Greetings, and welcome to the Euronet Worldwide First Quarter 2023 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. Please be advised that today's conference is being recorded. It is now my pleasure to introduce your host, Mr. Scott Claassen, General Counsel for Euronet Worldwide. Thank you, Mr. Claassen. You may now begin.

All right. Thank you. Good morning, everyone, and welcome to Euronet's first quarter 2023 earnings conference call. On today's call, we have Mike Brown, our Chairman and CEO; and Rick Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we'll be making today. Statements made on this call that concern Euronet's or its management's intentions, expectations or predictions of future performance are forward-looking statements. Euronet's actual results may vary materially from those anticipated in these forward-looking statements as a result of a number of factors that are listed on the second slide of today's presentation. Except as may be required by law, Euronet does not intend to update these forward-looking statements and undertakes no duty to any persons to provide any update. You should avoid placing undue reliance on any forward-looking statements. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures we'll be using during the call to their most comparable GAAP measures. Now I'll turn the call over to our CFO, Rick Weller.

Thank you, Scott, and good morning, and thank you to everyone who's joining us today. I will begin my comments on Slide 5. For the first quarter, we delivered revenue of $787 million, operating income of $45.6 million, adjusted EBITDA of $93 million, and adjusted EPS of $0.87. These results were produced by strong double-digit growth rates driven by improvement in all three segments, but with a particularly strong contribution from high-value cash withdrawal transactions in the EFT segment as a result of the continued recovery in the travel industry. Next slide, please. Slide 6 presents a summary of our first quarter balance sheet compared to the prior quarter end. Here, you can see that we ended the quarter with approximately $1.1 billion in unrestricted cash. The decrease in cash is largely from $112 million of cash moved into our reactivated ATMs in preparation for the summer travel season, together with approximately $28 million in share repurchases during the quarter. These uses of cash were partially offset by cash generated from operations together with working capital and foreign exchange rate changes of approximately $75 million. Next slide, please. Slide 7 presents our as-reported results for the quarter. When we spoke with you in February, we were seeing some strengthening of our major currencies against the U.S. dollar. As we moved through the quarter, those currencies followed several rollercoaster patterns, but the net result of the movements produced virtually no impact on our reported results versus our early February guidance. However, when comparing currencies on a year-over-year basis, we saw our more significant currency declines in the mid-single digits to lower double-digit range versus the dollar. To normalize the impact of these currency fluctuations, we have presented our results on a constant currency basis on the next slide, Slide 8. EFT revenue grew 40%, operating income grew 224%, and adjusted EBITDA grew 98% as a result of the improved domestic and international withdrawal transactions driven by continued recovery in travel and the POS processing from the March '22 acquisition of the merchant acquiring business. I'd also like to highlight that we saw a nice improvement in our newly deployed ATMs in the Asia Pac region. The ATM transactions in Asia have not yet reached half of the pre-COVID levels as Asia Pac is nearly a year behind the recovery rate of the rest of the world. But we are pleased that these machines were producing positive contribution profits in the first quarter, and we expect them to contribute profits for the full year. Revenue and gross profit per transaction for EFT segment remained consistent on a year-over-year basis, epay revenue grew 5%, operating income grew 11%, and adjusted EBITDA grew 10%, driven by the expansion of mobile and digital-branded payments together with growth of the digital distribution channel. Transaction growth outpaced revenue growth due to a stronger mix of lower-value mobile transactions in India. The epay business produced both gross margin and operating margin expansions over the prior year. Money Transfer revenue, operating income and adjusted EBITDA grew 9%, 2% and 1%, respectively. This was a result of 13% growth in U.S. outbound transactions; 16% growth in international originated money transfers, which included 14% growth in transfers initiated largely in Europe and 18% growth in transfers initiated in the Middle East and Asia; and 28% growth in Xe transactions, partially offset by a 17% decline in the U.S. domestic business. Additionally, these transaction growth rates included 38% growth in direct-to-consumer digital transactions. On a year-over-year basis, we saw a constant dollar decline in revenue and gross profit per transaction. This decline was largely the result of a shift towards lower average send amounts per transaction, particularly in the Xe side of the business, as higher-end customers transferred fewer funds due to economic uncertainties. The lower send amount ultimately results in lower revenue per transaction. However, we were able to offset some of the lower send amounts with higher gross profits per transaction on the remittance transfers, which resulted in higher margins. Before I close, I'd like to give you an update on our expectations for the remainder of the year. You likely saw in our press release that we expected our second quarter adjusted EPS to be $2 per share. For the full year, we continue to expect to see the business producing year-over-year earnings growth in the mid to upper teens. To that end, it looks like the analyst consensus outlook is directionally aligned. Accordingly, after working through the disruption brought about by COVID and with travel on a path to recovery, we expect that 2023 will be a record year of revenue and adjusted EPS for the Company, assuming there are no significant changes to FX rates, interest rates, and the global economy, and other unforeseen events. I am pleased that we are off to a strong start for the year with near double-digit constant currency revenue growth from all three segments. With that, I'll turn it over to Mike.

