Earnings Call Transcript - EEFT Q4 2023

Operator, Operator

Greetings, and welcome to the Euronet Worldwide Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. 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 begin.

Scott Claassen, General Counsel

Thank you. Good morning, everyone, and welcome to Euronet's fourth quarter and full year 2023 earnings conference call. On this 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're making today. Statements made on this call that concern Euronet's follow-up or its management's intentions, expectations or predictions of future performance are forward-looking statements. Euronet's actual results may vary 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. Except as may be required by law, Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide an update. You should avoid placing undue reliance on these 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.

Rick Weller, CFO

Thank you, Scott. Good morning, and I would like to thank everyone for joining us today. I will begin my comments on slide five. For the fourth quarter, we produced revenue of $957 million, operating income of $97 million, adjusted operating income of $100 million, and adjusted EBITDA of $147 million. These results were made possible by contributions from all three segments. Adjusted EPS was $1.88 per share compared to $1.39 in the fourth quarter of 2022 and ahead of the $1.75 guidance we provided for the quarter. We exceeded our guidance by better than expected performance across the business, good expense management, lower than expected tax rates, and improved FX rates against the U.S. dollar. We'd also like to call out that adjusted operating income, adjusted EBITDA, and adjusted EPS excluded a $2.5 million non-cash purchase accounting charge. Next slide, please. Slide six shows our results on an as-reported basis. On a year-over-year basis, we saw our most significant currencies increase at mid-single to low-double-digit rates, with a few exceptions, like the Egyptian pound, which declined 26%, and the Pakistan rupee, which declined 21%. To normalize the impacts of these currency changes, we have presented our results adjusted for currency on the next slide. Here on slide seven, we show our results adjusted for currency fluctuations. Before I jump into each segment, I want to reflect on the strength of our three segments, which produced another record consolidated revenue quarter and strong earnings growth across all three segments. EFT revenue grew 9%, while adjusted operating income grew 53%, and adjusted EBITDA grew 21%. This strong growth was the result of an increase in international withdrawal transactions, combined with the continued strong performance from our merchants acquiring business, where profits have doubled over the past two years. EFT margins improved year-over-year due to an increase in high-value cross-border transactions. E-Pay revenue grew 7%, while adjusted operating income and adjusted EBITDA each grew 3% year-over-year. This increase is primarily from continued growth in the core E-Pay business, including strong growth in digital channels, partially offset by fewer promotional campaigns from our retail partners in the fourth quarter compared with the prior year. Excluding promotional activity, our E-Pay business revenue for the fourth quarter grew 8%, and the operating income and adjusted EBITDA each grew 12% compared to the fourth quarter of 2022, highlighting the continued strength of our core E-Pay business. E-Pay margins came in a bit due to the mix of higher-value promotional transactions in the fourth quarter of last year. Money transfer, fourth quarter revenue, adjusted operating income, and adjusted EBITDA grew 7%, 27%, and 20% respectively. This growth was the result of 8% growth in U.S. outbound transactions, 10% growth in international originated money transfers, which include 7% growth from Americas outside the U.S., 8% growth in transfers initiated largely in Europe, 20% growth in transfers initiated in the Middle East and Asia, and 17% growth in XE transactions, partially offset by a 13% decline in intra-U.S. business. These transaction growth rates include 20% growth in direct-to-consumer digital transactions. Adjusted operating income and adjusted EBITDA growth also included effective expense management, producing the best operating margin in the past three years. In conclusion, we are pleased to see growth across all segments, together with generally improving profit margins. Our fourth quarter growth trajectory and margin results position us nicely for a robust launch of 2024. With that, let's go to slide 8 to make a few comments about the balance sheet. Here on slide 8, we present our year-end balance sheet compared to the prior quarter. As you can see, we ended the fourth quarter with more than $1.2 billion in unrestricted cash and debt of approximately $1.9 billion. The increase in unrestricted cash and cash equivalents is mainly due to cash generated from operations of $98 million, the return of $75 million in cash from our ATMs following the peak travel season, and working capital fluctuations, partially offset by $54 million in share repurchases and the issuance of a $60 million convertible note receivable. The increase in debt was largely due to borrowing on the revolving credit facility to facilitate payments across several currencies over the year end. These borrowings were largely repaid immediately following year end. Now let's go to slide 10 for a few comments on the full year. For the full year 2023, we delivered record annual consolidated revenue of $3.7 billion, adjusted operating income of $432 million, and adjusted EBITDA of $619 million. Adjusted EPS for the full year was $7.46, a 15% increase compared to the $6.51 for 2022. The full year results are largely in line with the fourth quarter, so I won't go through all the details again. However, I think it bears repeating that we are extremely pleased with the full year record revenue and adjusted earnings per share, driven by contributions from all three segments. As we reflect on 2023, we are pleased with the resilience of all three segments. In EFT, we saw transactions improve in the fourth quarter and even exceed travel trends. And our merchant acquiring business acquired in 2022 continued to exceed expectations. For e-Pay, we produced continued growth in our core business, especially in digital channels with more focus on expansion of our own products. In money transfer, we closed the year with another quarter of double-digit operating margin and continued to expand both our physical and digital networks. We are also continuing to build momentum in our digital initiatives as we sign more REN and dandelion deals. As we explained in the third quarter, we expect our 2024 adjusted EPS growth to be in the 10% to 15% range. And while we feel confident with that range, you can rest assured that we are working hard to deliver earnings above the range. It has been another great year for Euronet, and with that, I'll turn it over to Mike. Slide 15, please.

