Greetings and welcome to the Euronet Worldwide First Quarter 2024 Earnings Call. Please be advised that today's conference is being recorded.

Thank you. Good morning, everyone, and welcome to Euronet's First Quarter 2024 Earnings Conference Call. On the call today, 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 will 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 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.

Thank you, Scott. Good morning, and thank you to everyone joining us today. I will begin my comments on Slide 5. For the first quarter, we delivered revenue of $857 million, adjusted operating income of $64 million, and adjusted EBITDA of $109 million, achieving record highs for the first quarter across all three metrics. These results were supported by contributions from each of the segments, particularly strong earnings from the EEFT segment due to an increase in international transactions, growth in our merchant services business, and strategic investments in new markets that resulted in double-digit growth compared to the prior year. We are very pleased to report a record first quarter adjusted EPS of $1.28, which is a 47% increase from last year's $0.87. This strong earnings growth stemmed from our continued focus on expanding in new and existing markets, adding more products, and ongoing investments in our industry-leading technology across all three segments. Additionally, we exceeded analyst expectations for both revenue and adjusted EPS in the first quarter following our transition from quarterly to annual adjusted EPS guidance. It's worth noting that about $4.5 million, or roughly $0.10 per share, came from the resolution of tax matters, and $3 million, or about $0.05 per share, was from recovering a duty fee paid last year. Excluding these benefits, the pro forma adjusted EPS stands at $1.13, which significantly surpasses consensus estimates. The pro forma of $1.13 represents a 30% growth compared to the first quarter last year. This favorable pro forma figure compared to Bloomberg's consensus adjusted EPS of about $1.04 was driven by increased revenue and stronger margins. This strong start to the year reinforces our confidence in the 10% to 15% annual adjusted EPS growth guidance we provided for 2024. Starting the year on a positive note is a great advantage. Slide 6 presents a summary of our balance sheet in comparison to the previous quarter. We ended the quarter with a slight increase in net debt, attributed to cash generated from operations, the use of cash for the Infinitium acquisition, and additional cash placed in ATMs to meet seasonal demand. Overall, our net debt leverage remains conservative at about 1x EBITDA. Moving to the next slide, Slide 7, we report our results on an as-reported basis. On a comparative level, FX translation had minimal net differences year-over-year. Now on Slide 8, I want to highlight our results based on constant currency. Beginning 2024 with solid consolidated revenue and strong earnings results reflects our momentum from last year. All segments contributed this quarter. In the EFT segment, revenue grew by 12%, adjusted operating income surged by 220%, and adjusted EBITDA increased by 54% compared to the prior year. This significant growth was driven by an increase in both domestic and international cash withdrawal transactions, double-digit growth in our Merchant Services, and further expansion into new markets. Operating margins improved significantly due to revenue growth, effective cost management, and the removal of unprofitable ATMs. Epay also saw constant currency revenue growth of 8%, with stable revenue and profit per transaction, benefiting from advancements in digital media and mobile sectors along with efforts to expand into new markets. Consequently, investments in product and geographic expansion have slightly tempered earnings growth, with a decline of about 2% to 3% in EBITDA and adjusted operating income. The epay team is allocating resources to develop and promote new products and solutions to support sustainable growth in the future. Given epay's previous success in growing while diversifying its product offerings, I anticipate that its focus on introducing new products and solutions while expanding geographically will return epay's business to its historically strong earnings growth trajectory. Money Transfer experienced revenue, operating income, and adjusted EBITDA growth of 7%, 17%, and 10%, respectively. Revenue growth was largely driven by nearly double-digit increases in cross-border transactions, balanced against a decrease in intra U.S. transactions. Direct-to-consumer digital transactions rose by 23%, indicating strong consumer demand for digital products. Moreover, Money Transfer's revenue and gross profit per transaction remained stable compared to the previous year. Beyond good revenue growth, the Money Transfer team improved its operating margins by approximately 60 basis points year-over-year through scale and effective cost management. In summary, these positive first quarter results give us greater confidence in our earnings growth expectations of 10% to 15% for 2024. Some may wonder why we aren't raising this range despite a strong first quarter. As mentioned earlier, we want the investment community to have confidence in our long-term earnings growth. The S&P 500 has been valued at twice our own while delivering half the earnings. We will consistently aim for earnings that exceed this range, but we want you to be confident in the reliability of our long-term growth expectations, similar to our historical performance. By maintaining our growth range of 10% to 15%, we are not signaling a slowdown; rather, we want you to trust in our commitment to long-term earnings growth. With that said, I'll hand it over to Mike.

