Greetings and welcome to the Euronet Worldwide Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. [Operator Instructions]. It is now my pleasure to introduce 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 third 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 make 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 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 good morning. And thank you all for joining us today. I'm excited to be able to tell you that we considerably exceeded the earnings expectations that we had set in July as a result of double-digit year-over-year growth and our Epay and Money Transfers segments, together with better than expected ATM transactions as we've benefited from a much quicker return to travel than we initially anticipated. As you will see as we go through the quarterly highlight, these results are testament to our diverse product and geographic revenue mix, our flexible and scalable technology, our strong balance sheet and our dedicated and talented employee base who are working harder than ever to drive this business forward. There's no better example of this and I announced like yesterday that, Ria is now Kroger's second money transfer provider. In EFT, we benefited from a stronger than expected resiliency of ATM cash withdrawal, and we saw local and international government, ease their movement restrictions in countries open their borders to some international arrivals. In Epay, we continue to see strong sales of prepaid self-use content in both the physical retail and digital channels as well as mobile increases in digital channels in certain markets. In fact, our digital channel transactions grew at triple-digit rates on a year-over-year basis. Finally in Money Transfer, we continue to deliver strong growth rate as a result of very strong 22% growth in U.S. International outbound remittances, as well as 26% increase in International cross border remittances, partially offset by declines in the U.S. domestic business and in Malaysia. Digital transactions initiated through our website or our mobile app also continue to accelerate delivering an exceptional 126% year-over-year growth in the third quarter. I am extremely proud of the strong double-digit earnings growth in…

And yes, you are connected and we can hear you clearly.

Okay, perfect. I apologize, everybody. We're having some telecommunication drops here in Kansas City. So, let's figure out where we were. Okay, yeah. So, like I mentioned, we are growing roughly five times as fast as the World Bank is and that's not including the 126% year-over-year digital growth in the third quarter. And all this is without Kroger, without BSA or new post office. These new agreements will continue to fuel growth in our Money Transfer segment where we saw tremendous growth and remittances during the quarter, except in Malaysia and the U.S. domestic business. These strong growth rates are a testament to the selflessness of our immigrant customers, who prioritize their families back home on pay day over the abundant economic uncertainties they face, as well as the strong value proposition that we offer them. But we have also benefited from strong execution in the digital channel, the struggles of some smaller competitors and continued expansion of our network, both our direct-to-account network including banks, wallets and cards, as well as our physical network of agents and retail stores. With a network that now reaches almost 450,000 physical location in a 159 countries and quickly growing digital and wallet payout networks, we anticipate that for the entire Money Transfer segment we will continue to deliver double-digit international outbound transaction growth in the fourth quarter, assuming no major changes in the global economy and no pervasive lockdown stemming from a second wave of the Coronavirus. It was an exceptional quarter for Money Transfer punctuated by our new agreements with Kroger and Fiesta Mart. Now let's move on to Slide number 10. And I'll give you some technology highlights from the quarter. Slide 10, as you likely know by now, our technology is a key factor in our continued success.…

Good morning and thank you, Mike. And thank you to all who have joined us today. As we have in the last few quarters, I will begin my comments on the balance sheet on Slide 12. As it continues to provide the best picture of Euronet's financial strength and stability and underscores our confidence to continue to achieve accomplishments like Mike just mentioned. We finished the quarter with more than $1 billion in unrestricted cash and our ATM cash remained largely consistent. This increase was driven by approximately $50 million of cash generated from operations combined with favorable working capital management. Our total indebtedness was $1.1 billion, unchanged from June. Next slide please. I'm on Slide 13. For the quarter, we reported revenue of $664 million, operating income of $66 million, adjusted operating income of $67.6 million and adjusted EBITDA of $105 million. As you likely read in our press release, operating income includes a $1.5 million impairment of previously acquired customer relationship, intangible assets. This charge has been excluded from adjusted operating income, adjusted EBITDA, and adjusted EPS, to facilitate comparisons to the prior year results. We delivered adjusted EPS of $1.12 compared to $2.84 for the prior year, with the decrease being the result of the transaction declines stemming from COVID-19. To the next slide, please. Here on Slide 14, we show you our three-year transaction trends. EFT transactions increased 14%, driven by increased point of sale driving and card processing transactions in Europe, together with payment processing growth or low value transactions of a customer's bank wallet and e-commerce site partially offset by fewer transactions in Europe and Asia Pacific related to the COVID-19 pandemic, driven governmentally imposed border closures and shelter-in-place orders. Epay transaction grew 66% from increases in Europe and Brazil, as well as very…