Thank you, Rick, and thank you, everybody, who is joining us today, and I'll begin my comments on Slide number 10. Let me start by just saying that I am pleased to be talking to you about what feels like a relatively normal first quarter, the first one we've had in three years, one that feels very similar to our pre-COVID narrative. We delivered strong year-over-year performance in what is our seasonally slowest quarter in all three segments while making moves we think will position us to continue our momentum throughout the year and beyond. We continue to be encouraged by all the commentary in the news around the upcoming travel season. As Rick mentioned, we saw nice performance from our ATMs in Asia during the first quarter as COVID restrictions have now been fully lifted. In Europe, which has historically been our primary market, we continue to be optimistic about recovery. Eurocontrol recently updated their base case of flight movements in March, and they now expect 2023 to improve to within 93% of 2019 levels. And we expect our transaction recovery trend to largely align with those improvements. Further, Expedia has reported that interest for international travel from the U.S. is up triple digits from the same time last year, with additional good news that the average price per ticket is down $125 for the peak months of July and August. And as you might remember, last year, that was a problem. There were fewer seats available on airplanes, and prices were quite high. The optimism about travel, together with the good performance of our POS acquiring business and our expansion into new markets, gives us confidence that we could experience a very strong year in the EFT segment. Now let's go on to Slide number 11, and we'll talk about some of the EFT-specific highlights. You may recall that over the last several quarters, we have continued to build our ATM deposit network across Poland and several other countries. This quarter, we were able to further expand the network in Poland by signing a network participation agreement with Millennium Bank. Millennium customers can now deposit cash into any participating Euronet ATM across the country, significantly expanding deposit convenience for Millennium's customers. Additionally, we signed 10 new merchants to participate in our deposit network in the same market. In Romania, we launched multicurrency deposit processing for the ATM deposit network of First Bank. In Singapore, we expanded our relationship with Development Bank to provide ATM and card processing for their recently acquired bank in India, Lakshmi Vilas Bank. We continue to be pleased with the performance of the merchant acquiring business that we purchased from Piraeus Bank a year ago. This quarter, we added AllWeekPay functionality for all POS merchants in Greece, which allows the merchants to collect and use their revenue earned via card payments the very next day, 365 days a year. Additionally, we added approximately 5,000 new merchants in Greece. Finally, we were able to renew several nice agreements during the quarter, including our ATM deployment agreement at the Air Force in Copenhagen and in the railway stations across Italy. Next slide, please. Slide number 12 provides you with an update on our ATM portfolio. During the quarter, we continued to evaluate our ATM network in order to make it as strong as possible. This evaluation led to a decrease of approximately 150 of our own deployed machines, most of them in the Philippines, as we reviewed ATM performance in our first real travel season in that market since '19. Despite the reduction in the number of machines, the business performed in line with our expectations, and we now have a stronger ATM estate for the remainder of the year. We also reduced our outsourcing machine count, but this is largely from the removal of the remainder of the ATMs for a bank in Poland that we mentioned last quarter. Additionally, we added more than 950 low-margin ATMs in India, and we reactivated almost 1,650 devices that had been closed for the winter season. Finally, with these stats, you're likely to ask about our ATM deployment plans for the remainder of this year. We still believe that we will be able to deploy approximately 3,500 machines in new and existing markets by the end of 2023. To close my comments on EFT, I'd like to reiterate that this was a really great start to the year for the segment. We see the macro travel landscape continuing to improve. We had a very good initial travel season in Asia. We have strengthened our ATM portfolio, and our POS acquiring business is performing very nicely. The EFT team really seems to be hitting on all cylinders, and we are excited about the rest of the year. Now let's go on to Slide number 13, and we'll talk a little bit about epay. Our epay team continues to deliver strong results by expanding its content portfolio across more retailers and, of course, more markets. During the quarter, we added Microsoft 365 renewals with new retailers in Spain, Netherlands, Germany, and Australia. We launched Alipay+ in Australia, Disney+ digital in Austria, and Airbnb in Belgium. In New Zealand, we added our Prezzy Mastercard into Foodstuffs South Island and Countdowns grocery stores. Finally, we signed bill payment services with Fampay, India's fastest-growing neobank for its students and teenagers. It's worth repeating that it was a great first quarter for our epay business. Before we move on to Money Transfer, I'd like to give you a bit more insight into what we expect for epay over the next several quarters. You are likely familiar with the lumpiness in our financial results that the promotional activity in our consumer rewards business creates with an outsized impact on revenue. As we think about the second quarter, we expect to see some favorable results from the wrap-up of some of the prior year promotional activity as well as a new campaign that will occur during the quarter. However, you may remember that we had very strong promotional activity in the third quarter of last year, which will create a tough comp on a year-over-year basis. So while the results may be lumpy in the next couple of quarters with a very nice second quarter and a more difficult third, we expect to see low double-digit operating income growth from epay for the full year. So now let's go on to Slide number 