Euronet Worldwide, Inc. (EEFT) Q2 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Euronet Worldwide Second Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce you to your host Mr. Scott Claassen, General Counsel for Euronet Worldwide. Thank you. Mr. Claassen you may begin.

Thank you. Good morning, and welcome everyone to Euronet's quarterly results conference call. We'll present our results for the second quarter 2020 on this call. We have Mike Brown our Chairman and CEO; Rick Weller our CFO; and Kevin Caponecchi, the CEO of our 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 giving 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 CEO, Mike Brown. Mike?

Thank you, Scott, and welcome everybody, who are joining us today. We certainly hope that you are all healthy and safe. Well, while the 2020 COVID-19 pandemic has continued to provide us with challenges and our results certainly reflect those challenges, I am pleased that we were able to exceed the results we anticipated in April. As I reflect on why this was possible, I would start with the strength of our balance sheet. With more than $1.2 billion in cash and no debt maturities for the next five years, we've been able to focus on opportunities as opposed to figuring out how to survive. So rather than our employees worrying about whether the company would survive and whether they had a job or could pay their bills, our incredible employee base has been able to focus on business activity like providing world-class service to our customers and being diligent about expense management, while also identifying and delivering new business opportunities. In March and April, our leadership team together with our Board of Directors decided to retain our employees. This was certainly the right decision. This commitment to our employees continues to be repaid, as they have been working harder than ever, not only to ensure that our business continues to operate efficiently but to do whatever it takes to drive the business forward and ensure continued growth in the future. I have never been more proud to lead this organization and it is truly their dedication that has driven all of the successes that I get to tell you about today. As we move through the second quarter, we were pleasantly surprised that the transaction levels we were seeing in the business in April, when we provided you with our anticipation for the quarter were about the low point of the COVID pandemic. From that April snapshot, we have continued to see improving trends, particularly in epay and money transfer. To provide a little more color on where the segments stand today, I will hit a few highlights for each. In EFT to offset the significant transaction declines, particularly in our high-value cross-border transactions, the EFT team has achieved in the second quarter nearly $25 million in cost savings. The run rate of these cost savings should continue to benefit the third and the fourth quarters as well. Moreover, we have identified additional quarterly cost savings of approximately $15 million. As shelter-in-place orders were lifted, we began to see domestic transactions on our ATMs ramp-up in both Europe and Asia. This trend appears to be continuing into the third quarter with many European countries beginning to open their borders to other EU member states. I should also point out that in the event that we see greater transaction volumes than anticipated, we would need to roll back some of these cost savings I just mentioned but this would be a good thing that I truly hope happens. And finally on cost savings, while EFT led the way with nearly $25 million, the total company achieved approximately $35 million as identified with additional – and we have identified additional quarterly savings of approximately $15 million. If you sum these quarterly savings, you can see that we are in line with what we showed you last quarter roughly a goal of $130 million in cost savings. We have started to see a slight pickup in international transactions in Europe. In our Asian markets, the borders for international travelers remain largely closed. And on the outsourcing front, as we have progressed through the global economic uncertainty, we have found banks still interested in outsourcing ATMs or even selling their ATM estate. We will continue to evaluate these opportunities to help drive the business forward. We still expect and are managing the EFT business anticipating a more significant recovery in 2021, as travel schedules resume. In April, we mentioned that we are seeing good sales of self-use prepaid content during the start of the pandemic. That strength continued through the second quarter. We experienced strong sales in both physical stores and through digital means. Physical retailers, such as, grocery, pharmacy and convenience stores, were deemed essential and so their doors remained open allowing customers to continue to purchase content. In many markets, our leading digital market position and expanding digital platforms enabled more online and in-app sale. Our technological leadership made it possible to have connections to more wallets in India and Brazil, which drove app-initiated mobile digital media transactions even higher. In fact, in Brazil our mobile top-up transactions in the digital channel grew more than 900% over the prior year. And in India, we are now processing more than five million transactions a day through mobile wallets. Based on the current transaction trends, we are cautiously optimistic the growth trends in epay will continue. Finally, in Money Transfer, as shelter-in-place orders were lifted and unemployment rate started to relax, transactions bounced back more quickly than we anticipated. This is consistent with our experience that immigrants sending money home are very responsible, and think of their family first when they receive their pay. While government stimulus programs have certainly helped to stabilize the money transfer volumes, we have seen signs of our smaller competitors struggling with liquidity issues during the pandemic, while our customers and agents have benefited from the strength of our balance sheet. For some insight on how the business is performing around the world, outside of the U.S., domestic business in Malaysia where shelter-in-place orders resulted in the complete shutdown of our retail and agent network through most of May, international outbound transfers grew 8% in the second quarter. North American-originated outbound transactions grew 11% in the quarter accelerating to over 20% year-over-year growth in the month of