Thank you, Rick, and thank you, everyone, for joining us today. I'll begin my comments on Slide #10. Before I discuss the quarter, I wanted to talk about the state of our business. As you can see from the slide at the left, our revenue and earnings trends reflect double-digit adjusted EBITDA growth over the past three years, not much different than our 10- to 20-year compounded annual growth rate. Both you and I struggled through the past COVID years. COVID is behind us. Let's leave it there and focus on the future. And what about the future? We shared with you our confidence in growing our earnings 10% to 15% per year, similar to our trailing 10- and 20-year results. And with such a strong start to the year, I can't help but be more and more confident with our expectations about our growth. Also note the directional movement of the red portions of the lines in the chart. The trend of the past three years looks a lot like the trends for the three years prior to COVID. I believe these trends speak directly to the consistency of our year-over-year results. We are focused on growth powered by our best-in-class Ren technology platform, supporting innovative product development and our world-leading cross-border Dandelion payments network. We are busy entering into new markets, expanding our merchant services business, expanding our digital offerings, and growing our network. And as you can see, this strategy is working. As we have continued to grow, we are very excited about the future. Business is good. So let's dig into those first quarter results. I'm excited that we delivered a record first quarter across all consolidated financial metrics, highlighted by adjusted EPS of $1.28, a 47% increase compared to $0.87 last year. As Rick mentioned, we had some nonrecurring items that benefited our results, but no matter how you analyze it, we delivered a record first quarter with or without them. What a great start to a new year. How do we continue to grow year-over-year? We grow by following a proven model with our focus on number one, continuing to grow one of our greatest assets, our network, our Dandelion network. Number two, utilizing our best-in-class technology platform powered by Ren to deliver products and solutions that our customers trust. Three, by continuing to turn our internally developed technologies into products, which include the Ren platform in the EFT segment, the Dandelion Network and the Money Transfer segment, and the Conductor and Skylight products in the epay segment. Number four, by expanding our geographic reach, which we've been doing for a long, long time. And number five, identifying strategic acquisitions and managing our costs. You will see several examples of these as we go through the first quarter highlights. Let's go on to Slide #11, and I will update you on the status of the market conditions that impact our business. Slide 11, as we move further into 2024, I see encouraging trends towards the earnings outlook for the EFT segment. You might remember that in the summer of 2023, we saw inflation in Europe taking a bite out of the spend for holiday travel. 2023's reduced spend per tourist was a surprise to us just as it was to the credit and debit card acquirers throughout Europe. What you can see by this graph is the easing of inflation and wage growth this year and projected forward. The fact is, none of us know exactly what this summer will bring, so we have to temper our enthusiasm a bit, but the data points are all pointing north. You can see that wages continue to grow, while inflation has continued to decline, coupled with more money in holiday travelers' pockets, we anticipate an optimistic outlook for travel and travel spend. Along with this trend in wage growth and easing of inflation, we have seen several positive travel reports predicting growth in international travel in the spring and summer travel season. Let me share with you some of the key market indicators recently published. Delta and United and most airlines around the world confirm that they expect a record second quarter revenue, thanks to demand for spring and summer travel. Heathrow, Europe's busiest airport, reported a record first quarter with passengers up 9.5% compared to the prior year, and, in fact, updated its outlook for the summer holiday season, expecting the busiest passenger count ever. Finally, according to the World Tourism Organization, international tourism is expected to fully recover to pre-pandemic levels or higher in 2024 with initial estimates pointing to 2% growth above 2019 levels. In summary, key indicators now point to the easing of inflation, continued wage growth, and an anticipated increase in travel during the summer holiday season. Finally, in an update to the consumer behavior survey we shared with you during our fourth quarter call, 75% of Europeans now surveyed said that they would increase or maintain their travel budgets in 2024, an increase from 71% in the same survey a few months ago. All the data points look good, and we're encouraged. We're cautiously optimistic, but let's