14, and we can talk about Money Transfer. Our Money Transfer network now reaches 528,000 locations, 3.6 billion bank accounts, and 1.7 billion wallet accounts across 190 territories and countries. The increase in wallets was driven by the launch of wallets in four new countries and was significantly influenced by the addition of Alipay to our wallet network. In Malaysia, we appointed ATX, an aggregator of payment solutions for small merchants, as a cash-in, cash-out master merchant. This partnership will allow us to more rapidly expand our network across the 1,500 locations in the country. In Lebanon, we launched cash payout services at more than 550 Whish money branch locations; remittances to this nearly $7 billion market grew 7% in 2022 and represent nearly 40% of its GDP. So we are excited to partner with Whish to bring real money transfer to this important market. The agreement covers inbound and outbound cash pickup in bank deposit, and real service will be available on Whish's mobile app. We plan to add B2B service in the coming quarter as well. Finally, we signed 24 new correspondents across 19 countries, which will launch in the coming quarters. We continue to see strong transaction growth across most areas of Money Transfer business, driven by a 38% growth in our digital channel and strong execution across nearly all of our physical send channel. As well, Ria continues to deliver strong account deposit growth with transactions growing 38% in principal transferred to bank and wallet accounts now representing 32% of total cross-border principal transfer. While Q1 is a seasonally soft quarter for the Money Transfer segment, we expect double-digit bottom line growth for the segment for the full year 2023. Now let's move on to Slide 15, and I'll give you a little bit of an update on Dandelion. During the quarter, our active Dandelion partners continued to leverage our Money Transfer network by expanding payments to 21 new countries, which resulted in a 57% year-over-year transaction growth from our existing partners. This growth is made possible in part to the enhancement of our network, particularly our mobile wallet coverage mentioned on the previous slide. Additionally, we continue to innovate this technology that powers Dandelion with the addition of several new features in the first quarter. You may remember that when we launched Dandelion, we offered our partners the ability to query a payment status at any time. We have now enhanced our offering to proactively provide customer notifications on the payment status, much like when you order a package on Amazon, and they tell you when they receive the order, when the package is shipped, and when the package has arrived. Now our Dandelion partners can opt in for proactive transaction tracking to several key destinations in the world. And for partners who are not ready to integrate with our real-time API, we now offer batch processing capabilities, but with the same real-time payment delivery and compliance monitoring as our API solutions. In our experience, larger banks, in particular, often prefer to start with batch processing via their traditional Swift operations and then evolve to the dynamic API in a second phase. We also continue to advance the conversation for partners within our robust pipeline of banks, payment service providers, and fintechs. Please keep in mind that as we go to sign and implement these deals, because of the nature of the business, there are heavy compliance reviews, reviews by our banking partners, and other steps that we must complete before a deal is finalized. And occasionally, like this quarter, these reviews can cause a delay in a deal being officially completed. We thought that we could get a couple of nice deals to tell you about and finish this quarter, but those have slipped into the second quarter. We have some pretty cool names close to the finish line, so I look forward to updating you more on the progress of our Dandelion business during our second quarter call. Next slide, please. Slide number 16 shows our Ren highlights for the quarter. While the U.S. has not seen a significant adoption of real-time payment processing and settlement of funds, across Southeast Asia, we continue to see a significant shift towards real-time payments and settlements. Ren is positioned to help banks with this transformation. During the quarter, we launched person-to-merchant real-time payments with Security Bank in the Philippines. Now Security Bank customers can pay merchants directly from their accounts simply by scanning the QR code at the merchant's location or by pushing the payment to a merchant via an app. All of these transactions will be routed through the real-time domestic payment scheme in the Philippines. In Latin America, we have now onboarded as a MasterCard Engage partner. The MasterCard Engage platform connects businesses with qualified technology partners. Through this partnership, we can now work with fintechs and others by onboarding them as an affiliate and sponsoring them under our scheme membership. We can then provide processing services through a compliant infrastructure, connecting Mastercard's network for their card program. Finally, our pipeline of signed Ren deals is strong, and we expect these deals to deliver approximately $143 million in revenue over the next six years. We continue to see strong interest in our Ren technology across the globe, and we expect to see some nice contributions as we roll out more deals in the coming quarters. And finally, let's go on to Slide number 17, and we will wrap up the quarter. As I said when I began my comments, it's nice to share with you some good news for once in a more normal quarter. We continue to believe that EFT will be on a similar trend line with Eurocontrol recovery reports. Epay continues to add more products and markets, including some exciting new products we are preparing to launch. And Money Transfer continues to expand its physical, digital bank, and wallet networks with transaction growth in nearly every aspect of the business. I'm extremely excited for 2023 as we intend to move into our post-COVID growth cycle as a stronger, more nimble company, and we expect to deliver record revenue and adjusted EPS for the full year this year. With that, we'll be happy to take questions. Operator, will you please assist?