June. We also saw a strong rebound in Europe and Africa business, which grew 5% over the same quarter last year, but finished the quarter with June growth of over 25%. And finally, digital transactions initiated through our website or our mobile app grew 98% in the second quarter accelerating to 120% year-over-year growth in June. I should also point out that through July 26, all of our regions and channels were performing better in July compared to the already strong June results that I just mentioned. In fact in the U.S. and Canada, we are seeing a nearly 30% growth rate in July and a nearly 40% growth rate in Europe and Africa, while Asia expanded 10%. And our digital business improved throughout the month, reaching 145% growth, aided by our expansion into new markets that I'll tell you about in a few minutes. So, while I think some of this is kind of a catch-up for the volume that wasn't sent in April and May, I also think some of it is a more permanent pickup of business from smaller competitors and those who have exited altogether. Additionally, the industry draws a distinction for so called self-service or some in the industry call them, Digital transaction. We don't quite believe in that term. These transactions refer to a transfer that is either initiated or terminated in the digital or physical channel with something other than cash. So, a bank account, a wallet, an ATM card or other non-cash instruments. Using this definition, Ria's self-service transactions now account for 24% of Ria's international outbound transaction total and 31% of its volume. Finally for XE transactions were up mid-single-digits during the quarter, but the international payment volumes trailed last year as a result of the uncertainty from the pandemic combined with continued uncertainties related to Brexit. Given these trends, for the entire segment, we anticipate that we will produce year-over-year transaction growth in the third quarter. And that approaches double-digits, assuming no major changes in the global economy and no pervasive lockdown is stemming from a second wave of the coronavirus. In addition to managing our business, we have used our leading-edge technology to implement new products for our customers to allow them to be responsive to their business needs during COVID. For example, we quickly implemented cardless cash-out options at ATM to allow local consumers to collect the social benefits provided by their governments. We enabled the use of expired cards for bank partners, when they were unable to reissue cards or deliver new cards to their customers. Our epay team created a special employee card to allow two leading European grocers to reward associates that continue to work during the pandemic. And in Money Transfer, we expanded our mobile app and online capabilities to reach 21 countries. In Malaysia, we launched a hybrid channel solution to accept orders via the phone online or our staging app where customers could pay by account at an ATM or a cash deposit machine when traditional retail agents were closed. We were able to help our customers in these ways thanks to our flexible technology and our single API connection capabilities. As you can see, while we continue to navigate the pandemic and our financial results are not, what we hope to report for 2020, we continue to drive the business forward and we have been successful on many fronts. Over the next few slides, I would like to hit on some of these highlights. So let's go to slide number 6. The strength of our balance sheet has really allowed us to leverage our other strengths. Our digital focus, our flexible technology, our global footprint, our diversified product portfolio, our culture of growth, and our people to take advantage of the opportunities that will drive this business forward. This quarter, we have provided highlights and categories to help you understand many of the ways that, we have furthered the business through expanded distribution of our existing product portfolio, expansion of our product offering, additional advancement of our leading-edge technology platforms REN and REV, and through cost saving measures across the business. I'll start with our product expansion. During the quarter in Italy, we added mobile top-up voucher sales to Euronet's own ATM network across the country another cross-divisional product offering. We also enabled cardless payouts for BNP Paribas customers in Poland. In Australia, we expanded our digital media content, including Uber, Netflix and Spotify with our new digital retail partner Afterpay. In epay, some of our most significant product distribution expansion came through mobile wallets. In India, we used our existing connections to the Google Pay and Amazon Pay wallets, to launch numerous digital media products. And in Brazil, we had two important developments. First, we established a direct connection to Sony to launch Playstation digital codes; and second, we launched iFood credits the largest food delivery app service in the country. In Money Transfer, we expanded and further improved our physical network during the quarter. We launched 15 new correspondents in 11 countries, while also signing 12 additional correspondents for the future. These additional correspondents drove a 13% year-over-year increase in our network, which now reaches 435,000 locations in 159 countries. Ria continues to build successful relationships with post offices around the world. And as we've mentioned, these institutions remain among the strongest channels for money transfers abroad, and we have seen strong stable volumes through COVID with our recent launch of bpost in Belgium. In addition to launching money transfer services with the Austria Post, during the peak lockdown in April, our team also launched cash pickup service at over 3,000 locations with PostFinance in Ukraine; and finally, reassigned agreements with the Indonesian Post for their 4,000 locations, as well as the Jordan Post. Let me pause here to talk a little bit about the significance of our expansion with post offices. Like with retail – with large retail chains in the U.S. post offices have historically largely been served by our two largest competitors. When Euronet acquired Ria, we had 42,000 global locations and we couldn't command the attention of our large retailers, or international post offices. We have spent more than 10 years investing in our global network and service, and we have grown the network tenfold to 435,000 locations and offer safe secure well-priced transfers to our customers. These attributes, combined with our ability to