Michael Brown, Chairman and CEO

Thanks, Rick, and thank you, everybody, for joining us today. I'll begin my comments on slide 15 as Rick said. Well, let me just start out and say, wow, what a quarter. We delivered fourth quarter earnings ahead of our expectations, which you may recall was nicely ahead of the consensus expectations back in October. These results were driven by better than expected improvement in international cash withdrawals, solid growth in our core e-Pay business, and diligent expense management in both EFT and money transfer. The record fourth quarter results are a true testament to the product and geographic diversity of our business, together with the attention of our management around the world. As we shared with you in the third quarter, nearly two-thirds of our earnings are generated from non-ATM-related businesses. Throughout our nearly 30-year history, we have focused on developing a network of access points, products, and solutions that are secure, easy to use, and enable customers to send and receive payments and access their money using their preferred methods. This unique combination of our network, our product portfolio, technical solutions, and geographic footprint differentiates us from our competition and allows us to weather even the most challenging economic shifts. As I reflect on 2023 and look forward to 2024, I do so with great optimism. Back last summer, the market was ready to write the obituary on cash and, in turn, the entire EFT segment of our business. We believe the recovery of international card usage on our ATMs in the latter part of the third quarter and its continuation into the fourth quarter, together with the third-party published data, has put that subject to rest. And I can look forward to growth across all three segments in 2024 because of the momentum we gained in the fourth quarter, along with several strong drivers that are in place, which include inflationary pressures easing while wages growing as we look forward to the 2024 travel season. We see opportunities for pricing increases, particularly in the EFT segment. We have plans for expansion into new markets in all three segments, and we will introduce new products and technology solutions to further diversify the business this year. You will see examples of each of these as we go through the fourth quarter highlights. Let's go to slide number 16, and I will update you on our international card trends in EFT. In the graph on the left, you can see that we have updated the slide we presented during our third quarter earnings call with the update of international cards used on our ATMs versus Euro control data through the end of the year. At the end of the second quarter, the market's conclusion was clear that cash was dead, and therefore so was our growth potential. More than a bit of an overreaction, wouldn't you agree? At this time, we believe that our data, together with the research data coming out of Europe, showed that the shift was related to economic pressure on consumer spending in Europe rather than an abrupt shift from cash to cards. I'd like to remind you that over 80% of our international transactions are from Europeans traveling within Europe, so economic pressure on European customers is very, very relevant. During the third quarter, we saw the realignment between Euro control travel data and the international card usage on our machines, which continued to improve as we moved through the fourth quarter. In fact, our adjusted operating income grew 53% in the fourth quarter over the prior year, and the main reason, international transaction growth. We know that the most popular question that we will be asked today is, what do we expect for 2024's travel spend? And while it is difficult to predict the future exactly, we have some research to try to get a feel for what to expect on the economic data which is available. In the graph on the right, you can see that in late 2022 or early 2023, inflation peaked in Europe, largely in line with higher fuel prices driven by the war in Ukraine, while salary per employee significantly lagged that inflation. This resulted in less discretionary income when traveling. The graph also shows that in 2024, it is expected that wages will catch up to and pass inflation, which will ease the pressure on consumer spending. Additionally, in their most recent overview, Euro control expects that flights will reach 98% of pre-COVID levels in 2024, another positive indicator of improving trends. Finally, and perhaps most importantly, in an update to the consumer behavior survey that we showed you in the second quarter of last year, 71% of Europeans surveyed today say that they will increase or maintain their travel budget going into 2024. This further supports our optimism for the upcoming travel season, since this is the opposite of the same survey done in June of last year, where two-thirds of the respondents said they were going to decrease their travel spend during 2023. At the beginning of last year, we were facing inflation led by rising energy costs, increased living expenses, and travel costs were on the rise, while wage increases lagged. All indicators now are pointing to easing inflation, lower travel costs, and improving wage trends, which together with our new market expansion and product diversification, really drive our optimistic outlook for 2024. Now let's go on to slide 17, and we'll talk more about the specific EFT highlights. Now that we've discussed these macro-economic travel trends, let's talk about how we've continued to grow and expand our EFT business. Our EFT business rebounded from a third quarter where we saw a 15% year-over-year decline in operating income, to an increase of 53% in the fourth quarter when compared to the prior year. The key drivers of the rebound were an increase in our most profitable international transactions compared to the prior-year, an increase in merchant acquiring of 15% compared to Q4 2022, and continued expansion into new markets. The growth is made possible by our continued focus on diversifying our business by expanding our market presence and product portfolio. This quarter we were able to achieve this by the launch of a new independent ATM network in Mexico, our first ATM network in Latin America. We also expanded into Belgium, our 32nd market in Europe. With these two additions, we now have Euronet ATM networks in 38 countries on three continents. Additionally, we signed an agreement with Gotime Bank to provide ATM managed services, one of the largest and the fastest growing digital banks in the Philippines. Moreover, you may recall that during the second quarter, we signed a cardless cash withdrawal