowerPoint presentation we'll be making today. 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 result of a number of factors that are listed on the first page of our presentation. 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. 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, Jeff and thank you to everyone who is joining us here today. I will begin my comments on Slide 5. We delivered fourth quarter revenue of $694 million, adjusted operating income of $107 million and adjusted EBITDA of $142 million. Our adjusted EPS for the fourth quarter was $1.63, a 19% year-over-year increase and the seventh consecutive quarter we have delivered double-digit adjusted EPS growth. This strong growth rate was driven by double-digit operating income contributions from our EFT and epay segments and continued strength in our international remittance business, as well as the couple since of income tax benefits. Next slide please. Slide 6 shows our three-year transaction trends by segment. EFT transactions grew 14%, driven by expansion of our ATM and point of sale networks in Europe and Asia, and including growth in our local and international withdrawals and deposit transactions as well as value-added transactions on ATMs and point of sale terminals including dynamic currency conversion, domestic and international surcharge and foreign currency dispensing. epay transactions grew 27% with continued digital media expansion and significant contributions from wallet-driven mobile top-up transactions in India, which earn a small amount of revenue per transaction compared to our more traditional commission-based revenue transactions. Money Transfers grew 4%. This growth was the result of double-digit expansion out of US outbound and international originated sends partially offset by continued softness in our intra-US Money Transfer business. Next slide, please. Slide 7 presents our results on an as reported basis. Year-over-year, most of the major currencies where we operate declined at low to mid single-digit rates, to normalize the impact of currency fluctuations we have presented our results as adjusted for currency on the next slide. Next slide, please. I’m on Slide 8 now. Here you can see that for the…

Thank you, Rick and thank you everybody for joining us today. I’ll begin my comments on Slide number 16. First, I’ll start by repeating what Rick said, this was another exceptional year for Euronet, the seventh consecutive year that we’ve delivered double-digit growth and adjusted EPS. There are not many companies out there that can say that they’ve had such consistently strong growth. This is a testament to our exceptional teams around the world and their focus to continue to improve our product portfolio, our global reach and the technology that enables our payment networks. Let me begin my specific comments regarding the slide 16 by giving you several examples of our technology-driven successes this quarter. You will notice, that these are wins from all three segments, of our business, as a result of our cross segment technology platform that spans our entire business. As it relates to the REV category on the slide, you may have read in our press release from a few weeks ago regarding our rebrand of the Digital Integrated Payments Cloud and why we did it. The Digital Integrated Payments Cloud was quite a mouthful, I know I’ve talked to a number of you about this and kind of laughed at ourselves, and although descriptive, it didn’t fully capture significance of the solution. We chose the name REN for our new switch because it represents the new way of doing things, renaissance if you will, for payments switching. And a similar thought process to that, the REV Payments Cloud allows us to create revolutionary product and drives revenue for us and our partners. So, the base of our technology is a great switch and the cloud surrounding it really drives our revenue growth and makes money for all of our partners. The underlying technology remains…

Certainly. [Operator Instructions] And our first question comes from the line of Andrew Jeffrey with SunTrust. Your line is now open.

Hi, good morning, guys appreciate taking the question.

No problem, Andy.

Mike, you know when you look at Money Transfer, there are obviously some call out interim headwinds. I wonder if you could talk a little bit about how much so do you think you control your own destiny, in other words, you know, you’ve had some pretty good agent growth, some nice wins, expansion of the network and then there’s you know, the sort of global migration patterns, how much do you think is sort of growth in Euronet specific drivers versus the market as a whole at this point?

Well, I mean when you’re – for certainly when you look at international remittances, you can take the World Bank numbers, and they grow between 3% and 4% a year. And you know, we’ve got you know, good double-digit kind of low teens growth at least for the last dozen years. So that’s the reason our market share continues to grow. And what’s exciting to me is that we’re growing, you know what, 4 times faster than the market that means our market share will continue to increase, we only have 5% of it now. So you know, I’d look at it as there’s 95% to go. And you know, our – if we can continue to grow at these rates with an international volume you know, we could get to that 10% market share. And another boost that we’re going to get here is starting last Friday as we have 100% of the Walmart locations now doing international remittance with us, using their Walmart2World product that’s powered by Ria. So and then you add the two post offices and the Travelex and all these other things that we’ll be implementing throughout the year, I think we’re going to continue to see a nice strong growth. And this is, I don’t know what to call it, not self-inflicted, but you know we’re the ones who caused this to happen. We closed these deals, we won competitively. We took these deals away from our competitors and our market share is going to grow on account of that.