continue to grow our business across all money transfer channels with independent retailers, with large retailer in digital, Ria has gotten the attention of these post offices. They realized that a partnership with Ria represents growth for them, improved commissions and affordable pricing desired by their customers and we are certainly happy to serve them. Also in the second quarter, we launched Money Transfer services at more than 19,000 OXXO locations, a leading convenience store chain in Mexico. This is a big one. We also added two new cash pickup partners to our network in Vietnam. Finally, our digital team responded to the sudden limitations that COVID lockdowns placed on our customers in many markets. The team worked hard to launch our app in many new markets in Europe throughout the quarter, including France, Italy, Germany, the Nordics, Austria, the Netherlands, Belgium and others. We now have mobile web or staging capabilities in 21 countries. We also increased our digital marketing investment in Q2 by nearly 100% compared to the prior year. All of this drove a 90% transaction growth rate. We told you about earlier, but it's also important to understand that our digital channel is profitable and we expect to produce meaningful results heading into 2021. And let me remind you that, our original timeframe to roll out these countries was by the end of the year. And our team has put forth extraordinary effort to launch them all six months early. But we also have a long road map ahead of us that, includes launching the app in several more markets over the next 12 months, launching new web product improving our product analytics and adding many more features for our customers. Next slide please, slide number 7. And we continue to expand our product portfolio. As I mentioned earlier, we're seeing more opportunities to outsource as banks look for ways to save costs amid economic downturn. This quarter we signed an agreement with Millennium Bank in Poland to drive the EuroBank 140 ATMs that were acquired by Millennium Bank. We also signed a new ATM driving and card management agreement with Standard Chartered Bank in Pakistan and a similar agreement with Ohridska Bank in North Macedonia to drive their ATMs. During the quarter our Money Transfer teams launched a service to enable deposits in the bank accounts through Alipay wallets. This partnership with WorldFirst recently acquired by Ant Financial allows any of the almost one billion users of Alipay to receive a transaction into their bank account through their wallets. We also launched several real-time account deposit services during the quarter, including real-time deposit services to China and Vietnam as well as deposit services to coins.ph a mobile wallet in the Philippines that has five million users. Account deposit represents about 25% of Ria's international outbound remittance volume, a figure we believe is likely the highest in the industry among the traditional money transfer providers. Last year, we processed about 65% of this volume on a real-time basis. We see real-time payments as a key differentiator for our account deposit product and it's an important reason why our account deposit transactions have been growing at a 25% CAGR for the last 10 years. It is worth repeating again that we can send money to more than 3.6 billion bank accounts in over 120 countries with strong mobile wallet coverage as well. So while cash pickup probably represents 80% to 85% of the payout preference for remittance in the market today, account deposit is quick adoption and we believe we are the leading network to capture the growth for both remittances and payments. In addition to expansion of our products and network in April, we mentioned that we had a plan to achieve $130 million in cost savings to preserve cash and to offset some of the financial impact of the shelter-in-place orders and the unemployment brought about by COVID-19. As I mentioned previously during the quarter, the EFT team achieved $25 million in cost savings while across all segments, we achieved approximately $35 million. And assuming current trends we expect to achieve another $15 million per quarter as we move through the rest of the year without any reduction base. Next slide please slide number 8. As we've shared with you, our technology is one of the leading factors driving our success. During the quarter, we expanded our agreement with Yes Bank Limited, a large private sector bank by providing a license to India's first-generation real-time payment system called IMPS. Yes Bank will be able to leverage the REN ecosystem's modern architecture and open systems for processing high-volume mission-critical transactions. We also launched mobile top-up through Amazon Pay mobile wallet as well as mobile top-up direct-to-home top-up and Google Play recharge credit. These services were quickly added for these leading wallets due to single API connection Amazon and Google had already with Euronet's REN ecosystem. In Romania, we signed an agreement with Raiffeisen Bank for additional web services that will support their RaiPay mobile wallet. And in Money Transfer, we added United Payments Interface or UPI the world's most advanced real-time payment system developed by the National Payments Corporation of India to tokenize and simplify real-time account deposits in India. As you can see, we have continued to focus on driving the business forward and we remain in a very strong financial position to navigate this darn pandemics. With improving trends in epay and Money Transfer, with weekly year-over-year transaction growth for the first few weeks in July and continued cost reductions and careful expense management actions, we are cautiously optimistic that based on the recent trends and current global COVID-19 management mandate that our third quarter EBITDA will be in the range of $50 million to $75 million. And we will produce approximately $10 million to $30 million in free cash flow. This COVID-19 pandemic has caused a global economic disaster, let's not forget. It has negatively affected Euronet in many ways, but it has also hastened our digital expansion and offered us new or expanded opportunities in all three segments. It has had a significant impact on our 2020 financial results, but the strength of our balance sheet, the diversity of our products and geographies, our flexible technology and our exceptional employee base have allowed us to continue to drive this business forward and I am confident we will emerge a stronger more flexible company. With that, I will hand it over to Rick.