not overshoot. We're focused on execution and leveraging our diverse and significant opportunities. With this great start to the year, we feel good about the direction. So let's move on to Slide #12, and we'll talk to you about the EFT highlights. Slide 12, before we discuss the quarterly highlights of EFT, I'd like to highlight the driving factors behind our growth in this segment. First and foremost, the continued growth of our Merchant Services business. Since the acquisition of this business in March of 2022, we have more than doubled the operating income and continued to grow. Additionally, with our ATM optimization initiative, as discussed in the previous quarter, it has resulted in improved margins, and we expect to see margin improvement for the remainder of the year. Lastly, our ongoing expansion into new countries contributed to our growth. We have realized success in several new markets around the globe. Investments we made during the pandemic and over the last few years are paying off very well in 2024. Now a few examples of what contributed to the quarterly results. We discussed the Merchant Services business as the key strategic acquisition. So how did it perform in the first quarter 2024? Well, let me tell you, EBITDA grew nearly 40% compared to the prior year first quarter, and this is a great example of how our management team continues to capitalize on strategic growth opportunities. We are adding new ATMs in new markets outside of Europe over the last few years. Our largest of these is in the Philippines. We opened the Philippines in late 2019, and we saw very impressive results until COVID hit. We didn't believe that COVID would last forever. So we grew our ATM estate even with weak travel numbers through 2023. Now that travel has seen a significant recovery there, our first quarter 2024 EBITDA grew 151% compared to the first quarter of 2023. This is another example of a strategic investment that is paying off in 2024. Beyond the Philippines, there have been four other countries that we have opened outside of Europe in the last two years. Getting away from the tourist-focused ATMs. During the quarter, we also signed and launched some exciting new agreements. In Poland, we secured a network participation agreement with Pekao Bank in Poland. Pekao Bank is the second largest bank in Poland with 3.2 million active customers. This agreement enables the bank's customers to deposit cash at our network. Taking a page from Poland's successful cash deposit network, in Romania, our agreement with Raiffeisen Bank was launched this quarter, providing additional flexibility for cash deposits for merchants and consumers alike. In Greece, our Merchant Services business, aided by certain government stipulations, experienced significant growth with the signing of contracts with 19,000 merchants with POS terminals and another 16,000 merchants with softPOS solutions. Additionally, we are excited to announce the partnership agreement with SoftOne Technologies to provide integrated merchant acquiring solutions in Greece. SoftOne, one of the largest business software companies in Southeastern Europe, will integrate its leading brands and products with Euronet's merchant acquiring platform. The combined customer base exceeds 280,000 businesses, and we expect that to increase. Where are we with our ATM expansion this year? We remain on track to deploy between 3,000 and 3,500 new ATMs in 2024. Moreover, we're making progress in extracting maximum value from our existing network and strategically relocating ATMs to new locations. This effort contributed to our improved margins in the first quarter, and we expect it will continue through the year. This quarter reaffirms our global expansion strategy, including strengthening our presence in existing markets, and I'm excited about what the rest of the year holds for us. Towards the beginning of today's presentation, I gave a lot of credit for Euronet's financial success to our technology platform. We built the most versatile real-time POS and ATM switching system to allow us to expand rapidly. Much like what Amazon did with AWS, which was originally developed to drive their own business worldwide, and it's now sold as a separate product, our technology platform, that we now call Ren, was built to allow our ATM segment to expand even faster. Ren is the first modern platform that is database independent, platform independent, and micro services architected. And just like Amazon did with AWS, we now have productized our own platform for sale around the world. So with that, let's move on to the next slide for an update on our Ren payments platform. Slide #13. During the first quarter, we continued to execute our go-to-market strategy for Ren. Ren is a proven product. We trust to run our payment processing businesses and a product with many different use cases that we sell into the market. Our customers include banks, fintechs, and central bank infrastructures, providing them with a product that is adaptable to future technology changes and challenges. To complement the Ren