Okay, I appreciate it. And then also notable commentary around the focus on digital and the account-based remittances. What gives you an advantage do you think versus some of the disruptive players in the market sort of your cloud native solutions? Are they predominately taking share from banks or you know what gives you confidence –

I think yeah, I think predominantly from banks. I mean, our technology gives us that difference. That’s why a number of these you know, techie kind of new FinTech players have used us for their payout, because there’s no way they’re going to be able to connect up to 3.2 billion bank accounts to all these wallets and everything as far as payout goes, but we can provide that to them and to ourselves. And we also have the cash component. I mean, even if you happen to be a little bit more well-heeled immigrant into a country, you’ve got a bank account, you can use a mobile wallet or one of these FinTech players to send your money or maybe use riamoneytransfer.com or XE to do that. At the end of the day, a lot of times you need to terminate that Money Transfer into cash. And that’s the one thing, we can hit it both ways. We are truly at that nexus of both digital and physical payments. And we’re the only guy in town really who has that.

Got it, appreciate it. Thank you.

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

Hi, good morning.

Good morning, Rayna.

Now that you’ve lapped the Walmart ID requirements, do you expect the Money Transfer top line growth to return back to the low double-digit growth that you’ve done historically?

Yeah, so Rayna we have – we haven’t lapped it. I mean, what really happened was, they started those ID requirements in the last half of 2018, but they really didn’t have a significant impact. If you might remember, in our January quarter of 2019, we had – we thought just a tiny bit that we mentioned it in the fourth quarter of ’18 in ’19 January, I think we mentioned we thought maybe a 3% kind of headwind or something like that. But by the time I got to the second quarter, we could really see it. So I would say our full lapping will probably come after the second quarter of this year. So what happened was, I think is you know, as more and more people you know went into try to make those Money Transfers, they you know, we just got more kind of word of mouth and it slowed things down. So that – and that’s just on the intra-US piece of the business, not on our international Money Transfer.

Got it. I think so.

So kind of look at full lapping probably pretty close by the end of the second quarter.

And once you pass the second quarter, you get back to the low double-digit growth after that?

We hope so, certainly.

Okay. And then just moving on to the EFT business, you acquired 1,795 ATMs. I’ve seen your press release, you’re saying it’s not going to be dilutive for the full year. But for the first quarter, are there any upfront costs that would make it dilutive and then ramp up throughout the year?

No, no, no. We’re good.

Okay. And just finally on epay, you grew 4% top line growth in the fourth quarter, slower than what you did in the second – in the third quarter, which was 7%. Can you just talk about the drivers to that slow down? And how should we – what should we think of as a sustainable top line growth rate for epay throughout 2020?

Yeah, Hey, Rayna. In the third quarter, we had a little bit more revenue that was what we would say, recognized on a gross revenue basis. There is a few products that you know or you may recall in our business that we recognized at revenue rather than on a commission basis. And so that came into our third quarter. But if you take a look at our gross profit and you know, this will come out in our queue, but our gross profit, which is after you kind of sort out the noise of the gross versus net, if you will, grew nicely on a double-digit basis, which again reflects the continuation of the deployment of digital media product that’s out there. What – this high volume of, we say, low value transactions out of India, you know, happens to be one that’s on the other side of the coin that, that the revenue equals roughly the gross margin. And so the 4% number that you saw in the fourth quarter is really more of an anomaly of gross versus net on some of that recognition, but if you look at that gross profit, you’ll see that it improved double-digit year-over-year, which contributed to that double-digit year-over-year operating profit growth.

Got it, that’s very helpful. I'm just going to sneak in one last question in there. For the fourth quarter your adjusted EBITDA margin, it expanded a strong 360 basis points. Is that – could that continue into 2020? And what were the drivers to that expansion?