Good morning, and thank you, Mike, and thank you all for joining us here today. As we did last quarter, I will begin my comments with the balance sheet on slide 10, as it provides the best picture of Euronet's financial strength and stability which fuels our confidence in the long-term growth prospects for the business. The successes Mike mentioned during his comments have much to do with the strength of our balance sheet. We did not need to worry about survival, but rather manage through the implications of COVID-19 and focus on what we can do to capitalize on the opportunities that present themselves. We finished the quarter with $865 million in cash. This increase from March 31st was largely a shift of cash from ATMs we temporarily closed due to COVID pandemic matters together with approximately $4 million in cash generated from operations. While this amount of cash should be more than sufficient to see us through the pandemic, we also have about $410 million of cash still in our ATMs that we could redeploy should we need to use it for operational purposes given us more than $1.2 billion in cash to fund operations with no significant debt service obligations for nearly five years. In addition we have approximately $950 million of availability under our revolving credit facility. Our total indebtedness was about $1.1 billion at the end of June largely unchanged from March. Next slide please. I'm on slide 11. For the quarter, we reported revenue of $528 million, an operating loss of $101 million, adjusted operating income of $3.3 million and adjusted EBITDA of $37 million. As you may have read in our press release, operating income includes a $104.6 million non-cash goodwill impairment charge related to three of our business units. In the Money Transfer segment $82.7 million was recorded for XE as a result of declines in the international payments business stemming from economic uncertainty that started with Brexit and then exacerbated by COVID-19 uncertainties. Additionally in the EFT segment, we recorded a charge of $14 million for INNOVA as a result of the COVID-19 influenced decline in that refund activity directly related to the decline in international tourism in the EU. And a charge of $7.9 million for Pure Commerce again as a result of the COVID-19 influenced decline in international tourism in Asia Pacific. These charges are excluded from adjusted operating income, adjusted EBITDA and adjusted EPS to facilitate comparisons to the prior year. We delivered adjusted EPS of $0.04, a share a 98% decline versus the prior year as a result of the transaction decline stemming from COVID-19. Next slide please. I'm on slide 12 now. EFT transactions declined 10%, driven by fewer transactions in Europe and Asia including high-value cross-border transactions related to COVID-19 pandemic-driven governmentally imposed cross-border closures and shelter-in-place orders. Epay transactions grew 59% from increases in Europe and Brazil, as well as very strong contributions from India, which included a large volume of low-value in-app mobile top-up transaction. Money Transfer transactions declined 11%. The strong growth in U.S. international outbound transfers and remittances in most of our international markets were offset by declines in U.S. domestic transfers and transfers originated out of Malaysia, which as Mike mentioned enforced strict and long lasting shelter-in-place orders that resulted in our stores and agents being closed through the better part of May. These shelter-in-place orders also spanned through the majority of the Ramadan season. So we did not realize the same increases in transfers during this period that we would have experienced in the past. As Mike mentioned, the beginning of the second quarter seemed to be the low point in transactions, particularly in epay and Money Transfer. As the second quarter ended, epay transactions continued to trend higher, posting year-over-year weekly improvements with strong expansion of online digital distribution media products and continued strong physical retail sales. Moreover, Money Transfer transactions were trending better in July versus June in all regions and channels posting promising weekly year-over-year results with some sectors posting strong double-digit growth rates as a result of employment starting to rebound slightly and opening of nearly all of the agents and retail locations following the relaxation of governmental restrictions. Finally, EFT transactions were trending slightly better but will likely remain depressed throughout 2020 due to the slow openings of international and cross-border travelers across the globe. Let's go to slide 13 please. Here on this slide, we present our earnings 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 adjusted for currency on the next slide. I'm on slide 14 now. For the second quarter EFT revenue declined 65%, adjusted operating income declined 148% and adjusted EBITDA declined 116% driven by the COVID-19 induced impact of lower ATM transactions in Europe and Asia, especially high-value cross-border transactions across Europe, partially offset by nearly $25 million in cost savings achieved during the quarter as a part of the company's $130 million cost savings initiative for 2020. epay revenue grew 5%. Operating income grew 7% and adjusted EBITDA grew 6% driven by continued strength in sales of digital media content. While constant currency revenues grew year-over-year, the epay segment too experienced the impacts of customer movement restrictions. While other markets were positively impacted where we have a higher mix of digital distribution or a higher concentration of retailers that the -- where the demand -- that were deemed essential and remained open during the pandemic. Money Transfer revenue, adjusted operating income and adjusted EBITDA declined -- declines were the result of transaction declines stemming from government-ordered business closures and shelter-in-place orders required to manage the COVID-19 pandemic. Operating income and adjusted EBITDA were further impacted by SG&A investments made throughout 2019 to support future growth, which was unfortunately blunted by the impacts of COVID-19 pandemic. In wrapping up, it is clear that the COVID-19 pandemic has had a profound impact on our business results particularly, in the EFT segment, which we expect to continue into the third quarter. As Mike said, we will refrain from giving official guidance because timing of a treatment or vaccine and the timing and extent of governmental restrictions together with the related economic recovery are still very uncertain. However, we do believe that it is important to give you a couple of data points to help frame expectations. We would expect third quarter consolidated revenues to approach 80% of the prior year with epay and EFT revenue growth rates similar to those in the second quarter. With the recovery of transactions in the Money Transfer segment, it is possible to see Money Transfer revenue approaching double-digit growth year over - over the prior year. From these results together with significant cost savings and careful expense management actions, we expect the third quarter EBITDA to be in the $50 million to $70 million range and the company will generate free cash flows in the range of $10 million to $30 million. In closing, Mike's earlier comments are worth repeating. We are very fortunate to have a strong balance sheet, diverse geographic and product revenue mix, flexible technology and dedicated and talented employees that are not only allowing us to make it through this pandemic, but are allowing us to continue to drive our business forward despite the pandemic. This gives us confidence that the long-term growth prospects for the business are still very much intact and perhaps even stronger. With that, I'll turn it back over to Mike for any final comments.