agreement with the Bank of the Philippine Islands that we have now launched. This provides more convenient and secure access to cash for our customers in the Philippines. Finally, building upon our successful ATM deposit network in Poland, which last year processed $7 billion in deposits, we signed a network participation agreement with Raiffeisen Bank in Romania. This network provides additional flexibility for both merchants and consumers to convert physical cash to digital money. We enter 2024 with the momentum of the last half of 2023 along with new opportunities, recent improvements in the domestic surcharge or interchange in Poland, Romania, Denmark, and the Netherlands. Growth into recently entered new markets, outsourcing opportunities that we see all over the place, and improving travel trends; hopefully, you will recognize the momentum that produced these record fourth-quarter results and more importantly, you can feel as I do that the continuation of this momentum going into 2024 and the optimism that brings to us. And let's not forget, as we have said many times before, all of this is made possible by utilizing the power of our REN platform. Next slide, please. Now, let's discuss our ATM estate. As we discussed in the third quarter with travel at over 90% of 2019 levels, we took a hard look at the profitability of each of our ATMs. This resulted in the removal of approximately 1,300 ATMs in the fourth quarter. Throughout 2024, we expect to see increased profitability and cost savings as we remove and reallocate unprofitable ATM locations. We expect to see a temporary net reduction in our installed ATMs which will result in slightly less revenue, but an increase in profits and margins. As we move into 2024, we will continue to remove unprofitable ATMs, many of which will be redeployed into new profitable locations. As we build on the momentum of the fourth quarter, our plan is to deploy between 3,000 and 3,500 new ATMs for 2024. So, to make it simple, we expect the net impact of this ATM optimization will be improved profit margins for EFT in 2024. Now, let's discuss e-Pay. In the market, e-Pay is well known as a leading distributor of mobile top-up and prepaid branded content. However, for those of you that have been following e-Pay for a while, you've heard us discuss the significant investment we're making to expand our business offering. By leveraging our world-class technology, we've become a leading solutions provider to our existing retail and content partners around the world. More specifically, our solutions enable customers to purchase branded services they enjoy in the manner that's most convenient to them. For example, this quarter, we launched Google Workspace at Curry's, a large UK electronics retailer. Google is leveraging e-Pay's issuing platform called Conductor, which provides an end-to-end service ranging from balance management, transaction processing, lifecycle management, and distribution. The sales pipeline for our issuing service is growing, and we're excited about its potential. Additionally, in Brazil, we launched an online gift card marketplace for Nubank, the largest Fintech bank in Latin America. We also introduced a similar offering for the popular Google Pay Wallet in India. These are demanding partners, and these launches highlight the global scalability and versatility of our technology. We also continue to expand our core distribution business into new markets, which I would like to reiterate grew at a healthy double-digit rate. During the quarter, we signed an agreement with Google Play to launch prepaid credits into Vietnam, a new high-potential market with 65% penetration of Android-based phones. With a population of nearly 100 million people, Vietnam is positioned as one of the top three South Asian gaming markets in terms of revenue and ranked second in terms of gamer population size. I am extremely proud of the technology and product advancement our e-Pay team has created. They continue to stay ahead of the market in order to provide our brand and retail partners competitive advantages in the ever-changing payment landscape. And I am excited to take this momentum into 2024. With that, let's go to money transfer. Slide number 20. As I mentioned earlier, we had contributions from all three segments. Money transfer's contribution included back-to-back quarters of operating income and adjusted EBITDA growth of 20% or better. We accomplished this strong growth in profit while we continue to invest in our network, which now has expanded to an impressive 4.1 billion bank accounts and over 2 billion wallet accounts with 580,000 physical locations across 198 countries and territories. For 2023, we launched 97 correspondent banks and payment partners, 43% more than we activated in the previous year. In the fourth quarter alone, we launched 29 new correspondents in 25 countries, which was our best quarter of the year, which now represents, which gives us strong momentum as we enter 2024. The bottom line is that our network is the most strategic, real-time payments network in the world in terms of its geographic reach and how it encourages financial participation by enabling people to pay how they want to pay using cash or digital options and allows their beneficiary to receive money how they want to, either cash or digital. Our ability to expand the network over the years has led to our growth and it continues to unlock growth opportunities not only for our traditional money transfer business, but also for our dandelion customers. For example, while account deposit growth rates have surpassed cash pickup for many years, principal transfer to digital accounts represented only 20% of our total volume by the end of 2019 compared to 39% in the last quarter. That's basically doubling. And the growth rates for account deposit accelerated sharply in 2023 at a 34% rate versus 17% in 2022, another doubling. While our bank deposit reach extends to countries comprising nearly 95% of the world's GDP, we've spent the last four years expanding the product offerings of our network by extending our real-time account deposit reach to more than 60% of the world's GDP and adding consumer and business payment capabilities to over 92% of the world's GDP. As I mentioned last quarter, we spent some effort and money revising our marketing strategy to position ourselves for substantial customer acquisition and more efficient deployment of marketing dollars. These efforts have led to an acceleration in our digital growth. While it's still relatively early in this journey, I can report that we've seen three months of record digital customer acquisitions through January, each month surpassing the