Well, I don’t think you’re going to see that similar kind of expansion that will continue, because we’ve really benefited from and let me just make sure when you referenced that number there, are you talking about epay specifically?

I’m talking about your consolidated adjusted –

Yeah and that’s what I thought there, because I didn’t think we had that on epay, but I thought just better check my number there with you. But on the consolidated, remember, we had the real benefit as Mike said the one-time lift from DCC around the world that really came into that number quite nicely. So that lifted the number, you know, I don’t expect to see those similar kinds of expansions on a year-over-year basis, but you know, we should be able to continue forward on a run rate, if you will.

Great, thank you.

Thank you. And our next question comes from the line of Mike Grondahl with Northland Capital – I’m sorry, Northland Securities. Your line is now open.

Yeah, thanks and good morning guys. See on 1,795 ATMs that you acquired. Can you tell us roughly where those are and do the metrics on those compared to your core ATMs?

Well Mike, we’re being a little guarded on saying where they are well what we kind of find is as when we plant the flag around the world, we see other little competitor flags pop up around them and so we, you know, until we kind of really get our you know, get our feet on underneath us on this one here and start unfolding the rest of our strategy we’ll be a little careful of saying where that is. I think it’s fair to say it’s other than in Europe and it’s consistent with what we’ve been talking about in the past about you know, going more globally with the ATMs. I would tell you that they are consistent with the high value ATMs that we operate today. And we expect that as we integrate the business and bring it in line with our technology and things like that, then we’ll be able to improve that, so that it is accretive to our bottom line there. As Mike said it’s going to be dilutive to [technical difficulty] they are higher value ATMs, they position us quite nicely to go after another important market and so kind of stay tuned, but we’re excited about this other 1,800 we brought into the fold.

Great. And then on the Money Transfer business, it seems like XE because of Brexit was a little bit slower. And clearly US, the intra market because of ID at a dollar. So what percent is XE and the US intra business of the whole, just try to get a feel for you know, what percent of that is kind of dragging you down?

Kind of in grenade math, the third when you add the two together.

Got it, okay. Thanks a lot, guys.

Okay.

Thank you. And our next question comes from the line of Darrin Peller with Wolfe Research. Your line is now open.

All right. Thanks guys. Look when I look at the EFT segment, the – you have a couple of things happening this year, you’re going to anniversary the DCC fees going into effect for Visa and then you’re also going to have to be required to show more disclosures. First of all, on the anniversary, can you give us a sense of what you would expect top line growth profile and that segment to be after you anniversary DCC? And then you know, have you prepared just to answer the question on the disclosures? Do you feel comfortable that you’re prepared properly and the impact will be pretty limited?

Yeah, I think so. It’s basically 1st of April that you have the full anniversary. We have tested a number of, you know, scenarios with respect to the new disclosures that are required. You know, we’re optimistic that we think we won’t see significant impact, but we will see a slight impact to our business. You know, the nice thing is you know, most of our business now is in Europe and the banks themselves keep charging their own customers higher and higher fees to not do DCC. So, I mean, all the banks are trying to figure out how to take more money out of the pockets of their customers. So we’re cautiously optimistic that we won’t see anything significant. And then what you’ll see is kind of what Rick said, we’re planning on still throwing out lot more ATMs this year, 4,000 plus, and you’ll probably see our, you know, our profits go commensurate with that.

Okay. And then I guess when I think about the epay segment’s growth rate. Again, I – you know, we look at it more on a stack basis than when I think some one of the other questions was alluding to, but on the stack basis, it was over 10% growth and look what it actually accelerated. So think some of that was just compares. But when you think it’s a very tough segment to model given the lumpiness and the types of revenue coming in, if you can give us any more direction on how the top line should trend there through the year? And then really factoring in, where do we think about, you guys have signed and announced a lot of really big brands, whether it’s Amazon or Apple or others, incremental deals. How do we think about those flowing through the numbers, nicely, I guess?

