Euronet Worldwide, Inc. (EEFT) Q3 2024 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Euronet Worldwide Third Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, General Counsel, Adam Godderz. Please go ahead.

Thank you, and good morning, everyone, and welcome to Euronet's third quarter 2024 earnings conference call today. On today's call, we have Mike Brown, our Chairman and CEO; as well as Rick Weller, our CFO. Before we begin, I would like to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet or management's intentions, expectations, or predictions of future performance are forward-looking statements. Euronet's actual results may vary materially from those anticipated in these forward-looking statements as a result of a number of factors, including those listed on the second slide of our presentation. 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.

Thanks, Adam. I will begin my comments on Slide 5. We delivered a record third quarter on all key consolidated financial metrics. We delivered revenue of 1.1 billion, operating income of 182 million, adjusted EBITDA of 226 million, and adjusted EPS of $3.03. Important to note, we did not include in the $3.03 adjusted EPS an additional $0.28 per share related to an investment gain. Had we included the $0.28, our adjusted EPS would have been $3.31. Leading the way for this quarter results was EFT with double-digit constant currency operating income and adjusted EBITDA growth. Money Transfer delivered constant dollar third quarter revenue growth of 10%, operating income growth of 7%, and adjusted EBITDA growth of 4% compared to the prior year third quarter. epay delivered double-digit revenue and transaction growth. Our adjusted EPS of $3.03 was up 11% compared to the prior year third quarter. When considering our first three quarters, adjusted EPS this year was 17% higher than last year. It is clear that we are on track to be at the top end of and quite possibly through the range of 10% to 15% for the full year. As I reflect on the average analyst estimate for the quarter, some might say you're in at missed earnings expectations based on analyst consensus estimates of 3.11. While I understand that point, I will tell you that through the first three quarters of the year, we are 2% higher than the high end of our annual range we provided. I would also point out that due to the continued growth of the epay and Money Transfer segments through the pandemic, we've seen somewhat of a gradual quarterly earnings mixed shift out of the third quarter with a bit more balance in the first and fourth quarters. So, as we told you in the third quarter of 2023, rather than providing quarterly expectations, we are following a practice of a simple expectation of double-digit earnings growth of 10% to 15%. We recognize this approach may cause some differences to develop when comparing actual results to average analyst quarterly estimates. But we really want shareholders to embrace the competence of consistently producing double-digit earnings growth consistent with our past 20-year CAGR rates. And if a company can produce earnings at the high end, if not through a 10% to 15% range, and there'd be a 1% annual difference among analyst quarterly estimates, I would say the company delivered impressive results. I hope shareholders focus on our commitment and delivery of double-digit earnings results, possibly through an enviable double-digit growth range of 10% to 15%. I also hope shareholders appreciate the upper end of our earnings range is 60% greater than that which is expected for the S&P 500 for 2024. Moreover, for the third quarter, we continued our track record of producing strong free cash flows, producing nearly $100 million. In the quarter, we also took the opportunity to repurchase 1 million of our shares. Given the timing of the repurchases, there was only a marginal benefit to the third quarter adjusted EPS. But we know this return of capital to shareholders will improve earnings per share by 2% in all future periods. Slide 6 presents our summary of our balance sheet compared to the prior quarter. As you can see, we ended the third quarter with $1.5 billion in unrestricted cash and debt of $2.3 billion. The net increase in unrestricted cash and cash equivalents is the net result of the generation of cash from operations, working capital fluctuations, and share repurchases. The indebtedness was 2.3 billion as of September 30, 2024, which was unchanged compared to June 30, 2024. Availability under the company's $1.25 billion revolving credit facility was approximately $670 million at quarter end. Slide 8 shows our results adjusted for currency fluctuations. EFT grew revenue 7%, operating income 12% and EBITDA 10%. These growth rates were driven by improved travel, growth in the merchant services business and growth within recent market expansions. Operating margins benefited from transactions driven by continued travel recovery and effective expense management. The epay segment grew 10%, operating income 2% and EBITDA 3%. Double-digit revenue and transaction growth was driven by continued digital media and mobile growth. Operating income and EBITDA growth rates were impacted by changes in product mix, investments in proprietary product offerings and inflationary pressures. We expect to see a nice lift in fourth quarter epay results versus prior year from promotional activity related to our B2B channel that was lighter in the prior year. As we have mentioned before, promotional activity in our Caduce incentives and rewards business is profitable and will benefit our quarterly results in the quarters where these campaigns occur, which may not always be consistent from year-to-year. With strong promotional activity benefiting the fourth quarter of this year, we expect full year operating income in the upper single digits this year. Money Transfer grew revenue 10%, operating income 7% and EBITDA 4%. Revenue growth was primarily driven by double-digit growth in cross-border transactions offset by a decrease in intra-U.S. transactions. Direct-to-consumer digital transactions grew by 30%, reflecting strong consumer demand for digital products, which represents 19% of total transactions. The operating income growth of 7% was influenced by an additional $2 million in year-over-year incremental marketing spend during the quarter versus last year. Excluding the incremental digital customer marketing spend, operating income growth would have exceeded 10%, producing operating margins consistent with prior year. Money Transfers, revenues, and gross profits per transaction were generally consistent with the prior year. Overall, we are very pleased that we have delivered third quarter results of -- delivered three quarters, nine months of growth in the upper teens. These growth rates give us even more confidence in our ability to deliver growth consistent with our proven history of double-digit earnings growth. With that, I'll turn it over to Mike.