previous month. We've also seen improvements in customer satisfaction and retention. And perhaps most importantly, our digital channel is profitable and with expanding bottom-line margins gives us room to pivot into investment opportunities as they arise. When I think about the opportunities ahead for RIA and XE, perhaps none is greater than geographic expansion. RIA and XE have licenses to send money in markets that represent approximately 63% of the global market. Geographic expansion is something our teams evaluate constantly considering both organic and M&A and other avenues. We have eyes on additional markets that over time would expand our addressable market by 38% to 86% of the global send market. While many of these markets are not imminent, expansion into several of these markets is underway by actionable plans that are in flight. As we enter 2024, I'm excited about our money transfer growth prospects and we expect to continue to outpace market growth. We have steadily taken market share from the competition over the years. And given the momentum built coming out of 2023, I'm optimistic as ever that our money transfer segment will continue to elevate itself to the top of the list. And now let's turn to the next slide to discuss another money transfer business, our dandelion network. Throughout the quarter, our dandelion customers continue to harness the power of our money transfer network. The strong growth is attributed to our network's ongoing enhancement, particularly in terms of mobile wallet coverage, which now spans, as I told you before, 2 billion wallet accounts. As you can see on this slide, number 21, this fourth quarter was our most successful quarter to date, signing new customers. These signings were made possible because of the strength of our network. As I remind everyone, dandelion is a network as a service. We signed several key agreements this quarter, including an exciting agreement with Commonwealth Bank in Australia. Commonwealth is the largest bank in Australia with $831 billion in assets and 17 million customers. Commonwealth was attracted to dandelion's value proposition due to a desire to compete more effectively for the outbound payments flow from Australia. Another impressive agreement signed during the quarter is for Ping Pong, one of the first and the largest China-based cross-border digital payment providers with transaction volume of $18 billion. Ping Pong has partnered with 100 plus major e-commerce platforms, website operators, and cross-border ecosystem service providers, which include Amazon, eBay, Walmart, Wish, Shopee, Shopify, and Rakuten. With these agreements, dandelion continues to bolster our global presence and real-time digital payment capabilities. Let's go to the next slide and I'll briefly give you an update on our REN development. As you all know, REN is the technology backbone that powers diverse businesses at Euronet. It is proven to support different use cases, whether it is routing cash withdrawal transactions to the card scheme, issuing prepaid cards for global brand or routing remittance transactions through the real-time payment rails of a country into a consumer's bank account. We believe REN is well-positioned to allow banks, Fintechs, and governments to keep pace with the ever-changing environment across the world of card-based and now account-based payments. We started our go-to-market strategy in the emerging markets of Asia and Africa, where we secured marquee wins with players like Standard Charter Bank, Grab Bank of the Philippine Islands, and we are now expanding our presence into these accounts by supporting new use cases and new market expansions of these clients. As an example, we added additional functionality to the Bank of the Philippine Islands real-time payments implementation by launching person-to-merchant services on the bank's wallet and mobile banking app. Additionally, in Malaysia, we launched Grab's Digital Bank, their second digital banking market after Singapore. Grab, as you may know, is Asia's leading super app, providing everyday services like mobility, deliveries, and financial services. As part of their financial services vertical, they launched digital banks in these two countries. Their goal is to convert their super app users to banking clients by accepting deposits and making loans. Grab selected REN as their SaaS-based issuer processing platform for both markets. Additionally, following a very successful first phase of the project with CIMO and Mozambique, we are expanding our relationship with them by building a national QR code system to power daily micropayments. As part of the geographic expansion of REN into new markets, we have entered into the Americas region and continue to see strong interest in our REN technology from banks and processors in South America as evidenced by the deals that we have announced and signed in the previous quarter. Initial interactions with prospects in the United States are also very positive. We are excited about the modern cloud-native technology that we are offering to banks and financial institutions in the U.S. to help them modernize and keep pace with the rapidly changing payments landscape. Now let's go on to slide 23 to wrap up the quarter. As I conclude my remarks, I am proud of Euronet's results for the fourth quarter in the full year. What a quarter. Adjusted EPS of $1.88, a 35% increase over the prior year fourth quarter. And here's why I'm optimistic about 2024. First, delivering a momentum-driving record fourth quarter result across all financial metrics. Second, the inflationary pressures which impacted EFT in 2022 and 2023 appear to be easing, which together with improving wages will increase discretionary travel spend. Third, we continue to diversify our business as about two-thirds of our adjusted EBITDA comes from outside ATM transactions. Fourth, e-Pay is becoming a solutions provider delivering double-digit operating income and adjusted EBITDA growth in its core business. Next, money transfer enters 2024, finishing 2023 with back-to-back quarters of operating income and adjusted EBITDA growth at or above 20%. Finally, all segments of our business are driving growth, both revenue and in profits. These are tangible reasons for optimism as we launch 2024. So how does this influence our expectations for 2024? As we mentioned in the third quarter, we will provide full-year earnings guidance rather than quarterly guidance. For 2024, we expect adjusted EPS and earnings growth in the 10% to 15% range. But as Rick said, we are driving the business to produce even better results than that. With that, we'd be happy to take questions. Operator, will you please assist?