Well first of all we’ve got to implement. And so well, when we announced as an example, in Money Transfer, we had a couple of, you know, the two post offices, for example and we just start – we just lit up all of the Walmarts for international here last Friday. So it takes a while for all this stuff to happen. But you’re right in epay, you know, every – it’s, you know, there I don’t think we have a magic bullet, single thing. epay is superior technology that lets us do lots and lot of smaller deals that add up to something pretty potent. So lots of BBs kind of like a shotgun as opposed to a rifle shot that continue to improve our business. And we really don’t look at our business again in terms of revenue, because revenue you get –certainly you get all messed up when you try to consolidate altogether as Rick just mentioned. With respect to epay, it depends on it if it’s a gross or net deal on typical distribution of cards and so forth, you know, we only keep 20% of the gross revenue before we even have $1 of expense. So we kind of look at it as let’s just keep bringing in more profit, every one of our executives are focused on that. And then Darrin, back to your original question about you know, about the EFT segment. Let’s not forget that though the world is a lot bigger than Europe. And now that we’ve got this DCC change, it allows us to go after many, many more markets and you’re going to see a lot of that starting to happen this year. We had one market last year that we added to outside of Europe, but I hope to have several more this year. And it’s – and that’s really exciting, because the market for DCC outside of Europe, may be twice the size of Europe. So we still have a lot of growth potential in Europe and then to think that there might be twice that much more out there that had its – you know totally virgin turf, that’s exciting.

All right, thanks guys.

Thank you. And our next question comes from the line of Andrew Schmidt with Citi. Your line is now open.

Hey, guys. Thanks for taking my questions. First question on the EFT segment. Just want to clarify the one-time benefit there. Was that – just would like to just confirm that is in your adjusted results, your EBITDA and EPS? And then whether that was included in the initial outlook?

Yes to both. I mean, I – there’s a little bit of it that I would say it was fair to say that was not included in the original outlook, but we obviously knew what was going on with that particular part of our business. But it was included in the numbers as we reported them.

Got it. Thank you for that. And then I – just the first quarter EPS outlook. Just looks like there’s a little delta relative to Street expectations. When you just commented on some of the drivers there, whether there’s incremental investment maybe a lower to assumptions around Money Transfer, just a little bit more in depth about the assumptions in the first quarter guide would be helpful, I think.

Yeah, well it’s probably always hard to really compare what we have as an outlook compared to the, you know, the sum of the models of the Street here, but from a, let’s say a relative – relatively macro kind of point of view, I think you point on one is that, you know, certainly some of the investment as we continue to add ATMs into the business, you know, those are expense-driven ATMs until they, you know, that they really are productive in the tourist kind of season. And then, I think as Mike had mentioned there when we were talking about the Money Transfer, we’ve seen that intra-US domestic stuff that decline had stepped up a little bit. And so, clearly, we think that that’ll have a continuation or carry forward effect into the first quarter. So, you know, those are really probably the, you know, the two items in there is the continued additions of ATM. Now that first quarter is as we’ve said before, becomes more and more pronounced in terms of its seasonal impacts and then some of the carryover effects on the intra-US and the Brexit as we go through the quarter.

Yeah, because don’t forget, Andrew that too. You know, we winterized almost 4,000 ATMs. Now, all that means is we’re not delivering cash to them, but most all their other expenses are still ongoing. So as you put more and more of these ATMs into these very seasonal kinds of areas, particularly where you’ve got a winterize them, you’re just going to have a bigger drag on that first quarter every single year. So and let’s not forget too, I mean, epay just crushed it in the fourth quarter, but that’s because you know, lots of gift cards are sold, lot of their products are sold, you know with the Christmas time rush and so forth. Well then you get the natural seasonality drop off in the first quarter. And I think people keep forgetting that we have a very seasonal business, particularly in the EFT and epay segments. So it’s like nothing’s going wrong in particular, it’s just the kind of life in the January quarter.

Yep, yep, that makes sense, seasonally low quarter. Got it. And I think last question on capital allocation and I appreciate the incremental disclosure on the balance sheet in terms of just the available cash. Have your priorities for use of cash changed at all? Just with the [technical difficulty] cash position has come up, just how you’re thinking about priorities? And then what the M&A pipeline might look like?