Thank you, Rick. And thank you, everyone, for joining us today. I'll begin my comments on Slide 10. This summer, Euronet turned 30 years old. To celebrate this milestone, we recently gathered about 300 leaders from scores of countries around the globe to take a minute and celebrate all that we have accomplished over our 30 years, which includes consistently growing year-over-year, 29 of those 30 years, the only exception being the global pandemic. We were also able to share updates across the businesses, create additional ideas on how we can continue to deliver earnings that will outperform the market for many years to come. The energy in the room was contagious. And if I were to sum it all up, my key takeaway from this event is the world is not the same following COVID, and neither are we. We did not take the COVID pandemic as an excuse or a break from moving forward. We instead invested in the business and came up with creative ways to utilize our assets and technologies to create new revenue-generating opportunities. These investments resulted in the growth of our epay and money transfer segments all through COVID. These segments now make up a larger portion of our earnings than pre-COVID, which combined with the extension of the travel season, the addition of new product verticals, entry into new markets, as well as our ability to take advantage of opportunities such as retailer promotions in our epay segment, has resulted in changes to the way our earnings are distributed throughout the year. As Rick said, while third quarter is still our largest quarter, it is not as sharp as pre-pandemic. This evolution is no different than how we've always grown the business. After we installed the first ATM in Budapest 30 years ago, we found that we could create additional revenue by selling mobile pop-up on those first ATMs. The realization that we could automate the sale of mobile pop-up on scratch cards led us to the acquisition of epay, who had digitized mobile pop-up from scratch cards to pin on receipt transactions. And our interactions with our epay retailer partners led us to understand immigrant remittance flow, which ultimately led to the acquisition of RIA a few years later. We believe that this, our latest evolution, has resulted in the world's strongest payment network that gives customers the ability to interact with their money in nearly any physical manner they prefer. As we go through these slides, you will hear a common theme of consistency, network strength, technology leadership, product and market expansion, and most importantly, momentum. These are driving forces behind our ability to deliver earnings at or above the high end of our full year guidance range for this year and our continued confidence that we can produce double digit growth rates into 2025. Now let's go on to slide 11 and I want to talk about the use of cash just a little bit. Before I break down the segment results for the quarter and discuss these marketplace wins, let's talk about cash. For a couple of years now, the familiar trope is that cash is all but dead. Turns out Visa does not agree with this misconception and I'll give you more on that later. But further, I would like to discuss how cash fits into our business today and into the future. And take a look at this graph here. This graph tells a lot. A future where our Ren technology, Dandelion Network, epay digital channels, merchant acquiring businesses continue to play a bigger and bigger role with the company. I wouldn't disagree that the use of cash has been in a slow decline, but the use of cash by consumers appears more stable than declining. As you can see in the graph on Slide 11 from Visa Global, which shows that ATM withdrawal counts in six months increments from 2020 to June of 2024, most recent half year, compared to the pre-pandemic levels, the use of cash has stabilized. The current ATM domestic withdrawal count for the first six months of 2024 is up 2.2% compared to pre-pandemic levels and the international count is down less than 1%. Each market has its own challenges and opportunities, but the point I want to make is that the cash is not in a rapid decline and market intelligence and our own experience confirms it. The use of cash is still the preferred payment method in Europe. That being said, we are well-positioned to serve customers' cash needs while delivering fast-growing digital products. On our 30th anniversary, let's reflect on what Euronet’s business looks like today. As I discussed on the previous slide, our Euronet leadership team has continued to evolve the business to meet our customer needs and find new ways our customers can complete transactions and interact with their money. While cash is still relevant and a part of our overall business, it is just one way that we reach our customers. Here are just a few examples of our business that is not dependent on cash. We offer many real-time remittances where cash is not involved in either side of the transaction, like digital cross-border payments and money transfer. We have digital branded payment solutions like Prezzy at epay. We process card-based transactions with our EFT merchant services business, just to name a few. So, as I reflect on the past 30 years, our strength is our ability to evolve this business and be responsive to the market. As we wrapped up our leadership meeting, several key themes stood out as we begin our next 30 years. First, diversification of our products. We have a