Thank you, Rick. As I close, or as we close, I don't want to hide from the impact of COVID-19 on this year's financial results particularly in EFT. However, let's not forget that two of our three segments posted double digit year-over-year growth this year, which has been very challenging by any business's standards. We saw near immediate increase in EFT transactions as travel restrictions were lifted in Europe. We were also able to bring REN live in Mozambique on time. We expanded our money transfer network with Kroger, a leading grocery retailer in the U.S. and our technology allowed us to expand with Microsoft. And we also achieved triple-digit expansion in our digital transactions in Epay and Money Transfer. This is quite a list of accomplishments, which has proven that our economic model is still valid, and we are making the right investments to grow our business for the long-term. Moreover, we see that people are still anxious to travel and will continue to go on vacation as soon as they are able. And maybe most importantly, our balance sheet is strong, which continues to comfort our current customers and impress and attract new customers like Kroger, Fiesta Mart and Money Transfer and Microsoft and Epay. 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] Your first question comes from the line of Ken Suchoski from Autonomous Research.

Hey, good morning, everyone. I hope you're doing well. I want to ask about - I want to ask about the just the revenue per transaction in the Money Transfer business. You call that some mix shifts. But if you control for the mix shift of the business, how is that revenue per transaction trended?

How has it consistently trended? I'd say generally stable, as we've said before, you always see competition out there in the market. So, and I would generally say that those have been kind of like pockets of different competition from time-to-time. But over time, ultimately, you see that the numbers will generally come in. And our counter to that is to continue to expand the mix and to take advantage of opportunities when they're out there. So, I would say generally overtime we've seen reasonably consistent, but in the - generally in the Money Transfer business, you would see it come in and we counter it with mix shifting and actually we've done quite a good job over the last number of years at that.

Yeah, that's helpful Rick, thanks a lot for that. And then just quickly on the margin in the Money Transfer segment. I mean, I think when we look back, that was the best margin that you've printed in the company's history. So, can you talk about what drove that outperformance and do you expect that to normalize in the coming quarters?

Well yeah, as I mentioned, that really - it really reflects the leverage ability of our business. While we did not take cost cutting actions as we pointed out in the call here, we saw the opportunity to continue to support the business. So, it really is a very strong leveraging. I would expect to see it come back into some more normal ranges there. We had great growth quarter, great mix and the team did a good job at managing expense. So, but I would expect to see us, kind of come back a little bit more in normal ranges. But again, this is really the benefit of continuing to add more and more volume on to the business.

Yeah, really helpful. And then if I could just squeeze one last one in. Just the Walmart business, how much is that business down? And I guess how big is that, that business as a percentage of the Money Transfer segment?

Well, it used to be a good 20ish percent of the total Money Transfer segment. It's down in the 40% range from last year. So, and by the way, that has something to do with those the last questions you have because the contribution per transaction there is considerably less than one that has an FX benefit. So, and as we continue to grow our international remittance at these almost stunning volumes, that brings up our average transaction, revenue per transaction.

Really helpful. Thanks, Mike. Appreciate it, Rick.

Great. Excellent.

Your next question comes from line of Andrew Schmidt with Citi.

Hello, Andrew.

Hey, Mike. Hey Mike, hey Rick thanks for taking my questions. Just starting off with the EFT segment, why don't we talk a little bit about the expectations embedded in the fourth quarter outlook for performance? And then, if I could ask about FULL YEAR'21, appreciate the comments on the EFT transaction trends. Just talk a little bit about a little bit more about what you saw when things opened up more about your competence and visibility for FULL YEAR'20 results, some more detail there would be helpful. Thanks.

Well, we were trying on the last question, when we try to project out next year it's kind of hard to know that exactly. But what was just really clear, we try to show that with the graph is that, if the countries open the borders, people will show up. And so it's kind of like open the gates and the dogs get out. And that's just going to happen. So, next year is going to be throttled by either openings or closings by the government, particularly in Europe. And let's not also forget that, when we said we got up to 50% of last year's transactions in the countries that you could drive to vacation pretty quick, where you didn't need to make very advanced like plane reservations and so forth, that 50% was really 50% of 75% because a still a quarter of the transactions that we received in 2019 are still from countries like ourselves, like the U.S. and North America, and Russia, and so forth, that still aren't even allowed into the market. So we saw resiliency is the best word to describe it. People are going and this is without a COVID vaccine, without any kind of cures, people are just ready to go on vacation, I think they're all tired up. So it really comes down to the countries on whether they'll open their borders or not and with how much advance notice. When you say on June 15, whether they will open our borders at two weeks, and just doesn't give people a whole lot of time to get themselves organized to go on a trip on an airplane, which is why we saw our airplane focus countries, these are like Portugal, Spain and Greece. We saw those down considerably from the countries that you could drive to. I mean, at the end of the day, people are flocking to vacation and they're flocking in and when they're on vacation, they're flocking to cash.

Okay, and then the fourth quarter expectations in terms of EFT performance?