Operator, Operator

Thank you. And at this time, we'll conduct the question-and-answer session. Our first question comes from the line of Pete Heckmann from D.A. Davidson. Your line is open.

Pete Heckmann, Analyst

Good morning, everyone. Thank you for your questions. Regarding your review of the ATM footprint, you mentioned a target of 3,000 to 3,500 deployments in 2024. What is your estimate for the net number of additional units? Does that include units that are taken out and then redeployed? I'm trying to understand how many...

Michael Brown, Chairman and CEO

We anticipate identifying between 3,000 and 3,500 new locations for ATM deployment. Additionally, we will continue to assess our network. It's important to note that we have only recently observed a return to the travel volume we experienced in 2019. This made us cautious about removing a large number of ATMs prior to understanding the current traveler presence and evaluating the viability of the sites in light of changes in travel patterns. In the fourth quarter, we removed just over 1,000 ATMs, and we expect to eliminate another 1,000 to 2,000 this year. However, in addition to these reductions, we will proceed with the placement of 3,000 to 3,500 new ATMs.

Pete Heckmann, Analyst

I wanted to ask about the situation with Paytm in India. What is your perspective on that? How exposed are you to Paytm? If regulators were to intervene, do you think consumers would simply switch to other global wallet options?

Michael Brown, Chairman and CEO

That's exactly what would happen, if it happened, but I do kind of find it hard to believe, they're so large that they would be shut down. But the deal is we have every single wallet in India. And so you just see the volumes move across.

Pete Heckmann, Analyst

Makes sense. All right.

Operator, Operator

Our next question will come from the line of Darrin Peller from Wolfe Research. Your line is open.

Darrin Peller, Analyst

Hey, guys. You know, travel seems to be driving still about a third of EBITDA when we look at the numbers. And Mike, when looking out a few years, this is a little bit of a bigger picture question, but just considering the growth drivers, many of which you went through are a little less cyclical or less tied to travel perhaps. If you could just give us a sense of what you would expect the mix to look like? When you think of EFT also growing still or resuming growth at a rate that's pretty healthy, what kind of contribution do you think the business is going to see from travel-related in a couple of years? And to the best of your knowledge, I mean, EFT is also going to grow well, I would imagine. So maybe if you factor that into?