diverse set of products covering all customers from highly sophisticated bank customers to unbanked customers and markets. Second, digital growth. Each segment will continue to invest in our digital transformation efforts, growing real-time remittances, digital cross-border payments, and branded payment solutions, all of which are growing in excess of 20% per year. Last, the future of growth at Euronet. Expansion into new and emerging markets, our Ren technology, a scalable, flexible, modern payment platform, and Dandelion, the largest real-time cross-border payments platform in the world. Our business is thriving by continuing to develop new products and adapting to the digital trends in the market. Now let's discuss the segment results starting with EFT on Slide 12. During the third quarter, EFT delivered double-digit growth in operating income and adjusted EBITDA. The primary contributors included a largely recovered European travel or tourism season, continued growth of our merchant services business, growth within recent market expansion, and lastly, we are beginning, albeit small at this time, to benefit from the recent additions of domestic and international access fees within our existing markets. Now let's discuss some of the key highlights of the quarter. Our results in the third quarter were in line with the Euro control data, which indicated that tourism in Europe increased from 90% recovery rate in 2023 compared to 2019 to a 96% recovery rate this year representing a 6% year-over-year increase. Our merchant services business continues to grow. We added over 4,600 new merchants in the third quarter. We saw growth within our new markets too, Albania, Belgium, Mexico, Egypt, Philippines, and Morocco. We grew the results of our recently acquired Infinitum business in Singapore and a recently acquired estate of 800 ATMs in Malaysia. In addition to these highlights, we see a lot of opportunities for expansion. Some examples include the following. We rolled out domestic direct access fees in Denmark, Norway, and Malta in the second quarter. We launched domestic access fees in Cyprus and piloted Czech Republic, Netherlands, and Romania in the third quarter. We launched international access fees to Euro cardholders in Malta in the second quarter, Cyprus and Italy in the third quarter, and plan to launch four to five additional countries in the fourth quarter. Domestic access fees were permitted in 10 new countries in 2024 in Europe, including the Czech Republic, Cyprus, Malta, Romania, the Netherlands, Croatia, Slovenia, Denmark, and Norway. These third quarter EFT results are a great example of how Euronet continues to diversify our business as consumer needs evolve. Moreover, the results highlight our consistent performance and our ability to grow. Now let's go on to Slide 13, and we'll discuss Ren a bit. As I start my discussion on Ren, I would like to remind everyone that Ren is not only a payments platform that we sell into the marketplace, but also a product we use in the EFT and epay to process our own transactions. We are a customer as well as a service provider. This unique relationship gives us the opportunity to constantly improve and develop our product as we receive real-time feedback from our phone users. As I've been out visiting with many of you, you have asked for concrete examples of how our technology makes a difference in our business and in the marketplace. So before we jump into the Ren specific highlights, I'd like to share with you one little example of how Ren has proven itself in the market. Several years ago, we told you about our agreement to implement Ren with the Bank of Mozambique and SIMO, the entity that owns the central bank switch in the country. We delivered a new financial ecosystem for the whole country with a full suite of advanced digital technical capabilities that elevated the country to one of the most advanced financial systems in the world. And while you and I might not think of Mozambique often, it is important to note that it is a country of 30 million people or slightly larger than Australia. This was Euronet's first large-scale customer implementation of our Ren technology. We delivered this new financial ecosystem for the whole country, and Mozambique has become one of the most advanced financial systems in the world now. Transaction volumes continue to grow, doubling year-over-year to approximately 4.4 million transactions a day across ATMs, POS, and e-commerce channels. Payments authorized from debit, credit, prepaid, and digital wallets reaching record levels in the third quarter of 2024. These impressive metrics resulted in a signing of a 10-year extension of this agreement during the third quarter. This is an exciting win, and more importantly, a validation of the power of our Ren technology platform. We also launched Ren in Latin America to process the first virtual card offering for Banco Pinchincha in Ecuador, which is the largest private sector bank in that country. Ecuador has 17 million people and GDP of over 250 billion. We continue to be excited about the future of Ren, and we'll continue to enhance the product offerings through continued development and possibly through additional strategic acquisitions. Let's recap our EFT segment. What's driving our growth today and into the future? First, we continue to grow our merchant services business. EBITDA has tripled since we acquired that business back in the first quarter of 2022. So we are two and