product offering, we acquired Infinitum Holdings in Singapore in the first quarter. Infinitum is a market leader in providing risk management and payment authentication services such as 3-D Secure to prevent fraud in e-commerce or card-not-present transactions. In addition to this service, this acquisition also expands the addressable market of Ren to include online inquirers and merchants that require a modern cloud-native online payment gateway by integrating the Infinitum Gateway into the Ren acquiring host, which allows us to offer an end-to-end service. We are working on the technical integration and are excited about the expanded capabilities of these products for our customers and prospects. Now let's discuss our market wins during the first quarter. As mentioned in the previous quarter, our go-to-market strategy has been focused on Asia, Africa, and South America. In the first quarter, we signed a deal with Bank Raya, which is a digital bank subsidiary of BRI, the largest state-owned bank in Indonesia. And to remind you, these digital banks are setting up their payment stacks from scratch, and they are unencumbered with legacy technology. Accordingly, their preference is a modern technology like Ren over legacy payment applications. With this win, we added another digital bank in Asia. We launched and went live with two new customer relationships in the first quarter. First, we launched Solfin in Costa Rica, a program manager that issues cards to corporates and businesses for use cases like payroll and expense management. Second, we launched a debit card program in Ecuador for our first credit card union customer as both sponsor and issuer. We are excited about the future of Ren, and we will continue to enhance the product offering through continued development and possibly successful acquisitions like Infinitium. Ren allows us to help fintechs and banks modernize and adapt to the changes in the payment marketplace. Let's recap our EFT segment. What a quarter for EFT. What has driven our growth this quarter? First, it's the strength of our EFT segment. The strength is our Ren technology platform, as I've said before, Ren not only powers our EFT businesses, but it's a product that we are successfully selling in the market. Second, we continue to grow our Merchant Services business by nearly 40% compared to prior year. Third, we have expanded our ATMs into new countries. And lastly, we continue to optimize our ATM network, which improves our margins. As we conclude our discussions of EFT, let me remind you, we achieved record first quarter results. While we must wait and see what the tourism looks like for the summer, it's hard not to get excited about these results together with the positive travel data. Now let's discuss our epay segment activity for the quarter. Next slide, please. From our early beginnings of converting prepaid mobile scratch cards to digital pins to our diversification from prepaid mobile airtime distribution to processing a third-party branded content, epay has always been a pioneer in the rapidly changing payments landscape. Our success is made possible because epay is built on a modern technology platform. This platform allows us to remain nimble to changes in the payments environment, thereby allowing us to help our partners deliver their product in more meaningful and unique ways in new and existing markets around the world. This quarter, you can see our continued geographic expansion into two new exciting markets. First, we launched Google Play credits into Vietnam, a country where Android-based phones compose 65% of the market. With nearly 100 million people, Vietnam ranks in the top three of gaming revenue in Southeast Asia, and we believe it is significantly underserved. We also expanded our Google Play distribution into Japan, the third largest gaming market in the world. Most distribution in Japan is currently done through physical retail. We have identified a large digital partner to deliver Google Play credits electronically. These developments squarely establish us in two significant Asian markets this quarter. Also in the first quarter, we signed an agreement with SumUp, a global financial technology company headquartered in the U.K. that offers payment solutions to over 3.5 million merchants across 30 markets worldwide. SumUp will leverage epay's Conductor platform to provide closed-loop issuing and processing to their merchant base. Additionally, we launched Hediye Kart, epay's proprietary two-step gift card that provides more consumer choice across our retail network in Turkey. Both of these agreements were won because of epay's flexible and scalable technology platforms. Similar to how we productized our Ren platform, we have done the same with our state-of-the-art compliance solution, Skylight. This quarter, we launched Skylight for World Banknote Exchange, a full-service international currency exchange provider based in California. Skylight modernizes the often cumbersome process of monitoring and investigation of financial transactions for money services businesses. And