Thank you, Rick. Well this COVID-19 pandemic has hurt this year's financial results particularly in the travel portion of EFT's ATM estate, but our economic model has always been and still is valid. People will go on vacation. Let's not forget that the epay segment posted year-over-year growth in the second quarter despite all this mess. And we anticipate that both epay and Money Transfer will post year-over-year growth in the third quarter as well. So the only business that has not returned to growth is due to the continued travel restrictions and we are confident that as soon as there is a treatment and/or vaccine that EFT will recover. Fundamentally, our business is doing quite well and we continue to take advantage of opportunities that will drive future growth once the travel cycles return to normal. As we did in the financial crisis of 2008 and 2009, we are using our assets not just to survive, but to expand. Many of you have followed us for a long time you know us to be financially conservative, but also major investors in our own technology and our market expansion in good times and in bad. We still have more than $1.2 billion in cash, which has both comforted our current customers and impressed future customers. Our colleagues are busy as ever with a full intention of delivering stellar results in the future. I thank you all for your continued interest and support of Euronet. And now we will be happy to take questions. Operator will you please assist?

[Operator Instructions] And our first question comes from the line of Rayna Kumar with Evercore. Go ahead please. Your line is open.

Good morning Mike and Rick. Thanks for taking my question. It looks like you're starting to see some strong growth in Money Transfer. And if you can discuss what regions where you're seeing the strength? And how much of it is coming through your digital channels versus your cash-to-cash agent locations?

Well let's not forget most -- all family remittances in the world by far the largest portion are always going to come through cash because that's how many of these immigrants live they come from cash-based economies or even when they get to a non-cash a more modern economy they tend to budget that way. But you saw our digital transactions -- this is a bad quarter, but our digital transactions were kind of through the rough. We ended with 98% growth in digital transactions and we were growing even faster in July. So that's going to be a large and larger piece of what we do. You asked why are we winning? I think at the end of the day we now have a world-class network. We've got the second biggest physical network in the world. We've got more bank accounts that we're connected to for digital payouts than anybody. And so we've got a really good value prop for that immigrant. We -- no matter where he comes from we -- he can send money back to his family and they can conveniently pick it up either at -- through their bank account through their wallet and physical locations. And our pricing is better. And let's not forget too, we share more of the economic model with our agents. And all these agents are hurting right now right? They're retailers. They do kind of money transfer on the side. And so because we give these agents a better -- a larger cut of the proceeds of the customer fee, agents have a tendency to follow the money. And so we pick up more agents. And therefore those agents then recommend us to their customers. So it's the same reason that Money Transfer has grown 3x to 4x faster than the World Bank numbers for the last dozen years is the same reason that we grew now in fact when these agents are hurting, it tends to make us grow even faster. So that's the reason. Good value prop for all parties.

Great. That's very helpful. Just moving on to your EFT business. On your first quarter earnings call you gave us a very interesting framework to think of the EFT business in 2021. You mentioned that you would expect the tourism level to return to 80% to 85% of the level that it was in 2019. And I'm wondering now that we've been through hopefully the worst of the pandemic, do you still think of that as a good framework for thinking of your EFT business in 2021?