a half years into this, and our team has executed a successful growth strategy, and we're not done. Second, we continue to grow transaction volume and revenue in our new markets, like the Philippines, Albania, Belgium, Mexico, Egypt, North Africa, and Malaysia. Lastly, we continue to expand revenue by adding domestic and international access fees at existing ATMs to optimize our profit margin while maintaining transaction volumes. We look forward to continue growing the EFT business and finishing the fourth quarter strong with the expectation of achieving double-digit growth across all metrics for the fourth quarter and for the full year. Now let's go to slide 14, and we'll discuss epay for a minute. Our epay team continues to make significant strides in diversifying our product portfolio while expanding into new markets and new digital channels. A notable signing this quarter was Take-Two Interactive to distribute content from Rockstar, 2K Games, and Zynga across Europe. In gaming, you've heard me talk about the importance of hero titles. These are games that become so popular that they lift the sales of the entire gaming industry. Unfortunately, over the last few years, there hasn't been a game that's generated enough interest with players to create an impact. However, Take-Two is the publisher of the hugely popular Grand Theft Auto franchise, which is launching its sixth instalment in 2025. Grand Theft Auto VI is highly anticipated and is expected to break all sales records with billions of sales worldwide. It goes without saying that we are excited about its release next year and the potential impact on epay sales. Epay expanded its payment processing business at drogerie markt, a large drugstore chain in Germany, with over 2,100 stores. In September 2024, our first full month of working with VM, we processed over 30 million transactions. As stated previously, our digital channel continues to be a key focus. A great example is the launch of digital branded content through Satispay in Italy, one of the largest digital wallets in EMEA. Satispay has over 4 million users and 400,000 businesses that use its payment processing and digital content services. We launched Google Play distribution through ZaloPay in Vietnam. ZaloPay serves over 14 million users, offering a diverse portfolio of more than 100 services. We're still in the early stages of launching Vietnam, but we're excited about the potential of this very large market. Currently, there is low penetration of branded content across Vietnam, so having the right digital distribution to conveniently reach large parts of the population is key. Finally, we are pleased with the successful migration of our Prezzee open-loop MasterCard to Euronet's Ren platform. As I have discussed before, Prezzee is our proprietary prepaid debit card. This is an example of us leveraging technology from our EFT segment for use by our epay segment. Using Ren technology as the processing platform for Prezzee not only results in cost savings for epay, but also helps to further establish the commercial viability of Ren as a product that we sell into the marketplace. Now let's move on to the next slide, 15, to talk about money transfer. I'd like to kick things off by expressing how pleased I am with our double-digit revenue and transaction growth in this third quarter. Our performance clearly demonstrates a position of strength in the marketplace, and it also highlights the increasing momentum we have across our distribution channels and geographies led by a healthy core business. I'm particularly pleased to report for the quarter that U.S. outbound and international originated transactions grew 12% and 14% respectively. By the way, that is more than four times faster than the overall market growth. Overall, the money transfer segment delivered an impressive transaction growth of 11% with stable pricing economics. I would like to focus on the role that partnerships play in our strategic growth. We continue to gain market share from new and notable partnerships such as PLS Financial Services. For more than 20 years, PLS has offered a range of financial services, including money transfers, with more than 200 locations across 12 states in the U.S. This collaboration delivers a customer-centric value proposition to PLS's 3 million monthly customers and to the broader market. This partnership enables consumers to send and receive money whenever and however they need to, ensuring safe, convenient, and economical transaction expertise. We went live with PLS at the end of the third quarter, which required extensive effort and early results show that we will generate meaningful volume for our core business. I'd like to also emphasize that securing a leading industry partner in a highly competitive industry speaks volumes about the power of our value proposition, reinforcing how well positioned we are to drive continued growth. In addition, we are enthusiastic about the positive trajectory of digital money transfers. We have delivered sequential transaction growth improvement in each quarter of this year, improving direct to consumer from 22% in the first quarter of this year to 30% in last quarter, third quarter of 2024. Simply put, digital is showing continued momentum as the fastest growing part of our business. And let me share with you some other key drivers of our digital success. First, we continue to intensify our new customer acquisition strategy, which showed an acceleration from 