finally, as many of you know, Paytm in India ran into a regulatory issue that impacted its ability to onboard new customers and operate its stored value wallet. Epay leveraged its regulatory licenses, network connections, and infrastructure to help Paytm resolve this issue in a timely fashion, thereby minimizing customer interruption. Epay's traditional business with Paytm involves only the distribution of Google Play credit. So as I'm sure you can appreciate, we are pleased that Paytm decided to expand our partnership to include prepaid mobile airtime, satellite TV recharges, and bill payments in addition to Google Play credit. This was a terrific job done by the epay team and reflects our commitment to helping a partner resolve a difficult situation by leveraging the extensive collection of assets that we've built over the last 20 years. As you can see, epay is more than just a content distribution business. It is a diverse dynamic business with growth opportunities in several new and existing markets, and we will continue to develop and promote new products and solutions that supplement our core offering while providing opportunities for continued growth into the future. While the results from the cutting edge investments can take some time to make an impact on the overall segment results, I remain confident in our ability to introduce new products and solutions into new and existing markets that will help epay continue to produce strong growth into the future. Now let's move on to Slide 15, and we'll talk about Money Transfer for a bit. As I begin my discussion on Money Transfer, I want to emphasize the importance of our network Dandelion as a key driver of growth in the Money Transfer segment. With access to 4.1 billion bank accounts and over 2 billion wallet accounts and over 580,000 physical locations to send or receive money, Dandelion is the most strategic cross-border network in the world to move money. But let me put the opportunity for our Money Transfer business in perspective. Despite our position as the second largest multichannel money transfer company, our share in the $800 billion remittance market remains modest, only about 7%. We have historically outpaced the market growth by about 3x, but with licenses in send markets that compose only about 60% of where that $800 billion originates. So we see opportunities to grow market share by entering new send markets that represent another 20% to 25% of the addressable market. The market is big, and we have our eyes on additional share gains in both our existing markets and new markets, but it's also shifting, and we believe we are positioned to benefit from that shift. We have consistently been able to outpace the market as a function of our strong value proposition and our ability to expand our product to the different channels that reach our customers. One market shift that I mentioned earlier is consumer preference for account deposits. We were able to grow our account deposit transactions 31% this quarter, in part, because our network can deliver real-time account deposit service in 98% of the markets where our customers have an account deposit needs. In the independent channel, where most of the total addressable markets still live, we are the global leader. And our superior value proposition enables us to consolidate its fragmentation. We have a thriving digital offering live in 24 countries, which continues to accelerate its growth while refining our customer experience. So as the market evolves, whether going to digital for sending, whether to bank accounts, wallets or cards for receiving money, whether for other use cases or in terms of population or migration shifts, we believe our Money Transfer segment is already well positioned to benefit from and actually lead into these market dynamics. Now let's talk about some of our marketplace wins for the quarter. During the quarter, we signed 22 new correspondent agreements across 19 countries and launched 16 new correspondents in 15 countries. Our team continues to win market share and execute our plan. In Bangladesh, we've launched an exciting partnership with Nagad Wallet recognized as the world's fastest-growing mobile financial service provider. Nagad has revolutionized cashless transactions, integrating them into the daily lives of many Bangladeshis with a solid user base of 85 million registered customers. In Malaysia, we launched a prepaid Ria MasterCard. This card demonstrates our commitment to localize our product to the needs of our customers. This innovative card seamlessly integrates with the Ria Wallet, offering new payroll channels for customers, employers. It facilitates direct payments into our wallet and opens up countless merchants for their spending needs. Our direct-to-consumer digital channel continues to grow nicely, expanding 23% and is becoming a larger share of our overall business, reaching 11% this quarter. As we concluded 2023 with momentum and optimism, the first quarter results for Money Transfer reinforced our excitement with double-digit growth in operating