Michael Brown, Chairman and CEO

Well, it's hard to know which one of our segments will grow the fastest. And once you get to steady state. But what is real is that this year, we're going to finally get to the point where we kind of got our full legs underneath this with respect to travel and spend. And so once that's there, I mean, you just look at the opportunities we have in EFT, it will be a fast grower. And so the three divisions and the other opportunities with REN and Dandelion are all fighting to try to keep up. I mean it's going to be a healthy race to see who grows the fastest, but we're really excited about every one of our endeavors.

Rick Weller, CFO

Darrin, I would add that if you look at our history, all of our businesses have consistent, very good, strong growth rates, either at or near double-digit growth rates. We don't have a bias for growth. We have a culture for growth. And so when we take a look at what the opportunities are around the world, we see continued expansion for all three of our segments. So while we might see some different rates of growth out of each of the segments as we execute our plans, we've got a very consistent history of double-digit or near double-digit growth from all three segments. And we see that the opportunities to continue that around the world remain as attractive, if not more attractive as we go forward.

Darrin Peller, Analyst

Okay. I'm just trying to figure out the cyclicality of the business going How do we approach this?.

Michael Brown, Chairman and CEO

Travel patterns tend to be cyclical, predominantly during Q2 and Q3. However, with the resurgence in travel, I don't anticipate ongoing cyclicality. Each of our three segments has experienced strong growth in the past, and we're excited about our current position. In 2019, 58% of our EBITDA came from the EFT segment, primarily from ATMs. Now that segment accounts for just a third of our business, while our other segments have seen significant growth over the years. This diversification gives us optimism for the future.

Darrin Peller, Analyst

Mike, what percentage of your new ATM deployments are going to be outside of Europe? And I mean, I know we saw the Belgium and Mexico additions also if you can help us size impacts or deployment timelines there?

Michael Brown, Chairman and CEO

Yes, probably half or so.

Darrin Peller, Analyst

Okay. Good. So it truly is, I mean, getting a lot more diverse. And a lot of that is Asia also, the APAC areas you had started?

Michael Brown, Chairman and CEO

We're expanding into regions like Asia, North Africa, and now into neighboring countries. I want to highlight that the ATMs we are installing outside of Europe tend to be about twice as profitable as those within Europe. The main reason for this is that in Europe, card acceptance is widespread, allowing people to use cards for most transactions. While some cash is needed for small expenses, it's not a primary method of payment. However, in the other markets, cash is the dominant form of payment. For example, trying to enjoy lunch using a card is often not an option; you need to use cash. This is why our ATMs in these regions are experiencing significantly higher usage.

Operator, Operator

Our next question will come from the line of Andrew Jeffrey from Truist Securities. Your line is open.

Andrew Jeffrey, Analyst

Hi. Good morning, guys. Appreciate you taking the question. Mike, I wanted to ask you about Money Transfer. That's pretty impressive agent growth. So I guess just starting out, is Ria Euronet now the largest agent network in the world, just want to kind of level set?

Michael Brown, Chairman and CEO

We believe so, yes. When we consider growth, rather than focusing solely on agents, we can also talk about the growth in points, as we have agents on the sending side and others on the receiving side. Additionally, we have payout options that include banks and large retailers in various markets. Now, we have directly accessible bank accounts, allowing funds to be deposited without requiring a physical visit, and we have 4 billion of those accounts. A new distribution channel we’ve tapped into is wallets, which are widely used in the developing world. This enables us to deposit funds directly into 2 billion wallets, giving us a competitive edge that others do not possess.

Andrew Jeffrey, Analyst

Yes. And that sort of dovetails on my next question, which is your digital growth strategy and the success you seem to be having, is the 20% digital transaction growth at baseline from which you'd expect to grow such that you're going to see or we should expect segment revenue growth to accelerate over time? Or do you feel pretty good about sort of generally you are around 10%, high single digits?

Michael Brown, Chairman and CEO

I think we're going to get growth out of both of them. I don't know which one is going to grow the fastest. Well, right now, the digital is growing faster and they'll probably continue to do so. And I think one of the reasons that we're having really good success with our digital growth strategy is because of our digital payout. We told you those numbers of how well we're paying out into bank accounts and wallets.

Andrew Jeffrey, Analyst

Okay. If I could add one more question regarding REN, do you believe that the accelerating shift toward open banking and real-time payments globally will reach a tipping point where REN's growth will accelerate? Or do you expect it to experience a more steady or linear growth?