Our first question comes from Andrew Jeffrey with Truist Securities.

Mike, the color on the APAC ATM recovery is helpful. Can you talk generally about your beyond Europe EFT expansion ambitions and just how big that TAM can be? And if we're going to be hearing more about non-Europe ATM revenue and EBITDA drivers over the next several quarters?

Yes, it's not just several quarters but several years. It took us eight years really to develop the network that we have in Europe. And Europe was $295 million in EBITDA or something like that in 2019. So it will take us a little while to get there. But the nice thing is travelers go to places other than Europe. Our experience with both the Philippines and Egypt before and during COVID gave us a lot of confidence about these new markets. So in the Philippines right now, Kevin is listening, we have about 850 to 900 ATMs. Their travel season is kind of the flip of Europe. So Q1 is the tail end of their travel season, which starts back again in October. So we'll see a low for the next couple of quarters, just like we do in the winter season for Europe, and then it will kick back in. So we've got a lot of ATMs there. In 2019, our ATMs there were very profitable, throwing off over twice the profit per ATM as our European ones. So we're excited. In Egypt, we have remained profitable even during COVID. We also have opened up in Malaysia and Morocco, and you'll see us in more countries this year. Each of those countries comes with its bureaucracy, requiring sponsored banks and Central Bank approvals, so it takes a while to get going. But once you get rolling, we found these primarily cash-based markets are very lucrative for us. The total TAM of that could easily equal what we have in Europe in all these other markets combined.

Next question is from Andrew Schmidt with Citi Global Markets.

I wanted to say it's great to see enthusiasm about the normalized travel season. I share that enthusiasm. Given that this is essentially the first normalized travel season we've had in a while, could you comment on the recovery of high-value ATM transactions from April to date? Additionally, how do you expect that recovery to trend into the second and third quarters? I'm interested in any direction you could provide on that.