income and adjusted EBITDA. I am more optimistic than ever about our Money Transfer segment's potential to continue to outpace the market rate of growth and accumulate market share as we've done in the past, a trend that's been consistent since our acquisition of Ria in 2007. Now let's turn to the next slide, and we'll discuss our Dandelion network. As we told you, our network, which is also known as Dandelion, is at the core of the different value propositions we offer in the Money Transfer segment, along with Ria and Xe. Under the Dandelion brand, we offer our network and core payments capabilities through a Payment-as-a-Service model. By connecting with Dandelion via a single API, banks, fintechs, financial institutions, payment service providers, and tech platforms can immediately offer real-time cross-border payments to consumers and businesses globally. This is a compelling value proposition that is being very well received in the market. Through our Dandelion sending partners, we reached different customer segments than our traditional family remittance consumer. As we told you, we still have tons of room to grow in the remittance segment. But with Dandelion, we are also stepping into adjacent markets in the payment space that service those use cases that require cross-border settlement as part of their value proposition. From a market sizing perspective, we see Dandelion opening access to about a $15 trillion total addressable market or nearly 20 times the size of the remittance market. So clearly, the opportunity is enormous, and with our competitive DNA and superior product, I'm confident that we'll take market share as customers realize the benefits of our attractive value proposition. During the quarter, we signed an agreement with Wallex, a Singapore-based international payment service provider that serves SMEs, corporates, fintechs, and e-commerce companies offering cross-border payments, collections, virtual multicurrency accounts, and FX services. Further, several agreements we signed in 2023 launched and went live in this first quarter. One of the more significant was Ping Pong, one of the largest China-based cross-border digital payment providers. Ping Pong has relationships with more than 1 million sellers who have processed more than $90 billion in transaction volume. In addition, we launched an agreement with Sendwave/WorldRemit, one of the largest digital money transfer companies in the world with a customer base of more than 11 million customers. We are busy implementing all the deals that we've been telling you about. And as we continue to move into 2024, I see a very robust pipeline that I look forward to updating you on as we close these deals. To wrap up our Money Transfer segment, hopefully, you will see what I see. We are surrounded by growth opportunities and very well equipped and positioned to continue to go after. Finally, let's move on to Slide #17. As I wrap up my remarks, I want to express how excited I am about the growth our management team is achieving. Regardless of how you look at the results, this was a record first quarter for Euronet. To summarize, compared to the first quarter of last year, our Euronet team achieved adjusted EPS of $1.28, marking a 47% increase from the previous year, which is a record. Revenue reached $855 million, showing 9% growth year-over-year, another record. Our operating income was $65.8 million, up 44% from last year, another first-quarter record. Additionally, we achieved adjusted EBITDA of $110 million, reflecting 19% growth compared to last year. As you can see, this is another record for the first quarter. Now let’s revisit how we achieved these results and how we plan to keep growing. We accomplished this by leveraging our strengths as discussed today. We will continue to pursue strategic acquisitions like Infinitium to enhance our go-to-market strategy for Ren. We are also set to expand into new strategic markets, such as the Philippines, Morocco, and Mexico, among others. We plan to optimize our ATM network to improve profit margins. We are focusing on growing and expanding our existing businesses, such as our Merchant Services, which saw nearly 40% growth in EBITDA compared to the same quarter last year. Furthermore, we will keep developing product offerings like Skylight, Conductor, and epay, as well as expanding our outstanding Dandelion network, which encompasses over 4 billion bank accounts and 2 billion global wallets. As highlighted, the positive travel outlook from major airlines and airports, particularly the World Travel Organization, indicates that the spring and summer travel season in Europe is expected to surpass last year's figures. In closing, I want to reiterate what an impressive quarter this has been. We have sustained the momentum from the fourth quarter, and we remain optimistic about the year ahead. For 2024, we are expecting an earnings growth rate in the range of 10% to 15%, but we are committed to pushing this business for even better results. With that, we are happy to take questions. Please assist, Operator.