Well Rayna all we can tell you - I mean you kind of know what we know. We read all these magazines. We see the airline travel bookings and so forth. We know next year is going to be better than this year, kind of no matter what. Still what is seen as -- it's interesting in Europe where we basically have all these high-value transactions. The very first -- the countries that we saw a real pickup in international cross-border transactions were countries where you could drive to. So people didn't have to make a reservation in advance, they could just hop in the car with their family and go on vacation to Croatia or wherever they're going, right? And so as airplanes become more used then we're going to see more of a -- we're going to see an even bigger pickup. Right now I think the original surveys where it said 50% of everybody who are surveyed out of like 2000 people said that you just unlock me and I'll be on kind of the next plane or the next car to vacation within two months. And that I think is pretty much starting to show itself. But we've got another 35%, says they might wait four to six months and the last 15% says they might wait over a year. So we've got to kind of see. We don't have any new data to make us any more or less comfortable, but this whole COVID thing is finite. We're going to get -- it's going to go through the human population one way or the other either through herd immunity or through vaccines. And when that happens our economic model continues to shine.

Got it. In your epay business, you've now had double-digit transaction growth for several quarters and you've been very innovative especially with products like REN. And I'm just wondering is that double-digit transaction growth the new norm in that business? And how should we think of normalized revenue growth in epay?

I'm going to let Kevin who's in charge of that answer the question.

Yes. So obviously we're very encouraged by the transaction growth. A lot of the transaction growth as we reported in the earnings call is coming from India and Brazil where we have a really strong digital presence. We're finding that consumers that buy digital media content through digital means tend to be a bit more sticky with us on an ongoing basis. The million-dollar question is what happens to consumer behavior post-pandemic? Do they spend as much as they are today? We think that even if that drops, we are picking up a lot of new customers. Netflix has reported significant gains in new users, Google Play is picking up a lot of new users. So the mix between sticky channels like digital, new users and increased spend, together makes us optimistic that the growth rate -- the transaction growth rates will remain high.

Great. And just final question from me. Just any update on your capital allocation priorities? Any thoughts on share repurchase and acquisitions in this environment?

I don't think it would be very responsible to do share buybacks at this point in time. None of us for sure know when and how long this pandemic is going to last. And that's a very kind of tactical response to low stock prices. I think things that we are keeping our eyes out -- we do have a big war chest, we're keeping our eyes out for more strategic acquisitions that will be kind of the gift that keeps on giving growing well afterwards. So we're keeping our eye out for that. Don't expect share purchases in the short-term for sure. Thank you, Rayna.

And just on acquisition strategy?

Same thing. We're always looking. And if we can find good acquisitions that will continue to grow, if I can -- with their assets and our assets, I can get a one plus one equals three, those are the kinds of things I'm looking for. Yes. We're always looking. I mean, we looked at three this week. And unfortunately, we pitched all three, but we're always looking.

Got it. Thank you.

Your next question comes from the line of Ken Suchoski with Autonomous Research. Go ahead, please. Your line is open.

Hi, guys. Thanks for taking my question. I just want to focus on EFT a little bit. It looks like you have almost 8,000 ATMs temporarily shut down due to COVID. So I'm just curious what is it going to take to turn those back on? Are you looking for a certain transaction level?

Well, here's an interesting -- a little interesting -- you're just looking at the actual numbers. So at the end of last -- we were at about 8,500 closed down when we talked to you the last time. We actually got to 10,700 closedown kind of extended winterizations and we were back down into the 8,000. So we have begun to open them up. We're opening them up kind of commensurate with travelers. So we save about $400 a month per ATM to keep them closed, but you don't want to save that $400 if that ATM can make you $600 in revenues that month. So that's kind of -- we're just being careful as more travelers go to these locations. You see that we kind of started opening them up kind of north to south, because it was -- the driving locations were the first ones that people went to those are the ones that we started to open first and we're just going to open them as we see possibility to make more money.

And more specifically, our teams have schedules and local knowledge of what kind of travel restrictions, border closures, shelter-in-place orders are in place. And so they monitor those. And then as they start seeing those lift then we start lightening up an ATM, because we know that once people are allowed to move about then they're going to start going about their daily business, which includes access to ATMs. And we can see from the data that our transactions start to move north almost immediately upon the announcement of a movement restriction being pulled.

Thank you. That makes sense. And then just on Money Transfer, the volume growth had a nice rebound there in June and it looks like it continued into July. And so I guess I'm curious how much do you think the stimulus packages are helping the volumes in business? And I guess I'm curious as you think about -- you gave the figures for 3Q, but how do you think about the sustainability of that transaction growth, I guess, over the next say two to three quarters?