We're assuming that we're going to have borders openedish, like they are now. We expect some small closures, maybe for some particular areas within countries. Fourth quarter was not ever one of our biggest quarters for EFT, remember, our two big quarters, were Q2 and Q3.

Right.

And think I'll just add to that, as I mentioned in my comments is that, we would expect to see the EFT revenues on a year-over-year basis would be similar. And I think I would be a little optimistic saying they'd probably be a little better than what we would see on the growth rate, as you kind of compare it to third quarter growth rate. And so, if you look at third quarter's year-over-year growth rate probably going to see a similar growth rate, if not better for EFT.

And let's keep our fingers crossed.

Exactly right. Just one last question, I want to make sure I touch on it. The REN ecosystem without payments cloud, some really interesting updates there. It sounds like you have good pipeline. Could you just talk a little bit about that sort of the sales distribution process? What's in the pipeline from a use case perspective? Just curious, it seems like there's a lot of opportunity to address a variety of different use cases. So, just some comments about sort of the sales process in the pipeline would be helpful.

Yes, this is Kevin. So, as Mike articulated, we kind of view with the win ecosystem sort of three big opportunities. One, modernizing banks legacy structure that has worked if we've all [indiscernible] the life of the company. A little bit more continuing with COVID, because it's more difficult to reach the banks. But we're actively reaching out to banks around the world about modernizing legacy systems with the REN ecosystem. So, that's one opportunity. The opportunity that - the two opportunities that Mike referenced in the scripts were related to RTP and the first one being countries where RTP is already deployed, there's about 55 of those countries. That was in that mix of 55. There's varying degrees of a portion of the RTP network. We are targeting those countries that have low participation or low adoption, and focusing on helping participants connect to the existing RTP through REN Connect. And the way we're doing that is through our local sales teams and these various markets. Then the third opportunity that Mike referenced is, for those countries that do not have an RTP network. And obviously, if only 55 have it, that means there's a whole lot of countries that don't have it. Those countries are at various stages are looking for RTP solutions. We're actively bidding on a handful of those as we speak. They involve a very long sales cycle, I would say 18 to 24 months. And we are actively involved in several of those. And in 2021, we envision a handful more becoming available. So, I hope that addresses your question.

And we talked about these RTP systems that are currently installed around the world, not one of those was architected in the last 20-years. So, the advantage that we have is we have modern scalable technology, the kind that you would see at Amazon, or Google or one of these high-tech players. And that's really even though we're starting after some of the other guys. If people want to have a modern scalable system that's kind of future proof, we're kind of the best game in town.

The other point Andrew I should have made was within each of those deployed RTPs, there the market ranges from about 200 to 500 available participants. So, for each of those 55, we've got 200 to 500 potential participants with varying degrees of adoption. So, the long and short of it is, it's a big market. It's a big market for what we call REN Connect.

Got it. Thanks a lot, Kevin. Appreciate the comments, Mike and Rick, see you guys at our Fintech conference in November. Appreciate it.

Okay. And I'm going to apologize kind of in advance. We talked a little bit longer than usual, in fact. Operator will allow one more question, because we're already at top of the hour.

And your next question comes from the line of Peter Heckmann from D.A. Davidson.

Thank you. Hey, good morning, everyone. Just a lot of information as always, is there any way to quantify the AT&T win and which markets you'll be active with AT&T? Is it primarily the U.S.?

Yeah, so Peter this is Kevin. So, as you might know, AT&Ts prepaid is national all through the U.S. There were only two of these contracts made available, one, through one of our competitors and the one that we acquired. What's interesting about this opportunity is it's focused on activations. And so, we're just doing a mobile top up. The focus with this AT&T relationship is around activating new users on AT&Ts prepaid network. AT&T and Verizon are relatively new to the prepaid game. And they're aggressively pursuing customers for prepaid. We have got an established network for activations. And we're aggressively growing that activation network. So, we're pretty bullish about the opportunity long run. It'll take some time to get wound up, but it includes a residual payment to us from a mobile operator. So from a margin standpoint, it's much more lucrative business than what you would associate with a traditional mobile top up.

Got it. That's really helpful. And then, I missed it when you mentioned Mozambique the first time. Were there any success fees related to go live in the third quarter and you expected in the fourth quarter? And can you remind us a little bit of how you expect that revenue to ramp from that relationship?

Okay. So this was - remember, this was two things, this was a license and no additional fees in the third quarter. But it also, we also cut a deal with them to have basically all their DCC traffic that happens in the country as we connect up all these banks. Obviously, we're not going to get a lot of travelers to any country right now with all these borders closed. But that's going to last for many years from now, so that's all good news still.

Got it. All right. Thank you very much.

All right. Thank you very much. Bye-bye. And thank you everybody, for your time. I think we're going to sign off. Thank you very much.

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