Well, I think directionally, we're right there in line with Eurocontrol. Eurocontrol has an improvement every single quarter this year over the prior year, and we will probably improve every single quarter as well. That's exciting. As Q1 starts off nicely, the big numbers are in Q2 and Q3. If you look at 2019, we did 70% of all our high-value transactions in Q2 and Q3 for the year. Q1 is only 10%, and Q4 was 20%. The big money and the big opportunity is coming now. It starts to ramp up right after Easter and reaches its peak in July and August. If everything stays on track, we expect to see improved numbers consistently. Prior to 2019, we had 10 years of bottom line growth where our EFT division grew at least 25% a year in profit for a decade due to our expansion into more and more new markets. We are back in the race now.

And Andrew, I would add just a note to Mike's comments. You may recall last year, it wasn't long after our first quarter concluded that you started seeing airport problems and airline problems, just handling the onset of the volume increases in these countries. It's good to see positive reports now that folks are prepared for the increase in travelers. Hopefully, that continues as we go throughout the next couple of quarters. This gives us increased confidence in achieving our projected numbers this year.

To add one last thing, last year, we had a decent recovery in half the year, but what was evident was that even amid COVID, we found that cash is still needed in Europe. While there are POS terminals everywhere, for that small amount of cash that travelers may need, we proved that we're still relevant.

Next question comes from Darrin Peller of Wolfe Research.

Rick, I don't know if there's any way to give us a hand with the segment-level expectations for the remainder of the year, a little bit more detail on growth expectations on a segment basis. But Mike, I also just want to help bridge one last time on the improvement in travel. If we were to bridge the puts and takes, remind us of what they are in terms of headwinds and tailwinds that get you back to where the Eurocontrol data is because we obviously have Croatia as a headwind, but we have Asia reopening as a tailwind. And then would you mind walking us through those puts and takes one more time and if you expect that to get to the levels of 92% of 2019 by year-end?

Yes. Well, let's see, let's start with kind of puts and takes. First, we don't expect Russian travelers to return because of the ongoing conflict in Ukraine and the sanctions. Next is the indirect effects of the Ukrainian situation. Transactions in bordering countries have seen pressure, but these aren’t the heaviest tourist countries. The heaviest countries include the U.K., France, Germany, Italy, Greece, Spain, and Portugal. As Mike noted, we are seeing consistent recovery in line with Eurocontrol's recovery data. We had previously observed a correlation between Eurocontrol data and our recovery. Another factor is the situation with Croatia, having transitioned to the euro. We find that there are other rate opportunities that will largely offset that, alongside operational improvements from removing less profitable ATMs under the new rate structure. Looking ahead, if we consider how we can recover to what would be considered 100% of 2019 levels, continuing improvements in the Ukrainian situation and total travel recovery are crucial. The impact of Russian transactions won't be recovered, but we think growth in other areas will compensate. As for growth expectations, we continue to see strong double-digit growth rates from our EFT Segment driven by both continued travel recovery and launches in new countries. For epay, we expect upper single-digit revenue growth in the lower double-digit range for operating income. Money Transfer is expected to see low double-digit revenue growth, around 12-13%, with better growth on the operating profit side. The first quarter is typically a soft one for Money Transfer, but we expect to see growth pick up in the second and third quarters.

To remind everyone, in addition to what Rick mentioned, we have new initiatives like Ren and our acquiring business, which was previously non-existent in 2019. Our acquiring business has likely grown 50% last year on a run rate from when we purchased it, and it's poised for good growth this year as well. Ren has been nearly doubling its revenue each year since inception. Having these new endeavors gives us added momentum to our traditional business. Last year, we produced approximately $100 million in additional EBITDA compared to 2019. Thus, while the EFT segment will still be crucial, our other segments are becoming increasingly significant as well.

Our next question comes from Pete Heckmann with D.A. Davidson.

This is Alli calling in for Pete Heckmann. We're wondering if you're seeing any change in the opt-in rate for the dynamic currency conversion on your ATMs in Europe relative to 2019.

No, we have not seen a change in that opt-in rate for a long time.

Broader point is we haven't observed any change in consumer behavior. As Mike mentioned, people continue to withdraw cash, and we saw increased cash withdrawals post-COVID. Consumer behavior has remained quite consistent.

Our next question comes from Mike Grondahl of Northland Securities.