Michael Brown, Chairman and CEO

No, no, no. We've already started the upward trend because we introduced a new technology three years ago that no one else had. We needed to bring in early adopters, which we found primarily in Asia, where banks were more innovative and felt threatened by digital wallets. They aimed to stay relevant to their customers, making them the first adopters. Once a few banks signed on, more followed. The reality is that their legacy systems can't handle the advanced solutions that customers are seeking. In other words, their legacy platforms don't talk wallet. And so once we established ourselves in Asia, then we took that same product, and we went to South America, and we've been going now to North America as well. And finally, things are happening. I mean you just last July, as you know, FedNow was launched. It was an RTP network in the United States. It's running roughly 10 years behind India. But finally, we're getting our act together. So more and more people are going to be wanting to do account-based real-time payments. And this idea of just card-based payments is going to be very fast day and 10 years from now.

Operator, Operator

Our next question will come from the line of Charles Nabhan from Stephens. Your line is open.

Charles Nabhan, Analyst

Good morning, and thank you for taking my question. I wanted to double-click on the non-ATM piece of EFT. If I look at one of your disclosures, it looks like 13% of EBITDA is driven by that non-ATM piece. And if I recall, roughly 20% to 25% of revenue within that segment is generated through those sources. So I guess, first, my question is if you could speak to any trends you're seeing within Piraeus. I know you talked about some expansion last quarter. And then secondly, if my math is correct, I'm coming up with a margin somewhere north of 30 and I wanted to confirm my math is at least somewhat in the ballpark because if I'm thinking about it correctly, that could be a nice tailwind to margins with an EFT going forward?

Michael Brown, Chairman and CEO

We have several developments taking place within EFT. The main components include our independent ATM deployment and the outsourcing deals we are engaged in, both of which fall under the ATM category. Additionally, there's the REN and acquiring segment. Acquiring typically has margins of about 25%. When we implement REN, it could yield margins anywhere between 60% to 80%, depending on various factors. The ATMs themselves have previously achieved margins of up to 30% or 33%, though they are currently a bit lower due to reduced productivity compared to 2019 before the travel crisis, but we expect that to improve. Overall, I believe we could aim for margins close to 30%, although if our business growth in acquiring is slower, it might hold the margins down to around 25%. Rick has reviewed all the numbers, so he will provide more precise details on that.

Rick Weller, CFO

Yes, your number is roughly accurate. It is approaching 30% for the year. Our best margin years were back in 2019. As we observe the travel recovery continuing into 2024, and considering the comments made about pricing opportunities related to interchange and potential surcharges, we've seen some results and announcements in 2023. We expect more in 2024, which will support continued margin expansion in that business.

Charles Nabhan, Analyst

It's great to see the margin expansion in money transfer, especially with how you're expanding the network. I would like to understand what specifically is driving that expansion. Is it due to a shift in the business mix, or is it simply the scale of your existing network? Any insights on that would be appreciated.

Michael Brown, Chairman and CEO

As we continue to grow, we achieve about a 35% incremental EBITDA margin on our next transaction. As we increase our volume, this will raise our average. Additionally, we are implementing a new strategy for our digital marketing, which is enhancing its effectiveness. Overall, all these factors combined are contributing to our results.

Operator, Operator

Our next question will come from the line of Mike Grondahl from Northland Capital Securities. Your line is open.

Mike Grondahl, Analyst

Good morning. First, you mentioned redeploying 1,300 ATMs in the fourth quarter and about 1,500 at the midpoint in 2024. Could you provide some insight on whether all of these are unprofitable or if it's just the bottom 5% that you're referring to? I'm looking for some clarity on the cutoff. Secondly, for Rick, could you explain the impact of foreign exchange and the tax rate in relation to your $1.75 guidance for the quarter?

Rick Weller, CFO

Well, let's see for the ATMs, which essentially what we're seeing is these are ATMs that are not meeting our return expectations, okay? And they range from nearly breakeven to losing money. So at the end of the day, if we've got an ATM that's already on site and it's producing an incremental profit, we're not going to be motivated to want to take it out. But if it's not producing profit, then it makes sense for us to remove it. And as Mike said, over the period that we've kind of been looking to see the recovery of travel from COVID, we were a little less aggressive on taking out a machine because we didn't really have a good visibility as to what that exact traffic would look like. So we think that we're approaching that, and it just makes good management sense. But net-net, these are non-performing machines as opposed to let's call them light-performing machines. And then with respect to the benefit from tax or FX, we exceeded our earnings guidance by about, what, $0.13 a share. I would tell you, roughly half of that was from tax and then the other half was kind of split evenly between FX and operations.

Operator, Operator

Our next question will come from the line of Ken Suchoski from Autonomous Research. Your line is open.

Kenneth Suchoski, Analyst

Hey, good morning. Thanks for taking the question. I just wanted to ask about the incremental EBIT margins in the EFT segment. I mean, how should we think about those just given the mix of business and how that's changing, 2023, I think, had a kind of a mid-teens incremental EBIT margin versus something much higher historically, you have the non-ATM bucket scaling in EFT. So some moving parts there. So any way to think about sort of the incremental margins in that segment moving forward would be very helpful?