44% year-to-date new customers, ending with 58% growth in the third quarter. Second, our digital payout capabilities continue to be a significant growth driver with 35% growth year-over-year, representing now 54% of our total volume. Third, we continue to enhance our competitive advantage. Investments in our product have yielded the best real-time cross-border payments network in the world, that's what we call Dandelion, reaching 4.1 billion bank accounts, 3.1 billion wallet accounts, and 595,000 cash pickup locations across 198 countries and territories. And lastly, during the quarter, we launched WeChat in China, expanding our mobile wallet reach by over a billion users. To summarize our progress in the money transfer segment, we continue to deliver great results, four times faster than the market, with continued strategic investments in digital acquisition, product enhancements, core business expansion, and improvements in our operating margins. Overall, I'm thrilled about the momentum we see in our money transfer segment. Now let's go on to the next slide, we'll talk about Dandelion. We continue to grow our network participants, and the momentum is building steadily. Dandelion already powers three of the top five digital money transfer operators in the world. Multiple fintechs and PSPs, as well as one of the top four global banks in the cross-border payment space. And we are onboarding eight new partners as we speak. During the third quarter, we fuelled our Dandelion momentum by signing an agreement with XTransfer, a leading B2B cross-border payments platform serving over 550,000 corporate customers. We're launching Wallex, a payment service provider for SMEs in Singapore and Indonesia. And we're launching with a prominent global P2P platform that we hope to tell you about soon. We continue to remain bullish on the future growth of Dandelion because of these recent successes and the changes in the regulatory environment. You may have heard of the G20 roadmap for enhancing cross-border payments, which aims to improve efficiency and accessibility of international payments. Banks around the world are striving to address these regulatory targets. And as a result, we've noted that it has increased interest by them in the Dandelion's proposition, which helps address transparency, speed, predictability, and flexibility to make the necessary connections to facilitate cross-border payments. With the momentum we have established through the third quarter of 2024, our team has developed a robust pipeline of 78 banks, including 38 banks in the top 100, as well as more than 50 fintechs, PSPs, and MSBs. Dandelion continues to build a roster of impressive customers with significant interest from global banks, fintechs, and PSPs. I am looking forward to sharing more exciting news about Dandelion soon. So now let's move on to Slide 17, and we'll kind of wrap up the quarter. I can't emphasize enough my excitement about the growth our teams continue to deliver. Another record-breaking quarter. And as I mentioned earlier, our leadership team continues to deliver a common theme of consistency, network strength, product and market expansions, all contributing to strong momentum. While we will continue to strive for double-digit growth in each individual segment, our goal is to deliver consolidated double-digit growth results each and every year. This quarter, EFT was the biggest contributor to our earnings growth. However, we have a strong pipeline of opportunities for all three segments to grow in the future. As we turn to the fourth quarter of 2024 this year, what has driven our growth and what will continue to fuel that growth in 2025 and beyond? We have people on the ground in more than 70 countries who are experts in consumer payment preferences and emerging payment technologies, from traditional ATM cash transactions to sophisticated digital payments. This expertise combined with our best-in-class network of assets gives us a competitive advantage, which allows customers to interact with their money in their preferred manner, extending our revenue-generating capabilities. Our strategy for growth is proven, and we have executed that strategy for the last 30 years. We will continue to take advantage of market opportunities and execute by entering into strategic partnerships like we did with PLS Financial Services, by growing and expanding our existing businesses like we have with our merchant services business, by adding products and features such as access fees to optimize revenue and profits, and by continuing our digital growth, highlighted by real-time remittances, digital cross-border payments and digital branded payment solutions. As I conclude my remarks, I want to repeat. We look forward to the fourth quarter of 2024 with a pipeline of opportunities to drive our results. And if you cannot tell from our results to date that 10% to 15% earnings growth for 2024 is in the bag, not only in the bag, but we've got good prospects to drive through that range. We may need a bigger bag. So similar to the momentum going into the fourth quarter, we see this momentum carrying into next year, 2025, where we expect to deliver another year of double-digit earnings growth in the 10%to 15% range. And like our ambitions this year, we will be working hard to deliver beyond that range and consistently delivering double-digit earnings growth year-over-year. With that, I will be happy to take questions. Operator, will you please assist?