Can you talk a little bit about the drivers that get the Money Transfer business from sort of 1% adjusted EBITDA margin growth in the first quarter to sort of double digits for the whole year? Like what's going to happen there that drives that higher margin?

There are a few drivers here. First of all, you have overhead. When you have lower transaction volumes, overhead costs remain the same, impacting margins. As transactions grow, the revenue upside increases, leading to better margins. The second aspect relates to our ongoing focus on managing expenses closely, which we expect to see our growth outpacing those expenses as we move through the year. Additionally, our digital business is becoming a larger percentage of our total business. We saw 38% growth in direct-to-consumer digital money transfers as well as strong growth in Xe. Both of these segments have lower transaction costs since they do not involve agents. So, as we grow revenue while controlling expenses, we see an overall positive trend.

Our next question comes from Ken Suchoski of Autonomous Research.

I just wanted to ask about the Money Transfer business. When we look at that revenue per transaction in that segment, the year-over-year growth was a little bit worse this quarter versus last on a constant currency basis. So could you talk about what's driving that? And I know there's some competitors putting promotional pricing into the market. So I'm just curious if you're seeing any of that? And I guess how are you responding to that activity?

First of all, the Money Transfer business has always been competitive on pricing. Competitors engage in promotional activities for a limited time in select corridors, but we don't see a significant impact from this. We have corridors that can be impacted at various times, but we counter these promotions successfully. Our primary concern is ensuring we maintain employment. Historically, the only major factor negatively impacting our Money Transfer business was severe recessionary periods. Currently, we are facing a labor shortage, which benefits us since resources come from immigrant workers.

Our next question comes from Rayna Kumar of UBS.

Mike, could you discuss your M&A pipeline and what deals interest you the most at this time? And quickly, Rick, if you can just give us the underlying FX assumptions embedded in your financial guidance.

As you know, we're always looking at acquisitions. We're looking at two or three right now. None of them are particularly large, but we probably review 30 to 40 acquisitions a year, maybe doing just one or two. We still have a pipeline we believe can contribute to our growth ensuring they are aligned with our goals. The current financial landscape means some prices are coming down, which is advantageous for us. However, we don’t have anything pending for next week.

I would add that we do have options we are looking at across all three segments. Regarding FX assumptions, it typically reflects the average of the last week. Currently, there aren't significant shifts in FX rates, with some currencies seeing slight favorableness while others present headwinds. For the most part, we expect that the currencies will remain reasonably consistent with our first quarter outlook.

Our next question comes from Cris Kennedy of William Blair.

Mike, you mentioned that you're pleased with the performance of the merchant acquiring business in Greece. Can you talk a little bit more about the strategy and what's driving the growth?

In Greece, nearly all POS acquiring was owned by four or five of the largest banks. I enjoy competing with banks because they're risk-averse and conservative, whereas we are nimble and aggressive. This flexibility allows us to deliver better products and more appealing offerings for our customers. Hence, the rapid growth we've experienced. The 365 pay-as-you-go opportunity we added enables merchants to access their funds the very next day after transactions instead of awaiting a transfer that could take several days. We will continue to innovate and will expand this model across multiple markets. We are also incorporating epay products and envision some of those POS sites becoming money transfer agents as well, maximizing cross-sell opportunities. The growth trajectory in that segment has been impressive, and we're proud of our team's efforts.

Our next question comes from David Togut, Evercore ISI.

I apologize if this was asked earlier as I just joined late from another call. But Rick, did you call out your 2023 EFT margin outlook?

I didn't. That hadn't been mentioned. But to give you a bit of history, in 2019, our EFT operating margin was around 33%. Since then, we've shifted towards more owned ATMs. In those owned ATMs, we make more profit per ATM, but it results in lower margins overall. We're clearly not at the 2019 travel recovery level. So as we move from something less than 100% to a recovery level, this will positively impact the bottom line. Additionally, inflation has impacted our cost structure. This year, I expect our margins to be in the mid-20s range, rather than back to the 33% level.

Ultimately, we're focused on delivering more EPS. Even with more ATMs and markets, despite slightly lower margins for several reasons, I'm still very enthusiastic about our position. Thank you for your time today. I look forward to talking to you in about 90 days.

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