Well, really nothing’s changed since maybe the last time we talked to you. We’re always looking at acquisitions. We did pick up those 1,800 ATMs so that was a nice little one. We are always looking and if you look over the last five years, the only two places that we spend our cash is to buy back stock if the market tends to dislocate and/or acquisitions, so those are the two places that we will spend our money, and we continue to get a bigger and bigger war chest. So I guess that means we can do a bigger and more transformational deal, you know, kind of every quarter, but we still haven’t found one that meets our criteria and has the return on investment that we’d like.

Yeah that you guys are actively looking for something. Any –

Always. I mean, you know, I mean, why not? We’ve got all this cash in the bank, we’ve got over $1 billion worth of potential. So we’re always looking at where, you know, acquisitions that where we could get, you know, their one plus our 1 gives us 3.

Yeah and it’s, you know, as you may know or see in the market is, you know, sometimes the price for some of the quality of assets is beyond what we think is reasonable and practical. So it’s just having the discipline to sort through what they are, the alignment with our strategy and something that will give shareholders a good return on investments. We can – we could always complete acquisitions that made no sense. But we just hopefully do a little better on our discipline.

Understood. And just to find that a little bit further, I probably can’t go into specificity. But any broad areas that you’re looking at or that you would look at for a just transformative type acquisition?

Well, no but you know what, I think the theme of this call was the cross divisional solutions that we have, and that continued to push our growth. So anything that can, you know, can strengthen our position as being really the best company out there at the nexus of digital plus cash or cash to digital, those would be places that we look.

Yeah, where we can really kind of leverage the, you know, the other parts of our assets, we’ve had many transactions that we’ve talked about where we really bring to a partner, a business partner, a lot of different assets out there, even if it’s that simple as the Amazon announcement where we can make this array of additional products and services available to them, they can use some easy API integrations to come into our business and start offering more. So to the extent that we would see an acquisition, again that fits in line with our strategy that can leverage this scope of asset, then that seems to where 1 and 1 is greater than 2.

Understood, that’s helpful. Thank you, guys.

Thank you. And our next question comes from the line of Peter Heckmann with Davidson. Your line is now open.

Hey, good morning, everyone. One of the follow-ups looks like this Sprint-T-Mobile deal may be finally approved. What do you think any impacts there on the epay side if they sunset some of their prepaid and I know the US isn’t a huge market for you, but I think Sprint historically had been a decent sized customer, can you handicap that yet?

Yeah, this is Kevin. So remember, there’s two parts to that. There’s the T-Mobile-Sprint acquisition has to close and then the divestiture of Boost to Dish. And Dish was a customer of ours prior to the announcement. There were very close to them in terms of providing solutions and doing things with them. And we’re frankly quite excited about the opportunity to expand our relationship, because they’re not in the mobile business as of yet. I think there’s a – there’ll be a dependency on partners that help them with the business and our early discussions with them are exciting. So I – and to summarize, I’m excited about what it potentially means for epay North America, because we’re getting a highly motivated buyer who has lots of ideas about what they want to do with the business going forward. And that could only be good for us.

Okay, great. Thanks, Kevin. And then Rick, maybe just following up on Walmart2World, just you remind us about how you’re thinking about the ramp there and how you differentiate in that situation against the other branded player?

Well, the differentiation I think comes on several fronts as we got as Mike said earlier, we’ve got a wonderful payout network. We have that stock with whether it’s physical payout or digital payout. We have provided a wonderful Walmart-to-Walmart US domestic products that customers are very familiar with that type of flat rate product and great customer convenience. And so we’ll continue and as Walmart does with its product positioning its everyday low pricing, so we think that will fall right in line there. And so, you know it’s everyday given customers choice, and we back that up with a great service with great FX rates. In terms of the ramp, I would say you know, I would anticipate that you know, it’ll be a steady ramp as we go through the process here. The first part was to get it deployed at the stores, you know, the next part is to you know, make sure that you know, the proper signage and branding and stuff like that is available in the stores. And, you know, so I would expect that it’ll be you know, it’ll be a moderate ramp as we go throughout the year. And we expose that product to the customers and they vote with choice.

Got it? Thanks much.

All right. I think that’ll be our last question for the day. I want to thank everyone for joining us and I look forward to talking to you in about 90 days. Thank you very much.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.