The first question I have today is coming from Andrew Schmidt of Citi Global Markets.

This is David on for Andrew Schmidt. Regarding the epay segment, you mentioned inflationary pressures impacting the margin. Where did you see the inflation specifically? And are there other offsets on a go-forward basis?

Yes. With the inflation, we've seen kind of around the globe, I would say we saw more of it in the European markets where obviously you may know that epay has more of its business. So from our standpoint, it was a little bit more concentrated in that part of the world. But again, I don't think we've seen a corner of the earth that's not been impacted by inflation following the impacts brought about by COVID. But your second part of the question, I didn't quite follow. So maybe you can ask that again.

Are there any ways to improve the margin moving forward to offset these inflationary impacts?

Yes. I mean a couple of things that most easily come into that is, and as we mentioned in here, geographical expansion and product expansion. And as we pointed out in here, some of our own proprietary products gives us the ability to have a little better margins than what we have on other products that we distribute for customers. So that's where I would see that we're going to have the ability to get back into that earnings growth mode, scale and geographical expansion, which will contribute to that scale, and then some additional product that has some enhanced margin on it.

Understood. And then within EFT, how much more runway is there to optimize the network?

Listen, with EFT, we're always calling our lower-performing ATMs and trying to put them in better locations. So you get a combination of that, that we do kind of every day. And then also as we add new ATMs into new markets, then you get that benefit as well. So there is some, certainly.

Our next question is coming from Mike Grondahl of Northland Capital Markets.

Two quick questions. Any update on surcharge or interchange? And then secondly, what were the total ATMs redeployed in 4Q and 1Q? And what effect do you think that had in the quarter? Can you monetize or quantify that?

There was about 2,000 across those 2 quarters, right? Yes, all together. So I don't have the exact numbers to quantify them. But if you think about it for a minute, if you're taking out an ATM that's losing money, you'll see your revenue go down, but you'll also see your profits go up. So that's kind of what's been happening over the last 2 quarters.

Got it. Then I don't know, what are you guys seeing with surcharge or interchange across?

Yes, you asked that question. There is a lot happening, but nothing has materialized yet. However, as we engage with regulators in various markets, we can say that the current situation will change over the next year. We just can't predict when these regulators will take action. Therefore, we will remain conservative and not factor this into our guidance at this moment. Nonetheless, you can expect to see both surcharges increase and interchange fees rise over the next year or two.

If you consider the impact of inflation on our business, you’ll notice that many other companies are experiencing similar challenges, especially banks. In contrast to the acquiring world, where transaction fees can increase, ATM transactions do not see such rises as inflation escalates; interchange fees stay constant. Consequently, banks are struggling with rising costs. Studies indicate that interchange does not adequately cover these expenses, leading banks to reconsider their ability to provide certain services while absorbing losses. Therefore, there’s ongoing discussion around this issue, and I believe we will eventually see some positive outcomes as momentum shifts in our favor.

Yes, just over the last two years, we've seen about five different examples in different countries. So we'll get more.

And our next question will be coming from Cris Kennedy of William Blair.

You gave a great update on these ATMs in the Philippines. Can you just talk about the opportunity to expand your tourist-focused ATMs outside of Europe?

That's certainly a significant focus for us. With a bit of luck this year, we might be able to enter 2, 3, or 4 more countries. We're aiming for more locations in Southeast Asia and a couple more in North Africa, as well as numerous tourist spots in nearly every country south of the United States. We recently activated our first country, Mexico, last quarter, and this is just the beginning of our expansion efforts. If you consider our extensive network of 35,000 tourist-focused ATMs in Europe, we currently have only a few thousand outside of Europe. Over the next 5 to 10 years, the numbers outside Europe could potentially match those in Europe. However, the reason we can't just rapidly expand everywhere is that in Europe, we benefited from the Payment Services Directive, which was a law enacted by the EU allowing a single regulator to oversee our expansion into all EU countries. We don't have that advantage when expanding globally, so we need to handle each country on a case-by-case basis. This involves challenges, such as obtaining permission from the Central Bank to operate an ATM as a nonbank. It takes time, but we have successfully navigated this process in 4 or 5 countries, and we aim to continue expanding further.

Great. And then just a follow-up on Ren. Most of the business has been outside of the U.S. Can you just talk about kind of the opportunities to work with U.S. financial institutions?

There are opportunities that we are currently discussing with several parties. However, a deal isn't finalized until it is signed and completed, so we won't make any announcements until that happens. We are actively pursuing these opportunities, and the success of Ren internationally is beginning to influence our operations in the U.S.

I would add that we have been very encouraged by the feedback from large banks regarding the quality of our technology and the challenges they face with their outdated systems. As Mike mentioned, we will wait to announce anything until it is officially signed, but we are very optimistic about the positive response we have received so far.

Yes. Those legacy payment stacks are very legacy. I mean, they're architected 20 to 40 years ago, that makes it a challenge for banks to deal with things like wallets and QR codes and all the modern banking challenges, account-based transactions and so forth. So the need is great.