Rick Weller, CFO

Yes. As I mentioned earlier, we expect that they will continue to improve. As we stated last quarter, we are holding back on providing a lot of specific details. Hopefully, you can understand that achieving earnings growth of over 30 percent year-over-year this quarter, along with a full-year growth of 15 percent, means we will experience fluctuations across the segments. However, we consistently deliver strong double-digit growth. More specifically in the EFT segment, we will continue to see margins expand. This is primarily due to the recovery in travel, which will lead to more high-margin transactions. Additionally, as Mike mentioned earlier, expanding outside of European markets where we have seen positive responses and returns on ATMs should be beneficial.

Kenneth Suchoski, Analyst

Yes. Okay. That's helpful, Rick. And for my follow-up, I just want to ask about money transfer. You mentioned an increase in marketing efforts in certain geographies. I was just wondering if you could talk about what you're seeing from a competitive standpoint because some of your competitors are being aggressive with promotional activity in the market. And I was hoping you could talk about how retention rates and customer acquisition costs are trending. I think you mentioned some strong digital customer acquisition in recent months. So any thoughts on customer acquisition cost trends for new customers would be helpful.

Michael Brown, Chairman and CEO

Okay. So with respect to money transfer, I mean, you got to understand, there are probably 10,000 money transfer companies in the world, okay? And you know the names of a handful, okay? So as an industry, this is a bare-knuckle street fight every single day, maybe a nice side. So competition really hasn't changed. There are some of our competitors who say they're going to be more aggressive here or there. We've seen little instances of that in one market or another for shorter periods of time. We don't see, in general, it's much more competitive than it ever was. We do see, as I mentioned in previous calls, that just the inflationary pressures that we've seen in the United States and we see abroad have actually brought down the average amount sent per transaction. And remember, we make an FX spread on this. If our average FX spread is 0.6% and our average spend amount is down by about $20, that costs us $0.12 per transaction in pure margin. This pressure isn't necessarily due to competitiveness, but rather the reality that many immigrants with mostly blue-collar jobs are working hard. Gas for their trucks costs more than it did a year ago, groceries have increased in price, and they've just been sending a little less back home each month, though they still maintain regular monthly remittances. That's the situation we've observed.

Operator, Operator

And our next question will come from the line of Andrew Schmidt from Citi Global Market. The floor is open.

Unidentified Analyst, Analyst

Hey, good morning. Thanks for squeezing me in. This is David Wielizinski on for Andrew Schmidt. What drove the reaccelerating money transfer transaction trends quarter-to-quarter in APAC and Middle East originated transfers?

Michael Brown, Chairman and CEO

I think it's just the general economics there, and that is probably the main factor.

Rick Weller, CFO

In the third quarter, we mentioned some unusual foreign exchange movements in Pakistan that caused transactions to shift from above-the-table to below-the-table in the black market. We observed that this situation somewhat balanced itself out, which provided a small relief. However, as Mike noted, it's primarily typical marketing activity in that region. Pakistan was the only significant point of concern in this regard.

Unidentified Analyst, Analyst

If I could just squeeze in a follow-up here. Regarding the EFT segment price increases, I'm wondering if you could provide more color on the opportunity there?

Michael Brown, Chairman and CEO

Well, similar to what we've mentioned previously, last year four countries either improved interchange or permitted surcharges that were not allowed before. Several countries are currently discussing both these matters. We can't predict when these discussions will reach a conclusion, but when they do, it can lead to a significant increase in profit. That's what we're monitoring.

Rick Weller, CFO

And let's take a look at the dynamics of this structure in payments world out there. Interchange is at fixed rate kind of a thing as our surcharges in many respects. But look what's happened with the inflationary costs over the last few years, rents up, cash delivery is up, maintenance is up, labor costs are up. If the numbers on the cost side are up across the board, yet we can't just go out and raise the interchange rate. So it's not just us, but banks around the world are feeling this very significantly, and there's a lot of discussions underway on how the banks are going to improve that revenue stream to be able to cover the cost. And so as those discussions take place, we've seen that kind of creep into the picture more and more over the last few years. And those discussions are live and well, we expect that they will continue. So there has to be some rate improvement just to cover the increased costs over the last few years.

Michael Brown, Chairman and CEO

Point is, it isn't just us who wishes these numbers to go up. We're actually in conjunction with the banks as far as our thought process. But with that, I think we're going to end our call today, I want to thank everybody for your time on the call, and I look forward to talking to you next quarter. Thank you.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.