Well, yes, and I think as we mentioned in the script, I think the government's kind of little bailout packages of $600 or whatever a month and so forth have helped stabilize that certainly. But what we've seen too is our -- as a number of our competitors are closing down, they're having liquidity issues. As I mentioned a lot of the volume -- let's not forget of the $700 billion that is sent in family remittances about 65%, 70% of that is done with small independents, okay? That's -- we're the king of that channel. And these agents are small little shop to do money transfer on the side. They need to make money. We help them make more money than our competitors do. We go to more countries than our competitors do. So I think a lot of stuff is going to stick. And we're also seeing -- I was also told by one of our guys over in Europe that there's always an amount of money transfers family remittances that's sent through the Hawala channel, which is the informal, I'll send it with my cousin or a friend of my cousin back home. With all the airplanes shutdown around the world, Hawala has been shutdown. And so people, a lot of these immigrants, when they first come to town they use their buddies. And then, now they're forced to use more formal methods. And guess what, we get that money there instantly at a very good cost. And so, I think, we're going to end up with a lot more transactions, a lot more customers when this is all done. This money transfer thing is nothing but good news.

Yes. The volume growth is impressive.

It's almost unbelievable through all the channels. I mean, we just keep looking at those numbers every day and saying wow.

Right. And I guess on that point, as the money transfer business shifts to digital, how do you expect that to impact the revenue per transaction, because it was quite strong this quarter and maybe you had some benefit from higher principal sends. But would you say that the shift to digital is a net positive or negative overall? Because, presumably, there's more price transparency, there's lower switching costs, there's more efficient distribution on the digital side.

Well, don't forget, if we're able to acquire that transaction ourselves digitally, okay, it's going to cost a lot less than me paying an agent half of the agency. So you tend to -- you start out with more, but then the digital channel requires more direct amount of marketing, so you offset some of that. But at the end of the day, it kind of -- it turns out to be a better wash, maybe slightly better than the physical channel.

Makes sense. Thanks a lot.

Our next question comes from the line of Peter Heckmann from D.A. Davidson. Go ahead, please. Your line is open.

Great. Thank you. Can you talk about some of the mix shift we've seen within the epay division? Historically, very, very heavily reliant on self-use, but some growth there in gift cards. How much do you think that affects the seasonality of epay in the fourth quarter?

Yes, Peter. This is Kevin. The mix is pretty much the same. Its gaming, streaming and app purchases. Probably, the shift that we've seen is more in just the retail, more purchased in convenience and pharmacy and grocery that remained open, because they were essential during the pandemic and a huge growth rate in online and wallets and online banking. So where we were really strong, there's certain markets where we're particularly strong in digital channels, namely India and Brazil. We saw really, really large growth in our digital channels. But even in our more traditional channels, like Germany or Europe, we also saw double and triple growth rates in our digital channels.

And I would add to what Kevin said is that, it's not just a fluky end up here, because we -- over the years, as you know, we've added more and more names to our digital platform. And so, then when you have somebody like a wallet or whatever that's in a business in a market, they need things to go into their wallet. And we've got those kind of products that go in there nicely. And then what's -- another element of our business is, we've got a great technical platform that allows us to have a single API connection in there. So not only, one, do we have a great platform of product, we've got a great technical platform to deliver it. So we're really trying -- I think starting to see a bit of the momentum pick up here, where it's the intersection of three things and that's the products we have, the geographies we serve and the technical platform that we can deliver it through.

Yes. Rick makes a good point. A lot of the digital channels we had we were only doing mobile top up, but we had a connection with the wallet. And when COVID hit, they wanted to introduce more entertainment content. And we were able to add it quickly because of the technology platform that we have.

Got it, got it. And with some of those in-app purchases, are those -- are you still acting as a principal in that transaction and recording a gross of the commission or net gross?

Yes. Same, same.

And that's really accounting. That's how you got to do it.

The digital transaction or physical transaction from an accounting standpoint, Peter, is the same.

Got it, got it. And then just one last follow-up, with the mix shift a bit in Money Transfer to digital, I would have expected a little bit more pressure on revenue per click. But I assume that was -- the mix shift to digital was offset by the lower domestic. Is that about right?

Yes. You got it. You got it, Pete.

All right. Thank you.

And our next question comes from the line of Andrew Schmidt with Citi. Go ahead, please. Your line is open.

Hey, guys. Thanks for taking my questions. On EFT processing, thanks for the comments about the beginning of quarter trends. Wondering if you could comment on what you've seen over the last several weeks. And then just to tap on to that. As you've seen travel pick up to certain places, has there been any difference in terms of conversion? Meaning for a certain number of people walking by an ATM, people's willingness to go stop by and use that ATM. Just kind of a read-through to cash usage and comfort levels there.