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions]. Our first question comes from Andrew Schmidt from Citigroup. The floor is yours.

Hi, Mike. Hi, Rick. Thanks for taking my questions and I appreciate all the comments and the focus on longer-term earnings growth. It's good to reiterate that. I think part of that is just getting comfort in the sustainability of some of the trends, particularly in the EFT segment and the ATM transaction trajectory. So, if you go back to Slide 11 for a second, it's good to see the stability in the overall market, but international transactions are still down. I think you're outperforming that, but maybe you could talk about the ability to sustain same-store sales growth for international ATM transactions. And then, Mike, I think you mentioned that transactions are trending in line, international transactions are trending relatively in line with your control, but if you could put a finer point on just the relationship there, that'd be great. Thanks a lot, guys.

Okay, so as you can see by that graph in Slide 11, you're right international transactions are down, but they're only down by 0.7%. So we can call that roughly flat. I think the way we get around this, even though that we may be – that may be dropping off, call it 1% a year or something is we need to move ATMs to new markets. And that's what we're doing. We're expanding into new markets where these numbers for us are excellent because those new markets are basically, the tourists are underserved with the ability to get cash conveniently. So even though this is the worldwide numbers, we're still finding pockets and niches that give us the opportunity to outrun all this.

And I would add to that, I would say that we have an unequalled ATM network in Europe. And as you can see in this chart, the domestic transactions are largely hanging in there, actually even going up a little bit. And we offer to banks an opportunity to use our network of ATMs to serve their customers. And as banks are closing down ATMs, closing down branches, as banks are being challenged by the competitive nature of internet-based kind of banks, this becomes a very important kind of asset to them. And so we've continued to add network participation agreements to our business. We see more and more opportunity there. So again since -- hopefully what this graph really illustrates is, as Mike said, we do anticipate that there will be some drift down in cash transactions, but it's not falling off. And we're getting a bigger part of that pie by having, like I say an unequalled network in Europe.

And just to put a point on what Rick just said, branches are closing like crazy over the last five years, 25% of all the branches in Europe have shuttered with them when an ATM. So those same ATMs could easily have acquired a transaction from one of these tourists. So what we're saying here is that the pie is roughly flat, but we've got less competition for that next transaction. And I think that's going to continue to happen. Now, this is Europe. When you go to the emerging markets, people - places like the Philippines, Morocco, Egypt and so forth that we're in, those markets are way, way underserved. They just don't have the branch network and the ATM infrastructure that are needed. So we can really kind of that these are just booths for us.

Got it, appreciate that. And then just maybe just squeeze one more in on the money transfer segment. Others have called out weakness in U.S. to Mexico, U.S. to LATAM. It doesn't seem like you're seeing that. Part of that may be share gains. A lot of it might be share gains, but if you could just talk about what you're seeing in terms of U.S. to LATAM, whether there's any impact from migration or other factors, that'd be great. And maybe a little more with driving the outperformance there?

That may be happening, Andrew, but it's hard for us to tell because we're growing market share. We're growing our transactions over four times faster than the whole market. So somewhere in there, maybe it's weaker to this market or that, but overall we continue to gain share. And so we really haven't felt it very much. Adding the strategic partners like PLS is certainly helpful as well. We can - with the exception of a Walmart transaction, that are cash to cash, that have kind of been falling off since COVID. You take that out of the equation and we've got a screaming money transfer business.

Got it. Thanks a lot, Mike. Appreciate the comments.

Sure. Thank you.

Thank you for the question. Our next question comes from Gus Gala of Monness, Crespi, Hardt & Co. The floor is yours.

Hi, Mike. Hi, Rick. I hope everything's going well. Thank you for taking our question. I wanted to talk again about the incremental margins in the EFT. The last three quarters have been about 49%. One prior to that was 30%-ish. And then you take into consideration the comments on the fee structure change in the APMs. I think there's probably more ahead than in the rear view. And then the scaling you're doing in merchant, it sounds like you're still early in entering some of the newer geographies. Can you just help us think about how that old bogey in the high 30% range might have evolved higher or do you still think it' capped around there? Thanks.

Well, I'll just comment on that briefly. Mike can talk a little bit more about expansion across other markets and that. But yeah, look, we've come through the - we came through the period of COVID having a pretty big impact in this. I've said before is I don't think that we will get back to a margin structure or level that we had pre-COVID principally because of the significance of the cost increases that happened over the last four or five years. And as we've said, we do find some opportunities where we can add some other access fees and maybe we'll see a little bit more momentum going on interchange rate increases. I mean, net-net, we kind of feel that the momentum is moving in our direction on interchange rate increases. There's a lot of discussions going on in several continents on that particular subject. So I don't think I would get at this point more bullish on driving that margin structure higher. Typically you'll find that - that merchant services businesses can be a little less on the margin side, but as we grow that incrementally, it'll add more into the picture. So, I wouldn't get out over our skis on it here. I think we've got great volume opportunities. We will continue to expand our margins as we look to next year. We expect that our operating profits will expand faster than our revenues. So that'll contribute to it, but I wouldn't get the Excel math wound up too tight.

And Gus, if you just think about it, we mentioned in an earlier call that our EBITDA margins in merchant acquiring which is basically tripled in the last two and a half years are about 25%. So that's lower than those pre-COVID margins for the segment. So that's the huge growth that we see in merchant acquiring tends to hold the margins for the segment down a little bit too. And with respect to your question about expansion, so we are now expanding what we've done in Greece has just been a killer. I mean, we just continue to gain market share, gain new retailers and merchants. We have additional products and a value prop that's better than our competition there. So it's really done well. And so our thought was okay, let's take this, let's translate it into new markets. Let's go into three markets and we're targeting Italy, Spain and Portugal. We've hired up those sales teams. They're now beginning to sell. So we're really on the nascent side of this, but we're very excited because a lot of these merchants in Greece look just like the Mediterranean focus merchants in Italy, Portugal and Spain. So you haven't seen anything, but maybe a little bit of extra cost, but hopefully we'll see some bottom line results of this over the next year.