And the next question is coming from Gus Gala of Monness, Crespi, Hardt & Company.

Could you help me understand the factors behind the significant 60% incremental EBITDA margin this quarter in EFT? That will be my first question, and I have a follow-up.

Well, the two main factors we discussed earlier are improved transactions and the streamlining of nonperforming ATMs. Consider that it costs us a certain amount to operate each ATM every month—let's say $1,000. We need enough transactions to cover that $1,000 before reaching breakeven. Every transaction beyond that contributes a 90% margin. The idea is that once we increase the transaction volume and cover our operational costs, the additional profits significantly contribute to our bottom line, which is what we are experiencing. So, it's essentially a combination of increased transactions and the removal of unprofitable ATMs.

Great. I appreciate the information. My next question is about Money Transfer. Could you discuss the evolution of the profitability in the digital segment? Is there an opportunity for further margin expansion by increasing the number of remittances that end in a digital receive? Does that make sense?

Yes. That's an interesting question. There are two parts to consider. When we discuss digital, it involves both sending and receiving money. For transactions where someone goes to a bank branch to collect cash, the bank receives approximately $3 to $3.50 from us to facilitate that transaction. In contrast, when we pay into a bank account or a wallet account, the cost is only about $0.50. Therefore, margins improve as a larger percentage of transactions are made digitally. On the other hand, while digital payouts are increasing by 31%, overall transaction growth is around 10%. This is a positive trend. Additionally, we are processing more transactions across more countries. Digital transactions tend to have slightly better margins than physical ones since I do not have to pay a portion of the customer's fee to an agent for digital transactions.

And our next question is coming from Charles Nabhan of Stephens.

I wanted to start with the Money Transfer segment, and I was hoping you could give us a little color around specifically what geographies are driving some of the strength in cross-border? And on the flip side, I know intra-U.S. has been weak for some time. But I'm wondering, are you seeing any deceleration or a slowdown in the decline within that business at all?

In response to that last question, definitely. Our decline is now around 10%, compared to its previous rate of about 20%. While it is decreasing at a slower pace, it also represents a smaller segment. It's important to note that the specific U.S. to U.S. service was known as Walmart to Walmart, allowing customers to bring cash to one Walmart and have it available at another. However, with the emergence of services like Venmo and Cash App, this has significantly impacted our Walmart to Walmart cash-to-cash operations. Consequently, this segment continues to decline. On a positive note, all our international business is growing, making the cash-to-cash segment a diminishing part of our overall operations.

The shift to alternative forms was really sped up during the COVID period when people couldn't visit customer service counters, access buildings, or shop in stores. This created a unique set of circumstances. However, as Mike mentioned, the rate of decline is slowing, and the overall amount of decline is noticeably less than before.

Got it. And regarding cross-border activities, can you share where you're seeing strengths geographically?

Yes. That's been pretty consistent and pretty strong in virtually all our geographies. We don't have a bad geography right now.

Got it. As a follow-up, I wanted to explore some of the initiatives you have within epay that Mike mentioned. Can you share details about specific products or what is on your product roadmap for that business? Additionally, how should we think about key performance indicators and the timing of contributions from your epay initiatives? You clearly have a strong history of repositioning that segment, and I would like to understand what’s next and what the future evolution of epay may look like.

Okay. Well, we have Kevin Caponecchi, our CEO of the epay segment. So I'll let this be the last question, but I'll let Kevin give a shot for the answer.

Yes. Historically, we have always provided what we called third-party content, whether it’s a mobile top-up or a Google Play credit. This is not our product; it belongs to another brand. Rick and Mike have detailed the transformation of epay over the past few years, during which we have continually adjusted our product mix. Looking ahead, our objective is to introduce more products, as Rick mentioned, that are epay branded and offer higher margins. These products will come in various forms. Additionally, we are planning to introduce more solutions. We mentioned Skylight and our Conductor platform, which are designed for both our retail partners and brand partners. Moving forward, we believe there will be a shift from third-party content towards products and solutions owned by epay that will yield higher margins.

All right. Thanks, everybody. We'll look forward to talking to you in about 90 days. Thank you.

This concludes today's conference call. Thank you all for joining. You may disconnect.