Okay. So in answer to your second question, we really haven't seen any change there. People -- this is a really interesting question. A lot of people said are people going to after being forced to go more digital, are they going to stop using cash? And we heard a lot of those rumors. The reality is that has not borne out at all. I mean we -- in fact in several of our markets in Europe, our domestic transactions now are higher than they were before COVID. And that's again there's some big overarching things that are occurring. We have very convenient locations. They're open all the time. You don't have to go into a branch to do it. We see banks continually under financial pressures to justify and rationalize their cost structures. They're doing this by closing branches and therefore closing ATMs. So, what you end up with is kind of a guy walking down the street and he needs to get some cash, you might see our ATM on this corner and another bank's on the next corner, but the other bank might be closed so he uses ours.

And what -- the only other thing that we have seen is that the amount that they take out is a little larger. And it also was kind of interesting to see that that experience that we witnessed was not a lot different than a research report that I read out of Canada, where you're seeing that more people are using cash for transactions, not only more frequently but in larger amounts in Canada. And I think what that really speaks to is that people take great confidence in cash. And they operate that way. They run their lives that way. If they're temporarily shut down, they may have to shift to another means. But their natural inclination is to operate with cash. And so we saw that that as soon as the restrictions are lifted, as soon as the shelter-in-place restrictions, people start going about their business, they start coming back into taking the cash and operating the way they did before.

And then some -- and let's not forget too some of our markets like India as an example, it's still a cash-based market. And so we saw our brown label ATMs that they had a really tough shelter-in-place restrictions. So nobody could even get out to -- get to anybody's ATM there for a while. But now that those are starting to lift, we're seeing people come right back to the ATMs to do -- to go shopping like they always have. Yes. I think operator we've got time for one more question.

And it looks like our final question comes from the line of Andrew Jeffrey with SunTrust. Go ahead please. Your line is open.

Good morning. Thanks for squeezing me in. I'm looking at your EFT business Mike and when I look at revenue per transaction this quarter, it looks like it stands to reason essentially all local business and you've taken a lot of cost out. I just wonder, given the uncertainty around COVID and return of tourism just theoretically looking forward, can this be a profitable business on materially local volume if it comes to that? And could you shift to more of an outsourcing strategy recognizing that the DCC part of the business is still critically important to lots of profit.

So, just -- and the answer to that, first of all, we love outsourcing. We're always going to look for outsourcing deals. Because those babies are profitable every day of the week, and banks pay us every single month, okay? So, that's always the primary thing that we're looking at. But that is an interesting question. We've actually had those discussions over the last month, because we see our domestic transaction is growing in several of these markets, and we're wondering there might be -- we have a few markets right now that are primarily all domestic and that would be India, Poland, and a couple of others. We're seeing some opportunities there too. But, at the end of the day, people are going to go on vacation. This thing is limited. And so, those higher value transactions, where you might make $4 or $5 a pop as opposed to $0.16 in India, we're still going to go after. So, at the end of the day, I think we've got a good value prop every which way.

And while it was a number of years ago, when DCC was introduced which really gave us that extra value on international transaction, we had a very profitable business without it. So, to your question, can this be profitable? Absolutely, it just -- you might change your focus to be more, as Mike said, domestically focused if you were to see that there were some kind of a longer-term trends. But, I don't believe that we're going to see a longer-term trend, because people will go back to traveling. I think the real question lies in what ultimately happens with treatments and vaccines and things like that. And as those kind of, measures are brought to the table as the study show, people will again start vacationing, making trips and things like that. So, we're not worried that it will go away. But, as it's kind of fundamental to your question, if something like that were to happen, gosh, we make great money on domestic ATMs, on outsourcing ATMs. It's just a matter of where we're focused at.

Okay. That's helpful. And just as a quick follow-up. Any updates on your thinking on the U.S.? I mean a lot of the trends you're describing in Canada for example, and local transactions in Europe would seem to describe the U.S. too, and it's a market where there maybe some opportunity.

We're always looking. We made the investment in Dolphin Debit, and we think the U.S. is ripe for some great outsourcing deals, because the quality of outsourcing ATMs in the U.S. is pretty darn pathetic. And we've got a super set of features and functionality that we can do at these ATMs. So, we're going after that aggressively.

And the Dolphin team has come into the Euronet Group very nicely. They've really been bringing forward some exciting opportunities and continuing right in line with taking advantage of the opportunities that we anticipated in the U.S. So, we're pleased with seeing our -- really our entry in the United States, and look forward to more good production there.

Right. And there's also probably going to be opportunities. We didn't mention it anywhere on the cost. But let's not forget, the whole rest of the world is still our oyster here for doing international transactions as travel continues. We're just in one South Asian country right now. The numbers on those ATMs are astounding wonderful. We've got to go to more of these South Asian countries. We've got to get to South America. I mean I look at it, and I think they're double to triple our potential traveler revenues across the rest of the world over the next several years.

And with that, I want to thank everybody for taking your time with us today and thank you for your ongoing support.

This does conclude today's conference call. You may now disconnect.