Thank you. That's super helpful. And if I can squeeze one more in, digging into epay, just wanted to understand what are some of the investments that are being done there? And just kind of maybe help us think of what was the list, I don't know, last big game cycle, I don't know, GTA 5 or some big Modern Warfare title release. Thank you.

Sure. Yes, this is Kevin. So with regard to investment, we're just like the other divisions, we're trying to diversify the epay business away from a reliance on purely what we call third party content, like iTunes and Google Play and Xbox and those products. And we're trying to introduce epay products. Some examples of that would be a gift card we launched in the UK called YouTube's and a gift card we launched in New Zealand called Prezzee. So we're spending money on basically developing these products and bringing them to market. Additionally, we're working on diversifying epay into being a solution provider. So we've developed a fraud product and a compliance product that we're launching into the market. We've developed a closed loop gift card issuing platform that we're launching into the market. So it's been a year, like Mike said, through COVID, we started these projects about two years ago. We've been developing them and you'll see us rolling these products out in a larger way over the next 24 months. With regard to your question about Grand Theft Auto, it's always hard to predict the announcement that we typically will sell that content through a platform like Google Play or Xbox or Sony or Apple. This is the first time we've done a direct deal with a publisher. So we'll be able to sell Grand Theft Auto directly to the consumer. Obviously, the margins in that are going to be better than if we sell through a platform. At this point, I wouldn't be able to comment on what the lift is. But obviously, since we highlighted it in the script, we were excited about its potential.

Great. Appreciate all the color.

All right. Thank you, Gus.

Thank you for your question. Our next question comes from Peter Heckmann from DA Davidson. The floor is yours.

Hi. Good morning, everyone. Thanks for taking the question. Rick, I think it was Rick, did I hear you right? You're thinking that epay can generate about 8% to 10% growth in EBIT for the full year, and then that would be aided by the heavier promotional activity in the fourth quarter. Did I hear that correctly?

Yes, sir.

Okay. In terms of the relative pacing of these promotional campaigns, it looks like you're much more concentrated this year in the fourth quarter, but then even then, the ones that you expect look like they could be incrementally more significant. So it certainly looks like that on a year-over-year basis, the fourth quarter is going to be a bit of a banger on the prepaid side. And then, probably hard to tell at this point, but for 2025, should we model it reverting back to kind of a more normal seasonality?

Well, yes, there's probably a little bit more like that as we said, sometimes they can be a little bit irregular. Last year, we were a little lighter in the fourth quarter on promotional stuff. This year, the campaigns are lining up to look really pretty strong. I wouldn't count fourth quarter next year out, okay? I mean, because it really is dependent upon what our customers want to do. It's kind of hard at this time to really predict what some of their activities might be. So, it might be prudent to model it a little bit, as you said, a little bit flattish, if you will, or something like that, or not as much of the robust year-over-year number. So, I would caution you to not count it out. We'll be working hard to do those kinds of things for customers. But I think you're looking at it generally right, Pete.

Yes, Pete, I mean, the reality is these things are done by our customers, and it's very lumpy. You've seen that over the last four or five years. Sometimes they hit in Q2, sometimes in Q3. This year, most of it was in Q4. And so, it's going to be lumpy. You've got this baseline epay business that's growing, actually not bad at all. And then you add these lumpy promotions on here, which could add, three, four, five million dollars with a margin in a quarter, and it just makes everything lumpy.

And that's, you know, Pete, you raise an interesting point here, because it's, the kind of business that it's great, profitable business. It's right in line with what we do. We really help these, help the merchant in their value proposition. It does cause our quarter-to-quarter numbers sometimes to be a little irregular. But again, when we take a look at what that business has done, just like I said, going through the pandemic, our epay business and our money transfer business continue to grow. So we're always looking for ways to make that a little bit more consistent. But I think it's fair to look at that more on an annual basis rather than necessarily quarterly. And that's part of what we do to try to manage that as much as we can to have less volatility between quarters. But just the nature of the product, we'll have a little bit of that.

I understand. Okay. And then just as a follow-up, if I can, on the PLS financial, you call it out as strategic. And, just based on number of locations, it doesn't sound super significant compared to the base of 600,000 current locations. But is there something about PLS in terms of the volume of money transfer they do? And then I can't remember if it was in the press release or not, but was this something where you broke exclusivity and now you're another one of the remittance vendors or is this something where you've got an exclusive?

So, we do have an exclusive. We replaced an exclusive of one of our competitors there. When you look at 200 locations versus call it 600,000 or whatever, you've got to remember that 600,000 number is all the locations that we can send or receive from. But the reality is most of the send probably comes through 50,000 locations, something like that. And out of those, the remaining 550,000 are bank branches that could send, but basically mostly it's for cash pickup in these emerging markets. And these guys are big. They do huge volumes. They're probably the either the biggest or the second biggest check cashier in America. So, they just get lots and lots of volume.

Yes, and I think the other way to think about this business is they are focused on that segment of customer. You know, most of our agents are independent agents. Money Transfers is kind of like an add on product. It's another thing that they do out of their store. In, you know, the PLS model, they are catering to this segment of customers that cash checks and money orders and money transfers. They essentially are the bank teller for that group of customers. And so the concentration of business they do is so much more significant than let's just call it your traditional bodega kind of agent.

Peter, if you walk into one of those places, which I suggest you do if you're out and about. I mean, what you'll see is some are probably between four and six teller windows with ropes to control the crowds as they line up to go to. I mean, they're busy stores.

A very well organized operation, very focused on being customer centric. I mean, they're in the business to make sure that that customer has a wonderful experience when they come through the process. They're an impressive organization.

Okay, great. Good call. Thank you.

Thank you for your question. Our next question comes from Cris Kennedy of William Blair. The floor is yours.

Good morning. Thanks for taking the question. Can you talk a little bit or frame the opportunity around the domestic access fee in Europe, expanding into 10 countries, just any way to think about the opportunity there?

Well, Cris, you may know me well enough now, that I'm probably not going to start jotting a bunch of numbers out. I think the real message when you read it behind here is that and most of these countries that we mentioned here happen to be smaller type of countries and so we're just starting to see the momentum build. I think the bigger message is the movement in the industry here. As I've said before, we've gone years. I mean, I'll take a Poland, for example, in 2010, Poland dropped the interchange rate by 60% to roughly $0.30 a transaction. There was a recent study done by the University of Warsaw there that says the cost of doing a transaction is about $0.80. And so, banks simply cannot afford to be making $0.30 and to be spending $0.80. And they're making that known. And so there we're starting to see things break open that the arguments are being made that this fixed price structure doesn't work well. And that's leading to the shutdown of ATMs and the inconvenience of cash availability to customers. You're starting to see discussions now go on around measures taken to ensure that ATMs are available in marketplaces for customers. So, what I think our bigger message here, is the direction. We are seeing a positive direction on making either access fees available or increases in interchange. And what that means to us is, a, as Mike said, we're getting a bigger piece of the pie because banks branches are closing. And b, we're going to have the ability to make more profit per transaction. So, I don't want to author a number in this discussion, but to say that it just gives us more and more confidence that we will continue to see growth and profits come out of this business. There was a question asked earlier about the margins in this business. We think that those margins will continue to go up. And this is exactly one of the reasons that give us that kind of confidence.

Understood. Thank you for that. And then if you can just talk quickly about the digital money transfer business, it's growing like a weed. You're investing a lot in the marketing to drive that growth. Any way to think about the customer profile of that business? How sticky are those customers, unit economics, anything like that? Thank you.

Okay, so a couple of things on this. So remember, the customer profile is different than the general profile for people who do family remittance. Obviously, to do a digital transaction, you've got to have a bank account because you have to pay for the thing. Everything happens either at your computer, probably off your phone. So, you've got to have a bank account. And with respect to stickiness, they seem to be sticky. We're looking at some of the people that that started with us five or six years ago are still doing transactions. So we're measuring those cohorts and so forth. But when you look at the number, we had, 56% growth in new customers this quarter. And that's killer. So we keep bringing in new customers. Now, listen, no matter what I say or any of my competitors say, a lot of people who do these transactions are kind of one and done guys. But the key is for the other group of people, maybe it's half or two thirds of them. If you can catch them for the next 18 months to 60 months, you've got an annuity stream that is excellent. So far, all our math is hanging together and they're very profitable for us. Now, some people will also tell you that the profit on a digital transaction is so much more than a bricks and mortar transaction. We're kind of the independent bricks and mortar king. So we know both sides. We have to pay that agent about 45% of the customer fee, which you don't have to pay if you acquire that transaction digitally. However, you do have to pay for that digital marketing. Like we mentioned, we were up 2 million bucks this year over the same quarter last year. But as we do the full accounting on it, we find that the digital transactions that we acquire are slightly more profitable than the bricks and mortar transactions. But at the end of the day, one of the things that you're wondering, why are we growing four times faster than the frigging market? Why are we number two going after number one? It's because we have both. We have the best independent channel distribution in the world for bricks and mortar. And we've got a great digital product.

Very clear. Thanks for taking the questions.

Operator, I think we're out of time now. So I would like to thank everybody for taking their time on the call. Happy to talk to you in about, well, a little more than 90 days. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.